Snapshot
NSE CODE: JISLJALEQS
BSE CODE: 500219
CMP: 178.95
52 WEEK HIGH/LOW: 264.57/154.25
MCAP: 6821 Crore
FV: 2.00
DIVIDEND YIELD (%): 45.00%
About Company
Jain Irrigation Systems Ltd. ( JISL) which was established in 1986 is the world 2nd largest after Israeli firm Netafirm and India’s largest firm in micro irrigation systems (MIS) . The company is also involved in the Agro-processing, onion dehydration business and plastic business. JISL has a global foot print in more than 100 countries across the globe. More than 6,000 employs working in 24 plants. Today, only 7% of the total MIS potential in India has been covered with JISL share is 55%. Jain Irrigation Systems Ltd. (JISL) is engaged mainly in four main businesses.
1) Piping Systems (The largest manufacturer of Plastic Pipes in India.)
2) Plastic Sheet (JISL is India’s largest manufacturer of PC and PVC sheets in India. It is also Top 5 companies in the world.)
3) Agriculture & Irrigation (JISL is India’s largest micro irrigation systems (MIS) company. Company covers over 200 acre of Hi-Tech Agri Institute with highest numbers of Agricultural Scientists, Engineers & Technicians in Private Sector. In Addition, JISL is largest manufacturer of Tissue culture Banana Plants in India and only manufacturer of complete drip irrigation systems in the world.)
4) Food Processing (Currently, JSL is largest manufacturer of Mango pulp, puree and concentrate. Globally, Company is second largest manufacturer of dehydrated onion.)
INVESTMENT THESIS
Huge Scope in Industry – In India, Agriculture is our oldest occupation. India has very low farm output per hectare due to various reasons. So far only 4-5 million hectares (ha) has been covered compare with total potential of 62 million ha irrigated land currently under the system. In FY11, Central government doubled to Rs.1000 cr its allocation and recently it was accorded “National Mission” status, which assures funding under the government’s 5-year plan. In Next 5-7 years, Additional 1.2 million hectare of agricultural land to be covered under micro irrigation. This would translate opportunity of Rs. 400 billion. Being Market leader in India with 55% market share and Second largest MIS player globally, Jain Irrigation systems Ltd. is poised to gain the most.
Government support – JISL cannot grow vertically without government support. Beside Central government, most of the state government is promoting MIS (micro irrigation systems). In last few years, many state government like Maharashtra, Haryana, etc signed agreement with JISL for irrigation projects. Various Subsidies also help company to perform well in long run. Agriculture consumes more than 75% of water in India and it makes sense to use drip & sprinkler irrigation systems. Various new schemes have been created under the Rashtriya Krishi Vikas Yojana (RKVY) that could help in company growth. Government is keen to increase allocation for micro irrigation and going forward, it is likely to go up only. JISL is the largest player in the country and poised to take advantage in future with various government initiatives.
Strong Presence across the globe – JISL has a global foot print in more than 100 countries across the globe. Company has presence in most of the states in India including Gujarat, Andhra Pradesh, Karnataka, Maharashtra, and Rajasthan. Currently, Gujarat, Rajasthan and Andhra Pradesh are fastest growing states for the company followed by Karnataka and Maharashtra. Initially, Company has focused primarily on the overseas market due to highly unorganized sector in India and Dependency on Whether, Farmer and Government. However, things are changing rapidly. Company is trying all effort to capture maximum share in Indian market. Sector is still in early stage and it has long way to go. The company has acquired many competing companies worldwide which also helped company to reach across globe, We expect the company to grow 30%+ CAGR in domestic as well as overseas market in next 2-3 years.
Strong Products & Clients – Till few years back, JISL was mainly engaged in PVP pipes business, which was mainly used by farmers for drinking and irrigation purposes. In Last few years, company entered in many new avenues like Sewage, Telecom cables, Distribution network for City gas, etc. Today, JISL is the largest manufacturer of Plastic Pipes in India. Few of the JISL major customers are Reliance, Bharti, BSNL, Aditya Birla, Gujarat Gas, Power Grid, Hindustan Lever, Coca-Cola, L&T, IVRCL, etc. Initially, Food processing was small part of of JISL’s business. Today, India still not matured for dehydrated vegetables. Hence, Company has focused mainly on the overseas market. India still laggard in Fruit production globally. JISL is taking many initiatives to cover these segments.
Financial Health: Micro Irrigation system growth has slowed to 21% YoY due to prolonged rainfalls. However, As per management, Company is expected to grow 30%-35% CAGR for next 2-3 years. Q3FY11 numbers were below expectation across the segment. Pipe segment was affected due to extend of monsoon whereas increase in onion prices and lower availability of mangoes affected the Onion dehydration and fruit business respectively. During last fiscal year (FY10), Out of total revenue – micro irrigation systems contributed 54% followed by piping products at 24%, Agro products at 15%, Plastic Sheets at 5% and remaining others at 2%. Last two quarters were disappointing but long term high growth still looks intact. Company Gross Debt about 2.2 Billion is quite high. In Addition, Forex volatility and Interest rate tightening may impact profitability in FY12. Jain Irrigation is also planning to enter into the NBFC business. JISL is setting up an NBFC in which JSIL promoters will have major stake to fund farmers for micro irrigation with initial capital of 2 Bn (subject to regulatory approvals). This decision increased the Risk and Concern for the company and helped in sharp correction in stock price. JISL is planning to raise US$150 mn of equity which will imply an 8% dilution. Money will be used to provide capital into the NBFC and to reduce debt. Overall, we expect the company to grow 30%-35% in the next two-three years.
Valuation: FIIs are holding about 55.59% stake including few of the well known names. FIIs stake in JISL is one of the largest in any Indian company. High FIIs number indicates strong growth of the company but it also implies high volatility in stock prices. Although Company is growing 35% CAGR in MIS Segment for last many quarters. But last two quarters were about 20% only due to various reasons. Most of the disappointing set of numbers of last 2 quarters is already discounted as stock corrected almost 40% from its Aug, 2010 peak. Going Forward, MIS segment is expected to grow 30%-35% CAGR for next 2-3 years due to Strong Presences/Products, negligible competition and Government focus on increasing farm outputs. At Current market price of Rs. 178, Stock is trading at about 20 x at FY12E EPS. Stock is trading at 30% discount as per historical forward numbers. Investors with medium risk appetite and two year horizon can Buy this stock and add A Rural and Agriculture stock in portfolio. One can BUY @ CMP: 178 and add more on decline till 150 for Target 270 in next 2 years with capital appreciation of approximately 60%-70%.
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