Jain Irrigation Systems helping the world Go Green, is a Buy for us

Irrigation is the artificial application of water to the land or soil. It is used to assist in the growing of agricultural crops.(source: Wikipedia). Agriculture is very important for an economy and irrigation plays a very important role in agriculture, thus enabling the economy to be more Green & Clean.

Jain Irrigation Systems Ltd. (NSE:JISLJALEQS) is a leading agri-business Company, operating in diverse but integrated segments of the agribusiness value chain.

It is the second largest micro irrigation Company globally and largest  manufacturer  of micro  irrigation systems in India. Jain Irrigation is a multinational organization with global presence in 120 countries having 24 manufacturing plants and employs over 7,500 workers.

Competitive Advantage

• Strong brand and leadership position in India
• Total solutions provider across the agricultural value chain
• Diverse revenue streams from different geographies
• Experienced management and large pool of agriculture professionals
• Wide dealer and distribution network.

Financial performance

• Total domestic revenue increased by 11.1% in fiscal 2012 to  Rs.30,374 million,  from Rs.27,349 million in fiscal 2011
• The revenues  from  exports have  increased by 30.40% in fiscal 2012 to Rs.6,725 million, from  Rs.5,158 million in fiscal 2011
• Export sales accounted for 18.1% corporate sales in fiscal 2012, as compared to 15.9% in fiscal 2011
• Micro Irrigation showed an improvement of 11.40% in Net sales as compared to last year
• Piping Systems showed an improvement of 5% in Net sales as compared to last year
• Agro processed recorded a growth of 15.90%
• Plastic Sheets showed maximum growth of 29.50% where as other products collectively showed growth of 97.80%

Dividend Yield Analysis

Financial Ratio Analysis

Key Ratio Analysis

As compared to last year, company has reduced on its D/E ratio, current ratio, and fixed asset turnover. A decline has been seen in every component as compared to last year. Also the investors’ willingness to pay for the shares has reduced, as can be seen from P/E Ratio. This performance is due to the slow down after an initial upward momentum in the global economy. Exports from emerging and developing countries have been detained by weak global economic activity. Also at the national level the macroeconomic indicators are raising concerns about growth. Significant weakness in investment activity is the main cause of slowdown.

Outlook

Historically the Indian Plastic industry has been growing at a rate of 12% over the years, if the same potential continues the country is all set to reach the 12.5 MMT by consumption making India the 3rd largest consumer of plastics. Competition globally has increased manifold and thus an inconsistency in the input prices could be seen which is a negative sign for the companies operating in the sector. Also increased domestic and international competition might lead to price reductions, decreased sales, and lower profit margins thus adversely affecting the businesses.

JISL is one of India’s  largest manufacturer  of  polyethylene pipes, leading PVC pipe manufacture  and is furthermore the largest manufacturer of Tissue Culture banana plants in the world. With government showing keen interest in promoting tissue culture, the company will grow as the demand is expected to show improved uptake. However lack of skilled work force continues to be a challenge for the company.

Stock Recommendation

It’s a definite accumulate/buy call for now. The all time high of over 120 is a strong indicator of an upside of the stock. The recent historical trend in the price of the stock suggested company’s stock to touch the levels of 90, from its current level of 62-63. It is expected that FY13 turnover for the company will touch Rs. 5000 Crore mark, making a great achievement for the global yet local company.