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Jaypee Infratech Limited is tapping the capital markets with an issue which includes a fresh issue and an offer for sale. The issue opens on Thursday the 29th of April and closes on Tuesday the 4th of May. The issue would raise between Rs 2262 crs and Rs 2352 crs in a price band of Rs 102-117 with a 5% discount to retail investors post allotment.

Business
Jaypee Infratech Limited is an Indian infrastructure development company engaged in the development of the Yamuna expressway and related real estate projects. The company holds the concession for developing, operating and maintaining the Yamuna Expressway from Noida to Agra for a period of 36 years. The expressway is 165 kms and is being constructed as a six lane concrete highway which is access controlled. The company has a right to develop five parcels of land each of 1235 acres, totalling 6175 acres. The total area which could be developed is roughly 520 million square feet. Assuming a construction cost of Rs 1500 and a selling price of Rs 3000 per square foot, there is a gross realisation of Rs 1500 per square foot or Rs 78,000 crs.

The company is eligible for income tax benefits under section 80 I (A) and the same is available for a continuous period of 10 consecutive years in a block of 15 years. The company has decided to claim this benefit beginning with Assessment year 2009-2010 (Financial year 2008-2009). This means that to claim full benefit from tax purposes it would be in the interest to complete the sale of the developable area in the next nine years. A key factor to note in this project is that the entire expressway of 165 kms travels through a single state Uttar Pradesh.

The current toll on this land is expected to be Rs 250 per car.

Objects of the issue

The company is raising a gross amount of Rs 1650 crs through the fresh issue of shares.

The Yamuna Expressway is being built at a total cost of Rs 9739.29 crs of which a sum of Rs 6250.09 crs has been deployed/spent upto 28th February 2010. The broad expenses include the following: –

Financials
Jaypee Infratech Limited has reported total revenue of Rs 556.26 crs for the year ended March 2009 and Rs 533.02 crs for the nine months ended December 2009. The net profit for the respective periods is Rs 266.73 crs and Rs 398.85 crs. The profit in terms of EPS based on current numbers is absolutely insignificant and needs to be ignored if one is looking at the opportunity that this project will throw up.

Comparison
There are quite a few infrastructure players in the country such as GMR Infrastructure, GVK Power, IRB Infrastructure, IL&FS Transportation Networks Limited. Each of these has been executing large road projects but the Noida-Agra project is the first of its kind where there is such a large real estate development included in the same. The company would effectively be creating five new townships on this road which would bring their own prosperity. The travel time on this access controlled expressway is likely to take roughly 120-130 minutes for 165 kms of distance.

Key challenges
The key challenge is to sell the huge land bank that the company possesses. Selling 520 million square feet is going to be a challenge, but with the Eastern peripheral road planned and another international airport also on this road will make for huge traffic as we go forward. The Jaiprakash group has delivered challenging projects and this is one of them.

Conclusion

Jaypee Infratech is an interesting opportunity for investors to share in India’s development and infrastructure growth. Invest for medium term gains.