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).

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