JP Associates is ‘buy on dips’ even after CRH deal fallout: Brokerages

NEW DELHI: The fallout of the deal with the Irish company CRH put JP Associates in a tough spot, as the stock has already rallied over 20 per cent since July in anticipation of the deal.

However, various brokerages are of the view that although the deal fallout is negative for the stock, but it is still attractive as company remains on-track for de-leveraging its assets.

Bank of America-Merrill Lynch maintains a ‘buy’ rating with a price target of Rs 112 on JP Associates despite stake sale talks failing with CRH. The brokerage recommends using stock price correction as opportunity to buy the stock.

BofA-ML expects the company to remain on track for de-leveraging led by improving cash flows irrespective of the deal failure. The brokerage expects other players are in fray to buyout stake in JP cement corp.

On Tuesday, CRH refused to acquire 51 per cent stake in JP Associates Gujarat cement plant. The company was planning to raise Rs 1200 crore from this sale. As per CRH, they were not able to come to an agreement regarding the terms of the purchase.

The assets under sale are in Gujarat having a grinding capacity of 4.8mtpa and clinker capacity of 3.6mtpa.

“Gujarat Cement divestment is on course and the CRH deal put off only reveals better options which have emerged for the company,” Manoj Gaur, Executive Chairman of the Jaypee Group told ET NOW.

Prakash Diwan, Chief Portfolio Strategist, Prakash Diwan's Wealth Circle is of the view that the effort will continue from the management side to divest its stake in Gujarat Cement.

Also, if you have an interest rate cut in end October itself it will be a positive EPS accretive impact for JP Associates. We are positive on the stock and it is definitely buy on dips., he added.

According to analysts the company remains on-track for de-leveraging led by improving fixed cash flows (irrespective of the deal), while its assets are compelling for suitors.

Reduction of debt via a transaction in the cement segment has been one of the key catalysts for the stock.

According to JPMorgan Lafarge, Holcim, and UltraTech were some of the other suitors for JPA’s Gujarat assets. If the deal would have went though, it would have resulted in an equity infusion of Rs1100-1200 crore and would have helped in debt reduction (FY12 standalone debt Rs 21000 crore and D/E ratio of 1.7x.