Jain Irrigation - Reaping Growth, But Debt Pangs Persist; Visit Note :: Edelweiss, link

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We recently met the Jain Irrigation (JISL) management to get a sense of the industry as well as the company’s business. Management is confident of the standalone micro irrigation (MIS) revenue surging 20% YoY in FY15 primarily driven by the domestic retail and project business. Andhra Pradesh government has permitted 15% hike in MIS price recently and other state governments are expected to follow suit; JISL anticipates Maharashtra government, largest MIS market is also expected to allow free pricing soon. The company’s EBITDA margin is likely to surge in the near term riding recent correction in raw material prices. Moreover, the minority stake sale in agro processing business, expected to be completed in the next 2-3 quarters, will help pare debt. The company envisages debt to equity to be 1:1 by end of FY16 supported by improving operations and stake sale.

Robust demand to spur MIS surge

JISL is confident of the standalone MIS revenue jumping 20% YoY during FY15 riding robust demand from farmers in retail MIS business and implementation of projects in Karnataka, Himachal & Punjab. Andhra Pradesh government has permitted 15% hike in MIS price recently on account of rise in raw material prices and fixed costs over the years. The company anticipates Maharashtra government, largest MIS market, to allow free pricing soon, which it believes will boost MIS surge. JISL’s MIS market share stood at 45-50% on pan-India basis; it has captured significant share over the past 1-2 years and expects to become the largest player in Gujarat soon.

Agro processing business stake sale to aid pare debt

The company is planning to demerge its agro business (FY14 revenue: INR12bn) into a wholly-owned subsidiary and also contemplating a minority stake sale (likely to close in 2-3 quarters). This will help reduce debt to equity to a level of 1:1 (current standalone debt: ~INR32bn) by end of FY16.

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