The Hindu Business Line : Much needed funding for subsidiaries

The project had earlier failed to strike a deal with ICICI Ventures. ICICI Bank has now entered into an agreement to infuse Rs 1,150 crore into the subsidiary. The bank has proposed to take a 1 per cent equity stake for Rs 250 crore in the subsidiary and provide loans of Rs 900 crore.

Negative toll

JP Associates’ rising focus on its subsidiaries appears to indicate that the company is likely to increasingly derive higher value from the latter. The one per cent stake acquired by ICICI Bank places the subsidiary’s value at Rs 25,000 crore — as much as the parent’s company’s market capitalisation.

However, a reading of the nature of projects of the company’s subsidiaries indicates that the projects are not only long term in nature but also writ with uncertainties such as allocation of land by the Government.

For instance, the Taj Expressway project, to be implemented by the subsidiary Jaypee Infratech, is expected to have a negative toll collection, due to which the Uttar Pradesh Government has agreed to grant development rights for land along the expressway. Of this, the company has been granted about 70 per cent of the agreed land in Noida, while similar allotment is expected in another 4 regions.

Capital requirements

These areas, said to have developable potential of 400 million sq ft may, have a long completion period extending over 10-15 years, requiring significant capital requirements. JP Associates is also expected to derive benefits from the Ganga Expressway — a 1047 km six laning project to be executed by another subsidiary.

On a standalone basis, JP Associates has continued to report sluggish numbers over the last few quarters, with other income primarily boosting bottom line, while primary businesses of construction and cement witnessed flat growth.

While Jaypee Infratech, and the Ganga Expressway may provide value over the long term, any listing of JP Power Ventures (draft RHP filed with SEBI) may provide some value unlocking.

Investors may have to wait for revenue flows from subsidiaries before ascribing any value from the same, to the parent company.

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