Jaypee Infratech, a subsidiary of Jaiprakash Associates, was set up to develop, operate and maintain the 165-km, six-lane Yamuna Expressway connecting Noida and Agra in Uttar Pradesh. The project is estimated to cost Rs 9,740 crore, of which Rs 6,250 has been spent till February 2010.
A part of the funds (Rs 1,500 crore) is proposed to be raised through an initial public offering (IPO) while the remaining will be cash generated from associated real estate development and debt.
The project is expected to be commissioned by July 2011 and earn revenues in the form of toll for 36 years.
Considering the huge cost of construction, mere collection of toll may not help recover the investments. According to estimates of Abhinav Bhandari, analyst, Elara Capital, the project will generate negative net present value (NPV) of about Rs 2,220 crore. The company will need to earn Rs 270 crore per year to recover just the initial investment. However, a lot will depend on flow of traffic and toll charges. According to the company, the average one-way toll will be about Rs 250, or Rs 1.50 per km.
| REAL-TY GAINS Land bank | |
| Location | In acres |
| Noida | 1,235 |
| Jaganpur | 1,235 |
| Mirzapur | 1,235 |
| Tappal | 1,235 |
| Agra | 1,235 |
| Total | 6,175 |
| Develop. Area (mn sq ft) | 520 |
Huge land bank
The company has the right to develop 6,175 acres (520 million sq ft) along the expressway at five locations, or 1,235 acres each for residential, commercial, amusement, industrial and institutional purposes
It has already sold 21.3 million sq ft at an average rate of Rs 2,967 per sq ft. At a selling price of Rs 3,000 per sq ft and Rs 1,500 per sq ft construction cost, the operating profit works out to Rs 78,000 crore. However, this amount will accrue only over the next 10-12 years. Also, the cash flow will depend on future real estate prices and cost of construction. Besides, some land parcels in the interiors and less developed towns and cities may not yield the same kind of pricing due to low affordability in these areas.
| JP Infra IPO | ||||
| In Rs crore | FY08 | FY09 | 9M FY10 | FY10 * |
| Sales | 1 | 556 | 533 | 711 |
| Net profit | -11 | 267 | 399 | 532 |
| Net worth | 954 | 1,245 | 1,904 | 4,189 |
| BV (Rs) | 7.0 | 10.6 | 16.3 | 30.7 |
| P/BV (x) | 16.8 | 11.0 | 7.2 | 3.8 |
| EPS (Rs) | -0.1 | 2.0 | 2.9 | 3.9 |
| PE (x) | NA | 59.9 | 40.1 | 30.1 |
| * Figures based on annualised 9 months performance of FY10, wherein networth, Book value (BV) & EPS are based on post IPO capital PE and P/BV ratios are based on upper price band of Rs 117 per share | ||||
Conclusion
Over a longer period of time, the company’s real estate business will be the key growth driver. On the sum-of-the-parts (SOTP) basis, analysts value Jaypee Infratech at Rs 18,000-19,000 crore.
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At the IPO price of Rs 102-117 per share, the market capitalisation of the company works out to Rs 13,933-15,982 crore, 15-30 per cent lower than the SOTP value.
While retail investors are being given a discount of five per cent on the allotment price, existing listed real estate companies are trading at a discount to their respective estimated NPVs.
In this context, analysts suggest Jaypee Infratech’s valuations are marginally on the higher side. Thus, only investors with a long-term view should subscribe to this offer.