Business:
Jain Irrigation is in business of micro-irrigation systems (MIS) and it is the biggest player in it's industry. Sales of Micro-irrigation systems constitute half of Jain Irrigation's total revenues. Company's products are eligible for capital subsidy from central government. These subsidy payments were delayed by government (as you know how Indian government works!!) in past 6-9 moths. This created problems for Jain irrigation in terms of working capital requirements and have contributed to it's lackluster performance in last one year. The company lost more than half of its value in stock markets in 2011 for its inability to curb the receivables.
Jain Irrigation's PVC pipe business grew 36% Y-O-Y in previous quarter. Company is tapping foreign markets and expecting exports revenue to grow to $100 millions. If company achieves this target, it will be more than 6 fold growth in PVC pipe exports business. Company is also working towards reducing it's working capital cycle for better balance sheet stability. For the same reason, Jain Irrigation has decided to operate an Non-Banking Financial Company (NBFC) and has approached RBI to obtain the same. Operating NBFC will help company in it's working capital requirements.
Stock Financials
Reported Profit After Tax for last quarter was at Rs.1.2 Crore which is a fall of 98.3% Y-o-Y. Fall in PAT was on account of higher interest cost of Rs.91.6 Crores and forex loss of Rs71.1 Crores. However, adjusted PAT stood at Rs.72.4 Crores.
The company's profitability in the last two quarters was hit by mark-to-market losses on its $157-million outstanding loans. The losses stood at Rs 59.3 crore in the September quarter and Rs 71.1 crore in the December quarter. However, these mainly remain non-cash adjustments. The main source of pain was the interest cost, which at Rs 250.6 crore for the nine months ended December 2011 was up 58% against the year-ago period. The net profit in the same period almost halved to Rs 95.2 crore.
Stock Valuations
At current stock price of Rs.88, the stock trades at P/E of 17. In coming quarters, balance sheet would be without forex losses and company's profits would be boosted by significant difference. This makes it a stock to buy in mid cap space.
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