JP Associates: Too aggressive

Revenue gains traction on construction, cement businesses, but profitability disappoints.

The results reported by Jaiprakash Associates have clearly not gone down too well with the Street. Since the announcement, the stock has dropped around six per cent, as against a 1.8 per cent decline in the Sensex. According to analysts, while revenues grew 57 per cent in the March quarter due to construction and cement businesses, the company’s real estate revenues and profitability were a drag on operations.

Operating profit grew 8.4 per cent, the lowest in eight quarters, to Rs 853.5 crore. Margins tanked 11.48 per cent to 25.5 per cent as costs almost doubled, mainly due to higher raw material expenses. Even earnings before interest and tax (Ebit) margins in the construction business were down 10 per cent to 20 per cent in the March quarter, thanks to the lower-margin Yamuna BOT (build, operate, transfer) and other road projects.

Ebit for the cement division dropped 600 basis points to 24 per cent on account of a lower-than-expected rise in realisations. The same for the Rs 38.8-crore realty division was one-fourth of the previous year. Analysts reckon these are transitional pains as the company is set on a fast growth track. Such results could emerge only for a couple of quarters, they said.

On a consolidated basis, net profit jumped more than 2.5 times to Rs 1,119 crore, but standalone profit was lower at Rs 1,708 crore. Consolidated financial performance is not as good as the standalone one. This is mainly due to inter-segment operations, like construction for hydro power plants and roads, being executed in-house.

Sale of treasury shares came to the company’s rescue. Adjusted for this, as well as compensation expenses, the company’s net profit would be Rs 123 crore — a third of the previous year’s number. Going ahead, the company will see its cement capacity grow 19 per cent to 25.3 million tonnes and power capacity to 1,700 Mw.

The management expects revenues to cross the Rs 16,000-crore mark. But several analysts consider this a tad optimistic, which explains the pressure on the stock price. Stronger execution and better earnings visibility may cause a re-rating.