What are the prospects of Jain Irrigation Systems?
-Ajit
Jain Irrigation Systems, a mid-cap player, is India’s leading provider of agricultural solutions. It manufactures micro irrigation systems (MIS) and plastic pipes, and also undertakes processing of fruits and vegetables. Within India it is the leader in MIS with a market share of above 55 per cent. This segment contributes 64 per cent of the company’s total EBIDTA.
The company has invested Rs 401 crore in its international subsidiaries. With the rupee having depreciated recently, the management may bring these investments back into India to repay its FCCB loans of around Rs 900 crore.
The government subsidises the micro irrigation segment. However, with the worsening of central and state government finances, subsidy disbursement has been getting delayed in recent times. This has worsened the company’s working capital cycle. To improve its receivables cycle the company has applied for an NBFC licence. The NBFC will finance the farmer’s MIS purchases. Under this model the burden of delay in subsidy disbursement will be borne by the farmer.
Jain Irrigation’s stock is currently trading at a price-to-earnings (P/E) ratio of 13.1, which is at a discount to its five-year median P/E ratio of 28.9. The stock is trading at a price-to-earnings to growth (PEG) ratio of 0.6 times. However, its balance sheet looks stretched. One must factor in the high leverage and the working capital related issues before investing in the company.
This article was originally published on February 20, 2012.
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