JP Associates: Shareholders upset

THE COMPASS

Even after the Satyam incident, managements, it would seem, are not too concerned about what their shareholders feel. In another instance of a group company being valued expensively, JP Associates has announced a merger of JP Enterprises — in which the promoters are understood to have a stake of nearly 88 per cent — with itself.

Little is known about JP Enterprises and analysts believe the merger ratio, by which every share of JP Enterprises will fetch three shares of JP Associates, is in favour of JP Enterprises.The merger ratio implies an outflow of approximately Rs 700 crore from JP Associates, for a company that reportedly earned a net profit of only Rs 25.2 crore in 2007-08.

Analysts are questioning how JP Enterprises is being valued at a trailing price-earnings (P/E) multiple of approximately 28 times when JP Associates, which earned a profit after tax of Rs 610 crore in 2008-09, itself trades at around 16 times.

Shareholders were obviously not thrilled with the announcement.The JP Associates stock ended Tuesday’s trading session 10 per cent lower at Rs 78.35.

JP Hotels, a listed firm, in which JPA owns 72.15 per cent, is also being merged with JP Associates in the ratio of 1:1. JP Hotels earned a net profit of Rs 17.5 crore on revenues of Rs 167 crore in 2008-09. The merger of the two 100 per cent subsidiaries — Jaypee Cement and Gujarat Anjan Cement will not affect the earnings. Overall, the equity dilution for JP Associates would be around 8 per cent, which is not too high.