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Jain Irrigation -Subsidy support for micro irrigation raised further
FY12 subsidy raised further; new schemes under RKVY likely positive: The
Finance Minister’s Union Budget provides for an increase in the central
government’s subsidy support for the National Mission on Micro Irrigation
(NMMI) to `11.3bn for FY11-12 (vs an original allocation of `10.0bn for FY10-11
that is now revised downward to `9.7bn). We note that central government also
subsidises micro irrigation (MI) via various other schemes, budgetary
allocations for which are also raised (Exhibit 1). In particular, a number of new
schemes have been created under the Rashtriya Krishi Vikas Yojana (RKVY) that
could meaningfully expand the addressable opportunity (Exhibit 2) and provide
for additional subsidy support for MI. The downward revision in FY10-11 NMMI
subsidy estimate to `9.7bn could be driven by slower than expected farmer
demand due to prolonged and excessive rainfall in late-CY10.
No direct correlation between budgetary allocation and MI growth: Between
FY07-08 to FY09-10, subsidy allocation to the NMMI (then known as the
Centrally Sponsored Scheme on Micro Irrigation) fell from `5.5bn to `4.3bn
even while the MI industry was growing very strongly: Jain Irrigation’s domestic
MI revenues more than doubled from c.`6.0bn in FY08 to `12.2bn in FY10. We
believe this was because MI implementation was supported under several other
schemes and the actual usage of subsidy under the MI scheme was lower than
budgeted. Hence, we believe that the 13% increase in budgetary support for
FY12 will not act as a cap on MI revenue growth. On the contrary, we expect
farmer demand for MI to remain very strong at least through the June quarter
(potentially driving as much as 40-50% YoY growth in Jain Irrigation’s MI
business). Consequently, we think a sell-off in Jain Irrigation shares on
concerns over modest increase in NMMI subsidy allocation is unwarranted.
Data points from key states indicate continued strength in demand: Data
reported by the implementing agency for the state of Gujarat suggests that
demand growth is very strong so far in 4QFY11. Farmers in Gujarat have
applied for MI installations on more than 23,000 hectares between 1 Jan - 28
Feb’11 vs a little under 10,000 hectares during the same period last year. The
Gujarat government’s budget has allocated `1,750mn for MI implementation in
FY12. We understand that demand in Maharashtra is also currently very strong,
with farmers booking MI systems months in advance, while the Andhra Pradesh
government has said it has given sanctions for MI installation on nearly
100,000 hectares. We believe a key driver of demand is the increasing
affluence of cotton farmers benefiting from rising prices.
Customs duty cut from 7.5% to 5% unlikely to have significant impact: The
customs duty cut will make it cheaper to import MI systems from overseas and
could, therefore, benefit MNCs like Netafim and Plastro. Jain Irrigation, too,
may benefit via lower duty on imports from its Israeli subsidiaries (NaanDan
Jain). However, we believe imported systems do not command a significant
share in the domestic market due to higher costs (including freight), and hence
the duty cut is unlikely to have a significant impact on competitive dynamics
within the industry.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Jain Irrigation -Subsidy support for micro irrigation raised further
FY12 subsidy raised further; new schemes under RKVY likely positive: The
Finance Minister’s Union Budget provides for an increase in the central
government’s subsidy support for the National Mission on Micro Irrigation
(NMMI) to `11.3bn for FY11-12 (vs an original allocation of `10.0bn for FY10-11
that is now revised downward to `9.7bn). We note that central government also
subsidises micro irrigation (MI) via various other schemes, budgetary
allocations for which are also raised (Exhibit 1). In particular, a number of new
schemes have been created under the Rashtriya Krishi Vikas Yojana (RKVY) that
could meaningfully expand the addressable opportunity (Exhibit 2) and provide
for additional subsidy support for MI. The downward revision in FY10-11 NMMI
subsidy estimate to `9.7bn could be driven by slower than expected farmer
demand due to prolonged and excessive rainfall in late-CY10.
No direct correlation between budgetary allocation and MI growth: Between
FY07-08 to FY09-10, subsidy allocation to the NMMI (then known as the
Centrally Sponsored Scheme on Micro Irrigation) fell from `5.5bn to `4.3bn
even while the MI industry was growing very strongly: Jain Irrigation’s domestic
MI revenues more than doubled from c.`6.0bn in FY08 to `12.2bn in FY10. We
believe this was because MI implementation was supported under several other
schemes and the actual usage of subsidy under the MI scheme was lower than
budgeted. Hence, we believe that the 13% increase in budgetary support for
FY12 will not act as a cap on MI revenue growth. On the contrary, we expect
farmer demand for MI to remain very strong at least through the June quarter
(potentially driving as much as 40-50% YoY growth in Jain Irrigation’s MI
business). Consequently, we think a sell-off in Jain Irrigation shares on
concerns over modest increase in NMMI subsidy allocation is unwarranted.
Data points from key states indicate continued strength in demand: Data
reported by the implementing agency for the state of Gujarat suggests that
demand growth is very strong so far in 4QFY11. Farmers in Gujarat have
applied for MI installations on more than 23,000 hectares between 1 Jan - 28
Feb’11 vs a little under 10,000 hectares during the same period last year. The
Gujarat government’s budget has allocated `1,750mn for MI implementation in
FY12. We understand that demand in Maharashtra is also currently very strong,
with farmers booking MI systems months in advance, while the Andhra Pradesh
government has said it has given sanctions for MI installation on nearly
100,000 hectares. We believe a key driver of demand is the increasing
affluence of cotton farmers benefiting from rising prices.
Customs duty cut from 7.5% to 5% unlikely to have significant impact: The
customs duty cut will make it cheaper to import MI systems from overseas and
could, therefore, benefit MNCs like Netafim and Plastro. Jain Irrigation, too,
may benefit via lower duty on imports from its Israeli subsidiaries (NaanDan
Jain). However, we believe imported systems do not command a significant
share in the domestic market due to higher costs (including freight), and hence
the duty cut is unlikely to have a significant impact on competitive dynamics
within the industry.
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