Shares of infrastructure firm Jaiprakash Associates Ltd fell by 6.6% on Thursday, the most among shares on the Nifty index of the National Stock Exchange, after disappointing investors with its September quarter results.
The company announced a bonus issue of one share for every two held, but this hardly made up for the disappointment over lower operating profit margin and higher interest costs.
The firm’s revenues grew by an impressive 58.4% year-on-year. Its cement and engineering divisions, the main contributors to revenues, grew by 59% and 35%, respectively.
But operating profit margins declined by 3 percentage points to 27%, over the same period a year ago.
Lower cement realizations and higher operating costs were the key reasons for lower margins. The rise in interest costs came as a big negative surprise. Interest costs rose by 132%, taking away nearly half of the company’s operating profit. Depreciation, too, increased by 56%, but that was on expected lines since new cement capacity coming on stream.
Analysts at Angel Broking Ltd said in a report: “The spike in interest costs was a surprise, after considering that the company has raised money in the last two quarters via the sale of treasury shares. Besides, the interest rate regime was benign during the last few months.”
Profit before tax and exceptional items declined by 25%.
The analysts reckon that the company’s growth in profitability has peaked, given its exposure to the cement sector. Cement prices have started falling due to lower demand and overcapacity.
The company’s sale of its own shares, too, has not gone down well with the market. Since it has sold 50 million shares during the September quarter, from the 176 million shares held by the four trusts, for which Jaiprakash is the beneficiary, the prospects of more shares being offloaded has made investors cautious.
The four trusts hold shares of Jaiprakash issued as a result of the amalgamation of associate companies during fiscal 2009.
Jaiprakash has projected revenues of Rs10,000 crore for the fiscal year to 31 March, compared with Rs5,979.5 crore in the preceding year.
While it may well achieve this, the squeeze on margins and negative outlook for cement are medium-term dampeners.
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