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JAIN IRRIGATION SYSTEMS
Disappointing quarter; long-term growth intact
Net revenue and adjusted PAT below estimate
Jain Irrigation Systems (JISL) posted standalone revenue growth of 10% (at INR
7,047 mn) and EBIDTA growth of 9% Y-o-Y in Q3FY11. Net revenue and PAT
came in below estimates on account of a delay in withdrawal of monsoon,
resulting in subdued operations for significant portion of the quarter in the MIS
and piping segments. Reported PAT was at INR 715 mn, including an exchange
rate gain of INR 71.5 mn and INR 313.7 mn on account of prior four quarters’ VAT
refund in accordance with Industrial Promotion Scheme of Maharashtra
Government. Adjusting for these and tax paid on them, JISL’s adjusted PAT was
at INR 448 mn, down 6.8% over Q3FY10.
MIS impacted by delay in monsoon withdrawal; to revive strongly in Q4FY11
MIS revenue grew at just 19% Y-o-Y in Q3FY11 due to delay in withdrawal of
monsoon. Management has guided for strong performance of MIS at 40% in
Q4FY11, on the back of which the whole year growth for MIS is likely to be in the
range of 30-35% vis-à-vis the earlier guidance of 35-40%.
Key highlights
On account of Industrial Promotion Scheme of Maharashtra Government, JISL
got approval in Q3FY11, to get VAT refunds (from new assets) for the period
of 5-7 years, starting from October 2009. This is capped to the tune of the
capex done in Maharashtra (~INR 3.8 bn) from 2006 to 2009.
JISL is planning to set up an NBFC to address credit needs of farmers.
Rising interest cost has been a concern and the company is planning to raise
USD 150 mn equity to reduce debt and to finance growth.
JISL announced issue of bonus shares: 1 DVR (differential voting rights)
share for every 20 shares held. DVR share will have one-tenth voting right.
Outlook and valuations: Revival due in Q4FY11; maintain ‘HOLD’
Considering lower-than-expected numbers in Q3FY11 and also the VAT refunds
that would continue on a sustained basis, we are revising our FY11E consolidated
net revenue and EPS down by ~3.5% and ~7%, respectively. However, we are
maintaining our FY12 estimates. Though underperformance was seen in
consecutive quarters, on account of a good monsoon and then delay in
withdrawal, the company’s fundamentals remain strong. We are confident about
the company’s long-term prospects. However, the stock’s valuation continues to
be rich, with it trading at 28.3x and 19.2x consolidated P/E for FY11E and FY12E,
respectively. We maintain our ‘HOLD’ recommendation.
Key highlights
The company plans to raise funds through equity route to the extent of USD 150
mn, which is intended to be used to reduce debt and thus reduce interest cost, and
fund the NBFC that is being planned, renewable energy division and potential growth
opportunities in MIS. The fund raising is expected to happen before H1FY12 end.
Also, the company plans to do a preferential allotment to promoter entities upto 6.1
mn equity share warrants.
JISL plans to set up an NBFC to cater to farmers’ credit needs. This NBFC will be a
JV with some other partners and the company plans to fund their working capital
requirement (subsidy receivable from government) via NBFC, thus improving the
working capital cycle. The company intends to float the NBFC in the next 2-3
quarters.
MIS
Posted Y-o-Y growth of 19.0% in Q3FY11 at INR 3,602 mn.
MIS revenues grew strongly in Maharashtra (33%), Andhra Pradesh (59%),
Karnataka (36%), Rajasthan (132%) and Gujarat (144%), Y-o-Y, in Q3FY11.
Slight dip in EBIDTA margin in Q3FY11, at 30.6%, vis-à-vis 31.1% in Q3FY10.
Agro-processing
The division posted -4.7% revenue growth Y-o-Y in Q3FY11 with -48% growth in
onion dehydration and 14% in fruit processing.
Revenue in onion dehydration was significantly lower because of lack of availability
of onions in Q3FY11 and also EBITDA margin was poor at -27.5% due to high cost of
raw materials.
Despite a steep decline of 19.8% in fruit volume growth in Q3FY11 on account of
lower availability of mangoes, on account of higher realisation the Y-o-Y growth for
this segment was at 14%.
For FY11, the agro-processing segment’s revenue growth is expected to be subdued
at ~10-15% vis-à-vis earlier estimate of 15-20%.
Piping
This division grew 1.5% Y-o-Y, with PVC pipes accounting for 1.9% and PE pipes
0.7%.
Sales value growth was higher than volume growth in both PVC as well as PE
segments on account of higher polymer prices
The piping segment performance also got impacted in this quarter due to the
extended monsoon resulting in weaker infrastructure spends.
Other highlights
JISL made an exchange rate gain of INR 71.5 mn (including unrealised net loss of
INR 69.4 mn on long-term foreign currency borrowing) in Q3FY11 against exchange
rate gain of INR 131.7 mn in Q3FY10.
During the quarter, due to rupee movement, the company credited INR 32 mn to its
hedging reserves, resulting in debit balance of INR 233.7 mn as on December 31,
2010, against INR 265.7 mn as on September 30, 2010.
Company Description
Established in 1986, Jain Irrigation Systems (JISL) is currently the world’s second largest
and India’s largest micro irrigation company. It has four major business divisions—micro
irrigation systems (MIS), piping systems, agro processing, and plastic sheets. Apart from
these, it also derives a minor portion of revenues from tissue culture, hybrid & grafted
plants, and solar devices. In FY10, at a consolidated level, MIS revenue share was at
54%, piping products at 24%, agro processed products at 15%, plastic sheets at 5% and
others at 2%. JISL has a global presence in more than 100 countries with a robust dealer
and distribution network; it has 24 plants and employs over 6,000 people. JISL has been
named by Standard & Poor’s in May 2007 as one of the eight Indian companies expected
to emerge as challengers to the world’s leading companies.
Investment Theme
India is likely to have an additional 15 million hectare of agricultural land to be covered
under micro irrigation over the next seven years from the existing 3.68 million hectare,
translating into an opportunity of INR 450 bn. JISL stands to gain the most, being the
market leader in this space. Standalone sales of JISL’s MIS segment have posted a CAGR
of 61% during 2005-10 and are expected to continue to drive growth for a few more
years (registering a 36% standalone CAGR over 2010-13E). Also, we expect the
operating margins to expand on the back of increasing contribution of high margin Indian
MIS business to the consolidated revenues.
Key Risks
Withdrawal of subsidies for micro irrigation is a key risk that could cause JISL’s growth
rates to slow down drastically.
Poor monsoon, seasonality and cyclical nature of agriculture could impact the company’s
agro-processing division by hitting the availability as well as prices of agro commodities.
Though poor monsoon is unlikely to impact MIS in the short term, in case of recurring
monsoon failure, the segment’s growth may slow down.
Competition from the unorganized sector as well as supply from China may impact the
MIS business. However, only from the context of manufacturing MIS systems, it is a low
entry barrier business, and competencies needed to manage the inherent issues of
weather, dealing with government, small holdings by Indian farmers etc., limit the scope
of most players in the Indian MIS market.
Most of JISL’s activities are working capital intensive, which may constrain the company
from achieving targeted growth.
USD/INR volatility may impact export revenues as well as margins. As the company is
having high D/E, interest rate tightening may impact profitability.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
JAIN IRRIGATION SYSTEMS
Disappointing quarter; long-term growth intact
Net revenue and adjusted PAT below estimate
Jain Irrigation Systems (JISL) posted standalone revenue growth of 10% (at INR
7,047 mn) and EBIDTA growth of 9% Y-o-Y in Q3FY11. Net revenue and PAT
came in below estimates on account of a delay in withdrawal of monsoon,
resulting in subdued operations for significant portion of the quarter in the MIS
and piping segments. Reported PAT was at INR 715 mn, including an exchange
rate gain of INR 71.5 mn and INR 313.7 mn on account of prior four quarters’ VAT
refund in accordance with Industrial Promotion Scheme of Maharashtra
Government. Adjusting for these and tax paid on them, JISL’s adjusted PAT was
at INR 448 mn, down 6.8% over Q3FY10.
MIS impacted by delay in monsoon withdrawal; to revive strongly in Q4FY11
MIS revenue grew at just 19% Y-o-Y in Q3FY11 due to delay in withdrawal of
monsoon. Management has guided for strong performance of MIS at 40% in
Q4FY11, on the back of which the whole year growth for MIS is likely to be in the
range of 30-35% vis-à-vis the earlier guidance of 35-40%.
Key highlights
On account of Industrial Promotion Scheme of Maharashtra Government, JISL
got approval in Q3FY11, to get VAT refunds (from new assets) for the period
of 5-7 years, starting from October 2009. This is capped to the tune of the
capex done in Maharashtra (~INR 3.8 bn) from 2006 to 2009.
JISL is planning to set up an NBFC to address credit needs of farmers.
Rising interest cost has been a concern and the company is planning to raise
USD 150 mn equity to reduce debt and to finance growth.
JISL announced issue of bonus shares: 1 DVR (differential voting rights)
share for every 20 shares held. DVR share will have one-tenth voting right.
Outlook and valuations: Revival due in Q4FY11; maintain ‘HOLD’
Considering lower-than-expected numbers in Q3FY11 and also the VAT refunds
that would continue on a sustained basis, we are revising our FY11E consolidated
net revenue and EPS down by ~3.5% and ~7%, respectively. However, we are
maintaining our FY12 estimates. Though underperformance was seen in
consecutive quarters, on account of a good monsoon and then delay in
withdrawal, the company’s fundamentals remain strong. We are confident about
the company’s long-term prospects. However, the stock’s valuation continues to
be rich, with it trading at 28.3x and 19.2x consolidated P/E for FY11E and FY12E,
respectively. We maintain our ‘HOLD’ recommendation.
Key highlights
The company plans to raise funds through equity route to the extent of USD 150
mn, which is intended to be used to reduce debt and thus reduce interest cost, and
fund the NBFC that is being planned, renewable energy division and potential growth
opportunities in MIS. The fund raising is expected to happen before H1FY12 end.
Also, the company plans to do a preferential allotment to promoter entities upto 6.1
mn equity share warrants.
JISL plans to set up an NBFC to cater to farmers’ credit needs. This NBFC will be a
JV with some other partners and the company plans to fund their working capital
requirement (subsidy receivable from government) via NBFC, thus improving the
working capital cycle. The company intends to float the NBFC in the next 2-3
quarters.
MIS
Posted Y-o-Y growth of 19.0% in Q3FY11 at INR 3,602 mn.
MIS revenues grew strongly in Maharashtra (33%), Andhra Pradesh (59%),
Karnataka (36%), Rajasthan (132%) and Gujarat (144%), Y-o-Y, in Q3FY11.
Slight dip in EBIDTA margin in Q3FY11, at 30.6%, vis-à-vis 31.1% in Q3FY10.
Agro-processing
The division posted -4.7% revenue growth Y-o-Y in Q3FY11 with -48% growth in
onion dehydration and 14% in fruit processing.
Revenue in onion dehydration was significantly lower because of lack of availability
of onions in Q3FY11 and also EBITDA margin was poor at -27.5% due to high cost of
raw materials.
Despite a steep decline of 19.8% in fruit volume growth in Q3FY11 on account of
lower availability of mangoes, on account of higher realisation the Y-o-Y growth for
this segment was at 14%.
For FY11, the agro-processing segment’s revenue growth is expected to be subdued
at ~10-15% vis-à-vis earlier estimate of 15-20%.
Piping
This division grew 1.5% Y-o-Y, with PVC pipes accounting for 1.9% and PE pipes
0.7%.
Sales value growth was higher than volume growth in both PVC as well as PE
segments on account of higher polymer prices
The piping segment performance also got impacted in this quarter due to the
extended monsoon resulting in weaker infrastructure spends.
Other highlights
JISL made an exchange rate gain of INR 71.5 mn (including unrealised net loss of
INR 69.4 mn on long-term foreign currency borrowing) in Q3FY11 against exchange
rate gain of INR 131.7 mn in Q3FY10.
During the quarter, due to rupee movement, the company credited INR 32 mn to its
hedging reserves, resulting in debit balance of INR 233.7 mn as on December 31,
2010, against INR 265.7 mn as on September 30, 2010.
Company Description
Established in 1986, Jain Irrigation Systems (JISL) is currently the world’s second largest
and India’s largest micro irrigation company. It has four major business divisions—micro
irrigation systems (MIS), piping systems, agro processing, and plastic sheets. Apart from
these, it also derives a minor portion of revenues from tissue culture, hybrid & grafted
plants, and solar devices. In FY10, at a consolidated level, MIS revenue share was at
54%, piping products at 24%, agro processed products at 15%, plastic sheets at 5% and
others at 2%. JISL has a global presence in more than 100 countries with a robust dealer
and distribution network; it has 24 plants and employs over 6,000 people. JISL has been
named by Standard & Poor’s in May 2007 as one of the eight Indian companies expected
to emerge as challengers to the world’s leading companies.
Investment Theme
India is likely to have an additional 15 million hectare of agricultural land to be covered
under micro irrigation over the next seven years from the existing 3.68 million hectare,
translating into an opportunity of INR 450 bn. JISL stands to gain the most, being the
market leader in this space. Standalone sales of JISL’s MIS segment have posted a CAGR
of 61% during 2005-10 and are expected to continue to drive growth for a few more
years (registering a 36% standalone CAGR over 2010-13E). Also, we expect the
operating margins to expand on the back of increasing contribution of high margin Indian
MIS business to the consolidated revenues.
Key Risks
Withdrawal of subsidies for micro irrigation is a key risk that could cause JISL’s growth
rates to slow down drastically.
Poor monsoon, seasonality and cyclical nature of agriculture could impact the company’s
agro-processing division by hitting the availability as well as prices of agro commodities.
Though poor monsoon is unlikely to impact MIS in the short term, in case of recurring
monsoon failure, the segment’s growth may slow down.
Competition from the unorganized sector as well as supply from China may impact the
MIS business. However, only from the context of manufacturing MIS systems, it is a low
entry barrier business, and competencies needed to manage the inherent issues of
weather, dealing with government, small holdings by Indian farmers etc., limit the scope
of most players in the Indian MIS market.
Most of JISL’s activities are working capital intensive, which may constrain the company
from achieving targeted growth.
USD/INR volatility may impact export revenues as well as margins. As the company is
having high D/E, interest rate tightening may impact profitability.
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