Jain Irrigation Q1FY17 Result Update By Motilal Oswal

Results in line with estimates: Jain Irrigation’s (JI) overall revenues increased 3.8% YoY to INR16.6b in 1QFY17 (in line with our estimate of INR17.1b). EBITDA stood at INR2.3b (in line with our estimate), with margins increasing 160bp YoY to 14.1% (v/s our estimate of 13.8%). Consequently, adjusted PAT for the quarter stood at INR585m (v/s our estimate of INR531m), as against INR144m in 1QFY16 (mainly due to a spurt in other income to INR131m from INR60m in 1QFY16, and lower interest outgo of INR1,086m v/s INR1,236m in 1QFY16).

MIS business to bounce back led by good monsoon: On a consolidated basis, overall Micro Irrigation Systems’ (MIS) revenues fell 6.7% YoY. Retail business remained under pressure due to lower water reservoir levels, especially in Maharashtra (de-growth of 20%), but states like Andhra Pradesh, Karnataka and Gujarat saw growth. Also, large part of growth in Project business is expected to flow in 3Q and 4QFY17. With monsoon progressing well, MIS is expected to bounce back; management has guided for 16-18% growth in FY17.

Debt equity likely to lower in FY17: Management expects to reduce net D/E ratio from 1.2x currently to 1.1x in FY17, with improved cash flows during the year and efforts to bring down net working capital days, especially in domestic MIS business from 206 days to 120-150 days over the next two years.

Valuation and view: In view of better monsoon and Maharashtra government’s thrust on irrigation, we expect a bounce back in MIS business. Overall, we expect 15% revenue CAGR to INR83.2b and 20% EBITDA CAGR to INR11.7b over FY16-18, translating into PAT CAGR of 101% to INR4.2b in FY18, mainly to lower interest outgo. We maintain Buy with a TP of INR90, 11x FY18E EPS (rolled over to FY18).