This Article is From Aug 29, 2012

Jaiprakash Associates: Why shares have fallen to 2-month low

Jaiprakash Associates shares plunged 9 per cent to a two-month low in a weak Mumbai market Wednesday. The cement maker was the top loser on the 50-share Nifty index.

Here are the reasons behind the sharp decline in Jaiprakash Associates shares.

1) Debt worries: Jaiprakash Associates' consolidated net debt rose to Rs 50,300 crore at the end of 2011-12, 34 per cent higher from Rs 37,500 crore in 2010-11. The net debt to equity stands at 4.4-times, Goldman Sachs said citing the company's annual report.

2) Higher interest costs: High debt levels would result in interest coverage remaining close to 1.5-times over FY12-15E despite EBIT doubling over the same period, Goldman added.

3) Fresh FCCB to retire old debt: Jaiprakash on Tuesday sold its 5-year foreign currency convertible bonds at a 5.75 percent semi-annual coupon and a conversion price of Rs 77.50, a 10 percent premium to its closing price on Wednesday. It had launched the convertible bonds issue late on Tuesday with an aim to raise up to $200 million. The fresh FCCBs would be used, in part, to finance it’s nearly $355 million in convertible bonds maturing on September 12.

4) Higher dilution:  Despite a 34.5 percent gain this year, Jaiprakash shares are trading well below the conversion price of Rs 165.17 a share. Only 1.13 per cent FCCBs were converted till March 31, 2012. Besides, the company has already bought 10.26 per cent of the outstanding FCCBs. Jaiprakash will have to issue 86,595,662 shares upon conversion, resulting in a potential dilution of a little over 4 per cent.

5) Brokerage downgrades: Goldman Sachs had retained its "sell" rating on the stock. "In our view, monetization of assets would be the key in meeting funding requirements of the business," Goldman said,

(With inputs from Thomson Reuters)