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Wednesday, February 23, 2011

Jain Irrigation Systems Ltd : Best AGRI Sector BUY.BUDGET STOCK

Scrip Code: 500219 / JISLJALEQS
CMP:  Rs. 207.75; Buy at Rs. 200 - 206 levels.
Short term Target: Rs. 230.00
Best buy : At Rs. 180 - Rs. 195 , LT - Rs. 350. Market Cap: Rs. 7,921.3 cr.
52 Week High/Low: Rs. 258.5 / Rs. 157
Total Shares: 38,11,86,460 shares; Promoters : 11,72,43,245 shs – 30.76 %; Total Public holding : 26,15,17,545 shs – 68.61 %;
Book Value: Rs. 35.18; Face Value: Rs. 2.00; EPS: Rs. 7.95; Div: 45 %.
P/E: 26.14 times; Ind P/E: 29.62; EV/EBITDA: 14.79
Total Debt: Rs. 8,942.25 cr; Enterprise Value: Rs. 48,656.54 cr

Jain Irrigation Ltd has multi product industrial profile & manufacturers Drip and Sprinkler Irrigation Systems and Components; PVC, Polyethylene (HDPE, MDPE) & Polypropylene Piping Systems; Plastic Sheets (PVC & PC sheets); Dehydrated Onions and Vegetables; Processed Fruits; Tissue Culture, Hybrid & Grafted Plants; Greenhouses, Poly and Shade Houses; Bio-fertilizers; Solar Water Heating Systems and Solar Photovoltaic Appliances (Solar lighting systems) and Bio- energy sources. Company renders consultancy for complete or partial project planning and implementation e.g. Watershed or Wasteland and / or Crop Selection and Rotation.

About Company - It is the market leader in micro irrigation systems (MIS) in India with over 50 % market share. Having been present in this segment for more than 15 years, there is very strong association of the company with MIS in rural India. Its dealer and sales network is also significantly larger than any of its competitors. As a result, Jain Irrigation is expected to retain its market leadership in the future. MIS alone contributes to more than 50% of its revenues and 70% of EBITDA. Due to its large subsidy business, management of working capital cycle has been a key concern for Jain Irrigation and is a risk to its growth. However, the company has now started factoring its receivables, which should help keep working capital cycle in check. JISL is the biggest player and controls over 1/3rd of the market in drip irrigation, second is Netafim from Israel, Finolex Plasson, Premier Irrigation Adritec.

Future scope of business -  So far only about 4.5 mn hectares (ha) has been brought under MIS compared to government target of 18 mn ha by FY12 and addressable area of 70 mn ha. The government subsidies a minimum of 50% of cost of installation and budget allocation to MIS has been in increasing trends. In FY11, central budget allocation was more than doubled to Rs.1000 cr and recently it was accorded “National Mission” status, which assures funding under the government’s 5-year plan. Government funding for MIS is only likely to go up - MIS is a relatively low hanging fruit for the government in its effort to improve farmland productivity. The MIS market in India is at Rs. 2700 - Rs. 3000 cr, 3/4th of which is for drip irrigation which helps to save water & fertilizer. Agriculture consumes 80 % of water in the country & it makes sense to use drip & sprinkler irrigation systems. In February 9th M&M entered into micro irrigation sector by acquiring 38 % stake in 30 year old Nashik based company EPC for around Rs. 43 crore, M&M will give an open offer of additional 20 % stake in EPC on April 6th. 

Valuations and outlook
JISL has plans to raise Rs. 700 cr through QIP to repay its debt, to provide capital to its new NBFC and to support its future growth. Company believes that fund raising would happen in the next 3-4 months, depending upon the financial market conditions. I have not considered any equity dilution in my estimates. Company declared 1 bonus DVR SHARES (JISLDVREQ DVR shares ) on every 20  Equity Shares held. DVR with 10 % voting rights (click here for DVRs). I therefore recommend Buy and accumulate Jain Irrigation at every dip. My views are positive on the business of JISL and their future prospects on the back of untapped potential of MIS, agricultural business model and strong domestic presence. At present with the drip irrigation market is growing 40 % annually, stock is trading at 22.3x at FY12E EPS as against its historical one - year forward trading band of 10 x 32x. I recommend BUY on the stock with the target of Rs. 350.00

KEY FINANCIALS20102011E2012E2013E
SALES (Rs. Cr's)3,439.74,425.65,164.26,028.1
NET PROFIT (Rs. crs)245.7277.4366.8489.3
EPS (Rs.)6.57.39.612.8
PE (x)33.229.522.316.7
PRICE/BOOK (x)6.65.54.53.6
EV/EBITDA (x)16.813.611.59.5


I recommend BUY on the stock with the target of Rs. 350.00 for the long term.
For short term if one wants to play Budget -  Buy at Current Market Price with the target of Rs. 230, But please do keep a STRICT STOP LOSS OF 8 %. 
For LONG term investors BEST buy is at Rs. 180 - 195.

7 comments :

  1. Hi
    Nice Blog I bought JISL 100 sh at Rs. 196 after reading your blog what could be the possible target on Budget day...
    Thanks

    ReplyDelete
  2. Hi
    I bought 300 shares of JISL at Rs. 216
    What would be the possible target at the end of March 2011.

    ReplyDelete
  3. HI
    Thanks for reading, first of all you are in one of finest companies in agriculture sector & in INDIA..
    As per my view the prices should be around Rs.200.But if you wait till mid April you can get your purchase price again.But my friend I don't recommend short term I believe in the fundamentals of the company So I maintain to my given target of Rs.350 fro long term say by 2012

    ReplyDelete
  4. Thanks so much for this! I haven't been this moved by a blog for a long time! You’ve got it, whatever that means in blogging. Anyway, You are definitely someone that has something to say that people need to hear. Keep up the good work. Keep on inspiring the people!
    regards:
    trade4target

    ReplyDelete
  5. First of all I want to thank you on visiting the blog and on your encouraging words for me..This motivates me & makes me much more better..My only motto to be on blog is to educate my fellow investor friends on markets, let them learn how stocks markets work...Go through the rest of my posts on blog..I hope you would like it too..
    Anyways thanks for visiting my blog..
    Do visit again...till then Happy Investing.
    BHAVIKK

    ReplyDelete
  6. HELLO READER FRIENDS !!
    AN UPDATE ON JAIN IRRIGATION -

    Jain Irrigation Systems has fixed November 09, 2011 as a 'Record Date' for the purpose of issue and allotment of Differential Voting Right (DVR) Bonus Equity Shares of Rs 2 each in the ratio of 1 (One) DVR Bonus Equity Share for every 20 existing Ordinary Equity Shares.
    The effective Paid up Capital for calculation of DVR Bonus Equity Shares shall be 38,58,86,085 Ordinary Equity Shares of Rs 2 each (fully paid up). Thus, 1,92,94,304 DVR Bonus Equity Shares of Rs 2 each shall be issued by the Company to its eligible Ordinary Shareholders after November 09, 2011.
    The company has declared its second quarter results. Its Q2 net profit was down at Rs 11.5 crore versus Rs 61.9 crore, YoY.
    Its total income was up at Rs 771.3 crore versus Rs 641.7 crore, YoY.

    It was trading with volumes of 817,796 shares. In the previous trading session, the share closed down 4.40% or Rs 5.10 at Rs 110.85.
    The company's trailing 12-month (TTM) EPS was at Rs 8.42 per share. (Sep, 2011). The stock's price-to-earnings (P/E) ratio was 14.03. The latest book value of the company is Rs 42.75 per share. At current value Rs.111, the price-to-book value of the company was 2.76. The dividend yield of the company was 0.85%.

    ReplyDelete
  7. DVR GOT LISTED ON 29 NOV 2011 - Fair value of DVR comes at Rs. 72/sh

    ReplyDelete

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