JP Associates locked at lower circuit; here’s why!

The stock has declined nearly 18 per cent from the day's high

Monday witnessed a vibrant session in the market, with the bulls taking the driver's seat right from the outset. After a brief mid-day consolidation, they accelerated their pace. However, amid this upbeat atmosphere, one stock trading below Rs. 20 is facing a storm.

This intriguing story features Jaiprakash Associates Ltd (JPASSOCIAT), a stock that opened at Rs. 18.60 and surged higher during the first half of the trading session. The optimism was palpable as it reached a high of Rs. 20.10. But just as quickly as it ascended, the stock experienced a dramatic turnaround, plummeting like a house of cards. Currently, it's firmly locked in a lower circuit of 10 per cent.

What caused this abrupt descent? News of a financial setback hit the stock hard. Jaiprakash Associates Ltd made a startling disclosure regarding defaults on interest payments and the repayment of principal amounts on loans from banks and financial institutions.

The numbers tell a worrisome tale. The company carries a total borrowing (including interest) of Rs. 29,272 Crore, repayable by 2037. As of October 31, 2023, only Rs. 4,258 Crore is overdue. Out of this significant borrowing, Rs. 18,682 Crore will see further reduction upon transfer to the proposed Special Purpose Vehicle (SPV), a move pending approval from the stakeholders and the National Company Law Tribunal (NCLT). The entire loan portfolio is already under restructuring.

In response to the crisis, the company has stated, "As a responsible borrower, the Company has been taking tangible steps to reduce the borrowings. Post the proposed divestment of the Cement Business and the restructuring under consideration, the borrowing will get almost to Nil upon implementation of the revised restructuring plan."

Additionally, Jaiprakash Associates Ltd found itself in a legal battle involving a sum of Rs. 750 Crore deposited as per the direction of the Hon'ble Supreme Court. This amount, pertaining to a litigation involving home-buyers with Jaypee Infratech Limited (JIL), had banks of JAL contesting its refund to meet the company's obligations with its lenders. In a significant turn of events, the Supreme Court decided in favor of the company, with NCLAT subsequently directing a refund of Rs. 100.48 Crore along with interest.

Furthermore, the company revealed, "As already informed, ICICI Bank Ltd. had approached NCLT, Allahabad, on the direction of RBI under section 7 of the Insolvency & Bankruptcy Code 2016 against the Company, which has been objected by the Company. The matter is pending to be decided simultaneously with the Scheme of Arrangement for the transfer of Real Estate to the SPV to be sanctioned by the Hon'ble NCL."

Examining the technical side, the daily chart of the stock paints a bearish picture. It has formed a bearish closing marubozu candlestick pattern, a singular pattern signifying strong bearish sentiment in the stock.

The story of Jaiprakash Associates Ltd is a compelling narrative of financial challenges, legal battles, and stock market turbulence. The coming days will undoubtedly hold further developments in this intriguing saga.

Disclaimer: The article is for informational purposes only and not investment advice.