Jain Irrigation Systems Ltd Initiating Coverage Research Report By Ventura

Over the period FY13-16, the performance of Jain Irrigation Systems Ltd (JISL) has been less than exemplary. It was marred by forex losses and high interest payments, which led to PAT losses in FY14. The two years that followed were also marked by lacklustre growth due to the droughtlike situation prevailing in India and Maharashtra in particular.

However, we believe that the fortunes of the company are on the verge of a turn-around, given the good monsoon and the government impetus to kick-start the economy. Further, the infusion of ~Rs 800 crore of capital should help lower interest costs and improve the health of the balance sheet. We expect the revenues to grow at a CAGR of 14.7% to Rs 9,504 crore while the EBITDA and net earnings are expected to grow at a faster pace of 20.8% and 93.7% to Rs 1,440 crore and Rs 641 crore by FY19. EBITDA and PAT margins are also expected to improve to 15.2% (+217 bps) and 6.7% (+534 bps) over the same period.

We initiate coverage on JISL as a BUY with a price objective of Rs 250, representing a potential upside of 166% from the CMP of Rs 94. At present, the stock is trading at 5.7X and 4.5X its estimated EV/EBITDA for FY18 and FY19. We have assigned an EV/EBITDA of 12X on FY19 EBITDA.

Although our valuation is aggressive, we believe that the following factors warrant a premium:

a. Robust outlook of the micro irrigation systems (MIS) segment, not only on the domestic front but globally too, augurs well for JISL.

b. The company is well placed to grow exponentially in the sunrise food processing segment. Spin off of Jain Farm Fresh Foods Limited (JFFFL) can lead to significant value unlocking. We have not factored this into the valuation and it remains an upside risk to our estimates.