Jain Irrigation - Care upgrades loan ratings - Edelweiss

Care upgraded Jain Irrigation's (JISL) ratings on its bank borrowings and financial instruments. It upgraded JISL's long term bank loans rating from B+ to BB+ and from A4 to A4+, on short term bank loans/commercial papers. We believe the rating upgrade is likely to enhance JISL's liquidity position and may also lower its interest costs, going ahead. We expect JISL's consolidated debt to come down from INR38bn in FY12 to INR33bn in FY15. During Q3FY13 post the result-conference call, the management guided for lowering interest cost by INR0.8-1bn (Edel Est. –INR0.8bn) in FY14 on account of the fund raising exercise. We maintain 'BUY'.

Rating upgraded for bank facilities/instruments

Care has upgraded ratings on long term bank facilities from B+ to BB+ and on short term bank facilities/commercial paper from A4 to A4+ for JISL. Revision in the ratings takes into account the funds raised during FY13 by way of equity and debt that have considerably eased the liquidity pressure faced by the company. Care believes that JISL's ability to improve its working capital and profitability in the environment of volatile raw materials and high interest costs are the key rating sensitivities.

Provide better liquidity and support to lower interest cost

JISL raised ~INR10.2bn by way of equity and debts during FY13 to support its future growth and repay short term debts. We believe the rating upgrade is likely to enhance JISL's liquidity position and may also lower its interest costs, going forward. We expect JISL's consolidated debt to come down from INR38bn in FY12 to INR33bn by FY15. During Q3FY13 post the result-conference call, the management guided for lowering interest cost by INR0.8-1bn in FY14 vs. Edel estimate of INR0.8bn.

Outlook

We believe that Micro Irrigation business is likely to stabilize in the coming quarters, post witnessing a consolidation phase, owing to change in business model. We believe that most negatives have been factored in the CMP. We maintain 'BUY' with a target price of INR91 based on DCF.

Source : Equity Bulls

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