High interest costs continue to weigh on Jaiprakash Associates earnings

High interest costs continue to weigh on Jaiprakash Associates earnings

The bright spot was the performance of the cement division, which contributes to over half its revenues. Revenues from this business jumped 21.8% to 1,562.9 crore as dispatches increased and realizations improved 10%.

However, revenues from construction business, the second largest business vertical after cement, have fallen by 4.6% in last quarter. Real estate, the third largest business unit, has seen its revenues more than halve (down 52.4%) to 165 crore. Except the cement, hotels and investments divisions, the rest of the three business verticals—construction, real estate and power—have seen their revenues fall from a year ago.

Thus, net sales for the company increased 2.1% to 2,963 crore. Even as total income from operations grew by 3.1%, a sharp rise in interest costs and higher operating expenses crimped profits.

Most of the company’s operating profits were negated by the finance costs. With interest costs increasing by 21% to 465 crore, the company has spent 72% of the operating profits on servicing its debt. Thus, it reported a net profit of only 138.8 crore, 24.5% lower than the same period last year.

Slowing growth and sluggish investment demand means that the company’s real estate and construction businesses will continue to struggle, generating new sales. With interest costs increasingly eating up the earnings, the earlier the company reduces debt, the better it will be for shareholders.

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