Wednesday, April 15, 2015

Jaiprakash Associates Ltd: Buy in Bulk
CMP: Rs.26.10
You must have seen the recent media news that Jaypee Group is in talks with Heidelberg Cement, and Sajjan Jindal-led JSW Cement, to form a joint venture which will control the majority of its cement plants as part of an ongoing exercise to reduce debt. Jaypee is open to becoming a junior partner in the proposed venture with a 49% shareholding but may even go down to 40% thereby ceding management control and a majority stake, added the report.

As per the report, the rationale behind the exercise, is to significantly bring down Jaypee's consolidated group net debt in one shot.

Moreover, JSW Energy Ltd (JSW) Ltd and Jaiprakash Power Ventures Ltd (JPVL), announced the signing of binding memorandum of understanding (MoU), for the 100% acquisition by JSW of two (1,091 MW Karcham Wangtoo project and the 300 MW Baspa II project from) operational plants of JPVL. 

The sale of the two hydropower plants was part of the Jaypee group’s strategy to reduce debt by selling assets. In the last two years, the group has sold assets worth Rs.21,000 crore.

The Competition Commission of India (CCI) has already approved the sale of two of Jaiprakash Power Venture Ltd.’s hydropower assets to JSW Energy Ltd. JSW Energy had approached anti-trust regulator seeking clearance to complete the Rs.9,700 crore deal with Jaiprakash Power Ventures.

This is expected to have a rub-off effect on the shares of Jaiprakash Associates Ltd, especially when the NSE mid-cap index is near all-time high. 

Meanwhile, the government of India ha approved two electronic chip manufacturing plants in February 2014 at a total cost of Rs.63,410 crore. One plant will be set up by Jaiprakash Associates Ltd, with IBM and Tower Semiconductor of Israel as partners. According government sources, both the consortium are still working on their financial arrangements.

Besides, easing food prices pulled down retail inflation in March to a 3-month low of 5.17% despite unseasonal rains, renewing industry clamour for further cut in RBI policy rate to boost growth.

The World Bank has predicted a GDP growth rate of 8 per cent for India by 2017 and said that a strong expansion in the country, coupled with favourable oil prices, would accelerate the economic growth in South Asia.


In India, GDP growth is expected to accelerate to 7.5 per cent in fiscal year 2015/16. It could reach 8 per cent in FY 2017/18, on the back of significant acceleration of investment growth to 12 per cent during FY 2016-FY 2018, the bank said in its semi-annual report.

Now, with the interest rate on a downward trajectory, power tariffs remaining attractive in power-starved Northern and Southern India until FY17 and the coal costs being benign, the shares of Jaiprakash Associates Ltd (Rs.26.10) and Jaiprakash Power Ventures Ltd (Rs.10.82) are expected to move upwards, steadily. The investors are therefore, suggested to buy the stocks of the company at the CMP of Rs.26.10 and keep holding. 
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