Debt behind Jaypee Group's rising troubles
June has turned out to be a terrible month for the Jaypee Group with shares of its three listed companies plunging. A massive debt and pressure on profitability have been troubling it for the past few quarters.
Jaypee Group Executive Chairman and CEO Manoj Gaur <em>Photo: Vivan Mehra/www.indiatodayimages.com</em>
June has turned out to be a terrible month for the Jaypee Group with shares of its three listed companies plunging. A massive debt and pressure on profitability have been troubling it for the past few quarters. What made matters was the shutdown of a power plant in Uttarakhand and reported delays in the sale of cement assets in Gujarat.
While shares of Jaiprakash Associates touched a one-year low, both Jaiprakash Power Ventures and Jaypee Infratech fell to their lowest levels ever. Shares of Jaiprakash Associates, the group's flagship company, slipped 20 per cent in June to Rs 53.55. Jaiprakash Power dropped 20 per cent to Rs 19 while Jaypee Infratech, the group's realty arm, slumped 32 per cent to Rs 21.20.
The floods that ravaged Uttarakhand in June forced Jaiprakash Power to stop generation at its 400 megawatt Vishnuprayag hydroelectric project because of high silt levels. The project accounts for nearly a fifth of the company's generation capacity of 2,200 megawatt. Suren Jain, Managing Director, Jaiprakash Power, allays fears of extensive damage to the plant and says the insurance cover will be sufficient to meet the operational expenditure and service debt. "We will need to undertake de-silting work," he says. "This may take a couple of months."
The group's main problem, however, is the Rs 54,000 crore pile of debt that is one of the highest among Indian companies. The high debt is a result of rapid expansion in real estate, infrastructure, cement and power sectors over the past few years.
The group has been looking at ways to cut debt as a high interest outgo is hurting its profit. The consolidated interest cost of Jaiprakash Associates surged 46 per cent in 2012/13 to Rs 4,569 crore. Consolidated profit dropped 18 per cent to Rs 777 crore.
"The group is asset heavy but it is also highly leveraged," says Vikas Khemani, Head (Institutional Equities) at brokerage Edelweiss Securities. "The assets are not yielding sufficient returns to service the debt. This implies that interest costs will remain high so long as the economic environment doesn't improve."
The group has decided not to undertake new projects as of now. It is also selling some assets to raise cash. In May, Jaypee Infratech sold 300 acres of land along the Yamuna Expressway in Uttar Pradesh for Rs 1,500 crore. Jaiprakash Associates has been in talks to sell its cement business in Gujarat for some time now. The company has a capacity of 4.8 million tonnes in Gujarat, and the business is valued around Rs 4,000 crore. Recent reports of a breakdown in talks to sell the Gujarat cement business hurt Jaiprakash Associates's shares. Group Executive Chairman and CEO Manoj Gaur did not comment on the developments. Jain, however, says the talks have not failed as some news reports indicated. "The reports are absolutely false," he adds.
While shares of Jaiprakash Associates touched a one-year low, both Jaiprakash Power Ventures and Jaypee Infratech fell to their lowest levels ever. Shares of Jaiprakash Associates, the group's flagship company, slipped 20 per cent in June to Rs 53.55. Jaiprakash Power dropped 20 per cent to Rs 19 while Jaypee Infratech, the group's realty arm, slumped 32 per cent to Rs 21.20.
The floods that ravaged Uttarakhand in June forced Jaiprakash Power to stop generation at its 400 megawatt Vishnuprayag hydroelectric project because of high silt levels. The project accounts for nearly a fifth of the company's generation capacity of 2,200 megawatt. Suren Jain, Managing Director, Jaiprakash Power, allays fears of extensive damage to the plant and says the insurance cover will be sufficient to meet the operational expenditure and service debt. "We will need to undertake de-silting work," he says. "This may take a couple of months."
| {mosimage}BT RETRO In its December 25, 2011, cover story 'High Way', BT chronicled the rise of the Jaypee Group and how it was shaking India's infrastructure sector |
"The group is asset heavy but it is also highly leveraged," says Vikas Khemani, Head (Institutional Equities) at brokerage Edelweiss Securities. "The assets are not yielding sufficient returns to service the debt. This implies that interest costs will remain high so long as the economic environment doesn't improve."
The group has decided not to undertake new projects as of now. It is also selling some assets to raise cash. In May, Jaypee Infratech sold 300 acres of land along the Yamuna Expressway in Uttar Pradesh for Rs 1,500 crore. Jaiprakash Associates has been in talks to sell its cement business in Gujarat for some time now. The company has a capacity of 4.8 million tonnes in Gujarat, and the business is valued around Rs 4,000 crore. Recent reports of a breakdown in talks to sell the Gujarat cement business hurt Jaiprakash Associates's shares. Group Executive Chairman and CEO Manoj Gaur did not comment on the developments. Jain, however, says the talks have not failed as some news reports indicated. "The reports are absolutely false," he adds.
