Multi Baggers

Jain Irrigation Systems

About the Company:

Jain Irrigation Systems (JISL) is currently the world's second largest and India's largest micro irrigation company. It has four major business divisions-micro irrigation systems (MIS), piping systems, agro processing, and plastic sheets. Apart from these, it also derives a minor portion of revenues from tissue culture, hybrid & grafted plants, and solar devices. In FY12, at a consolidated level, MIS revenue share was at 54%, piping products at 20%, agro processed products at 17%, plastic sheets at 4% and others at 5%. JISL has a global presence in more than 100 countries with a robust dealer and distribution network; it has 24 plants and employs over 6,000 people.

Company MIS revenue and Piping business will do double digit growth over next few quarters.

The BIG BET:

Company subsidiary: Farm Fresh is into Pulp division, as per reports company is looking to hive-off partial stake in company to PE partner appx 100 million for 25% stake in the company. That means the value of subsidiary which supplies mango pulp to Coca Cola is valued at around 2500 crore.

Company focusing on NBFC space:

Mandala Capital had gone for first round of funding for 18 million dollar, This is going to be game changer for Jain Irrigation once NBFC business goes in full fledge mode. Company through its direct reach to farmers can hit the market at very competitive rate as it has backing of institutions.

Company net debt stands at 30 billion INR and market cap around 27 billion. Thus company is available at EV of 5700 odd crores.

Media reports, strong buzz and meeting reports of various brokers clearly signifies management is looking to sell the stake partially in the subsidiary, what changes is the outlook from their we expect company to sell other non-core assets and retire partial debt from the proceeds. This means company will  be able to retire 500 odd crore of debt and thus reduce the net debt level. This also help is make people factor in the odds  of the subsidiary and thus the core business will be available at just 3000 odd crores.

Imagine a company which is having promising prospects because of Pradhan Mantri Krishi Sinchai Yojna spending INR 500 billion in next 5 years. The CAGR of topline will be 16-20 percent on conservative side with visible outlook its leader is available at just 3000 crore of market cap . The company will do sales of appx 4800 crore next year translating into operating PAT of appx 700 crore . If one knocks out the interest part. The company will do close to 9.3 rs of EPS.

Other key triggers is the company is focusing on reducing the MIS receivable days from 188 to 130-145 days which will reduce its debtor cycle.

Jain Irrigation is trying to reduce both the financial risk in terms of Cost and also improve debtor turnover days. Both will augur well for company growth as capital cost for company as part of profit is high. Debt reduction will be key focus from valuation part but whenever the deal will go through investors will realize the hidden gem of Jain Irrigation in form of Pulp Division and also unnoticed potential of NBFC. Thus on risk reward front stock looks lucrative.

Technical snapshot:

Company is consolidating between 60-80 as soon as stock nears 80 better to book partial position and look for higher targets. Key monitors are the fineprint of deal if and when it happens. If company compromise on valuation front for subsidiary the target of 93 will be revised. Also budget is always good for irrigation stocks thus stock is good short to medium term bet with target of 80 and over next 6-8 months target of 93.

Disclosure (SEBI Registration Number for Aashish Tater :  INA300001206)
 
Stock Ownership - No

Stock traded in Last 30 days ( No trading or investment activities done) - No

Stock Recommended to Clients - Yes

Remuneration/Benefits received from company in 12 months - No

Merchant Banking Market Making activities / projects - No

Any arrangement with co. to affect the report write up - No