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Friday, October 3, 2008

Jaiprakash Associates - Why it has been hammered in stock market?

Introduction
Jaiprakash Associate is one of the leading company of J.P Associate , headed by Mr. J.P Gaur.
The stock has not only been favorite among the domestic traders & investors but it has also always been on the top listing on Mutual funds holding and as well as the FII's holding. These stock has been considered as the blue chip fixed deposit compatible stock giving a steady return , bonus , and handsome dividend from time to time. On basis of track record of the performance of the company , the traders has given a overwhelmed response to the listing of its' sister concern Jaiprakash Hydro Power with the expectation of the repetition of history.

Financials of the company
The first quarter performance for the current fiscal ended 30th June 2008 indicates that of the net sales of Rs.1148.71 crore, of which 51% came from cement and cement products. There is no doubt that over the next 12-15 months, there would be a fall in cement realizations. And this is a situation in which the company will have to not survive but succeed.

The Q1FY09 performance as such shows a pressure on margins. OPM, on a YoY was down from 34.20% to 30.61% while NPM slipped from 15.10% to 11.08%. This is despite realizations going up by around 1.7% but gives a rising operating and interest costs.

Why Stock Has Been Butchered ?
The main cause behind the favorite stock being beaten so badly has been a “loss of faith” amongst the investors.Which occur due to several reasons.

1. Stock has shown a severe fall suddenly , this was because as FII was having a highest stake in this company and when started booking profit in Indian Market , J.P Associate was the most affected one.

2. The stock became the toast of the street after it was learnt that its subsidiary had won the multi billion dollar Taj Expressway project but soon it came to light that JP Associates had just a 55% stake in its subsidiary - JP Infratech, through whom the Taj Expressway is to be executed. Investors had “assumed” that JP Infratech was a 100% subsidiary and they felt cheated on knowing that promoters held 45%stake and not JP Associates. Later the promoters did damage control and the vice chairman went online stating that JP Associates would own the entire 100% stake in JP Infratech. But the stock failed to recover and since then has been languishing.

3.In present times there is a dislike for any realty/construction company.

4. The market is not so convinced about the company’s idea to set up a new cement plant. The company announced plans to invest Rs 3,000 crore over the next four years to create new capacities and expand the existing capacities of cement and cement products. It currently has four units and the present capacity is 7 million tpa which it plans to increase to about 18 mtpa over the next 4 years. As such cement industry is expected to go through some situation of oversupply and this addition of capacity has got the market men worried.

Positive Points In the Company
1. The good part is that the company has other divisions too – power, construction, realty, hotel/hospitality

2. It also has coal mining.

3. In its construction unit, it is executing a 4,290 MW hydro power project

4. The order book stands at around Rs 12,000 crore , which is good.

Summary
As the group and the company both remains under the embark of quality service , diversification in business , good track record in performance of the company , a nice future having involved in infrastructure work and last but not the least the shareholder has always been rewarded so it could be judged that at current times fresh stake should not be taken but whenever market makes a bottom and we see a fresh entry from foreign investors definitely this stock is going to re perform.Though restoration of faith would take a while, especially in the current market conditions

Also Read: Jaiprakash Associates-Investment Pick
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