Jaiprakash Associates: Construction blues

Buoyed by a 60 per cent and 40 per cent jump in revenues year-on-year in its two largest businesses, cement and construction respectively, Jaiprakash Associates recorded a 53 per cent increase in net sales to Rs 1,824 crore in the September 2009 quarter. While cement despatches were robust and contributed nearly 43 per cent to the revenues, the management says that construction revenues were impacted by the monsoons with Q2 being a softer quarter.

While the company has achieved revenues of Rs 3,900 crore for the first half of 2009-10, it is targeting revenues of Rs 10,000 crore for the full year with nearly half coming from the engineering/construction segment. The dip in operating profit margins by about 443 basis points year-on-year to 25 per cent stems from the construction as well as cement division says an analyst. A majority of this dip was on account of a 1,300 basis points fall in EBIT margins of the construction business to 20 per cent. The cement division though fared better with EBIT margins up a shade. The company is planning to increase its cement capacity by 56 per cent to 23 million tonnes per annum at the end of the current fiscal.

The management says that the commissioning of new cement capacities and the increase in interest (up 132 per cent year-on-year) and depreciation (up 56 per cent) impacted the bottom line in the September quarter. Adjusted for one-time treasury gains from the sale of company shares amounting to Rs 941 crore, net profit for the quarter fell nearly 43 per cent year-on-year to Rs 116 crore. The company raised about Rs 1,316 crore in the first half of FY10 from sale of shares and would use it to fund its power projects in UP. The massive drop in core profit was not lost to the market, which slammed the stock down by 7 per cent to Rs 238.20 on Thursday. The declaration of a bonus issue of one share for two shares held did not help matters. The sum-of-a-part valuation for the company pegged at Rs 210-231 suggests that the stock price has run up ahead of fair valuations.