Jain Irrigation Systems
Research: Morgan Stanley
CMP: Rs 622
Morgan Stanley has retained its ‘overweight’ rating on Jain Irrigation Systems (JISL). Strong momentum in micro irrigation systems (MIS) and fruits & vegetables (FV) processing continues to drive growth.
Margins have expanded by 270 bps in 9M FY08 to 18.6%, led by faster growth in micro irrigation, which now comprises 33% of JISL’s standalone revenues, against 28% in the previous corresponding period. In Q3 FY08, JISL reported standalone revenues of Rs 400 crore (36% y-o-y growth) and EBITDA of Rs 82 crore (75% y-o-y growth).
MIS grew 69% y-o-y to Rs 170 crore, driven by strong growth in all key states. EBITDA margins of the business expanded by 60 bps y-o-y, driving EBITDA growth of 72%. It currently has an MIS order book of around Rs 330 crore, which will largely be executed by March ’08.
Agro-processing (AP) grew 76% y-o-y, driven by 170% growth in FV processing to Rs 41.8 crore, while onion dehydration declined 52%. The plastics business grew 11% y-o-y to Rs 200 crore, impacted by lower exports to the US (PVC sheets) and slowdown in domestic PVC pipes business. Morgan Stanley estimates that margins will expand over the next 3-5 years, with faster growth in MIS and earnings growth, which will push up revenues