Jain Irrigation Systems Ltd’s March quarter results are more or less in line with the Street’s expectations.
It derived 70% of its revenue from the hi-tech agri input products business, revenue from which grew by 39% over the same period last year. This includes the micro irrigation systems (MIS) business, which performed well and registered 42% sales growth. The MIS business accounts for around half of the company’s total revenue.
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Impressively, the growth in the MIS business in the March quarter comes on a higher base. Also it compares well with the previous two quarters, when the MIS business grew by about 20%.
Strong and extended monsoon was the main reason for the muted performance of the MIS business in those two quarters. Jain Irrigation has guided for 30% growth in the MIS business in the current fiscal. That’s below the Street’s expectations, said an analyst.
The company derived the remaining 30% of revenue from its industrial products business, which includes PE (polyethylene) piping products, plastic sheets and agro-processed products. Industrial products revenue increased at a slower pace of 10%.
Overall revenue increased by 30% to Rs 1,236 crore and operating profit rose by 33% to Rs 263 crore. Operating profit margins increased by 63 basis points to 21.3%, from 20.6% last year. One basis point is one-hundredth of a percentage point.
Though, operating performance was strong, it could not translate into strong growth at the net level. Net profit declined by 7% to Rs 109 crore. That’s because of a sharp rise (about 40%) in interest expenses to Rs 70 crore, due to higher working capital funding and higher cost of debt.
Jain Irrigation’s scrip has underperformed sharply since the announcement of its December quarter financials, which were below expectations due to adverse weather conditions. This time, too, investors didn’t cheer the results.
The stock fell by 1.26% to Rs 180.56 apiece after results on a day when the benchmark Sensex index of the Bombay Stock Exchange fell by 0.72%. Perhaps investors are more concerned about the company’s working capital issues at this point of time.
The firm intends to set up a non-banking financial company (NBFC) to improve its working capital cycle and reduce the receivables. Needless to say, if the NBFC is able to address working capital concerns, it would be a trigger for the stock. Further, any slowdown in the MIS business would be a cause for concern as it could affect overall growth.
Graphic by Yogesh Kumar/Mint
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