Will Jaypee Infra take off with the Yamuna Expressway?
Munira Dongre 13 September 2010

The Yamuna Expressway is nearing completion. What are the implications for Jaypee Infra, a stock that has been languishing since its listing this year?

Since its listing, the Jaypee Infratech stock has languished between Rs79 and Rs89. With the Yamuna Expressway nearing completion, will its fortunes change? A lot depends on the kind of toll collection it sees and the pace of real-estate development.

Company Description

Jaypee Infratech Limited (JIL) was incorporated as a Special Purpose Vehicle for implementation of the 165-km-long 6-lane access-controlled Yamuna Expressway in the state of Uttar Pradesh connecting Noida and Agra. It will also undertake the ribbon development on 6,175 acres at five locations along the expressway for commercial, industrial, institutional, residential, and amusement purposes.

The first 40 kilometres would be located in district Gautam Budh Nagar, passing Noida, Dhankaur, Mirzapur and Jewar, followed by 20 kilometres in district Aligarh, passing Tappal. The following 90 kilometres are planned to be in district Mathura passing Nohjhil, Mat, Raya and Baldev, followed by approximately 15 kilometres in District Agra, with the expressway ending near Etmadpur, a village in District Agra. JIL follows the build-operate-transfer route under which it has the right to earn toll revenue for 36 years after it gets a certificate of completion of the expressway.

SOURCE: Yamuna Expressway Industrial Authority website

JIL has been provided the right to develop 25 million square metres of land across five different locations along the Yamuna Expressway: One in Noida, two locations in District Gautam Budh Nagar (part of NCR) and one location each in District Aligarh and District Agra. Of the total developable area of approx 530 million sq ft, approximately 310 million square feet or 58% is under the NCR region. Its annual report states that JIL has possession of around 3,745 acres of land and is presently developing an aggregate 24.3 million square feet of saleable area across five residential projects and one commercial project at Noida, which were approximately 88% sold as of 31 March 2010.

As of 31st March, JIL has deployed Rs65 billion on the Yamuna Expressway Project which has been met through equity of Rs12.5 billion, debt of Rs43 billion and contribution from real estate of Rs10 billion.

What CLSA and BoA ML say...

In a latest report, leading brokerage CLSA says that the expressway is in its last stages with concreting of 65km (40%) of road complete and trial runs expected to begin in early 2011 (making it motorable). It believes that the superior quality of road will attract traffic from the existing highway and assumes FY12 toll revenue at Rs3 billion.

CLSA believes real estate sales have progressed well at JIL's Noida land parcel with 27 million sq ft of space (out of total saleable area at Noida being 76 million sq ft) sold since April 2009 (with limited price appreciation because of a volume push by JIL and competition in Noida). However, CLSA expects it to recognise revenues from real estate from the September quarter. Basically, 62% of total land for real-estate development is under possession and land for the higher value parcels of Noida and Greater Noida is 93% acquired.

BoA ML expects JIL to recognise Rs21.5 billion from real estate in FY11, Rs32 billion in FY12, and Rs997 million from toll in FY12, Rs3 billion in FY13. CLSA's expectations are much higher - it expects Rs29 billion from real estate in FY11 and Rs47 billion in FY12 and Rs3 billion from toll in FY12 and Rs3.3 billion in FY13.

CLSA believes that JIL will spend Rs37 billion in FY11 on its road construction but is not looking at any substantial investment after that. Therefore, it will turn cash flow positive from FY12 and earn above Rs20 billion in cash over the next few years, leading to a rapid debt repayment. CLSA also hopes for a high dividend payout, which it points out is a rarity in the infra/realty space.

CLSA says that with the toll road near completion the execution risk in the stock will start dropping even if the uncertainty over toll numbers stays. This is because it contributes less than 20% to its NAV (CLSA's calculations) and at Rs84, the stock is trading close to its land value of Rs82/share. CLSA has initiated a 'buy' with target of Rs105/share set at 20% discount to NAV. CLSA's NAV for the stock is Rs131/share. It expects JIL to sell an average of 20 million sq ft of residential area over the next 10 years.

In a late June report, Merrill Lynch had a target of Rs104 which was at a 15% discount to its NAV calculation of Rs122/share. It had said in its report that if the proposed airport along the expressway is approved, NAV would rise by at least 16% since an airport would increase traffic and allow JIL to monetise land parcels.

(This article is based on secondary research. The report is for information only. None of the stock information, data and company information presented herein constitutes a recommendation or solicitation of any offer to buy or sell any securities. Investors must do their own research and due diligence before acting on any security. Some of the opinions expressed in this article are the author's own and may not necessarily represent those of Moneylife).

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