Jaypee shares tank 9% on debt concerns

Analysts are worried about its weak numbers, driven primarily by an 84% drop in revenue from its real estate business

Shares of Jaiprakash Associates fell by 9.2 per cent on Wednesday, with worried investors dumping the company’s shares due to lack of clarity on reduction of its Rs 60,000 crore debt and a slowing in its real estate business.

The company’s shares closed at Rs 53.55 each, with most brokerages giving a ‘sell’ call on the company. Analysts are worried about its weak numbers, driven primarily by an 84 per cent drop in revenue from its real estate business, and construction revenue in the June quarter. The listed subsidiaries had their share of disappointments, with sharp drops in net income for the June quarter.

“The current market price factors in an optimistic recovery, failing which leverage might haunt financial performance once again,” says an analyst with Kotak Institutional Research.

It said Jaiprakash “remained a highly leveraged bet on strong earnings revival, even as our earnings estimate factor in an optimistic recovery in earnings” from the cement business, sustenance of construction revenues and ramp-up of new capacities under Jaiprakash Power Ventures. “We have revised our earnings estimates for FY2015 and 2016 downwards by 19 per cent and 22 per cent, respectively, primarily factoring in lower earnings from the standalone real estate business, as well as higher interest costs,” the report said.  On Tuesday, Jaypee announced a 12 per cent quarter on quarter fall in revenue to Rs 3,030 crore. Its net loss was Rs 80 crore, mainly due to a slowing in its real estate business.

The downgrades do not take into account the sale of hydro power projects to Reliance Power, expected to bring down Jaypee’s debt by Rs 12,000 crore. Both Reliance and Jaypee have not announced the deal details but the transaction is expected to close by year-end.