Cash crunch at JP Associates unsettles Sensex

Infrastructure player JP Associates is likely to face cash crunch for some more time as its efforts to sell its cement  business are not yielding fruit.

Analysts said if the situation persists, the company may lose favour of investors as it is weighed down by a massive standalone debt of close to Rs25,000 crore and a consolidated debt of Rs50,000 crore.

The company, which has four main verticals – engineering, cement, hotels and real estate -- has been  looking to unlock value in its cement business by divesting some stake in its subsidiary Jaypee Cement Corporation (JCCL).

Of the total 33 million tonne per annum (mtpa) of its cement capacity, the company recently hived off close to 9.8 mtpa to JCCL.

Sources said JP plans to divest this subsidiary to retire some of its debt.

“The company has been talking of divesting its cement business for the last 7-8 months and this is expected to bring in funds to retire some debt. But that is just not happening,” said an analyst with a leading domestic brokerage.

He said though investors so far have believed in the company, but with nothing concrete emerging on ground, it could be a little stressful.

While the company is slowly seeing cash flows coming from its Yamuna Expressway project and a few of its hydro power plants, there are concerns as all this has been done by taking debt, which is slowly snowballing into a major impediment.

“The company always manages to roll over its debt by borrowing and paying up. While this gives a temporary breather, it is not a long-term solution,” said another analyst, who tracks the company closely.

He said while it is commendable that JP Associates has grown its cement business to be the third-biggest player in the country and also diversified into real estate and hospitality, all this has not led to increase in cash flows that could help the company cut debt.

The company’s revenues fell 5.3% from Rs3,177.85 crore in June 2011 quarter to Rs3,008.13 crore in June 2012. During the period, net profit grew 30% with a net margin of over 4%.

“The good thing is that the company has never defaulted on its dues, but if it does not divest, revenues from roads and power business will not be enough to sustain the debt burden,” he said.