Monday, April 26, 2010

IPO ANALYSIS: JAYPEE INFRATECH LIMITED – UPHILL ROAD - AVOID

Jaypee group promoted infrastructure development company is entering the capital market with an IPO. The issue consists of fresh issue of equity shares of Rs 10 face value amounting to Rs 1650.00cr and Offer for sale of 6cr equity shares in the price band of Rs 102-117. The issue opens on 29-04-10 and closes on 04-05-10.

Morgan Stanley India Company, DSP Merrill Lynch Limited, Axis Bank Limited and Enam Securities Private Limited are the BRLMs.

BUSINESS

Jaypee Infratech Limited is an infrastructure development company engaged in the development of the Yamuna Expressway and related real estate projects. The Company, which is part of the Jaypee Group, was incorporated on April 5, 2007 as a special purpose company to implement the Concession. The company holds permission to concession develop, operate and maintain the Yamuna Expressway in the state of Uttar Pradesh, connecting Noida and Agra. The Concession also provides for the right to develop 25 million square metres of land along the Yamuna Expressway at five locations for residential, commercial, amusement, industrial and institutional purposes. The business model consists of earning revenues from traffic and related facilities on the expressway during the 36-year Concession period and development of associated real estate pursuant to the Concession

The company is developing the Yamuna Expressway, which is a 165-kilometre access-controlled six-lane concrete pavement expressway along the Yamuna river, with the potential to be widened to an eight-lane expressway. The expressway will be entirely in the state of Uttar Pradesh. At the end of the Concession period, the expressway will be transferred to the government without any payment under the terms of the Concession Agreement.


FINANCIALS:

For the year 09, the company earned a profit of Rs 266.73cr, as against the loss reported for the year-08. For the half-year 09, the company reported a net profit of Rs 10 lacs on the total income of Rs 27.64cr.

RISKS AND CONCERN

The company’s sole business is development of the Yamuna Expressway Project pursuant to the Concession Agreement. Following the Concession period, which will expire 36 years after the award of the certificate of completion for the Yamuna Expressway, the Yamuna Expressway will be transferred to the government.

Furthermore, pursuant to the Concession Agreement, if construction of the expressway is not completed by April 2013 or within such extended period as may be approved by the YEA, the Concession period may be shorter than 36 years, in which case the aggregate toll revenues would suffer a corresponding reduction.

Expressway faces high market risk given the competition from the existing National Highway 2(NH2),although this is not significant given that ICRA expects that profit from sale of real estate will be the key revenue driver for the company. Out of the five land parcels available to JIL, the land parcels in Noida and Greater Noida have high marketability. So far the company has received a satisfactory response to its real estate launches in Noida, however, achieving similar sales on a sustained basis over the long term can prove to be challenging. This is particularly so given the sizeable developable space that JIL plans to sell (58 million square feet in Noida and 87 million square feet in Greater Noida). In addition, the company faces competition from numerous other players which have sizable real estate development plans in Noida and Greater Noida. Apart from the Noida and Greater Noida land parcels, the Concession Agreement (CA) also provides JIL rights for development of similar land parcels in Mirzapur, Tappal and Agra. The market risks for these land parcels are higher given the low current demand and lack of adequate physical and social infrastructure in these areas. Going forward, timely completion of the expressway and delivery of existing real estate projects would be crucial for sustained real estate sales.


RECOMMENDATIONS - Investors are advised to stay away from the issue, since there may not be any listing gains, considering long gestation period and the risks associated with the project,particularly uncertain revenue generation.

3 comments:

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  2. dear sir ,

    if i would have followed you .i would have saved lakhs of rupee.DEAR SIR YOU ARE GOD FOR ME.PLEASE DONT STOP WRITING BLOG NEVER EVER

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