Jain Irrigation-Flat quarter led by monsoon months: BofA ML

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Jain Irrigation Systems Ltd
Flat quarter led by monsoon
months
􀂄 In-line flat quarter; tweak estimates; PO unchanged
Jain Irrigation reported an in-line flat quarter, post which we tweak our estimates
marginally and maintain our Neutral rating with a price objective of INR270, given
fair valuations. The stock trades at the higher end of its historical P/E range, as
well as its EV/EBITDA band. Our PO is based on a target PEG 0.5x -- similar to
our mid-cap universe -- and offers ~15% upside potential.


Micro irrigation posts muted quarter given monsoon months
The company reported ~20% yoy growth in domestic micro irrigation. While
expected, this was led by soft sales in regular monsoon months vs. a delayed
monsoon last year. However, we expect growth in micro irrigation to be strong in
Q3 and Q4. The company mentioned that, given the upgrade to Mission Mode,
the subsidy disbursal was delayed in Q2, due to transition, and it expects working
capital to improve ahead.


Other segments post mixed performance
The rest of the segments continued with mixed performance. While EBITDA in
PVC pipes grew 31% yoy, PE pipes declined 22% yoy. Onion dehydration saw a
35% yoy decline in EBITDA, due to lower sales realizations impacted by Rupee
appreciation, and the fruit-processing segment showed flat growth. We expect the
mixed performances from the rest of the segments to continue going forward.
Stock fairly valued; expect Q3/Q4 to be strong
The stock trades at a 25x FY11e PE and a 17.5x FY12e PE, which we believe is
a fair valuation based on a PEG of 0.5x. We see upside risks to our estimates and
PO from i) better-than-expected margins in micro irrigation and ii) a better-thanexpected
performance in subsidiaries.