Jaiprakash Associates: Unrelated Expansions amid Cash Crunch??!!

Photo: Flowing Health GmbH

The company, that is predominantly into cement production, construction and real estate development, entered agriculture-related and hospitals businesses writes R. Sree Ram on Live Mint, 23 September, 2014:

Jaiprakash Associates Ltd’s expansion into unrelated businesses is puzzling analysts. The company, which is predominantly into cement production, construction and real estate development, entered agriculture-related and hospitals businesses. It is building a 1,200-bed hospital near Noida. Under the agriculture-related initiatives, the company has set up a soya and mustard processing plant in Madhya Pradesh. It participated as a strategic investor in the rehabilitation scheme of fertilizer manufacturer Duncans Industries Ltd. To revamp the manufacturing plants, Jaiprakash Associates-controlled firms incurred a capital expenditure of Rs.911 crore.
 The company also launched a dairy project under which it plans to build a milk processing unit and launch its own brand of dairy products. Apart from all this, the company is exploring the opportunity of setting up a semiconductor fabrication facility. To be sure, the initiatives may be lucrative. But what is intriguing is the diversification is happening amidst a funds crunch.

According to the media reports, Jaiprakash Associates Ltd has been compelled to sell quality assets in its core businesses at distress prices, in order to pare debt. But what is perplexing is the company’s continued investments in unrelated businesses—healthcare plans, entry in fertilizers and plans to set up semi-conductor plant in India.

Now, the question is: at what price, some of its core assets are really being sold? Is it another Essar Shipping case? Also, if there is so much debt on the books, then how come such expansions continue? Is the balance sheet real or window dressed to cut taxes? Only time will be able to answer that......