JP Associates: Street waiting for the axe effect

JP Associates is looking to monetise assets to retire its spiralling debt and the sale of the business could be crucial for its profitability and the stock's re-rating

With hopes of a cement business deal getting concluded soon, Jaiprakash Associates (JP Associates) surged 10 per cent to Rs 33.3 a share on Thursday compared to two per cent rise in the benchmark indices S&P BSE Sensex and the CNX Nifty.

Though there have been rumours of the company closing the deal soon, the delay has been due to the valuation of the cement business, reports suggest. The company is looking to monetise assets to retire its spiralling debt and the sale of the business could be crucial for its profitability and the stock’s re-rating. Calls to a company official were not taken.

Reports said the company was in talks with UltraTech Cement to sell its 4.8-million-tonne (mt) cement plant in Gujarat. JP was earlier expecting this business to be valued at an enterprise value a tonne (EV/tonne) of $140–150. However, the deal is expected to close at $125-128 EV/tonne, which could see Rs 3,840 crore flow in at the current exchange rate level. This plant accounts for Rs 1,800 crore of debt.

Analysts say the sale could have a positive rub-off on its remaining cement capacity, 30 mt, enterprise value, $110 a tonne.

Debt reduction
The company has drawn plans to cut debt by Rs 6,000–7,000 crore from its net consolidated debt of Rs 60,284 crore and a net debt to equity of 4.8 times.

It is looking to sell part of its land parcel, treasury stocks and stake in Jaypee Infratech through the offer-for-sale route. Even if it could cut debt of Rs 6,000–7,000 crore, assuming a 12-13 per cent interest, it would mean a saving of Rs 800-900 crore. This is 19 per cent of its annual interest cost of Rs 4,661 crore in FY13.

Importantly, this saving is two times its annual net profit of Rs 420 crore in FY13, which means a positive impact on profits and better overall valuations. No wonder, the Street is eagerly waiting for the news of asset monetisation.