Jaypee Infratech IPO

 

 

IPO details

Price Band: Rs 102 - 117
issue size: Rs 2262-2352 crore
Date: April 29 May 4

 

JAYPEE Group-promoted Jaypee Infratech is coming out with its initial public offer of around 20 crore shares of the face value of Rs 10 each. This includes offer of sale of six crore shares by Jaipraksah Associates, the promoter company. The issue is being made through a 100% book building process in the price band of Rs 102 to Rs 117 per share. The company offers a 5% discount to retail investors whose bid amount doesn't exceed Rs 1 lakh. The issue represents nearly 15% of the post-IPO equity capital of the company and the promoter's stake in the company will decline to around 85% after the issue. It is targeting to raise a fresh capital of Rs 1,650 crore through the issue of fresh shares. Nearly 90% of the proceeds will be utilised to fund the construction of Yamuna Expressway Project linking Greater Noida with Agra. The balance will be used for general corporate purpose and meeting the issue expenses. As part of the project, the company is also developing five townships on either side of the expressway with a total land area of 6,000 acre. As revenues from toll from the 165-km expressway scheduled to be completed in 2013, it will form a minor part of its revenues and profitability. As such, it's the best to benchmark the issue against the leading listed realty players. At upper-band of the offer price, the issue is priced at around 30 times its annualised net profit in the first nine months of FY10 and a little over 4 times the company's post-IPO book value per share. This is expensive compared to the current valuation of larger peers, such as DLF and Unitech. As such conservative investors can give the issue a miss. However, risk-loving investors can consider investing in the issue.

BUSINESS:

Jaypee Infratech was incorporated in 2007 as special purpose vehicle (SPV) to develop, operate and maintain 165-km long Yamuna Expressway connecting Noida and Agra. The concession agreement with the Uttar Pradesh also provides for the right to develop 25 million sq mt (approx. 6,175 acre of land) along the expressway at five locations for residential, commercial, amusement, industrial and institutional purposes. The revenue model consists of toll-revenue from the expressway and development of fivetownships along the highway. The concession period is 36 years for the expressway from the date of its commissioning while the land parcels have been given to the company on a 90-year lease. It plans to develop a 450-bed hospital, an engineering college, a medical college and 20 schools in each of the townships and these will be run on commercial basis. The total project cost of the six-lane concrete highway is estimated to be around Rs 9,739 crore that is being fund through a mix of debt and equity. Out of this, the company has already invested around Rs 6,500 crore consisting of Rs 1,250 crore of equity, Rs 4,440 crore of debt and Rs 956 crore from sale of associated real estate. In all, the company has sold 21.3 million sq ft of developed area valued at Rs 6,320 crore. Of this, the company has collected Rs 1,732 crore so far, and rest will come as it completes construction. In all, the firm can develop total saleable area of 530 million sq ft, of which 311 meter sq ft falls under NCR. The Yamuna Expressway will create an alternate link between Delhi/NCR and Agra and will compete with NH-2. The current traffic on NH-2 is estimated to be around 40,000 passenger car units (PCU) per day. The Yamuna Expressway is estimated to yield a toll revenue of Rs 500 crore in the first full-year of operation assuming traffic density of 50,000 PCU per day and initial toll rate of Rs 1.80 per PCU/km. This is likely to be over shadowed by company's revenue from realty sales and user-fee from the common facilities.

FINANCES:

In the first nine months of FY10, the company's revenue stood at Rs 533 crore and net profit at Rs 399 crore. Entire revenue was come from the sale of real estate as expressway will take another two years to complete. The operating margin was over 90% in FY10, up from 56% in FY09. It attributed this to very low cost of land acquisition compared to traditional realtors.

VALUATIONS :

Real estate is a risky venture compared to a toll high way business as toll revenue are stable and predictable, revenues from sale of real estate are lumpy in nature and are greatly influenced by external factors, such as interest rates, liquidity in banking systems, market sentiments and the state of the job market. And since realty will form the major part of Jaypee Infratech, valuation will be near to that of a leading realty companies, such as DLF and Unitech. On this account, the issue is expensive than its peers and come with a risk of execution. Conservative and those looking for immediate gains can skip the issue.