Jaiprakash Associates’ performance in the March 2013 quarter was lacklustre due to fewer construction projects and a fall in cement volumes, besides high debt, which has been a drag on it for a few quarters. JP Associates has a consolidated debt of Rs 55,000 crore .
The management’s decision to put on hold further expansion indicates its debt has reached a peak. The company at present has just two power plant under construction, which are expected to be commissioned by FY15 . The company will see cash flow generation from the expansion. In addition, the management’s intention to reduce debt by Rs 5,000 crore through stake sale would reduce interest expense. While many infrastructure companies are looking to divest stake, JP Associates may find it easy because most of its projects are operational.
However, the company’s decision to refrain from further expansion would lead to lower revenues from the construction segment. In FY13, it contributed nearly 23% to the total revenues. Besides, with lower construction activity across the industry, the company will find it difficult to secure external orders.
The March quarter results had no major surprises. Revenues from the construction segment declined by 14% to Rs 1,533 crore. In addition, a higher share of low-margin order led to a drop in operating margin to 19.1% from 23.9% in same period last year. In the cement segment, the company saw a marginal 3% fall in revenues. It is one of the few companies in the sector to improve realizations on a sequential basis.
Despite a fall in cement volumes, an improved realisation helped the company improve its operating margins by 110 basis points to 13.7%. However, it is the real estate segment that helped the company post meaningful earnings. Revenues from the segment grew by a robust 14% y-o-y to Rs 641 crore due to a pickup in bookings.
Going forward, as construction segment revenues come down, real estate division will be the key driver for revenue growth for the company. It is estimated that, at the consolidated level, the company has nearly 500 million square feet of saleable real estate area.