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Net revenue and adjusted PAT in line with estimates
Jain Irrigation Systems (JISL) posted standalone revenue growth of 29% (at INR
12,362 mn) and EBIDTA growth of 32.9%, Y-o-Y, in Q4FY11. EBITDA margin
expanded 60bps Y-o-Y and 110bps Q-o-Q in Q4FY11. Net revenue and core PAT
came in line with estimates on account of strong performance from MIS, PE piping
and fruit processing divisions. Reported PAT was at INR 1,093 mn, including an
exchange rate loss and other extraordinary items of INR 54 mn. Adjusting for this,
JISL’s adjusted PAT was at INR 1,147 mn, up 22.3% over Q4FY10.
MIS posts strong growth in Q4FY11
After a subdued 19% Y-o-Y revenue growth in Q3FY11 due to delay in withdrawal
of monsoon, the MIS division posted strong growth in Q4FY11 at 39%, as guided
by the management. Moreover, MIS posted 32% growth for FY11, in line with
management guidance at the end of Q3FY11.
Key highlights
JISL is likely to finalise the structure of its planned NBFC by Q2FY12. The
NBFC is likely to attract an investment of INR 2 bn, of which, JISL will
contribute INR 1 bn. We see setting up of this NBFC as a positive for the
company in the long run in addressing working capital issues.
Management guides to strong growth of over 30% in MIS revenues and
overall revenue growth in the range of 20-25%, in FY12.
Working capital scenario has improved marginally for JISL, Q-o-Q, and is
likely to improve further with implementation of the mission mode for MIS
and setting up of the NBFC.
Outlook and valuations: Strong comeback in Q4FY11; upgrade to ‘BUY’
Considering numbers in Q4FY11 are as expected and strong outlook for MIS
business, we maintain our FY12 and FY13 estimates. After consecutive quarters of
underperformance, we have seen a strong comeback by the company in Q4FY11
and are confident on its long-term prospects. We believe that the recent
correction in the stock price provides for an upside in the stock.
Currently, the stock is trading at 16.5x and 12.2x consolidated P/E for FY12E and
FY13E, respectively. We upgrade our recommendation on it to ‘BUY’, with a fair
value target of INR 220.
Other highlights
While the domestic MIS business posted strong Y-o-Y growth of 42% in Q4FY11,
piping business grew at 13%, fruit processing by 46% and onion dehydration by
10%.
EBITDA margin in the onion dehydration segment moved into the positive zone in
Q4FY11 vis-a-vis -27.5% margin in Q3FY11.
JISL purchased onions at a price of INR 28 per kg in Q3FY11 and at INR 11 per kg in
Q4FY11 and is currently purchasing at INR 5 per kg. In this context, the margin is
likely to improve further in Q1FY12.
Management guided for a growth of 10-15% in the agro processing division for
FY12.
For FY11, the MIS division grew at 32%, piping division at 9% and agro processing
business at 10%.
Inventory level, which was at INR 10.6 bn as on December 31, 2010, has improved
to INR 9 bn as on March 31, 2011.
Despite strong sales revenue in Q4FY11 at INR 12.4 bn, debtors have increased only
marginally from INR 13.9 bn as on December 31, 2010 to INR 14.9 bn as on March
31, 2011.
Gross debt to equity on a standalone basis has improved from 1.33 at the end of
FY10 to 1.27 at the end of FY11.
As on March 31, 2011, standalone debt is at ~INR 22 bn and consolidated debt at
~INR 29.7 bn.
During the quarter, the company has issued promoter entities 6.1 mn equity share
warrants convertible at INR 228.15 each. This would result in dilution of ~1.5% on
conversion.
JISL made an exchange rate loss of INR 28.4 mn (including unrealised net gain of
INR 50.7 mn on long-term foreign currency borrowing) in Q4FY11 against exchange
rate gain of INR 339 mn in Q4FY10.
During the quarter, due to rupee movement, the company reversed INR 38.8 mn to
its hedging reserves, resulting in debit balance of INR 194.8 mn as on March 31,
2011, against INR 233.7 mn as on December 31, 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 an opportunity of ~INR 450 bn under micro irrigation over the
next six to seven years. 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 �� ��
Net revenue and adjusted PAT in line with estimates
Jain Irrigation Systems (JISL) posted standalone revenue growth of 29% (at INR
12,362 mn) and EBIDTA growth of 32.9%, Y-o-Y, in Q4FY11. EBITDA margin
expanded 60bps Y-o-Y and 110bps Q-o-Q in Q4FY11. Net revenue and core PAT
came in line with estimates on account of strong performance from MIS, PE piping
and fruit processing divisions. Reported PAT was at INR 1,093 mn, including an
exchange rate loss and other extraordinary items of INR 54 mn. Adjusting for this,
JISL’s adjusted PAT was at INR 1,147 mn, up 22.3% over Q4FY10.
MIS posts strong growth in Q4FY11
After a subdued 19% Y-o-Y revenue growth in Q3FY11 due to delay in withdrawal
of monsoon, the MIS division posted strong growth in Q4FY11 at 39%, as guided
by the management. Moreover, MIS posted 32% growth for FY11, in line with
management guidance at the end of Q3FY11.
Key highlights
JISL is likely to finalise the structure of its planned NBFC by Q2FY12. The
NBFC is likely to attract an investment of INR 2 bn, of which, JISL will
contribute INR 1 bn. We see setting up of this NBFC as a positive for the
company in the long run in addressing working capital issues.
Management guides to strong growth of over 30% in MIS revenues and
overall revenue growth in the range of 20-25%, in FY12.
Working capital scenario has improved marginally for JISL, Q-o-Q, and is
likely to improve further with implementation of the mission mode for MIS
and setting up of the NBFC.
Outlook and valuations: Strong comeback in Q4FY11; upgrade to ‘BUY’
Considering numbers in Q4FY11 are as expected and strong outlook for MIS
business, we maintain our FY12 and FY13 estimates. After consecutive quarters of
underperformance, we have seen a strong comeback by the company in Q4FY11
and are confident on its long-term prospects. We believe that the recent
correction in the stock price provides for an upside in the stock.
Currently, the stock is trading at 16.5x and 12.2x consolidated P/E for FY12E and
FY13E, respectively. We upgrade our recommendation on it to ‘BUY’, with a fair
value target of INR 220.
Other highlights
While the domestic MIS business posted strong Y-o-Y growth of 42% in Q4FY11,
piping business grew at 13%, fruit processing by 46% and onion dehydration by
10%.
EBITDA margin in the onion dehydration segment moved into the positive zone in
Q4FY11 vis-a-vis -27.5% margin in Q3FY11.
JISL purchased onions at a price of INR 28 per kg in Q3FY11 and at INR 11 per kg in
Q4FY11 and is currently purchasing at INR 5 per kg. In this context, the margin is
likely to improve further in Q1FY12.
Management guided for a growth of 10-15% in the agro processing division for
FY12.
For FY11, the MIS division grew at 32%, piping division at 9% and agro processing
business at 10%.
Inventory level, which was at INR 10.6 bn as on December 31, 2010, has improved
to INR 9 bn as on March 31, 2011.
Despite strong sales revenue in Q4FY11 at INR 12.4 bn, debtors have increased only
marginally from INR 13.9 bn as on December 31, 2010 to INR 14.9 bn as on March
31, 2011.
Gross debt to equity on a standalone basis has improved from 1.33 at the end of
FY10 to 1.27 at the end of FY11.
As on March 31, 2011, standalone debt is at ~INR 22 bn and consolidated debt at
~INR 29.7 bn.
During the quarter, the company has issued promoter entities 6.1 mn equity share
warrants convertible at INR 228.15 each. This would result in dilution of ~1.5% on
conversion.
JISL made an exchange rate loss of INR 28.4 mn (including unrealised net gain of
INR 50.7 mn on long-term foreign currency borrowing) in Q4FY11 against exchange
rate gain of INR 339 mn in Q4FY10.
During the quarter, due to rupee movement, the company reversed INR 38.8 mn to
its hedging reserves, resulting in debit balance of INR 194.8 mn as on March 31,
2011, against INR 233.7 mn as on December 31, 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 an opportunity of ~INR 450 bn under micro irrigation over the
next six to seven years. 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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