Thursday, May 24, 2012

Jain Irrigation Shares Bought by Macquarie Bank


Bhavarlal H Jain,
Chairman, Jain Irrigation Systems Ltd
By Staff Reporter:

Jain Irrigation Systems Ltd (BSE: 500219, NSE: JISLJALEQS) counter in BSE on Thursday, 24th May 2012, saw a significant buy of 22.50 lakh shares by the FII, Macquarie Bank Ltd.

This was disclosed at Bombay Stock Exchange, after trading hours on Thursday.

Macquarie’s buy amounts to a 0.58% stake in the irrigation systems company, and was executed at Rs. 70.23 a share, making the total deal worth Rs. 15.80 crore.

Interestingly, Macquarie Bank’s shopping has come on a day when Jain Irrigation Systems marked a new 52-Week Low of Rs. 69.10 in BSE.

The once high-flying mid-cap stock has been on a steady downtrend in the year-to-date, falling from a 52-Week High of Rs. 183.70 marked on 11th July, losing over 62% in value during the last 10 months.

On the fundamental side, Jain Irrigation Systems, which had grown its business quite impressively between FY’07 and FY’10, had started facing serious issues in FY’11.

The stock, which was until then climbing the chart with excellent returns for its early investors, started falling, and has never regained its adjusted all-time high of almost Rs. 265, recorded in early August of FY’11. 

While consolidated sales went up to 2.37 times in FY’11, consolidated net profit grew by only 16.31%. Though the standalone Jain Irrigation’s bottomline turned sluggish in that year, the greater damage was inflicted to the consolidated bottomline by the subsidiaries.

In FY’12, the performance of the standalone company turned even more sluggish with sales growing by just 11.10%, and net profit dipping by 8.95%. This performance for the whole year would have been even worse, if not for a turnaround seen in Q4 numbers, which was announced in early May.

Though much of the stunning turnaround in standalone net profit is due to several one-off items, both sales and operating profit have also shown a marked sequential turnaround, even while remaining flat on a year-on-year basis.

The company is yet to announce its consolidated results for Q4 and FY'12.

Jain Irrigation’s main products include micro irrigation products like drip irrigation systems, sprinklers, water pipes etc, and it is one of the leaders in this sector not only in India, but across several countries in the world. But during the last couple of years, the company got into serious trouble when it tried to increase its topline rapidly by a kind of lending model to small farmers in the country.

This led to high debtor days of 370 in FY’11, which has moderated in FY’12, but is still high at 340. Even the company’s target for the current fiscal - 270 days - is deemed high by most standards. However, things may improve if the company’s plan to start an NBFC is approved by the regulators.

The high debtor days has made it difficult for the company to bring down its high working capital requirements as well as huge debt of around Rs. 3800 crore on a consolidated basis, and the resultant high interest costs.

Jain’s products enjoy government subsidies, but the subsidy repayments by the state have been quite slow, adding to the company’s woes. However, a relief in the making is an expected inclusion of credit for micro-irrigation products under the priority sector lending scheme of Indian banks.

Jain Irrigation is also focusing more on growing its international operations as against the Indian operations. Recently, during a G-8 Summit where it was an invitee, the company pledged to invest $375 million in African countries to support smallholder farmers there, which it sees as a lucrative growth market.

Though it is not clear from where this money would come from, the commitment to growing its higher-margin business of international micro-irrigation systems seems to be a positive intention.

Sending further signals, the company had recently announced its intention to fully take over their Israeli joint venture, NaanDanJain. 

Macquarie Bank seems to be testing the waters through their 0.58% stake buy on Thursday. The noted FII, known for their selective picks in the Indian market, was not an identifiably large investor in Jain Irrigation as per the latest SHP, holding above 0.50% stake.

The stock is noted for its high FII participation of nearly 53%, poor DII participation of 1%, and relatively low promoter stake of 30.35%.

Major investors in Jain Irrigation are Emerging Markets Growth Fund, Janus Orion Fund, Smallcap World Cap Fund, Columbia Acorn International, Capital International Emerging Markets Fund, CLSA (Mauritius), Dunearn Investments Mauritius, Janus Worldwide Fund, Aranda Investments (Mauritius), International Finance Corporation, Pictet Water, Government Pension Fund Global, and Citi Group Global Markets Mauritius.

Despite Macquarie’s buy on Thursday, the stock marked a new 52-Week Low, and closed in red, thereby revealing that there is still enough selling pressure. However, there were no identifiable institutions selling above 0.50% stake.

On Thursday, Jain Irrigation closed trade in BSE at Rs. 70.45, down only marginally by 0.21%.