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Jain Irrigation Systems
Rising Competition in MIS to
Catalyze Growth; JISL well
Placed to Defend Share
Quick Comment: According to media reports (e.g.
Economic Times) Godrej Agrovet (GAVL), subsidiary of
Godrej Industries is planning to enter the Micro Irrigation
(MIS) business in India. GAVL is likely to pursue
opportunities in the drip irrigation space, according to Mr.
Adi Godrej (Group Chairman). GAVL is a diversified
agribusiness company with business interests in animal
feed, oil palm plantations, agri-inputs and poultry.
Impact on our views and investment thesis: This
development marks the entry of a second business
conglomerate foraying in the MIS business over the last
six months. On February 9, 2011, Mahindra & Mahindra
(~42% market share in the Indian tractor industry)
entered into an agreement to acquire a stake in EPC
Industries. We continue to believe that JISL seems well
placed to capitalize on industry growth owing to 1) its
leadership position in the domestic MIS industry and the
scale of its operations, 2) the strength of its distribution
network, 3) its ability to provide an entire range of
agronomic services, 4) strong linkages with the farmer,
and 5) solid knowledge of local conditions in the key
states for MIS. At this stage of growth in the MIS
business in India, we are confident that JISL will be able
to maintain ~50% market share over the long term.
Expect strong growth in Q1F12, working capital
efficiency remains key stock driver: We expect JISL
to report revenue, operating profit and adjusted net profit
growth of 28%, 24% and 18%, respectively in Q1F12
(Aug 5, 2011). We expect strong growth of 30% in the
MIS business (cotton season) and MIS EBITDA margins
of 31.5%. In our view, trend in working capital (largely
MIS receivable days) will likely be the key driver for
stock performance over the next 6-8 months. We expect
only modest improvement in working capital in Q1F12
(~10 days) and significant (over 50 days) improvement
in Q2F12.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Jain Irrigation Systems
Rising Competition in MIS to
Catalyze Growth; JISL well
Placed to Defend Share
Quick Comment: According to media reports (e.g.
Economic Times) Godrej Agrovet (GAVL), subsidiary of
Godrej Industries is planning to enter the Micro Irrigation
(MIS) business in India. GAVL is likely to pursue
opportunities in the drip irrigation space, according to Mr.
Adi Godrej (Group Chairman). GAVL is a diversified
agribusiness company with business interests in animal
feed, oil palm plantations, agri-inputs and poultry.
Impact on our views and investment thesis: This
development marks the entry of a second business
conglomerate foraying in the MIS business over the last
six months. On February 9, 2011, Mahindra & Mahindra
(~42% market share in the Indian tractor industry)
entered into an agreement to acquire a stake in EPC
Industries. We continue to believe that JISL seems well
placed to capitalize on industry growth owing to 1) its
leadership position in the domestic MIS industry and the
scale of its operations, 2) the strength of its distribution
network, 3) its ability to provide an entire range of
agronomic services, 4) strong linkages with the farmer,
and 5) solid knowledge of local conditions in the key
states for MIS. At this stage of growth in the MIS
business in India, we are confident that JISL will be able
to maintain ~50% market share over the long term.
Expect strong growth in Q1F12, working capital
efficiency remains key stock driver: We expect JISL
to report revenue, operating profit and adjusted net profit
growth of 28%, 24% and 18%, respectively in Q1F12
(Aug 5, 2011). We expect strong growth of 30% in the
MIS business (cotton season) and MIS EBITDA margins
of 31.5%. In our view, trend in working capital (largely
MIS receivable days) will likely be the key driver for
stock performance over the next 6-8 months. We expect
only modest improvement in working capital in Q1F12
(~10 days) and significant (over 50 days) improvement
in Q2F12.
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