Jaiprakash Associates - Update - Emkay recommends a `BUY` on Jaiprakash Associates

Emkay recommended a BUY on Jaiprakash Associates (CMP: Rs 265) with a target price of Rs 409.

Jaiprakash Associates (JPA) stock declined by close to 10% in the mornings trades following rumors regarding the listed company holding only 55% in Jaypee Infratech (JIL), the company which is executing the Taj expressway Project. Subsequently the management has clarified that the listed entity JPA directly holds 100% of the paid capital of Rs 5.5 billion of JIL and there are no other entities holding anything in JIL. JIL was formed as a 100% subsidiary on 5th April 2007, to execute the Taj expressway project. The paid up capital then was Rs 2 billion entire held by JPA. Subsequently the authorized capital of the company was increased to Rs 10 billion and the paid capital was increased to Rs 5.5 billion and JPA subscribed to the additional equity of Rs 3.5 billion, taking its holding to Rs 5.5 billion (100% of the paid up capital).

The analysts at Emkay believe that even though the management has clarified its stance on the issue of its holding in JIL, the markets would wait for a formal written clarification from the management to the exchanges or to general media. Till then the stock might continue to languish. Also there can be concerns on corporate governance standards. However the analysts believe that these concerns would gradually get addressed and the recent price correction provides an attractive entry point in the stock for investor.