[T.S.R:18381] JAIN IRRIGATION DVRS (BSE 570004)-BUY WITH A TARGET OF RS 55

Jain Irrigation's 3QFY12 results were impacted by a higher-than anticipated interest cost and high exchange loss on foreign currency loans, which led to the company reporting only a tiny profit. Growth in micro-irrigation systems (MIS) declined to an all time low as the company was focused on controlling receivables. Agro-processing disappointed massively, while the piping business surprised positively.

 

With the stock trading at 8.5x FY13F earnings we reiterate our Buy rating.

 

Key result highlights

 

Net sales missed our estimates by 7%, increasing only 13% y-y. The key contributors to the low growth were the core MIS business and the agro-processing business.

 

Operating profit also missed our estimate by 6%, as the company saved on staff costs and selling and admin costs. Margins were higher than our estimate on the MIS business but lower on the agro-processing front, which was a negative surprise given the much better than-expected performance in 2QFY12.

Interest costs at INR916mn surprised negatively, rising almost 60% yy on higher amount of working capital debt and higher interest rates resulting in profit before tax missing our estimate by 21% and reporting a 25% y-y decline.

As we expected, the company did not make use of the option provided by the Ministry of Corporate Affairs to amortize exchange losses on foreign currency debt. It instead reported a surprisingly large exchange loss of INR711.4mn vs. our estimate of INR450mn.

The foreign exchange loss almost wiped out the profits of the company, leaving only INR12.4mn to be reported as the PAT. The company has taken tax shelter on the exchange loss to report almost no tax payment during the quarter.

 

With the INR appreciating against the USD in the current quarter, we expect some of the foreign exchange losses to be reversed in 4QFY11.

 

 

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