Jain Irrigation Systems -Seasonal weakness for 2Q FY11: Daiwa

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Jain Irrigation Systems (JI IN) Rating:2
Seasonal weakness for 2Q FY11: full-year MIS revenue-growth guidance intact


What has changed?
• The 2Q FY11 net profit was Rs469m (excluding forex gains), up 17% YoY and
down 29% QoQ. While micro-irrigation systems (MIS) revenue rose by only 20%
YoY, management has kept its FY11 guidance for a rise of 35-40% YoY.


Impact
• Jain Irrigation Systems’s (Jain) MIS revenue increased by only 20% YoY for 2Q
FY11, due to widespread monsoon rains in the country which hampered MIS
revenue. We believe the second quarter is the weakest quarter and the fourth quarter
is the strongest one generally for Jain. Management reiterated its full-year guidance
for MIS revenue to rise by 35-40% YoY. As such, we maintain our revenueincrease
forecast of 41% YoY for the MIS business for FY11.

• The dehydrated-onions segment recorded flat revenue year-on-year for 2Q FY11
but a 10% YoY rise for 2H FY11. We forecast an increase of only 5% YoY and
a 10% EBITDA margin for FY11 and see little downside risk to these forecasts.

• Receivables and inventory rose by Rs3.2bn and Rs3.6bn, respectively, for 2H
FY11. These increases were financed partly by balance-sheet debt, which rose
by Rs1.58bn for 1H FY11. However, management guided that both receivables
and inventory are likely to decline for 2H FY11.

Valuation
• We maintain our earnings forecasts for Jain, as we expect good earnings growth
for the following quarters to make up for the weak 2Q FY11 results. We
maintain our DCF-based six-month target price of Rs263.

Catalysts and action
• We maintain our 2 (Outperform) rating for Jain. We still believe that continued
strong earnings momentum would be the key share-price catalyst. We forecast
an EPS CAGR of 31% for FY11-13.