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Ami Shah

Jaiprakash Associates’ shares linger near all time lows

Shares of Jaiprakash Associates hit an all time low of Rs5.60 per share on Thursday.

Mumbai: Debt is like dynamite, said Raghuram Rajan, governor of the Reserve Bank of India (RBI) in December last year while pushing Indian corporates to bring down the level of debt on their books.

Shares of Jaiprakash Associates Ltd are an example of just how destructive debt can be. Once celebrated in the markets for its rapid diversification, shares of Jaiprakash Associates hit an all time low of Rs.5.60 per share on Thursday. Since then, the shares have remained close to the bottom and traded at Rs.5.54 per share at 10.45 am on Monday.

The stock, now reduced to single-digits, has lost more than 98% of its value from its all time high of Rs.308.86 on 4 January 2008. A surge in debt on the company’s balance sheet, which has forced the company to sell some of its best assets, has led to the erosion in the company’s stock price.

“It is a combination of undisciplined capital allocation with continuously borrowed money. This company did enjoy a good time,” said Ravi Sundar Muthukrishnan, co-head of research, ICICI Securities Ltd.

“One good thing is they are selling off assets to cut debt. However, it also means that your initial plans did not work as expected. The erosion in net worth is tremendous,” Muthukrishnan.

In January 2008, when the stock was at its peak, its market capitalisation was at Rs.56,120.10 crore. Today, the flagship company of the Manoj Gaur-led group is valued at Rs.1,364.61 crore. The infrastructure company was a part of BSE’s Sensex -30 stocks between April 2008 and January 2012 but has now been relegated to the BSE 200 index.

An e-mail sent to the company on Friday asking for its perspective on its stock performance remained unanswered.

Not many analysts track the stock any more. Data from Bloomberg showed that while two brokerages have a sell or underperform rating on the stock, one has a hold rating on the stock. No analysts have a buy or outperform rating on the stock.

While the company has managed to sell assets to reduce the debt on its books, investors have stayed away as the company has been forced to sell some of their best assets.

On 31 March, the company Group sold most of its cement business to UltraTech Cement Ltd for Rs.15,900 crore. In September 2015, its unit Jaiprakash Power Ventures Ltd sold two of its hydro assets for Rs.9,200 crore to JSW Energy Ltd.

The company’s financials continue to look shaky. It has posted losses for eight successive quarters.

For the quarter ended March, Jaiprakash Associates reported a net loss of Rs.1,387.30 crore compared to a Rs.1,147.32 crore loss a year ago. Net sales for the quarter fell 25.7% from a year ago to Rs.1,893.94 crore.

The company also said it has pledged 189.3 million shares, held by the four trusts of which it is the sole beneficiary, for securing loans.

As of March 2016, Jaiprakash Associates’ debt stood at Rs.5,8249.99 crore. The debt-laden infrastructure company even faltered on an interest payment due on 7 March on its bonds worth $150 million, it said in a filing on the BSE on 8 March.

The interest coverage ratio of the firm has fallen to 0.37 in the fiscal year 2016, its lowest since 2003, hinting at the falling ability of the company to service its interest payments, a Mint analysis showed.

“The high debt and declining ability to service interest payments, are not boding well with investors,” said Muthukrishnan.

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