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Jain Irrigation Systems Ltd
Underweight
JAIR.BO, JI IN
A pretty post-NBFC scenario? Not Quite. Maintain
UW, reduce PT to Rs175
• 30% stock underperformance, but headwinds ahead: JI has U/P the
broad market by 30% over past 12m – we do not see this trend reversing
yet. We see headwinds that will keep stock performance subdued: 1)
Impending dilution (proposed QIP) to part fund the NBFC venture 2)
slowdown in near term growth due to slower growth for micro-irrigation
(elections in TN, payment issues in AP) and food processing business
(mango crop unavailability). Only silver lining is curtailment of losses in
the international business, but we do not think this is good enough to
mitigate larger concerns.
• Cutting estimates and price target – We reduce our FY11E-FY13E EPS
estimates by 5%-12% to factor in slower revenue growth. We set a revised
Mar-12 price target of Rs175 based on 18x average of FY12E and FY13E
EPS. We cut our target multiple by 10% to account for the impending
investments in the NBFC and a potential equity dilution (not factored into
our estimates). Consensus estimates have been trending down and we see
more downside. Our FY11E-FY13E (pre-exceptional) EPS estimates are
12%-19% below consensus.
• Simulating a post NBFC scenario: We simulate a post NBFC scenario –
assuming fresh equity issuance of Rs7B (at Rs200/share), Rs1B
investments by JI in micro irrigation and Rs10B NBFC book by FY12E.
Such a scenario gives us 5%-9% lower EPS for FY12E-FY13E – largely
as interest cost savings get mitigated by lower EBITDA margins and
equity dilution to part fund the NBFC.
• 4QFY11 Preview: We estimate 30% growth in micro-irrigation and
overall revenue growth of 24% yoy. We estimate stable EBITDA margins
and pre-exceptional PAT growth of 23% yoy.
• Key Risks: Key upside risks to our recommendation and price target
include adoption of MIS in canal-irrigated and cereal growing areas of
North-India, increase in govt. subsidy and faster than expected turnaround
in overseas business
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Jain Irrigation Systems Ltd
Underweight
JAIR.BO, JI IN
A pretty post-NBFC scenario? Not Quite. Maintain
UW, reduce PT to Rs175
• 30% stock underperformance, but headwinds ahead: JI has U/P the
broad market by 30% over past 12m – we do not see this trend reversing
yet. We see headwinds that will keep stock performance subdued: 1)
Impending dilution (proposed QIP) to part fund the NBFC venture 2)
slowdown in near term growth due to slower growth for micro-irrigation
(elections in TN, payment issues in AP) and food processing business
(mango crop unavailability). Only silver lining is curtailment of losses in
the international business, but we do not think this is good enough to
mitigate larger concerns.
• Cutting estimates and price target – We reduce our FY11E-FY13E EPS
estimates by 5%-12% to factor in slower revenue growth. We set a revised
Mar-12 price target of Rs175 based on 18x average of FY12E and FY13E
EPS. We cut our target multiple by 10% to account for the impending
investments in the NBFC and a potential equity dilution (not factored into
our estimates). Consensus estimates have been trending down and we see
more downside. Our FY11E-FY13E (pre-exceptional) EPS estimates are
12%-19% below consensus.
• Simulating a post NBFC scenario: We simulate a post NBFC scenario –
assuming fresh equity issuance of Rs7B (at Rs200/share), Rs1B
investments by JI in micro irrigation and Rs10B NBFC book by FY12E.
Such a scenario gives us 5%-9% lower EPS for FY12E-FY13E – largely
as interest cost savings get mitigated by lower EBITDA margins and
equity dilution to part fund the NBFC.
• 4QFY11 Preview: We estimate 30% growth in micro-irrigation and
overall revenue growth of 24% yoy. We estimate stable EBITDA margins
and pre-exceptional PAT growth of 23% yoy.
• Key Risks: Key upside risks to our recommendation and price target
include adoption of MIS in canal-irrigated and cereal growing areas of
North-India, increase in govt. subsidy and faster than expected turnaround
in overseas business
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