Jaypee Infratech - Expressway To Prosperity

Jaypee Infratech – IPO Analysis                     Buy

With the markets continuing to sustain the current levels, the big-ticket IPOs continue to pour in the primary markets to fund their expansion plans. In fact, it’s just not the size of the issue but also the different business models they bring to the table for the investors. Here is one such unique business proposition from the Jaypee Group in the form of Jaypee Infratech, which brings infrastructure development-cum-real estate story to the table for the investors. The issue is a combination of fresh issue amounting to Rs 1650 crore to be used to part-finance the Yamuna Expressway Project and an offer for sale of 6 crore equity shares. Considering the price band of Rs 102-117, Jaiprakash Associates (promoters) would take home Rs 612-702 crore.

Promoted by Jaiprakash Associates, Jaypee Infratech holds the concession from the Yamuna Expressway Development Authority (YEA) to develop, operate and maintain the 165-kilometre six-lane concrete expressway along the Yamuna River in the state of Uttar Pradesh, connecting Noida and Agra. JIL would require approximately 4042 acre of land for the expressway and it already has a possession of around 3897 acre as of March 31, 2010. JIL, which has the right to earn toll revenue for a period of 36 years, is expected to complete the project by March 2011, way ahead of its scheduled deadline of April 2013.

If that was not enough, the concession also provides JIL the right to develop approximately 6175 acre of land along the Yamuna Expressway at five locations (of 1235 acre each), which include one in Noida, two in district Gautam Budh Nagar, while one location in each of district Aligarh and district Agra. These projects will include projects of residential, commercial, amusement, industrial and institutional purposes. The total cost of the project is Rs 9739.29 crore, which is being financed through debt, promoter contribution, inflows from real estate development and last but not the least, the IPO proceeds. As on February 28, 2010, around Rs 6250 crore have already been infused in the project.

While today many might be seeing JIL mainly as an infrastructure company with a real estate play attached to it, we believe that it would be the real estate development along the Yamuna Expressway that would be driving the future growth for JIL. The company has 55 per cent of the land for real estate projects located in the National Capital Region (NCR). Thus, there is a location advantage, which will benefit JIL in the coming years. In fact, the company is aggressively looking forward to sell at least around 15 million sq ft every year with a total saleable area of 550 million sq ft. Already JIL’s Noida project has received a good response, where the company claims that nearly 21.42 million sq ft or 88 per cent area of its project is already sold. If this number is anything to go by, then we could see brisk growth from the real estate segment in the coming years. Besides, what could also stimulate demand for JIL’s real estate, is the connectivity, improving further with the proposed Taj International Hub Airport and recent expansion of Delhi metro to Noida. That apart, it should also be noted that Jaypee Infratech belongs to the strong Jaypee group, which has proven execution capabilities in diverse businesses over the years.

Coming to the financials, the company’s revenues stood at Rs 533.01 crore in 9MFY09, based on the sale of undeveloped land and developed commercial plots. The profits during the same period stood at Rs 398.85 crore. On the valuation front, we believe the fair value of the infrastructure segment comes to around Rs 38 per share, while that of the real estate comes to around Rs 101 per share, taking the total fair value per share at Rs 139. Thus, there exists a value gap, considering JIL’s price band is at Rs 102-117. Besides, an added sweetener here is that the retail investors would get a 5 per cent discount on the issue price. Hence, the JIL issue looks attractive and investors can subscribe to the issue and one can expect listing gain as well.

ShareholdingPattern	Pre Issue	Post issue
Promoters	99.1	79.77
Others	0.9	0.77
Public	0.37	19.46
Total	100	100

ISSUE INFORMATION	Rating 50
Issue Opens On	29-Apr-10
Issue Closes On	4-May-10
Fresh Issue size	Rs 1650 crore
Fresh issue shares	~ 16.18-14.10 crore equity shares
Offer for Sale	6 crore equity shares
Total Issue size	~ 22.18 -20.1 crore equity shares
Price Band(Rs)	Rs 102-117
Issue route	Book Building
Promoters	Jaiprakash Associates
Post issue Equity	144.78 - 142.7 crore equity shares
Minimum Bid	NA
Lead managers	Morgan Stanley, BofA Merrill Lynch, Axis, Enam
Listing	BSE, NSE
QIB Portion	60 percent of equity shares
Retail Portion	30 percent of equity shares
Non Institutional Portion	10 percent of equity shares

Financials (FY09)	Jaypee Infratech	IRB Infra
Total Income	556.25	1021.48
Operating Expenses	252.65	554.49
Operating Profit	303.60	466.99
Interest	13.90	137.66
Net Profit	266.73	177.17