Jain Irrigation - Result Disappoints; Result Update Q2FY15 :: Edelweiss, PDF link

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Jain Irrigation’s (JISL) Q2FY15 standalone sales, EBITDA and PAT belied our estimates, primarily owing to lower exports and PE pipe sales. Key positives were: 1) domestic micro irrigation (MIS) sales grew 67.6% YoY owing to both, retail as well as projects; 2) all segments registered strong growth except PE pipe and PVC sheets; 3) healthy order book of INR14bn; and 4) overseas subsidiaries performed well. Key negatives were: 1) MIS export sales fell owing to lower exports to African countries; 2) lower exports in PVC sheets due to shifting of two production lines to Europe; and 3) net debt increased by INR2.2bn QoQ to support food business production season. Management highlighted that raw material prices softened towards end of the quarter which will help improve H2FY15 EBITDA margin. JISL maintained to reduce debt by INR3bn in FY15.  The company is contemplating minority stake sale in its agro processing business, which could reduce debt at faster pace. It maintained 20%/25% YoY growth in standalone/domestic MIS sales in FY15. In view of huge untapped opportunity, increased focus of the government on MIS and JISL being market leader, we anticipate its domestic MIS business to sustain strong growth, going forward. However, debt reduction remains a key monitorable for the stock.

Weak quarter

Standalone net sales grew by mere 2.2% YoY, owing to lower export sales (down 22% YoY), PE pipe (down 55.5% YoY) and food processing business (down 12.2% YoY). However, MIS/PVC pipe/onion dehydration businesses grew 29.6%/21.5%/40.4% YoY. EBITDA remained flat YoY to INR1.25bn. Depreciation was up 28.8% YoY on account of accelerated depreciation as per the Companies Act.

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