Jaiprakash Associates Ltd

BSE: 532532 | NSE: JPASSOCIAT | ISIN: INE455F01025 
Market Cap: [Rs.Cr.] 7,102.77 | Face Value: [Rs.] 2
Industry: Construction

Management Discussions

Forming part of the Report of Directors for the year ended March 31, 2013.


As per ‘Monetary Policy Statement 2013-14’ released by Reserve Bank ofIndia (RBI) on May 3, 2013, the Annual Policy is formulated in an environment ofincipient signs of stabilization in the global economy and prospects of a turnaround,albeit modest, in the domestic economy. In the advanced economies (AEs), near-term riskshave receded, aided by improving financial conditions and supportive macroeconomicpolicies. RBI has also highlighted that:

a) With output expansion of only 4.5 per cent in Q3 of 2012-13, the lowest in 15quarters, cumulative GDP growth for 3 the period April-December 2012 declined to 5.0 percent from 6.6 per cent a year ago. This was mainly due to the protracted weakness inindustrial activity aggravated by domestic supply bottlenecks, and slowdown in theservices sector reflecting weak external demand. The Central Statistics Office(CSO)’s advance estimate of GDP growth for 2012-13 of 5.0 per cent implies that theeconomy would have expanded by 4.7 per cent in Q4.

b) The growth of industrial production slid to 0.6 per cent in February 2013 from 2.4per cent a month ago. Consequently, on a cumulative basis, growth in industrial productiondecelerated to 0.9 per cent during 2012-13 (April-February) from 3.5 per cent in thecorresponding period of the previous year.

c) On the demand side, the persisting decline in capital goods production during April2012–February 2013 reflects depressed investment conditions. The moderation incorporate sales and weakening consumer confidence suggest that the slowdown could bespreading to consumption spending.

d) Headline inflation, as measured by the wholesale price index (WPI), moderated to anaverage of 7.3 per cent in 2012-13 from 8.9 per cent in the previous year. The easing wasparticularly significant in Q4 of 2012-13, with the year-end inflation recording at 6.0per cent. Largely driven by food inflation, retail inflation, as measured by the newcombined (rural and urban) consumer price index (CPI) (Base: 2010=100), averaged 10.2 percent during 2012-13.

e) An analysis of corporate performance during Q3 of 2012-13, based on a common sampleof 2,473 non-government non-financial companies, indicates that growth of sales as well asprofits decelerated significantly. Early results of corporate performance in Q4 indicatecontinuing moderation in sales though profit margins increased slightly.

f) In consonance with the cuts in the policy repo rate and the cash reserve ratio (CRR)during 2012-13, the modal term deposit rate declined by 11 basis points (bps) and themodal base rate by 50 bps. Liquidity remained under pressure throughout the year becauseof persistently high government cash balances with the Reserve Bank and elevatedincremental credit to deposit ratio for much of the year.

g) The revised estimates (RE) of central government finances for 2012-13 show that thegross fiscal deficit-GDP ratio at 5.2 per cent was around the budgeted level and withinthe target set out in the revised roadmap. The current account deficit (CAD) came in at anall-time high of 6.7 per cent of GDP in Q3 of 2012-13.

h) For GDP growth during 2012-13, the CSO’s advance estimate of 5.0 per cent islower than the Reserve Bank’s baseline projection of 5.5 per cent set out in theThird Quarter Review (TQR) of January 2013, reflecting slower than expected growth in bothindustry and services.

i) During 2013-14, economic activity is expected to show only a modest improvement overlast year, with a pick-up likely only in the second half of the year. Conditional upon anormal monsoon, agricultural growth could return to trend levels. The outlook forindustrial activity remains subdued, with the pipeline of new investment drying up andexisting projects stalled by bottlenecks and implementation gaps. With global growthunlikely to improve significantly from 2012, growth in services and exports may remainsluggish. Accordingly, the baseline GDP growth for 2013-14 is projected at 5.7 per cent.

j) Keeping in view the domestic demand-supply balance, the outlook for global commodityprices and the forecast of a normal monsoon, WPI inflation is expected to be range-boundaround 5.5 per cent during 2013-14.

According to ‘Macroeconomic and Monetary Developments in 2012-13’,issued by RBI with the Monetary Policy Statement 2013-14, on May 2, 2013, RBI has givenfollowing indications on domestic as well as global economy:

i. The impact of monetary policy in boosting GDP growth is contingent upon resolutionof supply bottlenecks, governance issues impeding investments and the government’sefforts towards fiscal consolidation. Domestic energy price adjustments, inadequate supplyresponse and sustained wage pressures on inflation are expected to drag down growth forsome more time. These factors, coupled with subdued domestic business confidence, arelikely to keep recovery in 2013-14 modest.

ii. Global growth turned weaker in 2012 and is expected to stay sluggish in 2013 asfiscal adjustments drag growth in advanced economies (AEs) and, in turn, delay cyclicalrecovery in emerging market and developing economies (EMDEs). The International MonetaryFund (IMF) in its World Economic Outlook has forecast global growth to stay sluggish at3.3 per cent in 2013 before improving to 4.0 per cent in 2014. While downside tail riskshave reduced in early 2013 because of the supportive policy action in the euro area andthe measures to tackle the fiscal cliff in the US, risks to global recovery have increasedconsequent to the Chinese economy slowing down.

iii. The Indian economy remained sluggish in Q3 of 2012-13, with slowdown turningvisibly pervasive across most sectors. The deceleration in the services sector growth,which has been the mainstay of high growth in the recent period, had dragged down overalleconomic activity and employment creation. Domestic policy uncertainties, governanceconcerns, the impact of earlier monetary tightening and the slacking of external demandcontinue to adversely impact growth.

iv. External imbalances were in focus as the current account deficit (CAD) to GDP ratioreached a historic high of 6.7 per cent in Q3 of 2012-13. However, CAD in Q3 wasadequately financed by capital inflows, without any reserve depletion. Current account in2013-14 is likely to benefit from moderation in global commodity prices of oil, gold andother metals.

v. Headline, and especially the non-food manufactured product inflation pressures,softened during 2012-13, even as consumer price inflation firmed up. The average headlineWPI inflation during 2012-13 at 7.4 per cent was significantly lower than the 9.0 per centrecorded in the preceding year.

vi. Growth continued to slow down in 2012-13, but could witness a slow-paced recoverylater this year, contingent on improved governance and concerted action to resolvestructural bottlenecks. Subdued business and consumer confidence, reflected in varioussurveys, is expected to drag growth down.

vii. Growth in the index of industrial production (IIP) witnessed a slowdown to 0.9percent during April-February 2012-13, largely due to infrastructure and inputconstraints, rising costs and moderation of external demand. Contraction in capital goodsand the mining sector continue to affect the overall performance of the industrial sector.Excluding the volatile items, the truncated IIP (96 per cent of IIP) growth inApril-February 2012-13 is 1.5 per cent.

viii. Shortage of power was a major constraining factor for the growth of theindustrial sector. Growth in electricity generation decelerated during 2012-13 to 4.0 percent from 8.2 per cent in the year before. The gap between requirement and availability ofpower increased to 8.7 per cent during the period. Shortages in coal supply, delays incapacity addition and a delayed and skewed monsoon have contributed to the slower growthof power generation.

ix. Apart from domestic constraints, weak global growth was also responsible for thedomestic industrial slowdown given the strong co-movement between the domestic and globalIIP. Core industries are faced with various supply constraints, such as shortage of coaland Natural gas, stoppage of mining in some states and delays in commissioning of largeprojects.

x. Going forward, sustained efforts by the government to expediting environmentalclearances and land acquisition are needed to turnaround growth in core industries.Constraints facing the infrastructure sector need to be addressed. The Reserve Bank, onits part, has also recently relaxed the norms for external commercial borrowings forinfrastructural finance companies.

During the year various agencies have made projected India’s GDP growth for theyear 2013-14, as given in table:

Name of Agency Latest Projections Earlier Projections
Real GDP Growth Month Real GDP Growth Month
Prime Minister Economic Advisory Council (PMEAC) 6.4% Apr- 13 - -
Ministry of Finance 6.1 to 6.7 % Feb-13 - -
International Monetary Fund (IMF) 5.8% Apr- 13 6.0% Jan-13
World Bank 6.4% Jan-13 - -
The Organization for Economic Co- operation and Development (OECD) 5.9% Dec-12 6.5% Nov-12
Asian Development Bank (ADB) 6.0% Apr-13 6.5% Dec-12
National Council Applied Economic Research (NCAER) 6.2% Jan-13 - -

Source: RBI Macroeconomic and Monetary Developments in 2012-13

In March 2013 ‘World Bank’ has estimated that India’s economy maygrow over 6% during 2013-14. According to them Indian economy, was impacted by the globalslowdown like other economies of the world. Despite that current growth rate of 5% is notvery encouraging, but hope for higher levels of growth in future is promising with thesteps taken by government.

‘Asian Development Bank (ADB) Outlook 2013’ on Indian Economy stated thatIndia’s growth further decelerated as a slump in industry and investment spread toconsumption and exports. Though inflation and the fiscal deficit were reined in, thecurrent account deficit rose to a record high. Delays in resolving structural impedimentsto growth were compounded by a global trade slowdown. Boosting investment is critical fora return to high growth, but requires reforms to eliminate bottlenecks that are stallingprojects. Recent steps to address some of these challenges are expected to help growthpick up modestly.

Economic growth in fiscal year 2012 (ended 31 March 2013) decelerated to 5%, it’slowest in a decade, from 6.2% in FY2011. While tepid industrial growth and downdraft ininvestment continued from FY2011, the downturn was exacerbated by a slump in servicesactivity, weakening consumption, and contracting exports.

Selected Economic Indicators (%) - India 2013 2014
Gross Domestic Product (GDP) growth 6.0% 6.5%
Inflation 7.2% 6.8%
Current Account Balance (share in GDP) -4.4% -3.7%

Source: ADB estimates

The slowdown in domestic investment in India will need to be reversed for growth totrend upward in a sustained manner. However, recent data from the Centre for MonitoringIndian Economy on planned capital expenditures are not encouraging, as they continue toshow a downward trend in announced new projects and an increase in the number of shelvedprojects. Clearly, turning this trend around will be a major challenge.

Recent reforms include the creation of the Cabinet Committee on Investment to expeditegovernment clearances for large projects and cabinet clearance of a land acquisition bill.However, these are only first steps toward improving the investment climate in India, andfurther measures will have to be undertaken for the investment cycle to turn around. Thesewould include tough economic and politically difficult policy decisions related to delaysin environmental clearances, parliamentary approval of the land acquisition bill thatinvolves complex issues, improving the availability of fuel sources and infrastructurelinking fuel sources with power generating plants, and attaining fiscal consolidationwithout sacrificing capital expenditure.

A normal monsoon is expected to substantially boost agriculture growth from thedepressed base a year earlier. This will strengthen rural consumer demand and ease pricepressures. Industry growth should improve on better domestic and external demand, butunresolved structural issues will continue to constrain investment, mining and power.Services are expected to see a stronger pickup in activity than industry, though growthwill continue to be restrained by the limited demand.

In this scenario, GDP growth nudges up to 6% in FY2013. Improved global prospects, someeasing of price pressures, and forward movement in resolving structural bottlenecks wouldallow India’s growth to increase to 6.5% in FY2014.

In the given environment of India being fairly poised towards growth, your Companystands in a strong position to grow due to its presence basically in the infra-structuresector, which is the backbone of country’s overall growth & development.


The Company’s business can be broadly classified in the following sectors:

1. Engineering & Construction

2. Manufacture & Marketing of Cement

3. Energy (Power, Transmission, Oil & Gas)

4. Expressways

5. Real Estate and

6. Hospitality



Construction Industry was in perpetual mushroom growth mode for the past few years tillit went into reverse gear and the slow down as a consequence of economic melt down inNovember, 2008. While your Company is an acknowledged leader in the field of multipurposeriver valley and hydro- power projects and has in-house capability for undertakingchallenging assignments anywhere in the world on EPC (Engineering, Procurement andConstruction) contract basis, it is facing increasing competition from new entrants in thepackaged contract sector for the past few years, which is expected to increase due topossible reduction of opportunities in the immediate future, till the economy recovers andthe growth rate of the economy starts clawing back.

As such, there is a slight shift in the strategy through increased involvement inBuild, Own, Operate (BOO) and Build, Operate and Transfer (BOT) Projects. The Jaypee Groupis also increasing its stake in power generation by going in for more and more of its ownprojects both in hydro and thermal power sectors.


From a macroeconomic perspective, a high level of investment in the infrastructuresector is essential for the overall revival of investment climate which may finally leadto sustainable growth in an economy. Financing of infrastructure project is a crucialfactor for the timely completion of the project. In this regard ‘The IndiaInfrastructure Finance Company Limited’ (IIFCL) has been given a important role forproviding long term financing for infrastructure projects that typically involve longgestation periods by providing guarantees for bonds issued by private infrastructurecompanies rather than expanding its direct lending operations.

However, in the current macroeconomic environment, to achieve this objective, there isneed to address sector-specific issues over the medium to long-term horizon in India.


As per the report of ICRA Ltd. (the credit rating agency) published on IndianCement Sector in January 2013, following observations are made:

a) Domestic cement production showed a relatively muted growth of 4.7% YoY duringJuly-Nov 2012, which can be mainly attributed to delayed monsoons impacting rural demandduring Jul-Aug and also delayed festive season impacting construction in Oct-Nov, Quarterto Quarter cement production declined by 8.2% during Q2 as compared to Q1 of Financialyear 2012-13, which is however a seasonal phenomenon due to onset of monsoons. Contrary toexpectations, cement demand did not witness any significant revival post monsoons (Q3 FY2012-13). The demand remained sluggish in November 2012 as the festive season (Durga Poojaand Diwali) was delayed to November this year as compared to last year. This in turndelayed the pick-up in construction activities due to migration of labour which typicallyhappens during the festive season. All-India cement production declined by 0.2% Year toyear during the month of Nov 2012 and has not seen any significant revival in the month ofDec 2012 as well. Going forward, with the end of monsoon and festive season, the demand isexpected to improve in the current quarter. As per our channel check, cement off take hasalready seen improvement in some markets in Jan driven by seasonal pick-up in demand andemphasis by government and private entities to meet their year-end targets.

b) The pace of capacity addition has slowed down in the cement industry since the peakaddition of 50 million MT seen in FY10. This can be mainly attributed to the fact thatbulk of the cement capacity addition programme had been initiated in the period FY06-FY09and completed by FY10. Fresh capacity launches has slowed down subsequently and theindustry added 20 million MT in FY11 and 10 million MT in FY12. As per report, it isexpected that - 22 MTPA of grinding capacity to be added in FY13 and 23 MTPA in FY14.However, the effective capacity additions in FY13 will be much lower since most of theprojects will become operational only in 2nd half of FY 2012-13. On anall-India basis, the capacity utilisation levels are expected to remain at around 78% inFY 2012-13, which is marginally higher than the 76% utilization seen in FY 2011-12.

c) Cement prices came under pressure a seasonal phenomenon across markets (barringSouth) in the second quarter due to monsoons, however the prices in 2nd Quarterof FY 2012-13 were much higher than those in the corresponding period in previous year,which was marked by poor realizations and weak demand. While cement prices traditionallyrecover in the third quarter, this was not the case this year. The prices continued toweaken in November and December 2012 due to weak demand. Cement prices declined by 5-15%in most markets across India (except South) between July and Dec 2012. It is important tonote that though the prices have declined across markets post Aug 2012, the currentaverage price realization are 5-15% higher across most markets on Year to Year basis.Going forward, cement prices are expected to improve in driven by pick-up in demand.

d) On the cost side, the cement industry was affected by increase in diesel prices inthe month of September 2012. The diesel prices were increased by Rs. 5/litre in Sept 2012which increased the cost by Rs. 3 per bag for cement companies. The weak demand scenariomade it difficult for most players to fully pass on this cost. However, cement companiesusing imported coal have seen moderation in their power and fuel cost as prices ofinternational coal have been declining from Jan 2012.

e) Decline in prices in Q2 of FY 2012-13 coupled with lower volume offtake owing toweak demand from construction segment due to monsoons has resulted in Quarter to Quarterdecline in revenues for most cement companies. However, on Year to Year basis, theperformance of cement companies was much better driven by higher average realizations inQ2 of FY 2012-13 as compared to the corresponding period in previous year, which wasmarked by poor realizations and demand scenario.

Future Outlook in Cement

Developments in the domestic environment and a huge number of infrastructure projectsare likely to boost demand for cement consumption in India, which is bound to increasemanifold in the coming years.

Your management is of the view that the Indian cement industry had witnessed anincredible growth in the past few years, led by the growth in the real estate,infrastructure and industrial construction. However, in recent period, cement demandgrowth took a slight breather. The cement industry has registered a drop in margins mainlydue to input cost rise and lack of pricing power. The Industry has been facing a chronicproblem of insufficient availability of the main fuel coal, driving the manufacturers toresort to use of alternatives at steep cost. As the economic growth is expected to bestable, the cement demand is expected to sustain an average growth in demand. The keydrivers of this demand shall be the continued expansion in infrastructure, real estate andindustrial sectors.


As per Economic Survey published by Government of India in February 2013, theEleventh Five Year Plan, created nearly 55,000 MW of new generation capacity, yet therecontinued to be an overall energy deficit of 8.7 per cent and peak shortage of 9.0 percent. Resources currently allocated to energy supply are not sufficient for narrowing thegap between energy needs and energy availability. Indeed, this may widen as the economymoves to a higher growth trajectory. India’s success in resolving energy bottleneckstherefore remains one of the key challenges in achieving the projected growth outcomes.Further, India’s excessive reliance on imported crude oil makes it imperative to havean optimal energy mix that will allow it to achieve its long-run goal of sustainabledevelopment.

Energy scenario during 12th five year plan and beyond: The Twelfth Planhas projected a total domestic energy production of 669.6 million tons of oil equivalent(MTOE) in 2016-17 and 844 MTOE in 2021-22. This will meet around 71 per cent and 69 percent of expected energy consumption, with the balance to be met from imports, projected tobe about 267.8 MTOE in 2016-17 and 375.6 MTOE in 2021-22. Import dependence in case ofcrude oil and coal is projected to be about 78 per cent and 22.4 per cent respectively by2016-17. Coal and lignite will continue to dominate the energy scenario and by 2021-22 theshare of these two fuel products will be about 66.8 per cent in total commercial energyproduced and about 56.9 per cent in total commercial energy supply by 2021-22. The shareof crude oil in production and consumption is expected to be 6.7 per cent and 23 per centrespectively. Energy exploration and exploitation, capacity additions, clean energyalternatives, conservation, and energy sector reforms will, therefore, be critical forenergy security.

Power generation: Electricity generation by power utilities during 2012-13 wastargeted to go up by 6.05 per cent to 930 billion units. The growth in power generationduring April to December, 2012 was 4.55 per cent, as compared to about 9.33 per centduring April to December, 2011.

Power Generation by utilities (Billion KWh)

Category April-December Growth
2011-12 2011 -12 2012-13 (%)
Power Generation 876.887 580.664 683.753 4.55
Hydroelectric# 130.510 100.178 92.543 -13.9
Thermal 708.806 454.404 561.879 8.55
Nuclear 32.286 21.183 24.653 3.54
Bhutan import 5.285 4.898 4.677 -7.49

Source : Ministry of Power

# includes generation from hydro stations above 25 mega Watts.

Thermal Power Generation during April-December 2012

Components Generation Growth PLF (in percent)
(Billion KWh) (%) Apr-Dec 2011 Apr-Dec 2012
Coal 488.92 13.90 72.23 69.49
Lignite 23.40 19.81 67.05 73.47
Gas Turbine 53.87 -25.49 62.01 43.62
Diesel 1.69 -6.44 - -
Total 561.80 8.6 71.94 69.63

Source: Ministry of Power

Capacity Addition: The Eleventh Five Year Plan initially envisaged a capacityaddition of 78,000 MW, of which 19.9 per cent capacity was hydro, 75.8 per cent thermal,and the rest nuclear. At the time of the Mid Term Appraisal (MTA) of the Eleventh Plan,the target was revised to 62,374 MW with the thermal, hydro, and nuclear segmentscontributing 50,757 MW, 8,237 MW, and 3,380 MW respectively. A capacity addition of 54,964MW has been achieved during the Eleventh Plan. The capacity addition during the TwelfthPlan period is estimated at 88,537 MW comprising 26,182 MW in the central sector, 15,530MW in the state sector, and 46,825 MW in the private sector respectively. The capacityaddition target for the year 2012-13 was set at 17,956 MW. As against it, a capacity of9,854 MW has been added till December 31, 2012.

Development of Hydro Power : As per a re-assessment study carried out by theCentral Electricity Authority (CEA), the identified hydroelectric potential of the country(having installed capacity above 25 MW) is 1,45,320 MW. As of now, 434 hydropowerprojects/schemes are at different stages of operation/ approval/investigation.

Future Outlook in Energy

Considering the huge potential in the Energy sector, your Company through itssubsidiaries is well equipped and is making every effort to make its breakthrough.


India, having one of the largest road networks of 42.4 lakh km, consists of NationalHighways, Road Highways, Expressways, State Highways, Major District Roads, Other DistrictRoads and Village Roads with the following length distribution:

National Highways/ Expressways 70,934 KM
State Highways 1,54,522 KM
Major and other District Roads 25,77,396 KM
Rural Roads 14,33,577 KM

Source: Annual report 2010-11, Ministry of Road Transport and Highways, Government ofIndia About 60% of freight and 87.4% passenger traffic is carried by road.

Although National Highways constitute only about 1.7% of the road network, it carries40% of the total road traffic. Easy availability, adaptability to individual needs and thecost savings are some of the factors which go in favor of road transport. The rapidexpansion and strengthening of the road networks is imperative to provide for both presentand future traffic and for improved accessibility to the hinterland. In addition, roadtransport needs to be regulated for better energy efficiency, less pollution and enhancedroad safety.

National Highway Development Projects as per Economic Survey February 2013: As ofnow about 24 per cent of the total length of National Highways (NHs) is singlelane/intermediate lane, about 51 per cent is two-lane standard, and the balance 25 percent is four-lane standard or more. In 2012-13, the achievement under various phases ofthe National Highways Development Project (NHDP) up to December 2012 has been about 1,605km and projects have been awarded for a total length of about 878 km.

Future Outlook in Expressways

Your Company having a vast experience & resources and depending upon the interestshown by the Government would expand its business further in Roads & Expressways atsuitable times.


The real estate sector is a critical sector of our economy. It has a huge multipliereffect on the economy and therefore, is a big driver of economic growth. It has beeninstrumental in changing the face of India from being a under developed country towardsaccelerating its way to a developed country, that is evidenced from the state of artinfrastructure development, buildings, townships etc. across urban and semi urban areas.

Besides acting as a catalyst for sustainable and inclusive economic growth, this sectorhas emerged as the 5th largest destination of foreign investment. Though theglobal economic slowdown had its effect on this sector as well slowing the pace of growth,the Indian real estate sector is breaking new ground. Rapid growth in businessopportunities, inflow of foreign investment into the sector and the entry of secondgeneration entrepreneurs are largely the reasons for future growth in this sector. Withthe Government’s commitment to the extensive and efficient infrastructuredevelopment, the Indian real estate sector is likely to stay ahead providing ampleopportunities for employment generation and sustenance of the other ancillary industries.

The Group continues to focus on the development of Integrated Townships alongside theExpressway to synergize the benefits of this unique revenue model.

Future Outlook in Real Estat

Futures & Options Quote
Expiry Date :
61.15    1.65 (2.77%)
Instrument: FUTSTK
Expiry Date: 31-Jul-2014
Open Price: 60.85
Average Price: 61.12
No. of Contracts Traded: 4,990
Open Interest: 7,29,28,000
Underlying: JPASSOCIAT
Market Lot: 8,000
Previous Close: 61.15
Day's High | Low: 62.60 | 59.90
Turnover (Cr.): 243.99
Open Int. Change: -1,39,60,000 ([16.07]% )
Key Information

Key Executives:

Manoj Gaur , Executive Chairman & CEO

Sunil Kumar Sharma , Executive Vice Chairman

Sarat Kumar Jain , Vice Chairman

R N Bhardwaj , Director

Company Head Office / Quarters:

Sector 128,
Uttar Pradesh-201304
Phone : Uttar Pradesh-91-120-4609000/2470800 / Uttar Pradesh-
Fax : Uttar Pradesh-91-120-4609496/4609464 / Uttar Pradesh-
E-mail : jalinvestor@jalindia.co.in
Web : http://www.jalindia.com


Fund Holding
Better Investment Avenue

Check whether Taxed / Tax free investment avenue is better for you

  Taxed Avenue Tax-Free Avenue
Investment amount (Rs.)  
Tenure of Investment (years)  
Interest earned (% p.a)
Compounded every
Your tax bracket (%)