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Research
Jain Irrigation Systems - Reaping benefits from Business Re-structuring - K R Choksey
Posted On : 2012-07-21 21:05:30( TIMEZONE : IST )
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.
MIS - Growth from ventures into newer territories
In India MIS provides immediate potential of 64Mha out of 69Mha net irrigated area while by 2030 the extent of MIS coverage could reach 69.5 million hectares. MIS (51% of revenues) has been growing at 32% CAGR over FY08-12. Considering delay in subsidies in stronghold markets of JI, newer markets domestically as well as exports markets are being tapped by the company to provide next leg of growth. We expect MIS to register 17%CAGR in standalone net revenues over FY12-14.
Focus on strengthening balance sheet
JI's plan to set up a NBFC to substitute delays in state subsidies is a step taken in right direction. We believe the move will help the company to bring down its receivables (from 360 days in FY11 to 300 in FY13). Subsequently, lower requirement of capex (Rs 200crs p.a. in FY13-14 vs. Rs 450 crs over FY09-12) is likely generate positive cash flows from FY13 onwards.
Other verticals to contribute towards growth
During these testing times of change in business model in MIS, we expect other verticals like PVC pipes (13%CAGR growth over FY12-14), Dehydrated onions (17%CAGR), Fruit processing (16%CAGR) and PVC sheets (16%CAGR) to contribute meaningfully towards revenue and profitability. Other ventures like biotech tissue culture and solar systems albeit small at this stage hold significant potential for the future.
Valuation & View:
We have valued JI at Rs 125, based on an P/E multiple of 15x over its FY14E earnings of Rs 8.4 to account for the possible risks emanating from the investments in the proposed NBFC, possible equity dilution and a lower level of growth than historically what it has achieved in the MIS business.
