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Key Takeaways
MIS the key growth driver; backend advantage gives competitive edge
The micro irrigation systems (MIS; 50% of revenue) division continues to post robust
growth, achieving 31.5% revenue growth in 1QFY12. The management expects
similar growth through the year, led by strong demand in its seven key states.
Though new players are looking to enter the MIS space (M&M, Godrej Agrovet),
Jain Irrigation (JI) has a major competitive advantage in terms of complete backward
integration and strong distribution. JI has 55% market share and currently makes
double the margins of the nearest competitor in MIS.
Domestic margins to improve, owing to higher share of MIS and food processing
Domestic margins expanded 140bp to 23.5% in 1QFY12 due to higher share of MIS
and food processing in the total mix which enjoy higher margins.
Margins are likely to be under pressure in piping and PVC (30% of sales) due to
higher input costs. However, the management expects these businesses to grow at
half the rate as compared to MIS and food processing. Hence, overall domestic
margins in FY12 are likely to be higher than in FY11.
MIS receivables improving; NBFC to reduce balance sheet burden in FY13
In 1QFY12, gross MIS receivables improved 20 days QoQ to 349 days. The
management expects another 40-50 days of improvement by the end of 3QFY12,
led by subsidy payment dispatch from the Maharashtra government.
JI expects to get the NBFC license in 3-4 months, which will reduce JI's debt and
receivables burden. The total equity funding required will be INR2b, of which INR1b
will come from JI, which will initially own 49% stake. JI believes that all MIS players
will take the NBFC route; EPC Industrie (M&M's subsidiary) has an NBFC and Netafim
(second largest player in India) has also applied for an NBFC license.
International: Strong growth in new geographies; double-digit margin target
JI introduced its MIS products in Turkey last year and generated revenue of USD10m;
the company plans to increase revenue to USD25m in this market in FY12.
JI's international subsidiaries posted an EBITDA margin of 5-6% in FY11. With
increasing sales of MIS in new geographies and access to the UK market through its
Sleaford acquisition, JI is targeting double-digit margins over the next few years.
Valuation and view
JI continues to benefit from increasing demand for its MIS products and its strong
competitive advantage. The key factors to watch are balance sheet management
and successful business de-risking through the NBFC.
The stock trades at 24x FY11 consolidated EPS of INR7.4. Not Rated.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Key Takeaways
MIS the key growth driver; backend advantage gives competitive edge
The micro irrigation systems (MIS; 50% of revenue) division continues to post robust
growth, achieving 31.5% revenue growth in 1QFY12. The management expects
similar growth through the year, led by strong demand in its seven key states.
Though new players are looking to enter the MIS space (M&M, Godrej Agrovet),
Jain Irrigation (JI) has a major competitive advantage in terms of complete backward
integration and strong distribution. JI has 55% market share and currently makes
double the margins of the nearest competitor in MIS.
Domestic margins to improve, owing to higher share of MIS and food processing
Domestic margins expanded 140bp to 23.5% in 1QFY12 due to higher share of MIS
and food processing in the total mix which enjoy higher margins.
Margins are likely to be under pressure in piping and PVC (30% of sales) due to
higher input costs. However, the management expects these businesses to grow at
half the rate as compared to MIS and food processing. Hence, overall domestic
margins in FY12 are likely to be higher than in FY11.
MIS receivables improving; NBFC to reduce balance sheet burden in FY13
In 1QFY12, gross MIS receivables improved 20 days QoQ to 349 days. The
management expects another 40-50 days of improvement by the end of 3QFY12,
led by subsidy payment dispatch from the Maharashtra government.
JI expects to get the NBFC license in 3-4 months, which will reduce JI's debt and
receivables burden. The total equity funding required will be INR2b, of which INR1b
will come from JI, which will initially own 49% stake. JI believes that all MIS players
will take the NBFC route; EPC Industrie (M&M's subsidiary) has an NBFC and Netafim
(second largest player in India) has also applied for an NBFC license.
International: Strong growth in new geographies; double-digit margin target
JI introduced its MIS products in Turkey last year and generated revenue of USD10m;
the company plans to increase revenue to USD25m in this market in FY12.
JI's international subsidiaries posted an EBITDA margin of 5-6% in FY11. With
increasing sales of MIS in new geographies and access to the UK market through its
Sleaford acquisition, JI is targeting double-digit margins over the next few years.
Valuation and view
JI continues to benefit from increasing demand for its MIS products and its strong
competitive advantage. The key factors to watch are balance sheet management
and successful business de-risking through the NBFC.
The stock trades at 24x FY11 consolidated EPS of INR7.4. Not Rated.
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