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JAIN IRRIGATION SYSTEMS
Muted quarter; outlook strong
Net revenue below estimate; EBITDA margin in line
Jain Irrigation Systems (JISL) posted standalone revenue growth of 14% (at INR
6,411 mn) and EBIDTA growth of 14.6% Y-o-Y in Q2FY11. Net revenue and PAT
came in below estimates on account of a good monsoon, resulting in subdued
operations in the MIS and PE pipe segments. EBIDTA margin was in line with
estimate and expanded 20bps to 21.8% in Q2FY11 vis-à-vis Q2FY10, primarily on
account of higher contribution from the high-margin MIS business. Reported PAT
was at INR 620 mn, including an exchange rate gain of INR 216 mn. Adjusting for
the exchange rate gain and tax paid on it, JISL’s adjusted PAT was at INR 469
mn, a growth of 16.5% over Q2FY10.
MIS: Subdued growth due to good monsoon; to grow strongly in H2FY11
MIS revenue grew at 19.5% Y-o-Y in Q2FY11 vis-à-vis the full year guidance of
35-40% growth on account of good rainfall during the quarter against poor
monsoon in Q2FY10. However, MIS’ standalone revenue contribution jumped to
~47.7% in Q2FY11 vis-à-vis ~45.4% in Q2FY10. Management has guided for high
growth (40-60% range) in MIS segment in H2FY11 Y-o-Y.
Key highlights
Revenue growth in agro-processing was subdued due to mangoes availability
issue and also due to lower realisation in the onion dehydration segment on
account of INR appreciation. For FY11, the agro-processing segment’s
revenue growth is expected to be subdued at ~15-20% compared to over
30% in the past few years.
On account of the national mission status given to the Micro Irrigation
Scheme, the subsidy payment cycle is expected to be shortened, resulting in
better working capital management for JISL.
Outlook and valuations: Strong outlook but rich valuation; maintain ‘HOLD’
Due to the lower–than-expected numbers in Q2FY11, we are revising our FY11E
consolidated net revenue and core PAT down marginally by ~1.5% and ~6%,
respectively. However, we are maintaining our FY12 estimates. On account of a
good monsoon and high agri output prices, farmers are expected to have ample
free cash which in turn will boost JISL’s business. We are confident about the
company’s long-term prospects. However, the stock’s valuation continues to be
rich, with it trading at 28.4x and 20.7x consolidated P/E for FY11E and FY12E,
respectively, at CMP of INR 231. We maintain our ‘HOLD’ recommendation
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