Jain Irrigation’s (JISL’s) Q4FY09 PAT is as per our expectation at Rs339 million (our expectation was Rs341 million), while sales is lower-than-expected at Rs6,985m (our expectation was Rs7,784m).
Topline grew by 15.2% y-o-y, whereas bottom line de-grew by 11.4% y-o-y in Q4FY09. The lower-than-expected growth in the topline was due to lower sales in PE pipes and agro processing divisions.
A slowdown in the telecom sector affected the PE pipe division, while postponement of despatches in Q4FY09 impacted the agro processing division.
EBITDA margin has improved by 118bps y-o-y (our expectation was 30bps) to 22.5% on the back of margin improvement in the micro irrigation division (MIS).
MIS’ EBITDA margin has increased by 125bps y-o-y to 32.5% (our expectation was 32.1%) on the back of falling raw material prices. Overall, EBITDA grew by 21.5% y-o-y to Rs1,601 million in Q4FY09.
The company has a policy to provide full year tax provision in the last quarter of the financial year. Hence, it has provided Rs628.6 million tax in Q4FY09 i.e. 65% of profit before tax.
Management is bullish on the MIS and agro processing businesses. They believe that JISL’s topline will grow by 30% CAGR in the next two years.
We are also positive on the business of JISL on the back of untapped potential of MIS and agriculture-based business model.
In our estimate, we have considered 21.8% FY09-11E CAGR in topline on a conservative basis. JISL has a net debt of Rs16,500m and cash of Rs3,000m at the end of FY09.
In the absence of a niche competitor, we compared JISL with agrospace companies. As compared to them, JISL is trading at a premium (16.5x) than its peer (6-9x) on the basis of FY10E EPS, on the back of higher growth and strong agricultural business model.
At the CMP, stock is trading at 16.0x at FY10E EPS as against its historical forward trading band of 10x-32x.
We maintain a REDUCE rating on the stock, with a revised target price of Rs455 (15x of FY10E EPS).