Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We believe Jain Irrigation's high and increasing debt and still-expensive valuation, in a high
interest rate scenario, will weigh on the stock's performance in the near-to-medium term. The
valuation could be under pressure if the company continues to grow without better cash flow
visibility. We initiate at Sell.
NBFC is yet to start and may not be a perfect solution for cash flow issues
We believe Jain’s proposed Non-Banking Financial Company (NBFC) could get further delayed
as raising equity will be difficult in the near term. The NBFC might not be a solution for cash flow
issues given the increasing regulatory oversight. Many farmers may not be aware of the financing
options and this could slow the business.
We expect higher debt and cash strain, even if debtors reduce
We expect overall debtor days (including securitised debt) will decline from a high of 210 days as
of FY11 to 150 days as of FY13. Even then, we forecast net debt will rise from Rs25.7bn as of
FY11 to Rs40.5bn as of FY13, and free cash flow after capex will remain negative until FY13. We
expect a 21% EBITDA CAGR over FY12-13.
Micro irrigation has significant long-term potential
We remain positive on micro irrigation in India given its benefits to farmers and government
efforts to promote it. Our interactions with the government indicate that allocation for micro
irrigation will likely double in the XII five-year plan. However, the new system of subsidy
disbursement could lengthen Jain’s receivables cycle.
Consensus EPS growth seems too high to us
Our EPS forecasts are 18% lower than the Bloomberg consensus for FY13-14, mainly because
we have factored in higher interest costs. Our revenue and EBITDA forecasts are in line with
consensus. We believe Jain’s PE will get de-rated as its debt climbs and its ROE stagnates. Our
target price of Rs120 is based on a three-stage DCF model. The upside risks to our target price
come from a visible improvement in cash flow either through the NBFC operations or from quick
disbursal of subsidies by the government.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We believe Jain Irrigation's high and increasing debt and still-expensive valuation, in a high
interest rate scenario, will weigh on the stock's performance in the near-to-medium term. The
valuation could be under pressure if the company continues to grow without better cash flow
visibility. We initiate at Sell.
NBFC is yet to start and may not be a perfect solution for cash flow issues
We believe Jain’s proposed Non-Banking Financial Company (NBFC) could get further delayed
as raising equity will be difficult in the near term. The NBFC might not be a solution for cash flow
issues given the increasing regulatory oversight. Many farmers may not be aware of the financing
options and this could slow the business.
We expect higher debt and cash strain, even if debtors reduce
We expect overall debtor days (including securitised debt) will decline from a high of 210 days as
of FY11 to 150 days as of FY13. Even then, we forecast net debt will rise from Rs25.7bn as of
FY11 to Rs40.5bn as of FY13, and free cash flow after capex will remain negative until FY13. We
expect a 21% EBITDA CAGR over FY12-13.
Micro irrigation has significant long-term potential
We remain positive on micro irrigation in India given its benefits to farmers and government
efforts to promote it. Our interactions with the government indicate that allocation for micro
irrigation will likely double in the XII five-year plan. However, the new system of subsidy
disbursement could lengthen Jain’s receivables cycle.
Consensus EPS growth seems too high to us
Our EPS forecasts are 18% lower than the Bloomberg consensus for FY13-14, mainly because
we have factored in higher interest costs. Our revenue and EBITDA forecasts are in line with
consensus. We believe Jain’s PE will get de-rated as its debt climbs and its ROE stagnates. Our
target price of Rs120 is based on a three-stage DCF model. The upside risks to our target price
come from a visible improvement in cash flow either through the NBFC operations or from quick
disbursal of subsidies by the government.
No comments:
Post a Comment