Jain Irrigation up 7%; Morgan Stanley upgrades on monsoon, MIS

Moneycontrol Bureau

Morgan Stanley has upgraded Jain Irrigation to overweight from equal-weight and raised target price to Rs 92 from Rs 72 as it expects 70 percent earnings CAGR (compound annual growth rate) over FY17-19.

The brokerage says high leverage has been a key concern for investors, but the company now has a recapitalised its balance sheet with lower interest costs - the first factor that will boost earnings.

Other two factors - expectation of a better monsoon and an increasing central & state government thrust on Micro Irrigation Systems (MIS) after two consecutive years of drought - also indicate better days ahead for the company, Morgan Stanley believes.

The brokerage estimates that there is about more than 80 percent (or highly likely) probability for this scenario.Risks to its price target are poor farm sentiment/monsoon outlook continues in FY17 and FY18; states' thrust weakens on mandatory adoption of MIS for important crops like sugarcane; increased competitive intensity in the MIS business, which further hurts MIS margins; and deterioration in capital efficiencies.

The brokerage believes the share price will rise relative to the country index over the next 60 days.

At 10:44 hours IST, the scrip of Jain Irrigation Systems was quoting at Rs 70.30, up Rs 3.40, or 5.08 percent on Bombay Stock Exchange.Posted by Sunil Shankar Matkar