Jain Irrigation Systems, Larsen and Tubro- Pre Budget Technical Stock Picks :: HDFC Securities

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Jain Irrigation- Buy between CMP to 59 :: HDFC Securities

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

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

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Technicals- Tata Global Beverages, Jain Irrigation, TV18, HBL Power, BGR Energy Systems, Aditya Birla Money, ::Business Line

 

JAIN IRRIGATION Subdued quarter, optimistic outlook:: Edelweiss

Jain Irrigation Systems (JISL) posted an adjusted PAT, below estimates,
owing to a steep decline in MIS (17.5% down YoY) and lower EBITDA
margin. The management is confident to achieve positive sales growth in
Q4FY13 (vs decline for past four consecutive quarters) and 20% YoY
growth in MIS during FY14. Further, recent fund raising will lead to lower
interest outgo by INR0.8bn-INR1bn in FY14. We believe that JISL’s MIS
business is likely to stabilize and show positive growth in coming
quarters including an improved balance sheet. We maintain ‘BUY’
MIS business growth tempered to improve balance sheet
Net sales dipped 7.4% YoY owing to a steep decline of 17.5% YoY in MIS business
primarily on account of JISL’s focus on improving balance sheet. EBITDA margin fell
590bps YoY and 300bps QoQ to 16.5% primarily on account of 1) higher raw material
cost 2) higher power and fuel cost and 3) lower contribution of better margin business
i.e MIS. Adjusted PAT was down 64.9% YoY to INR254mn vs our estimate of INR425mn.
Key highlights
• JISL maintains its guidance for positive sales growth in Q4FY13 (vs decline for past
four consecutive quarters) and 20% YoY growth in MIS during FY14.
• MIS receivable down to INR13.2bn (from INR17.2bn in March 31, 2012 and
INR14.7bn in Sept 30, 2012).
• Shown commendable reduction in standalone receivable days to 208 days (from
242 days in March 31, 2012 and 222 days in Sept 30, 2012)
• Will save interest to the tune of INR0.8-1bn in FY14 due to recent fund raising.
• Upped tax guidance from 15-16% to 20% for FY13 and maintain 20% for FY14.
Outlook and valuations: Positive; maintain ‘BUY’
Factoring in lower MIS growth, higher interest and tax, we lower our FY13/14E PAT
estimate by ~26%/11%. We believe that MIS business is likely to stabilize in coming
quarters post witnessing a consolidation phase, owing to a change in business model.
We believe that most negatives have been factored in CMP. We maintain ‘BUY’ with a
revised target of INR91 based on DCF (INR95 earlier).

Jain Irrigation Systems (JI IN) Annual Report Analysis: Concerns Remain Despite Some Improvements :: Jefferies

Key Takeaway
Jain's FY12 Annual Report shows some improvement in inventory and
receivables against FY11 but not enough given growth slowdown. Subsidiaries
disappointed again and forex losses have removed Rs5/share of net worth.
Management needs to deliver on promise of reducing capex. Recent fund
raising is incremental positive but does not solve the core business model issue.
As Jain looks for a "new normal" there is significant uncertainty ahead.

Jain Irrigation - To undertake fund raising exercise ::Edelweiss, PDF link

Jain Irrigation (JISL) has announced fund raising of ~USD200mn via a mix of equity, FCCBs, and ECBs. The company expects to complete the exercise within 60 days post approval, with IFC contributing a significant chunk of FCCBs. The fund raising will lead to deleveraging of balance sheet and reduction in interest cost by ~INR800-1,000mn; however, it will also result in equity dilution of ~17.3%. Maintain ‘BUY’.

Jain Irrigation: Focus remains on cash: Nomura research,

Although1QFY13 overall revenue at INR8.65 bn (-9% y-y & -30% q-q)
missed our estimates by a small margin, a 32% decline in MIS business
revenue was quite sharp and was well below the ~10% decrease we had
expected. Strong growth of 34% y-y in the piping business was the bright
spot in the quarter. At the net level, Jain reported a INR169mn loss due
to a forex loss. The company’s focus remains on reducing the stress on
its balance sheet and improvement in cash flows. This was reflected in
reduction in exposure to markets like AP, Tamil Nadu & Karnataka,
where receivables have been a concern and a shift towards a cash
model. The company is also raising US$210mn in capital through a mix
of debt and equity issuance, which management believes should help in
reducing interest expense and improving liquidity. The gross receivables
on MIS business declined by INR1.3bn q-q basis to INR16.4bn, and
management has guided for a INR5.0bn reduction in government
receivables to INR6.0bn by end-FY13F. The decline in receivables would
likely be a key catalyst for the stock, in our view. Our earnings are
currently under review

Jain Irrigation Systems Ltd. Rs 86 Reaping benefits from Business Re-structuring BUY:: KRChoksey,

Jain Irrigation (JI) is India’s largest player in micro irrigation with a market share of 55% and 35% in drip and sprinkler irrigation respectively. Globally it ranks second to Israel’s netafim. Additionally JI is a leading player in PVC pipes (15% market share), PE pipes (30% market share), PVC sheets, Onion & Vegetable Dehydration and Fruit processing. We are positive on the current business strategy of the company to focus on strengthening balance sheet over the next 12 to 18 months.

Jain Irrigation Operationally weak show, lower tax led to better PAT ::Prabhudas Lilladher

Vikas WSP, Jain Irrigation, Shyam Telecom, LIC Housing, Cadila, Cipla, ::Business Line

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I am holding shares of Vikas WSP purchased at Rs 11. What is the outlook for this company? Should I exit this stock?

Suresh Kumar

Vikas WSP (Rs 66.6): After taking support at around Rs 10 in December 2011, the stock reversed direction and started moving higher. Jumping from circuit limits to circuit limits, the stock penetrated its long-term resistance at Rs 36 in early March and accelerated until it encountered resistance at Rs 70.

The stock is likely to test this resistance in the near future. Its weekly as well as monthly indicators are hovering in the overbought territory signalling a potential short-term corrective decline.

The stock had reversed down from Rs 70 in early 2008 also. Therefore, we advise you to exit from the stock and take profits off the table at this juncture.

A downward reversal can pull the stock down to Rs 50 and then to Rs 36 in the medium-term.

Further fall below Rs 36 will mar the stock's medium-term uptrend and pull it down to Rs 25 or Rs 20. Conversely, breakthrough of the immediate resistance at Rs 70 can push the stock higher to Rs 85 or to Rs 95 in the medium-term.

Jain Irrigation: MIS growth to remain slow as focus on cash :Nomura research,

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Jain Irrigation’s 3QFY12 results were impacted by a higher-thananticipated
interest cost and high exchange loss on foreign currency
loans, which led to the company reporting only a tiny profit. Growth in
micro-irrigation systems (MIS) declined to an all time low as the
company was focused on controlling receivables. Agro-processing
disappointed massively, while the piping business surprised positively.
With the stock trading at 8.5x FY13F earnings we reiterate our Buy
rating.

Jain Irrigation ::India’s Future Large Caps :: Morgan Stanley

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Jain Irrigation
Pricing in a Business Model
Breakdown, Reiterate OW


This stock is pricing in a business model breakdown,
which is unlikely in our view. We expect significant
improvements in capital efficiencies, and the market
should then start to focus on structural factors driving
overall business growth. Following March ‘12 results,
we expect the stock to re-rate.
Key Catalysts: Continuing strong growth in MIS business,
step-up of growth in the agro processing business, overall
margin expansion aided by growth in MIS & agro processing
business coupled with improvement in capital efficiencies (i.e.
reduced working capital days and rationalized capital
expenditure program) are the key stock catalysts in our view.
Key Debate #1 – visible improvements in capital
efficiency: Poor working capital management and pace of
progress so far have been the key concerns for us – but we
think these concerns are now passé. We expect gross MIS
receivable days to decrease by 60 days by Mar-12 as strategy
prioritizes cash flows over growth. We are confident that JI will
turn FCF-positive in F14, another likely catalyst for re-rating.
Key Debate #2 – Micro Irrigation (MIS) – near-term growth
should moderate… Our long-held view here remains intact
as management focuses on capital efficiencies. With the
recent stock price correction, we believe the market’s
estimates for MIS growth are closer to our views.
…yet MIS remains a multi-year investment theme: Indian
governments will remain committed to improvement in
agricultural productivity, food security, and water scarcity. MIS
is not a cyclical or commoditized business, yet it trades ~7x
F13E implied MIS earnings.
Risks to our call: If there is no improvement in working
capital efficiencies from current levels, JI would have
constraint of capital for funding growth, which could lead to the
stock trade closer to our bear case.



See full list -click link below:

India’s Future Large Caps :: Morgan Stanley

Jain Irrigation v/s Netafim India: An Enquiry into Relative Capital Efficiency. Cut PT to Rs125.::JPMorgan,

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 Jain Irrigation v/s Netafim. We compare capital return ratios for JI’s microirrigation
business with Netafim Irrigation India (one of the large privately held
micro-irrigation player in India). In the growth v/s capital deployment tradeoff,
Netafim appears to have fared much better overall. While JI has larger
scale and better margins, it employs significantly higher capital to generate
similar levels of profitability. Our key conclusions are enumerated below:
1. ROCE: JI’s micro-irrigation business generated 16.8% ROCE,
significantly lower than 30.7% ROCE for Netafim India in FY10.
Decomposing the ROCE, we find JI's generating better margins, but
significantly lower capital turnover compared to Netafim.
2. Margins: JI’s micro-irrigation business generated EBIT margins of
19.7% v/s 13.5% for Netafim in FY10.
3. Fixed Asset Turns: Fixed asset turns for JI’s micro-irrigation business
has ranged between 2.7x-3.2x over past 5 years, Netafim has sweated
its fixed assets better at 4.3x-5.4x range over a similar period.
4. Operating Cycle: Operating cycle for JI’s micro-irrigation business
has been 145-205 days over past 5-yrs compared to 60-65 days for
Netafim India. Jain Irrigation’s receivable days of 148 days are
significantly higher than 69 receivable days of Netafim (FY10).
 Stock re-rating difficult in absence of more disciplined approach to capital
deployment: In our view, for the JI stock to re-rate from here, it will have to
demonstrate improved discipline in capital deployment. We believe that besides
improving its receivables cycle (necessary, but not sufficient), JI also needs to
demonstrate better fixed asset sweat, lower capex intensity and divestments of
unrelated ventures like plastic sheets.
 Cut PT to Rs125, maintain UW. We cut EPS estimates for FY12E/FY13E by
14%/12%, factoring lower micro-irrigation sales in FY12E on account of a good
monsoon, and higher interest. Our EPS estimates are 16%-18% below
consensus; we note consensus estimates for FY12/13 have trended down by
15%/13% over past 2 quarters. We thus cut our PT (Sep-12) to Rs125 from
Rs165 now based on SOTP (valuing each business segment on EV/EBITDA).
Key risks to our thesis include higher micro-irrigation growth, increase in govt.
subsidy, improvement in receivables and turnaround of overseas subsidiaries.

Jain Irrigation – It is all about cash flows ::RBS

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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.

Buy Jain Irrigation: A soft quarter ahead ::CLSA

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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.

BUY Jain Irrigation Systems (JAIR.BO) Research Tactical Idea ::Morgan Stanley Research,

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Jain Irrigation Systems (JAIR.BO)
Research Tactical Idea
We believe the share price will rise relative to the country index over the next 30 days.
This is because the stock has traded off recently, making short term valuation much more compelling. We expect
improvement in capital effeciency in the quarter, driven by reduction in receivable day in micro irrigation business, to act
as a key near-term catalyst.
We estimate that there is about a 70% to 80% or "very likely" probability for the scenario.
Estimated probabilities are illustrative and assigned subjectively based on our assessment of the likelihood of the
scenario.
Stock Rating: Overweight
Industry View: Attractive

Jain Irrigation Systems::Takeaways Motilal Oswal Annual Global Investor Conferences

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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.

Jain Irrigation – BUY:: IIFL 1-Month Portfolio: Bets for September

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Key beneficiary of micro-irrigation (MIS) potential
MIS holds tremendous potential as out of the total 140mn hectares
of arable land, only about 50% is rain-fed. Government has also
accorded significant priority to micro-irrigation schemes (increase in
subsidy to 60% from 40% for small farmers and marginal farmers
and 50% for farmers with up to 5 hectares of holding) as part of its
reforms in agriculture output. With only 4mn hectares covered under
drip irrigation and sprinklers, we believe despite the strong growth
over the past few years, we think a considerable opportunity still lies
ahead. Jain Irrigation, a dominant player with 55% share, derives
nearly half of its revenues from micro-irrigation and is likely to be a
key beneficiary of the inherent micro-irrigation potential; we factor
in a robust 30% growth in MIS in FY12.
New pipe sub-segments to drive growth
Jain Irrigation has traditionally operated in the PVC pipes business
(~19% of FY11 revenues) used for sanitation, rain-water harvesting
and electrical insulation. We expect strong demand to continue on
the back of various government-led infrastructure initiatives for safe
drinking water, rural/urban sanitation and water conservation.
Additionally, the company now offers different applications for pipes,
ranging from those used in city gas distribution networks, sewage &
waste disposal and telecom cables. Although telecom demand may
be muted, increased demand from city gas distribution companies
would drive growth in this sub-segment.
Expect 20% growth in agro-processing biz in FY12
Agro processing (onion & mango processing), hitherto a small part of
revenues, has gained size post a slew of organic and inorganic
initiatives and now forms ~15% of topline with focus on overseas
markets. We factor in a healthy 20% growth in agro-processing
revenues in current fiscal while a fall in onion prices could aid margin
in the onion-dehydration business.
Valuations appear attractive; recommend BUY
We expect MIS to deliver strong performance aided by various
initiatives from the central government; management has guided for
30% yoy growth in micro-irrigation in the current year. Further,
subdued polyethylene prices could translate into higher EBITDA
margins. Valuations appear attractive at 18x FY13 PE.