Buy Jain Irrigation Systems; target Rs 185: PINC Research

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Buy Jain Irrigation Systems; target Rs 185: PINC Research

PINC Research is bullish on Jain Irrigation Systems (JISL) and has recommended buy rating on the stock with a target price of Rs 185 in its November 3, 2011 research report.

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PINC Research is bullish on Jain Irrigation Systems (JISL) and has recommended buy rating on the stock with a target price of Rs 185 in its November 3, 2011 research report.

"Jain Irrigation Systems (JISL) is the biggest player in MIS in India with 55% / 35% market share in Drip and Sprinkler irrigation respectively. Post launch of NMMI (Jun'10) we expect faster processing of subsidies and more farmers adopting MIS thereby helping JISL register a growth of 19.7% over FY11-13. Piping business (29% of standalone revenue) has shown a CAGR of 12.6% over FY09-FY11 driven by demand from the construction and agriculture sectors. We expect an 8% CAGR in demand in PE and PVC pipes for FY11-13. Increasing application of PE pipes and introduction of new products is likely to help JISL capture further market share. Food processing & solar businesses together contribute ~17% of the total standalone revenues. We expect the food processing business to show a CAGR of ~25% over FY11-13 mainly driven by Mango processing. We expect solar business to clock a CAGR of 50% over FY11-13. The operational subsidiaries performance has improved over the years and contributes approx 20% of the overall revenue. The consolidated margin is likely to expand by 59bps from 19.1% to 19.7% over FY11-13 due to a 74bps improvement in subsidiary margin. We expect JISL's operating cash flow to improve in FY13 led by better management of debtor days which we expect will improve from 164 days (FY11) to 157 days (FY13e) due to better subsidy disbursement from Government. FCF is likely to be Rs 1.2bn in FY13e as against -ve Rs 3.9 in FY11."

"JISL has historically traded in a band of 18x-32x 1 year forward P/E. We assign a 1-year forward P/E of 17x on FY13 EPS of Rs 10.9 to arrive at our target price of Rs 185. We believe that if JISL is able to improve its working capital cycle, the stock could get re-rated and would deserve a higher multiple than 17x. We initiate coverage with a 'BUY' recommendation on the stock with a target price of Rs 185." says PINC Research report.

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To read the full report click on the attachment