From “Awe Generating” Company To Wealth destroyer stock
Jain Irrigation has the dubious distinction of transitioning from being an “awe generating” company to a “wealth destroyer” company. The stock was once the favourite of cognoscenti investors owing to its dominance in the Micro Irrigation systems (MIS) and soared to an all-time high of Rs. 265 in August 2010.
Mudar Patherya was so fascinated with Jain Irrigation that he called it an “awe generating” company.
Unfortunately, the stock lost favour and plunged to a low of Rs. 46 in July 2013.
The reason the Company fell out of favour was because it changed its business model. It earlier used to sell irrigation equipment to farmers on credit which created severe stress on the working capital. To resolve the working capital problem, the Company demanded upfront payment from the farmers. However, the impoverished farmers had no money to pay for the equipment with the result that sales slumped and profitability went for a toss.
To compound the problems, the Company availed of massive loans of upto Rs. 4,200 crore to enter into unrelated diversification. The huge interest burden itself crippled the Company.
Ambareesh Baliga Promised 100% Gains
At this stage Ambareesh Baliga deserves to be complimented for his foresight and out-of-the-box thinking. In December 2015, when Jain Irrigation was languishing at Rs. 69 and nobody wanted to touch it with a barge pole, Baliga stuck his neck out and recommended a buy on the basis that it was his “best pick for 2016”.
Baliga noted that the Company had taken a series of strategic decisions which were designed to move it out of the unrelated businesses and reduce debt. He correctly theorized that the market had lost sight of these developments and had not given the Company any credit for its efforts.
Also recommended as one of 16 multibagger stocks for 2016
Jain Irrigation was also recommended as a potential multibagger stock by Ambareesh Baliga when he shared the dais with other dignitaries like S. P. Tulsian, Porinju Veliyath and Prakash Diwan.
Needless to say, the 16 multibagger stocks recommended by the four stalwarts are notching up hefty gains and enriching investors.
|JAIN IRRIGATION SYSTEMS LTD – KEY FUNDAMENTALS|
|MARKET CAP||(Rs CR)||4,445|
|EPS – TTM||(Rs)||[*C]||2.70|
|LATEST DIVIDEND DATE||15 SEP 2016|
|BOOK VALUE / SHARE||(Rs)||[*C]||55.24|
[*C] Consolidated [*S] Standalone
|JAIN IRRIGATION SYSTEMS LTD – FINANCIAL RESULTS|
|PARTICULARS (Rs CR)||JUN 2016||JUN 2015||% CHG|
(Source: Business Standard)
Classic application of Howard Marks strategy
In hindsight, Ambareesh Baliga’s recommendation was fail-proof. Jain Irrigation was so much down in the dumps at that stage that the only direction it could go was up. It was the classic “Heads I Win, Tails I Don’t Lose Much” strategy made popular by visionaries like Mohnish Pabrai.
Howard Marks, the Billionaire investor-philosopher, has explained the entire theory behind buying such “fallen angel” stocks. The bottom line of the theory is that stocks which are down in the dumps and are quoting at 52-week lows are actually “risk free” stocks because all expectations have been drained out of them and even the worst case scenario is factored into their stock prices.
It is notable that Howard Marks made billions for his hedge fund called Oaktree Capital by buying distressed debt and ‘junk bonds’ at throwaway valuations.
Second multibagger stock of Ambareesh Baliga
In January 2015, Ambareesh Baliga recommended a buy of Himatsingka Seide which was also then a “fallen angel” and quoting at 52-week lows owing to various reasons. Baliga confidently said that Himatsingka Seide is on a “comeback trail”. This has come true with Himatsingka Seide surging from Rs. 90 to Rs. 267 giving massive gains of 190%.
Take advantage of “disbelief”: Sandip Sabharwal
Sandip Sabharwal was quick to notice that Jain Irrigation is showing consistent improvement in its operating metrics but the same is not being reflected in the stock price owing to “disbelief” that the stock would perform.
He recommended a buy with the promise that the stock will get re-rated soon and promised 100% gains from Jain Irrigation in a year’s time.
It is notable that Sandip Sabharwal also recommended two other top-quality mid-cap stocks which are also notching up hefty gains for investors.
Buy recommendation of Morgan Stanley
Somehow, a buy recommendation by the mighty Morgan Stanley always adds credibility that the stock has the wherewithal to deliver goodies to shareholders.
In the case of Jain Irrigation, Morgan Stanley recommended a buy on the logic that the earnings would grow by 5-8% for F17-19e given the fast growth in the high-margin MIS business.
Morgan Stanley has projected a target price of Rs. 131 for Jain Irrigation Systems which means that more gains are due from the stock.
Drip irrigation to be made mandatory?
Morgan Stanley hinted that Drip Irrigation may be made mandatory for sugarcane cultivation to tackle the menace of drought. According to one theory, sugarcane crops consume a disproportionate quantum of water and lead to drought conditions. Putting sugarcane crops on a drip irrigation diet will solve this problem and obviously auger well for Jain Irrigation.
MS ON JAIN IRRIGATION : Optionality – Mandatory Drip Irrigation on Sugarcane in Maharashtra
— ET NOW (@ETNOWlive) September 7, 2016
Irrigation projects to be completed on war footing
The Government has vowed to complete 99 major and medium irrigation projects by 2019 and bring 7.6 million hectares of land under irrigation in some of the most drought-prone regions of India.
A long-term irrigation fund of Rs. 20,000 crore under the National Bank for Agriculture and Rural Development (Nabard) will also be created to fund irrigation projects.
The precise implications of these schemes on Jain Irrigation’s prospects are not known though one can confidently say that anything positive towards the growth of the agriculture sector augers well for all players in the sector.
Buy recommendation of Motilal Oswal
Motilal Oswal has also foreseen that there will be a “bounce back” in the MIS business of Jain Irrigation owing to the Government’s thrust on irrigation. It has predicted that the revenue will grow at 15% CAGR while the EBITDA will grow at 20% CAGR in the period from FY16-18. The PAT CAGR will grow at 101% CAGR is the further confident prediction.
It is obvious that all these hefty increases in revenue, EBITDA and PAT will translates into hefty gains for the stock price.
Buy recommendation of TS Harihar and Avinash Gorakshakar
Well known value investors, TS Harihar and Avinash Gorakshakar, recommended a buy of Jain Irrigation on the logic that it has virtual monopoly over drip irrigation and the government’s plan to spend extensively on irrigation will benefit the company.
165% Gains Foreseen By Ventura
Ventura has projected an ambitious target price of Rs. 250 for Jain Irrigation which translates into a magnificent gain of 165% from the CMP of Rs. 95.
Venture has candidly accepted that its valuation is “aggressive”. However, it has given cogent reasons to support the valuation on the basis that the “fortunes of the company are on the verge of a turnaround given the good monsoon and the impetus of the government to kick start the economy”.
Ventura has also contemplated an “upside risk” to the target price if Jain Irrigation sells off its foods subsidiary. This will result in “significant value unlocking” and send the stock soaring into orbit, Ventura says.
Ventura’s last stock pick delivered 80% gains in just 4 months
It is notable that Ventura had recommended a strong buy of Heritage Foods, a small-cap stock backed by Dolly Khanna, Vijay Kedia and Kamal Kabra. Ventura promised 81% gains from Heritage Foods which was delivered in just four months.
The fact that all knowledgeable investors are bullish about Jain Irrigation augers well for the stock. However, whether the stock will live up to expectations and deliver the mind-boggling gains of 165% foreseen by Ventura requires to be seen to be believed!
The statement ‘the multibagger stocks recommended by the four stalwarts are notching up hefty gains and enriching investors’ is only partially true. Porinju’s, Tulsian’s & Ambareesh’s recommendations are up 36.86%, 30.56% & 33.27% resp. while Prakash Diwan’s recommendations are down -10.14%. Jain Irrigation recommended by Ambareesh Baliga is up 48.09%.
Agree that Jain holds potential even from the current levels. I first bought in Sep’15 when the stock was at around 59 and kept adding. In Feb’16 it dropped to 48 and I bought some more but not a truck load and that’s the mistake! My holding is now at an average price of 58.
I believe Suzlon is another fallen angel which is improving steadily. There is nothing much to lose over there but gains can be hefty.
Suzlon has internal management problem and only a takeover can change the fortunes of this company. Key PE investors sold their entire holding .
#nivezareview – Jain Irrigation is still a decent buy on dips as far as long term multiple returns are concerned. Stock is some how cyclic as well but still going good and volume pick up is still on. In last 6 months, every dip has witnessed a better buying pressure. Even at current levels aggressive buying could be possible. Fundamentals are perfect.
Yes, its perfect for accumulation!
Ashish kacholia has entered VIVIMED LABS. Please cover this story in your blog to understand the nuts and bols to vivimed labs.
Porinju has also bought FLEX FOODS as per last qtr 1,25,000 shares in BSE.