Buy Jain Irrigation Systems; target Rs 90: KRChoksey

KRChoksey is bullish on Jain Irrigation Systems and has recommended buy rating on the stock with a target price of Rs 90 in its February 07, 2013 research report.

"Jain Irrigation Systems reported standalone net sales de-growth of 7% y-o-y to Rs771cr for Q3FY13, below our estimate. Export business remained flat at Rs152cr while other divisions such as PVC sheet, Tissue culture and fruit & pulp business continued to support top-line growth with double-digit growth. However, piping business remained flat on y-o-y basis. EBITDA income also declined significantly, due to higher RMC and energy costs. However, it reported net loss for the quarter due to foreign exchange loss of Rs57cr & higher interest expenses. The main culprit MIS segment de-grew by 18.5% y-o-y, due to company’s strategy to implement new business model to reduce high receivable days and improve cash collection. Food business grew by 29.5% to rs63cr, while PVC pipe business remained flat on y-o-y, however, tissue culture & green energy business witnessed double-digit growth of 12% & 12.7% on y-o-y basis. EBITDA for the quarter dipped 31.5% y-o-y to Rs127cr, margins contracting by 582bps y-o-y, due to RMC which rose 311bps y-o-y and other expenses by 199bps y-o-y and further due to lower fixed cost absorption. It reported net loss of Rs31cr against profit of Rs1cr previous year. During Q3FY13, it reported foreign exchange translation loss of Rs 57cr, which we have adjusted to arrive at adjusted net income, which was dipped 38% y-o-y to Rs25cr, on account of higher interest expenses and carry-on effect of lower EBITDA income. Receivable days & inventory levels came down significantly. Interest burden is likely to ease with the rolling out of NBFC model across Maharashtra, Punjab, Rajasthan and Gujarat. After two disappointing quarters, management expects financial health to pick up from Q4. Valuation & View: Another disappointing quarter led by subdued performance from MIS segment, higher input costs. However, changing revenue mix, efficient working capital during FY14 and reversing rupee is likely to positively impact financial health. The concerns over receivable days are likely to be resolved in few quarters. The sharp correction provides opportunity to buy with the target of Rs 90 as the improving health will add more color for re-rating and upgrade in earnings, going forward," says KRChoksey research report. Quarterly Shifts by Morgan Stanley Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. To read the full report click on the attachment

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