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A soft quarter ahead
An extended monsoon and a decision to focus on cashflow in some states will likely
weigh on Jain’s 2QFY12 micro-irrigation sales; forex translation losses and higher
interest will be headwinds too and expect reported profits down ~80%YoY in 2Q.
We are cutting FY12 EPS by 12% to factor in forex losses, lower micro-sales and
higher interest; the latter two also lead to 4-6% cuts to FY13-14 EPS. Core P&L
metrics remain healthy, though, with the stock outlook hinging on the trajectory of
w-cap. Here, our interactions suggest that gross micro-receivables were flat QoQ
after the 20-day cut in 1Q. A rebound in cash-flow should help a re-rating. BUY.
A modest growth quarter for micro-irrigation in 2QFY12
An extended monsoon (impacting sales in Maharashtra) and Jain’s conscious decision
to focus on cashflow instead of revenues (impacting sales in AP and TN) will likely
weigh on 2QFY12 micro-irrigation sales; we model a slowdown in growth to 20%YoY in
the quarter (+30% in 1Q). We expect this to revert to 30% in 2HFY12 but the modest
2Q still implies a 4% cut full year revenues to Rs21.8bn (+28%YoY cf. 31% in FY11).
Higher interest costs and forex losses are additional headwinds
While strong performances in agro and PVC sheets may offset a modest quarter for
pipes, Jain’s high proportion of short term w-cap debt (~60%) makes it vulnerable to
the tightening rate-cycle. Indeed, we expect interest costs as a proportion of sales
rising to a eight year high of ~11.5% in 2Q leading to a 12% drop in core PBT. The
sharp depreciation of the rupee against the US$ is a further headwind for 2Q; we
model ~Rs500m in translation losses in the quarter primarily on the US$ denominated
debt of US$120m. Overall, we model a ~80% YoY drop in reported profits to Rs135m.
Gross micro-irrigation receivables broadly flat QoQ; more cuts to come
The stock outlook continues to hinge on the trajectory of working capital, though.
Here, our recent conversations suggest that gross micro-irrigation receivables were flat
QoQ at ~350-days in 2Q after the ~20-day cut in 1Q. We model another ~10-day cut
by Mar-12; management is more optimistic pointing to the expected ~Rs2bn recovery
from Maharashtra over the coming weeks that itself could cut receivables by ~35-days.
Lowering FY12-14 EPS by 4-12%; maintain BUY with an Rs225/sh target
We are cutting FY12 EPS by 12% to factor in the forex translation losses, lower microsales
and higher interest costs; the latter two also lead to 4-6% cuts to FY13-14 EPS.
Nonetheless, core growth and profitability metrics remain healthy; we project a 34%
Cagr in core EPS over FY11-14, for example, and 26% for reported EPS. Falling debtors
should help Jain turn FCF positive in FY13, strengthen gearing ratios and bring focus
back on the core micro irrigation investment theme. In this context, valuations are
reasonable again at ~12x Mar13 PE after the 20% correction in the last month. BUY.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
A soft quarter ahead
An extended monsoon and a decision to focus on cashflow in some states will likely
weigh on Jain’s 2QFY12 micro-irrigation sales; forex translation losses and higher
interest will be headwinds too and expect reported profits down ~80%YoY in 2Q.
We are cutting FY12 EPS by 12% to factor in forex losses, lower micro-sales and
higher interest; the latter two also lead to 4-6% cuts to FY13-14 EPS. Core P&L
metrics remain healthy, though, with the stock outlook hinging on the trajectory of
w-cap. Here, our interactions suggest that gross micro-receivables were flat QoQ
after the 20-day cut in 1Q. A rebound in cash-flow should help a re-rating. BUY.
A modest growth quarter for micro-irrigation in 2QFY12
An extended monsoon (impacting sales in Maharashtra) and Jain’s conscious decision
to focus on cashflow instead of revenues (impacting sales in AP and TN) will likely
weigh on 2QFY12 micro-irrigation sales; we model a slowdown in growth to 20%YoY in
the quarter (+30% in 1Q). We expect this to revert to 30% in 2HFY12 but the modest
2Q still implies a 4% cut full year revenues to Rs21.8bn (+28%YoY cf. 31% in FY11).
Higher interest costs and forex losses are additional headwinds
While strong performances in agro and PVC sheets may offset a modest quarter for
pipes, Jain’s high proportion of short term w-cap debt (~60%) makes it vulnerable to
the tightening rate-cycle. Indeed, we expect interest costs as a proportion of sales
rising to a eight year high of ~11.5% in 2Q leading to a 12% drop in core PBT. The
sharp depreciation of the rupee against the US$ is a further headwind for 2Q; we
model ~Rs500m in translation losses in the quarter primarily on the US$ denominated
debt of US$120m. Overall, we model a ~80% YoY drop in reported profits to Rs135m.
Gross micro-irrigation receivables broadly flat QoQ; more cuts to come
The stock outlook continues to hinge on the trajectory of working capital, though.
Here, our recent conversations suggest that gross micro-irrigation receivables were flat
QoQ at ~350-days in 2Q after the ~20-day cut in 1Q. We model another ~10-day cut
by Mar-12; management is more optimistic pointing to the expected ~Rs2bn recovery
from Maharashtra over the coming weeks that itself could cut receivables by ~35-days.
Lowering FY12-14 EPS by 4-12%; maintain BUY with an Rs225/sh target
We are cutting FY12 EPS by 12% to factor in the forex translation losses, lower microsales
and higher interest costs; the latter two also lead to 4-6% cuts to FY13-14 EPS.
Nonetheless, core growth and profitability metrics remain healthy; we project a 34%
Cagr in core EPS over FY11-14, for example, and 26% for reported EPS. Falling debtors
should help Jain turn FCF positive in FY13, strengthen gearing ratios and bring focus
back on the core micro irrigation investment theme. In this context, valuations are
reasonable again at ~12x Mar13 PE after the 20% correction in the last month. BUY.
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