Jaiprakash Associates has been hit by a fine of Rs 100 crore, imposed by the Himachal Pradesh High court for violating environmental laws. Further, the company has not been given permission for setting up a 62 mw captive power plant for its cement division. As a result, the stock has fallen by over 5% and currently trades at Rs 67.50.
The stock has had an inverted-V run on the bourses in 2012. The huge upsurge in the early part of the year was partly due to expectations of interest rate cuts leading to a rally in front line stocks (including JPA), which soon corrected as RBI did not guarantee any further rate cuts in the recent policy and bottlenecks to execution of infrastructure projects besides slowdown worries continue.
Starting from Rs 50-levels in January 2012, the stock reached close to Rs 90-levels in April but is back below Rs 70-levels. Year- to-date returns have come down from over 50% in April to 28% now.
At the present price levels, the stock trades at 10 times its financial year 2013 earning per share. However, there has been no fundamental change in business prospects and concerns continue.
Progress of the stalled 1047 kilometer Ganga Expressway Project is a long term positive. According to media reports, the new Uttar Pradesh Government (Samajwadi Party) has decided to go ahead with the project earlier proposed by BSP and is seeking Ministry of Environment and Forest nod for the project. But it is too early to celebrate given the project’s nascent stage.
Moreover, it will bring higher debt burden with expected consolidated gearing of over 4 times in FY12.
In March 2012 quarter, the company is expected to record strong topline growth of 19.4% helped by commissioning of capacity in the cement division and high realisations. However growth in operating profit is expected to lag (10%) while net profit is likely to decline by 25% due to higher overhead costs and interest burden.