What are the future prospects of Jaypee Infratech?
Jaypee Infratech was incorporated as a special purpose vehicle for implementation of 165 km long six-lane access-controlled Yamuna Expressway in Uttar Pradesh connecting Noida and Agra. Jaiprakash Associates owns 83.6 per cent stake in this company, of which around 61 per cent shares are pledged. Since it is constructing the Expressway, as a compensation, Jaypee has rights to collect toll for 36 years on the Expressway and holds development rights on 6,175 acres of land, across five contiguous land parcels along the Expressway, acquired at a low cost of `32-40 per square feet. But the road is not so smooth. The Yamuna Expressway faces competition from the existing highway NH-2 which is currently toll free. While plans are afoot to make it six-lane, post which it will be tolled, reluctance of commuters to use the Expressway could impair its profitability.
A flexible pricing model adopted by the company helps it to maximise its volumes and cash flows unlike most developers who follow an inflexible pricing at the cost of volumes. The company’s cash flow from operation has almost quadrupled while total income has grown five times over two years (over FY09-11). The stock continues its downward journey and has lost half of its value since listing (May 2010). The imminent launch of the Yamuna Expressway project with its potential cost savings could be a key trigger.