Jaypee Infratech

The stock of Jaypee Infratech could be a dark horse play on the infrastructure and real estate segments in the northern region of the country. Investors with a penchant for risk can consider investing in the stock with a 2-3 year perspective.



The current market price of Rs 88 discounts the company's estimated per share earnings for FY-11 by 10 times, placing it at a steep discount to listed road developers as well as real estate players. The stock trades 13 per cent below its offer price.

The company has already made significant progress on its 165-km Yamuna Expressway. A key uncertainty for the project has recently been removed with a Supreme Court order upholding the UP Government's land acquisition policy.

Backed by the experience of its parent Jaiprakash Associates, which is executing the contract work, Jaypee Infratech expects the expressway to be completed before the end of 2011, way ahead of the scheduled date of April 2013.

This project, connecting Noida to Agra, allows Jaypee to collect tolls for 36 years besides giving it developments rights for 6,175 acres alongside the expressway. That the real estate component has been bundled with the road project is a positive aspect of the deal, as any dip in toll revenues can be compensated by the real estate segment, even if it means selling plots.

The six-lane access controlled single-state expressway is however, expected to attract traffic for the following reasons.

One, the expressway operates in a single State and avoiding inter-State hassles involved especially for commercial traffic. It also touches a number of tourist destinations such as Mathura and Vrindavan besides Agra.

Two, while there is an existing four-lane national highway (NH2), the Yamuna Expressway is expected to reduce average travel time by two hours compared with the former.

Three, the existing NH2 would be tolled soon, as six-laning of the route has been awarded to a private player.

This, together with the fact that it would pass through three States thus invoking octroi charges, would increase the cost of travelling in NH2. These factors may induce higher usage of the Yamuna Expressway.

The roadway in turn could spur real estate activity. Given the low cost of land allotted for real estate purposes, Jaypee Infratech has the leeway to price its real estate developments aggressively.

The company sold 21 million sq. ft. in the NCR region in FY-10, stated to be the highest volume sold in NCR by a player in a single year. With 90 per cent of the launches sold, the company appears to be on a strong wicket.

For the June quarter, the company's revenue, mostly from selling plots, was Rs 597 crore and net profit at Rs 395 crore; almost matching the full's year's numbers for FY-10. The company's gearing at 1.98 times, though not comfortable, may decline once the road is operational. Until then, cash flows from real estate can be expected to provide support.

via BL