Kotak Securities upgrades JP Associates to 'Buy'; raises target price

Kotak Securities upgraded cement manufaturer Jaiprakash Associates to 'Buy' and increased its target price to Rs 87 (from Rs 83 earlier) on hopes of "decent upsides" following capacity additions and lower costs from demerging of cement assets. The analysts said that at current prices the stock trades at 20.6x P/E on FY13 estimates.

"Expanded capacity of company stood at 33.3MT including capacities set up in JVs. It is also expanding its capacity by 2.75MT with 1 MT in central zone and 1.75MT in UP zone which would get operational during FY13. Thus expanded capacity of the company would stand at 36 MT," Kotak analysts said in a note.

"We have incorporated demerged cement assets in our financials and correspondingly we have factored in valuations separately for JP Associates standalone cement capacity and Jaypee Cement Corporation Limited (JCCL)," the note added.

Shares of JP Associates traded 0.7% up at Rs 67.85 on NSE at 11:52 AM on Tuesday.

The company also expects to see "healthy" traction from its real estate projects, the Kotak note said.

Even as the demerged cement assets reduce income estimates, the report said that it also reduces costs such as interest costs.

"We tweak our FY13 estimates to factor in annual report details and also to factor in demerged cement assets. Correspondingly our revenue estimates stand reduced. However with corresponding decline in interest and depreciation charges also, out net profit estimates get marginally enhanced," the report said.