JP Associates Recovers 5% After Falling Over 30% in Four Days

Jaiprakash Associates shares gained nearly 5 per cent on Monday to Rs 35.75 after losing over 30 per cent in previous four trading sessions.

Shares in the infrastructure conglomerate have come under pressure after one of its promoters sold 3.53 crore shares between September 1 to September 3.

Although the management cited reasons like fund requirement and social causes behind the stake sale, it triggered concerns among investors as promoters selling stock at such low valuation indicated severe cash crunch in the company.

JP Associates had a debt of over Rs 60,000 crore as of June 30, 2014. Servicing the debt has become a challenging task for the company. JP Associates has an interest coverage ratio of below 1. This indicates that the company is not able to service its debt with the cash it generates from its business.

The company has been selling its cash-generating core assets to part pay some of its debt which analysts say will have a severe impact on its cash flow.

Jaiprakash Associates shares touched an 52-week high of Rs 89.90 on June 11, 2014 and a 52-week low of Rs 32.30 on last Friday. Technical analysts say post Friday's fall the stock has broken its long-term support, so any near-term surge in the stock should be used to exit the stocks.

The stock has fallen nearly 60 per cent in last three months whereas the benchmark Nifty has gained over 6 per cent in the same period.

Although some analysts have advised to buy the stock for investment purpose from current level investors need to be cautious because the company is unlikely to recover soon from its financial stress. Also there appears to be no short-term trigger on asset-sale front which can reduce its debt to some extent.

As of 2.42 p.m., shares in JP Associates traded 4.73 per cent higher at Rs 35.40 as compared to 0.84 per cent gain in Nifty