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Jain Irrigation Systems
F2Q11: Disappointing
Results; Concerns on Capital
Efficiency
Quick Comment – We remain EW: Jain Irrigation
(JISL) reported disappointed F2Q11 results. These
results reiterates our view that markets seem to be
ignoring execution risks inherent in governmentsponsored
agri projects in India. MIS revenue growth
was the lowest ever reported by the company. In our
view, the key highlight of the result is the deterioration in
working capital efficiency. Management had guided for a
paradigm shift in working capital management in F2011.
While we do not rule out this possibility, following the
F2Q results execution on this front appears challenging
and remains critical for stock performance, in our view.
F2Q11: MIS revenue growth disappoints: JISL
reported F2Q11 results with revenue, EDITDA, and
adjusted PAT growing 14%, 15%, and 21%, respectively.
This compares with our estimates of 20%, 26%, and
43%, respectively. Revenue growth in the quarter was
affected by lower-than-expected growth in the key MIS
business (20% vs. MSe of 35%). Interestingly, the agro
processing business reported a slowdown in revenue
growth (11% vs. MSe of 19%) driven by flat growth in the
onions dehydration business.
JISL reported negative operating cash flow for the
period ending Sep-10: Driven by a 51% increase in
debtors YoY and a 28% increase in inventory YoY, there
was an overall increase in debt of Rs4.2bn.
Stock has underperformed the market by 22% over
last three months: JISL has underperformed the
market by 22% over the past three months. We
continue to believe that market expectation for growth in
the key MIS business may be overly aggressive near
term. This, combined with valuation – the stock is trading
at F2012e implied P/E of ~21x for the MIS business –
drives our EW rating.
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