Shares in Jaiprakash Associates crashed to double-digit losses for a second straight session on Friday. Shares in the engineering and construction firm fell as much as 14 per cent on top of the 17.6 per cent plunge on Thursday. Over the last four sessions, Jaiprakash Associates has fallen 33 per cent and lost over Rs. 3,300 crore in market capitalisation.
Amid speculation that promoters are reducing their stakes, Jaiprakash Associates yesterday clarified that one of its promoters (Jaypee Infra Ventures) sold 3.53 crore shares between September 1 to September 3. Its stake has now come down from 29.75 per cent to 28.30 per cent. The promoters as of June-2014 had no pledged shares and own 45 per cent stake in Jaiprakash Associates currently.
When promoters sell shares without a valid reason, investors tend to get jittery. In the current scenario, Jaiprakash Associates says the promoter company sold shares to “meet its requirement of funds including for social cause.”
Gaurav Dua, head of research at Sharekhan told, “We would not know why have they sold or what they are planning to do with the money.”
Mr Dua says there are rumours in the market that Jaiprakash Associates, as a Group, has not been able to service its debt.
It’s known fact that Jaiprakash Associates is struggling under huge debt. According to Thomson Reuters data, the company has a net debt of Rs. 63,111 crore and a debt-to-equity ratio of nearly 6 times. To deleverage, the company has been trying to dispose some of its assets.
Companies that operate in capital intensive space such as Jaiprakash Associates tend to have high debt. This also means that such companies have to divert a lot of earnings towards servicing debt.
Mr Dua says 80-90 per cent of enterprise value of Jaiprakash Associates is debt and the current market cap reflects just 14-15 per cent of valuation.
“The assets are there, they are working, very good assets, but it is the sustainability of the Group which is a question mark,” he added.
