Motilal Oswal's report on Jain Irrigation Systems
The Cabinet Committee on Economic Affairs (CCEA) has approved the Pradhan Mantri Krishi Sinchayee Yojana which entails INR500b spend over next five years.
The allocation for the current financial year is INR53b, which would increase substantially (~100b annually) over the next four years to meet the planned outlay.
Mr. Jain believes the government’s emphasis will help grow MIS and Piping businesses and can double the drip irrigation business over the next five years.Domestic MIS to post 10-15% growth; targeting 130 gross receivable days in FY16
Mr. Jain expects domestic MIS business to post ~10-15% growth with current expectations of monsoons, and 15-20% growth if monsoons are above normal.
Management expects 2HFY16 to post higher growth than 1HFY16.
Gross receivable days in the MIS segment currently stand at ~188, and the management is confident of reducing it to 130 by FY16-end with the implementation of new business model across states. The management suggests the incremental business is being conducted with 90 receivable days.
Food processing business stake sale likely in next the two quarters
With subsidiarization of food processing business likely to be concluded in 1HFY16, the management believes 25% stake sale will be concluded over the next two quarters.
JI is looking forward to raise USD100m through a minority stake sale, and will be most likely closing the deal with a financial investor as against the earlier plans of inducting a strategic partner.Consolidated debt to reduce by INR3b annually
Consolidated net debt for 4QFY15 stood at INR39.3b.
The management maintains its target to reduce debt by INR3.0b, majority of which is expected in 2HFY16.
Valuation and view
We expect strong free cash generation over FY15-17E (led by domestic MIS business), which should reduce debt/equity from 1.6x in FY15 to 1.1x in FY17E.
"We expect 15% revenue CAGR and 18% EBITDA CAGR over FY15-17, with financial de-leveraging ensuring EPS expansion from INR1.9 in FY15 to INR8.3 in FY17. We maintain Buy with a TP of INR100 (12x FY17E EPS)", says Motilal Oswal research report.
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