Asset monetization gaining speed
The analysts are uncertain about monetization of the assets. The JP Associates has surprised the Street with over four asset monetisation (sale) deals over the past 12 months. Thanks to these deals, the company is able to reduce its debt by Rs 15,940 crore. Before this the JP associates announced a deal involving sale of its hydropower assets for an enterprise value of Rs 10,500 crore.
The sale and transfer of associated debt of these assets should improve JP’s debt-equity ratio as well as enhance liquidity for the remaining businesses. As a result of this deal, the analyst are estimating JP’s interest cover ratio, after falling from 1.2 times in FY13 to 0.9 times in FY14, it is seen improving to 1.1 in FY15.
Kotak securities say that the company’s potential to convert its white elephants into cash cows remains its hope for survival and a leveraged balance sheet will have a corresponding windfall for equity holders.
As of now, the organization is sitting on a big asset base and many of this property are to non-core and contribute very less to the profitability. This is the reason that its sales turnover to assets ratio is one of the lowest in the infra industry at 0.2 times implying very low utilization.
Bokaro unit sale
At the same time, the street is happy that some of these assets are getting sold and at attractive price. The Bokaro-based 2.1-million-tonne cement plant was utilizing 59 percent of its capability and it provided revenue of Rs 630 crore with a profit of Rs140 crore.
Kotak security say that as the deal is small when compared with Rs 63,100 crore debt of JP, it helps in right sizing the balance sheet in making away less productive assets.
With this deal the company is able to decrease its debt by about Rs 1,000 crore which helps to save nearly Rs 120-140 crore annually in interest rates.
An analyst says that they believe that JP Associates has able to negotiate for a best deal for this grinding unit. They expected the transaction to happen at an EV of $70-75 a ton.
Mr. Shirish Rane, who tracks the company at IDFC, says that the value is attractive and is at a significant premium to modification cost $50-55 a tonne for a greenfield grinding plant.
The way forward
Mr. Rane says that they expect that the process of reducing debts through the sales of more cement capacities and thermal power plants. The company has cement capacity of nearly 33 million tones which can be valued nearly Rs 26,000 crore. The list is very long and consists of real estate, hospitality, infra assets, etc. An improvement in economic conditions will help to increase JP’s fortune and the valuation of its property.
Source: The Business Standard
Assets, Bokaro, Bokaro-based 2.1-million-tonne cement plant, Cement plant, Debt, Debt equity ratio, Enterprise, four asset monetisation, Hydropower assets, IDFC, improvement in economic conditions, JP Associates, Kotak security, monetization of the assets, Shirish Rane, Thermal power plants
