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Initiating Coverage | 19 May 2014

Sector: Agri

Jain Irrigation

Poised for a recovery


Atul Mehra (Atul.Mehra@MotilalOswal.com)+91 22 3982 5417
Niket Shah (Niket.Shah@MotilalOswal.com); +91 22 3982 5426

Jain Irrigation

Jain Irrigation: Poised for a recovery


Page No.
Summary .......................................................................................................... 3-4
Story in charts: Poised for a recovery ............................................................... 5
MIS - set for a recovery ................................................................................ 6-10
Huge potential for micro irrigation in India ............................................. 11-15
PVC pipes business to post steady growth ............................................... 16-21
Food processing - a promising business .................................................... 22-25
Tissue culture - a unique farming solution ............................................... 26-27
Solar water heaters, lanterns - similar to MIS model .............................. 28-29
International operations - profitability to improve ................................ 30-32
Earnings to post 48% CAGR over FY14-16E ............................................... 33-35
Initiating coverage with Buy rating ........................................................... 36-37
Risks and concerns ............................................................................................ 38
Management ..................................................................................................... 39
Company overview ..................................................................................... 40-43
Annexure ...................................................................................................... 44-46
Financials and valuations ........................................................................... 47-48

Investors are advised to refer through disclosures made at the end of the Research Report.

19 May 2014

Initiating Coverage
| Sector:
Agri
Jain
Irrigation

Jain Irrigation
S&P CNX
7,264

BSE Sensex
24,363

CMP: INR100

TP: INR140

Buy

Poised for a recovery


Working capital set to improve due to shift in favor of NBFC-based model
Stock Info
Bloomberg

JI IN

Equity Shares (m)

443.1

52-Week Range (INR)

100/46

1, 6, 12 Rel. Per (%)

37/33/27

M.Cap. (INR b)

44.9

M.Cap. (USD b)

0.8

Financial Snapshot (INR m)


2014E 2015E 2016E
Y/E March
Net Sales
60,430 70,533 82,407
EBITDA

8,326 9,718 11,354

PAT

259 2,997 4,534

EPS (INR)

4.6

6.6

10.0

Growth (%)

368.9

45.2

51.0

BV/Share (INR)

51.6

57.5

66.5

RoE (%)

9.1

12.1

16.1

RoCE (%)

11.0

13.0

15.4

P/E (x)

21.9

15.1

10.0

1.9

1.7

1.5

P/BV (x)

With a focus on progressive states and switch to a NBFC-based model, we expect


Jain Irrigations (JI) working capital concerns to be allayed over FY14-16.
Hence, we expect strong free cash generation which should aid in reducing debt
equity from 1.6x in FY14 to 1.0x in FY16E.
Policy impetus from the new government in the form of direct credit of subsidy or
a reduced working capital model on the lines of GGRC can be potential game
changer events.
We value JI at 14x FY16E EPS of INR10 and arrive at a target price of INR140,
implying 40% upside. We initiate coverage with a Buy rating.

Direct credit of subsidy by Center can be a mega game changer


MIS industrys growth has been adversely impacted over the past two years due
to delay in payments at the state level. Centre contributes 40% towards subsidy
for MIS while states contribute another 10% towards subsidy taking the total
subsidy for MIS to 50%. As majority of the subsidy contribution is from the
Center, direct release of subsidy by the Center in favor of the farmer can
substantially reduce the payment delays associated with the states. In our view,
changing landscape at the Center and progress on initiatives like Aadhar can
result in direct credit of subsidy to farmers, which can be a game changer event.

Working capital to improve led by focus on progressive states


Shareholding pattern (%)
As on
Mar-14 Dec-13 Mar-13
Promoter

28.7

27.5

27.5

Dom. Inst

2.2

1.6

1.3

54.0
15.2

57.6
13.2

56.2
15.1

Foreign
Others

JIs management has moved away from doing business in TN, Karnataka and AP
due to substantial delays in payments. As a result, revenue contribution from
these states has declined from 21% in FY12 to 8% in FY14 and is further slated to
decline to 3% of total MIS revenue in FY16E. Growth over FY14-16E will be
driven by higher contribution from progressive states like Maharashtra and
Gujarat whose revenue contribution is expected to increase from 47% in FY14E
to 53% in FY16E.

and switch to NBFC-based model


Stock Performance (1-year)

19 May 2014

Apart from moving the business in favor of progressive states, JI is focusing on


NBFC-based model wherein payment to dealers will be made instantly by the
farmer and farmers financiers. JI-owned NBFC SAFL or banks will typically act as
financiers to farmers for the subsidy portion. These actions, in our view, will
collectively ease concerns on working capital for its MIS business. Thus, we
expect gross debtor days in MIS business to decline from 247 days in FY14E to
180 days in FY16. Currently, 30% (INR2b out of INR6.6b) of all MIS business in
Maharashtra is being carried out though the NBFC route. We expect JI to garner
80-90% MIS revenue in Maharashtra from this new model in next 23 years.

Jain Irrigation

GGRCs role has been a strong positive for MIS players like JI
JIs experience in Gujarat has been highly favorable ever since the formation of
GGRC in 2006. The state is the third largest (~10% of MIS revenues) and fastest
growing market for MIS. JIs MIS receivables in Gujarat are ~120-140 days,
compared to >300 days for AP and TN, and the average of 250 days companywide. The new government at the Center can possibly replicate GGRC model
across other states which can be a game changer event for MIS players like JI.

PVC piping is a logical extension to JIs MIS business


JI is primarily present in the agri-piping segment of PVC pipes (derives more than
90% from agriculture). Agri-pipes are used for connecting the farmland with the
nearest river/canal to ensure water supply. Since JI already has a strong
foothold in the agriculture space through its dominance in the MIS business,
agri-pipes is a complimentary business for the company. At present, only 40% of
the total arable land is under irrigation, with the balance being rain fed. With
the continuous depletion of water tables across the country, farmers are
increasingly being forced to source water from faraway places. Thus, demand
for rigid PVC pipes is expected to increase driving growth for JI in this segment.

JI is Indias largest player in food processing industry


India has the second largest arable land in the world and with diverse agroclimatic zones across the country, has tremendous production advantages in
agriculture. However, due to the lack of adequate storage facilities and
transportation, it is in the bottom in terms of food processing. Only 2% of the
total produce is processed, compared to ~60-80% in some developed countries.
JI is Indias largest player in the food processing sector, with a market share of
~30% and is the third largest in the world. Its food processing business is
involved in processing of onion, vegetable dehydration and fruit processing. JIs
extensive experience and high involvement with the farmers have given it an
edge in the most crucial aspect of the food processing business, sourcing.

International MIS profitability set to climb on the back of new initiatives


JI is increasingly sourcing more MIS products from low cost centers like India to
cater to international markets, which is expected to drive profitability. Also, JI is
actively working on more project business (~10% of revenue) in places like Latin
America where margins are higher. Further, JIs Greenfield capacity in Turkey is
expected to ramp up revenue over the next couple of years, thus translating into
better profitability from Turkish operations. Management expects overseas
business profitability to improve with the current 7% margin expected to expand
to 12% over the next 3-4 years.

Initiating coverage with a Buy and target price of INR140


With a focus on progressive states and switch to NBFC-based model, we expect
JIs working capital concerns to be allayed over FY14-16. Hence, we expect
strong free cash generation which should help in reducing debt equity from 1.6x
in FY14 to 1x in FY16E. Policy impetus from the new government in the form of
direct credit of subsidy or a reduced working capital model on the lines of GGRC
can be potential game changer events. We value JI at 14x FY16E EPS of INR10
and arrive at a target price of INR140, implying 40% upside. We initiate coverage
with a Buy rating.
19 May 2014

Jain Irrigation

Story in charts: Poised for a recovery


1.
2.
3.
4.
5.
6.

JI is the market leader in MIS business in India.


MIS penetration in India is among the lowest in world.
Gross debtors set to decline due to improved strategy.
Hence, debt to equity to decline from 1.6x to 1x.
Food processing is another key opportunity for JI.
RoE to improve to 16% in FY16E.

1. JI is the market leader in MIS business in India

2. MIS penetration in India is among the lowest in world


MIS penetration across countries (%)

Market share of key players in micro irrigation systems in India

55%

90%

78%

65%

25%

20%

55%

52%

10%
Netafim

Jain Irrigation

Others

Israel

Russia

Spain

US

Source: MOSL, Company

3. Gross debtors set to decline due to improved strategy

369
255

India

4. Hence, debt to equity to decline from 1.6x to 1x


Net Debt (INR m)

Net DER (x)

2.0

352

343

China

Source: MOSL, Company

Gross Sundry Debtors


316

Brazil

3%

1.7

247

1.6
1.3

200

181

34,442

35,854

37,510

1.0

34,363
31,620

FY09

FY10

FY11

FY12

FY13 FY14E FY15E FY16E

FY12

FY13

FY14E

6. RoE to improve to 16% in FY16E

% of food processed
80%

80%

FY16E

Source: MOSL, Company

Source: MOSL, Company

5. Food processing is another key opportunity for JI

FY15E

RoE (%)

70%

16.1

13.5

12.1
9.1

30%

2.2

2%
USA

Malaysia

France

Thailand

India

Source: MOSL, Company

19 May 2014

FY12

FY13

FY14E

FY15E

FY16E

Source: MOSL, Company

Jain Irrigation

MIS set for a recovery


Shift towards progressive states to drive improvement in working capital

JI is Indias largest player in India's organized micro irrigation sector, with a dominant
market share of 55%.
Focus on progressive states and NBFC-based model to drive gross debtor days lower
from 255 days to 181 days over FY14-16E.
With majority of the subsidy being contributed by the Center, possibility of direct
credit of subsidy to the farmer can be a game changer for JI
Similarly, with new government at the Center, steps towards replicating successful
models like Gujarat Green Revolution Corporation (GGRC) across other states can
reduce working capital requirements for JI.

Largest player in MIS


JI is the largest player in
India's organized micro
irrigation sector, with a
dominant market
share of 55%

JI is the largest player in India's organized micro irrigation sector, with a dominant
market share of 55%. The second largest player with a 20% market share is Netafim,
which is the global leader in MIS. Other key players include EPC Industries, Deere &
Company, Finolex Industries and Supreme Industries.
JI is the market leader with 55% market share
Market share of key players in micro irrigation systems in India
55%

25%

20%

Jain Irrigation

Netafim

Others

Source: Company, MOSL

with a strong dealership network


JI has a strong sales
network of 3,400 dealers in
the domestic market, with
300 more expected to be
added every year

JI has a strong sales network of 3,400 dealers in the domestic market, with 300 more
expected to be added every year. Most dealers come from farming background and
are influential in their respective regions. This strong local sales force helps the
company increase reach in deep suburbs and also helps improve after sales service.
At present, Maharashtra accounts for close to 44% of its total dealership, followed
by AP (16%), Rajasthan (15%), Gujarat (10%) and TN (9%).
JI has a strong delaership network comprising 3,400 and adds 300 dealers annually
Dealers

1,000

FY07

1,500

FY08

1,800

FY09

2,200

FY10

2,500

FY11

2,800

FY12

3,100

FY13

3,400

FY14

Source: Company, MOSL

19 May 2014

Jain Irrigation
Payment delays in states like TN,
AP and Karnataka where
receivable days had expanded
to 644 days as against 265 for
other states
Revenue contribution from TN,
Karnataka and AP has declined
from 21% in FY12 to 8% in FY14
and is further slated to decline
to 3% of total MIS revenue in
FY16E

Delay in payments from TN, Karnataka, AP led to funding problems


Working capital cycle for JI worsened considerably led by higher receivable days,
which expanded from 255 days (gross basis) in FY09 to 369 days (gross basis) in
FY11. This was due to payment delays in states like TN, AP and Karnataka where
receivable days had expanded to 644 days as against 265 for other states.

Management corrected this by de-focusing on TN, Karnataka and AP


JIs management has moved away from doing business in TN, Karnataka and AP due
to substantial delays in payments. As a result, revenue contribution from these
states has declined from 21% in FY12 to 8% in FY14 and is further slated to decline
to 3% of total MIS revenue in FY16E. Growth over FY14-16E will be driven by higher
contribution from progressive states like Maharashtra and Gujarat whose revenue
contribution is expected to increase from 47% in FY14E to 53% in FY16E.

switch to NBFC-based model to further ease working capital concerns


JI is focusing on reducing credit
period to dealers to 180 days
by FY16

Apart from moving the business in favor of progressive states, JI is focusing on


NBFC-based model wherein payment to dealers will be made instantly by the farmer
and farmers financiers. JI-owned NBFC SAFL or banks will typically act as financiers
to farmers for the subsidy portion. These actions, in our view, will collectively ease
concerns on working capital for its MIS business. Thus, we expect gross debtor days
in MIS business to decline from 247 days in FY14E to 180 days in FY16.
Gross receivables trend to improve led by focus on progressive states and NBFC model
Gross Sundry Debtors
369

343

316

352

255

FY09

247

FY10

FY11

FY12

FY13

FY14E

200

181

FY15E

FY16E

Source: Company, MOSL

Change in revenue composition for JI over FY12-16E


Progressive states FY12
Maharashtra
46%
Exports
7%
Rajasthan
12%
Gujarat
6%
Others States
9%
Contribution
79%
Other states
AP
13%
Karnataka
5%
TN
3%
Contribution
21%

19 May 2014

FY13
41%
9%
15%
9%
10%
85%

FY14E
38%
20%
15%
9%
9%
92%

Change (FY12-14E)
-8%
13%
3%
3%
0%
12%

FY15E
41%
22%
15%
9%
8%
95%

FY16E
44%
22%
15%
9%
8%
97%

10%
5%
0%
15%

5%
4%
0%
8%

-9%
-1%
-3%
-12%

2%
2%
0%
5%

1%
2%
0%
3%

Change (FY14-16E)
6%
1%
0%
1%
-2%
6%
-4%
-2%
0%
-6%
Source: Company, MOSL

Jain Irrigation

NBFC set up to encourage MIS funding


JI floated an NBFC named
Sustainable Agrocommercial
Finance Ltd (SAFL) in 2012 to
encourage funding towards
MIS systems

With a focus on improving the current working capital cycle, JI floated an NBFC
named Sustainable Agro
commercial Finance Ltd (SAFL) in 2012 to encourage
funding towards MIS systems. JI and IFC (a member of World Bank Group) are the
initial promoters of the venture. JI has invested ~INR930m in the NBFC while IFC has
invested ~INR70m. Going forward, JIs stake in the NBFC will be diluted to <49%.

Working mechanism of SAFL

Source: Company, MOSL

How SAFL works

SAFL focuses on farmers and operates in rural India. Thus, it gets funds at
attractive rates as this brings it in the ambit of priority sector lending (PSL).
Earlier, JI was getting ~3050% amount from the farmers and they had to wait
for the balance subsidy amount till the state governments disburse subsidies,
which took six months to a year and resulted in an increase in working capital.
With the advent of this model, JI no longer has to wait for disbursal of subsidies
from state governments. SAFL funds the farmer the subsidy amount at net
interest rate of 12% (gross interest rate is 16%, which is offset by JI as it
contributes 4% by forgoing 4% margin from MIS business).
The farmer repays the loan to SAFL on receipt of subsidy from the government.

SAFL penetration in Maharashtra to increase from 30% to 90%


SAFL is currently only operational in the state of Maharashtra. Maharashtra with
revenues of INR6.6b accounts 41% of JIs MIS business. SAFL has been able to lend
~INR1b of loans in Maharashtra which implies INR2b of MIS business (INR1b
contributed by farmer and INR1b lent by NBFC towards subsidy) being conducted
through the NBFC route. Thus, 30% (INR2b out of INR6.6b) of all MIS business in
Maharashtra is now being carried out though the NBFC route. We expect JI to
garner 80-90% MIS revenue in Maharashtra from this new model in next 23 years.
Management indicates that on a fully leveraged basis, SAFL can fund loans worth
INR5-6b, which can be achieved by SAFLs expansion in other states.
NBFC set up to drive
endorsement in favor of funding
for MIS subsidy

19 May 2014

SAFL to act as an endorsement mechanism for MIS funding


SAFL has been formed to drive endorsement in favor of funding for MIS subsidy. As
SAFL has demonstrated that lending to farmers for MIS receivables is a profitable
business, this has led to the entry of banks, especially state-owned in this sector. For

Jain Irrigation
JI in March 2014 entered into a
national level tie-up with Dena
Bank to fund farmers for
MIS purchase

instance, JI in March, 2014 entered into a national level tie-up with Dena Bank to
fund farmers for MIS purchase. JI has a similar arrangement with State Bank of India.

Possibility of direct credit of subsidy by Center can be a mega game changer


MIS industrys growth has been adversely impacted over the past two years due to
delay in payments at the state level. Centre contributes 40% towards subsidy for
MIS while states contribute another 10% towards subsidy taking the total subsidy
for MIS to 50%. As majority of the subsidy contribution is from the Center, direct
release of subsidy by the Center in favor of the farmer can substantially reduce the
payment delays associated with the states. In our view, changing landscape at the
Center and progress on initiatives like Aadhar can result in implementation of
mechanisms like direct credit of subsidy to farmers.

Gujarat and AP are the only


states in the country which
have designated a specific
body to ensure effective
implementation of micro
irrigation

Gujarat a differentiated model led by GGRC acting as an intermediary


In sharp contrast to rest of India, Gujarat and AP are the only states in the country
which have designated a specific body to ensure effective implementation of micro
irrigation. Gujarat Green Revolution Company Ltd (GGRC) is the implementing
agency for Micro Irrigation Scheme on behalf of the Government of India and
Government of Gujarat in the state. GGRC employs reputed and authorized micro
irrigation system suppliers, who provide and install the micro irrigation system and
also agro services pertaining to MIS to farmers. Although Andhra Pradesh has a
similar body in the form of Andhra Pradesh Micro Irrigation Project (APMIP), the
body has not been functioning effectively due to unrest caused by Telangana issue.

GGRCs intermediation has been a strong positive for MIS players like JI
JIs MIS receivables in
Gujarat are ~120-140 days,
compared to >300 days for
AP and TN

GGRC functions in an
effective manner with final
funds released to suppliers
within 120 days

JIs experience in Gujarat has been highly favorable ever since the formation of
GGRC in 2006. The state is the third largest (~10% of MIS revenues) and fastest
growing market for MIS. GGRC conducts education and training programs for
farmers with help from the suppliers. GGRC is also responsible for subsidy followups and collection from both the central and state governments. Thus, JIs MIS
receivables in Gujarat are ~120-140 days, compared to >300 days for AP and TN, and
the average of 250 days company-wide. The new government at the Center can
possibly replicate GGRC model across other states which can be a game changer
event for MIS players like JI.

How GGRC works

19 May 2014

Companies such as JI, Netafim, Finolex, Supreme etc are registered with GGRC
to implement MIS in states.
Pricing is regulated by GGRC and is fixed on an annual basis.
Companies such as JI through dealers source business and register each farmers
application with GGRC.
Once approved by GGRC, farmer pays 100% of dues to GGRC
GGRC releases 25% of total amount upfront to suppliers like JI.
Post implementation, suppliers like JI will receive the balance 75% from GGRC.
Final funds will be released in 120 days by GGRC.

Jain Irrigation

MIS business to post 21% CAGR over FY14-16E


Revenue for MIS business clocked -4% CAGR over FY12-14 largely due to deliberate
reduction in business in states like TN, AP and Karnataka. Going forward, we expect
revenue to post a 21% CAGR over FY14-16E, led by strong growth in Maharashtra.
Revenue to post 21% CAGR
Revenue (INR m)
25,661
18,848

17,447

14,248

FY12

FY13

FY14E

21,139

FY15E

FY16E

Source: Company, MOSL

EBITDA to post 21% CAGR, margins to remain stable over FY14-16E


We expect EBITDA to post 21% CAGR over FY14-16 driven by strong revenue growth
and stable margins.
EBITDA margin to sustain at current levels of 22%
EBITDA (INR m)

EBITDA margin (%)


5,645

5,635
3,802
30%

FY12

35%
30%
25%
20%
15%
10%
5%
0%

4,651
3,838

27%

FY13

22%

22%

22%

FY14E

FY15E

FY16E

Source: Company, MOSL

Working capital cycle set to improve


We expect JIs working capital cycle to improve from the current level of 305 days in
FY14 to 180 days in FY16E. This will be led by a further shift in mix in favor of
progressive states (with lesser working capital issues), coupled with greater degree
of business contributed from NBFC-based model.
MIS working capital cycle set to improve
Net Sundry debtors
224
319

Inventory

Current liabilities

NWC

287
215

181

95

90

247

200

181

-71

-70

-80

-90

FY13

FY14E

FY15E

FY16E

52

123

262

267

-90
FY12

110

Source: Company, MOSL

19 May 2014

10

Jain Irrigation

Huge potential for micro irrigation in India


MIS remains a key thrust area for the government

Penetration of MIS is lowest in India at 3.5% as against global penetration of 14.4%


thus providing strong growth potential.
MIS implementation leads to ~30-70% savings in water and ~20-100% increase in
yields thus making it an obvious choice for farmers.
MIS remains a key thrust area for the government with subsidies ranging from ~4570% and budget allocation to MIS having grown at 26% CAGR over FY09-14 to
INR16.9b.
Maharashtra governments order mandating drip irrigation for sugarcane crop and
MWRRAs order mandating drip irrigation for cash crops by June, 2015 will further
drive growth.

Penetration of MIS lowest in Asia, specifically India


The penetration of irrigation worldwide is ~14.2%, with Asia logging the weakest
coverage at 4.4%. Europe and America top the list with 47% and 36% penetration
respectively. There remains immense potential for micro irrigation in Asia in general
and India in particular. In India, there is a total irrigation potential of ~140 Mha, of
which MIS potential is ~69.5 Mha. Of this 69.5 Mha, only 5 Mha (~3.5% of the total
irrigation potential) is covered under MIS. MIS potential thus remains highly
untapped in India.
MIS penetration is lowest in Asia at 4.4%...
Region
Americas
Europe
Asia
Africa
Oceania
Total
India

No of countries
35
35
46
53
5
174
1

Available irrigated Sprinkler irrigated Drip irrigated area Total irrigated area
% of available
area (Mha)
(Mha)
irrigated area
area (Mha)
(Mha)
41.9
13.3
1.9
15.2
36.3
25.2
10.1
1.8
11.9
47.2
194.0
6.8
1.8
8.6
4.4
12.5
1.9
0.4
2.3
18.4
2.6
0.9
0.2
1.1
42.3
276.2
33.0
6.1
39.1
14.2
140.0
5.0
3.6
Source: Company, MOSL

even lower at 3.5% in India


MIS penetration across countries (%)
90%

78%

65%

55%

52%

10%
Israel

Russia

Spain

US

Brazil

China

3%
India

Source: Company, MOSL

19 May 2014

11

Jain Irrigation

MIS - an edge over traditional irrigation


MIS has started gaining popularity with a number of states starting to adopt the
system on account of the following reasons 1) thrust on water saving and 2)
substantially higher crop yield.

1) Thrust on water saving


In both drip and sprinkler
irrigation, savings in water range
from ~30-70% post
implementation

MIS is commonly used in developed countries in areas with water paucity. These
systems aid the judicious use of water and improve productivity, raise incomes
through good crop yields and enhance food security of households. A number of
states have thus started encouraging MIS with a key objective to save water. In
India, water scarcity due to ground water depletion is a major concern. The
country's rainfall has been estimated at 4,000 cubic kms annually, of which only 690
cubic kms is harnessed for useful purposes. Against this backdrop, micro irrigation
practices such as drip and sprinkler irrigation can help ease the problems of water
scarcity. In both drip and sprinkler irrigation, savings in water range from ~30-70%
post implementation.
Crop-wise water savings post implementation of drip irrigation
Water supplied (cm)

Conventional

Drip

% Saving in water

Banana

176

97

45

Grapes

53

28

48

Sugarcane

215

94

65

Tomato

30

18

39

Watermelon

33

21

36

Cotton

90

42

53

Chillies

110

42

62

Papaya

228

73

68
Source: Company, MOSL

2) Substantially higher crop yield


In both drip and sprinkler
irrigation, the yield per acre for
all crops increases substantially
by ~20-100%, post
implementation

In both drip and sprinkler irrigation, the yield per acre for all crops increases
substantially by ~20-100%, post implementation. This ensures that the payback
period for farmers is less than one season.
Crop-wise yield enhancements post implementation of drip irrigation
Yield(Quintal/Ha)
Banana
Grapes

Conventional

Drip

% Increase in yields

575

875

52

264

325

23

1,280

1,700

33

Tomato

320

480

50

Watermelon

240

450

88

Cotton

23

30

27

Chillies

42

61

44

Papaya

13

23

75

Wheat

46

54

Sugarcane

17
Source: Company, MOSL

19 May 2014

12

Jain Irrigation

NMMI to fuel growth in MIS


With the onset of NMMI,
allocations are now done under
the five year planning, which is a
long term commitment from
the government

The National Mission on Micro Irrigation (NMMI) was launched as a mission in June
2010. Prior to this, it was implemented as a centrally sponsored scheme where
budget allocations were done annually. With the onset of NMMI, allocations are
now done under the five year planning, which is a long term commitment from the
government. Under NMMI scheme, farmers are educated on the use of micro
irrigation system through demonstration, training and awareness programmes.

NMMI is likely to derive following benefits:


1) It will help state governments to focus on micro irrigation, with assistance from
the central government. This will help increase the area under MIS and also increase
the number of crops under MIS via this mission.
2) NMMI will consolidate all the micro irrigation schemes under major government
programmes such as the National Food Security Mission (NFSM), Integrated Scheme
of Oilseeds, Pulses, Oil palm & Maize (ISOPOM), Technology Mission on Cotton
(TMC) etc under one head, which will help to improve the programmes efficiency.
3) Apart from increasing the number of crops and area under MIS, NMMI will also
help streamline the process of subsidy disbursement and assist companies like JI get
subsidies faster and improve their working capital cycle.

Budget allocation to MIS has grown at 26% CAGR


Budget allocation to MIS has
risen over the past few years
and has clocked 26% CAGR
over FY09-14

Budget allocation to MIS has risen over the past few years and has clocked 26%
CAGR over FY09-14. The amount earmarked for MIS subsidies stood at INR16.9b for
FY14. Given the advantages of MIS and an increased government focus on
propagation of MIS systems, we expect its strong growth to continue.
Budget allocation for MIS clocks 26% CAGR
Budget allocation - MIS (INRm)

9,700
4,300

4,800

FY08

FY09

FY10

11,300

FY11

13,000

FY12

15,000

FY13

16,930

FY14E

Source: Company, MOSL

19 May 2014

13

Jain Irrigation

Government subsidies range from ~45%-70 aiding farmers to adopt MIS


Combined central and state
government subsidies range
from ~45-70%

Combined central and state government subsidies range from ~45-70%, which are
driving more farmers to adopt MIS even as the initial cost is substantially higher in
MIS than in traditional irrigation.

State-wise subsidy for MIS


States

Drip (%)

Sprinkler (%)

JI's market share (%)

JI's revenue share (%)

Maharashtra

50

50

65

41%

Rajasthan

70

70

50

15%

Gujarat

50

50

30

9%

Andhra Pradesh

70

70

35

9%

Karnataka

75

50

60

5%

Tamil Nadu

50

50

60

1%

Madhya Pradesh

70

70

60

< 1%

Chattisgarh

70

70

50

< 1%

Punjab

75

75

50

< 1%

Bihar

60

60

60

< 1%

Himachal Pradesh

50

50

50

< 1%

Kerala

50

50

50

< 1%

Uttar Pradesh

75

75

50

< 1%

Uttarakhand

50

50

50

< 1%
Source: Company, MOSL

Mandatory drip irrigation for sugarcane growers key growth driver


The Maharashtra government
has made it mandatory for
sugarcane growers to use drip
irrigation systems over the next
three years

The Maharashtra government has made it mandatory for sugarcane growers to use
drip irrigation systems over the next three years, a move prompted by the drought
that created a severe shortage of drinking water in the Marathwada region and
some parts of western and northern Maharashtra. Maharashtra produces one-third
of Indias sugar and nearly three million farmers are engaged in sugarcane farming.
Around one million hectares is under sugarcane cultivation in the state, of which
only 100,000 hectares (ha) has drip irrigation systems, making drip irrigation
penetration stand at 10%. This opens up a large growth opportunity over the next
two to three years for leading MIS players like JI.

Nearly 17% of water from the


command area of irrigation
project is consumed by
sugarcane cultivation alone,
compared with 2% by oil seeds
and 4.5% by pulses

Almost all the sugarcane in the state is produced in the rain shadow areas using
canal water. This method of sugarcane production is neither economically
sustainable nor environmentally sustainable. The rain shadow areas are places
which receive 700mm or less rain annually and sugarcane requires around 2,000mm
of rain. According to government officials, sugar factories consume ~1.5-3 lakh litre
water per day during the crushing season. Recent estimates state the water
requirement from sugarcane plantation to sugar production is 3,500 litre per kg.
Pertinently, nearly 17% of water from the command area of irrigation project is
consumed by sugarcane cultivation alone, compared with 2% by oil seeds and 4.5%
by pulses. Thus, the governments proposal for drip irrigation is crucial.
Currently, the state government gives a 50% subsidy to farmers and 60% to marginal
farmersthose who own less than 2hato buy drip irrigation systems. Given that a
drip irrigation system costs ~INR90,000 per hectare, the state will have to provide

19 May 2014

14

Jain Irrigation

~INR40b by way of subsidies to implement drip irrigation on the remaining


900,000ha of land. Sugar factories in the state will be given the responsibility to
implement the scheme in their command area, failing which the state may suspend
or revoke their licenses.

MWRRA directive on drip irrigation for cash crops to further drive growth
MIS demand is expected to surge in Maharashtra due to recent initiatives by the
Maharashtra Water Resources Regulatory Authority (MWRRA). In its bid to prevent
wastage of irrigated water and make irrigation system effective, MWRRA has
decided to make drip irrigation mandatory for farmers growing cash crops with
effect from July 1, 2015, giving a one-year timeframe to farmers. More than 75% of
the irrigated water is utilized by agriculture consumers, 15% water goes to domestic
use, while the remaining 10% is for industrial use. The proposal is to charge only
75% of tariff from farmers growing cash crops like cotton, soyabean, sugarcane and
horticulture. Farmers will get 25% extra rebate if they adopt drip irrigation. But they
will have to pay 150% tariff on failure to set up drip irrigation in the prescribed time
limit.
This move by MWRRA is a strong positive for JI as Maharashtra contributes ~40% to
its domestic MIS revenue. Earlier, Maharashtra made it mandatory for the use of
MIS in sugarcane crops. With these dual initiatives, we expect strong growth in
Maharashtra over the next 2-3 years.

Micro irrigation sector in India on steady growth path


According to experts, for India to manage its water resources efficiently, the focus
has to be on agriculture. According to the Indian Agricultural Research Institute
(IARI), the countrys farm sector alone accounts for 83% of all water use. Whether it
is in the use of rain water or water from traditional irrigation system, the wastage is
colossal and the blame is to be shared by government agencies and farmers. This
creates a strong need for techniques aimed at water safeguard and the prime
among these being MIS.
The estimated size of MIS industry is INR30b and is growing at more than 20%
annually. Although MIS adoption by farmers is growing at a fast pace, the
penetration is still very low (only 3.5%). Due to the advantages of MIS (improved
yield, low water consumption) over conventional irrigation, it remains a key thrust
area for the government.

19 May 2014

15

Jain Irrigation

PVC pipes business to post steady growth


Logical extension of JIs MIS business

JI, with a 15% market share, is the second largest player in the organized market,
offering pipes in 20mm to 560mm diameter range.
Center's allocation of INR2.3t (USD38b) on water management and INR5t (USD83b) in
the 12th Five Year Plan is expected to provide significant growth opportunities for
rigid PVC pipes manufacturers in India.
JI has a domestic market share of 35% in polyethylene pipes (PE) business, with a
sheer domination in gas distribution business.
Post the implementation of GST, we believe that the pricing difference between
organized and unorganized players will not be significantly different, which will allure
customers to choose quality over price.
Plastic sheet has its major application in the housing sector. This sector was affected
due to a slowdown in the US housing segment post subprime crisis. We believe that
with the recovery of housing sector, JI will be the major beneficiary.

PVC pipes business recovery on the cards

Agriculture/rigid PVC pipes


account for over 60% of
industry's size, with the
balance being catered
by building/plumbing
pipes (~40%)

Polyvinly Chloride (PVC) pipes find application in agri and construction segments.
Agriculture/rigid PVC pipes account for over 60% of industry's size, with the balance
being catered by building/plumbing pipes (~40%). The agricultural pipes industry
(size INR100b) has been posting 10% CAGR. It is largely unorganized, with a large
number of fragmented/unorganized players accounting for over 60% of industry's
size. PVC pipes are majorly used in portable water supply, domestic and
international plumbing, drainage system etc. They are sold to the retail market,
government bodies and corporates. JI has current capacity utilization of 80% and we
believe that the current capacity of 295,000 MT will suffice the upcoming growth
and thus no additional capex will be required.
Capacity utilization of Piping business
Capacity (MT '000)

226

205
97

Production (MT '000)

260

113

121

47%

50%

47%

FY09

FY10

FY11

295

295
230

117

78%

Capacity Utilization (%)


295
253
86%

295283

325317

96%

98%

FY15E

FY16E

40%
FY12

FY13

FY14E

Source: Company, MOSL

PVC pipes product portfolio

Source: Company, MOSL

19 May 2014

16

Jain Irrigation

PE pipes to recover with telecom sectors recovery


JI has a domestic market
share of 35% in the PE
business, with a sheer
domination in the gas
distribution business

Polyethylene pipes (PE) have major applications in telecom ducts, gas distribution,
water pipelines and dust suppression. JI has a domestic market share of 35% in the
PE business, with a sheer domination in the gas distribution business. It has 60%
market share in gas distribution business due to its ability to execute large and
complex government projects. This segment has shown a slowdown due to a slump
in infrastructure projects. Hence, revenue de-grew by 10% from INR1.7b in FY09 to
INR1.5b in FY13. Growth is likely to pick up with acceleration in telecom
infrastructure projects to connect rural India.
PE pipes product portfolio

Source: Company, MOSL

Logical extension to JIs MIS business

JI, with a 15% market share,


is the second largest player
in the organized market,
offering pipes in the 20mm
to 560mm diameter range

JI is primarily present in the agri-piping segment of PVC pipes (derives more than
90% from agri). Agri-pipes are used for connecting the farmland with the nearest
river/canal to ensure water supply. Since JI already has a strong foothold in the
agriculture space through its dominance in the MIS business, agri-pipes is a
complimentary business for the company. The PVC pipe industry is comprised of a
small number of players in the organized sector. JI, with a 15% market share, is the
second largest player in the organized market, offering pipes in the 20mm to
560mm diameter range. While Finolex Industries is the largest player, other key
players include Supreme Industries, Prince Pipes & Fittings and Kisan Mouldings.
Even as plastic piping is a low margin business (~6% in FY13), it makes strategic
sense for JI to be present in this segment due to low capex and working capital
requirements and high scale of operations.

Low irrigation penetration provides strong growth visibility


With the continuous
depletion of water tables
across the country, farmers
are increasingly being
forced to source water from
faraway places

At present, only 40% of the total arable land is under irrigation, with the balance
being rain fed. With the continuous depletion of water tables across the country,
farmers are increasingly being forced to source water from faraway places. Thus,
demand for rigid PVC pipes is expected to increase. Center's allocation of INR2.3t
(USD38b) on water management and INR5t (USD83b) in the 12th Five Year Plan is
expected to provide significant growth opportunities for rigid PVC pipes
manufacturers in India.

GST implementation can shift the demand from unorganized to organized


GSTs implementation can
reduce the pricing
difference between
organized and unorganized
players

19 May 2014

The unorganized market has gained advantage on price due to tax evasion. JIs
products sell at a premium of 12% due to the impact of excise duty, which
unorganized players do not pay due to tax evasion. However, GSTs implementation
can reduce the pricing difference between organized and unorganized players. Thus,
all organized players, including JI, will be significantly benefitted from this shift.

17

Jain Irrigation

Largest plastic processor in India with world class manufacturing facility

JI is one of the largest


plastic processors in India,
processing over 100,000mt
of different polymers (p.a.)

JI is one of the largest plastic processors in India, processing over 100,000mt of


different polymers (p.a.). It is the only manufacturer of PVC and Polycarbonate
Sheets under one roof in the entire South East Asia. It has a 25-year old brand EXCEL Plastic Sheets, which is a registered one in the world since 1990. Its
manufacturing facility in Jalgaon is ISO 9001:2000 & ISO 14001 - 2004 certified by
TUV Germany, providing high quality standards. JI has manufacturing capacity of
36,000mt and capacity utilization ranges in 35-45% in the past 5 years. We expect
no major capex requirement, with growth picking up in this segment.
No major capex required for expanding capacity in plastic sheets business
Capacity (MT '000)
36

36

36

Production (MT '000)


36

36

48%

Capacity Utilization (%)


36

39%
14

39%
14

41%
15

17

37%
13

44%
16

FY09

FY10

FY11

FY12

FY13

FY14E

40
46%
18

FY15E

40
54%
21

FY16E

Source: Company, MOSL

Revenue to clock 15% CAGR over FY14-16E


Revenue for piping segment has posted 15% CAGR over FY12-14. We expect this
segment to maintain its growth rate and post 15% CAGR over FY14-16E from
INR13.1b to INR17.3b.
Revenue to post 15% CAGR
Revenue (INR m)

9,856

FY12

11,269

FY13

13,016

FY14E

17,321

15,015

FY15E

FY16E

Source: Company, MOSL

Margins hit due to rising global PVC prices and INR depreciation
With PVC resin being largely linked to global crude oil prices and currency
fluctuations, piping segment has taken a hit on margins due to surge in raw material
costs and INR depreciation. Piping segments margins slumped from 9.9% in FY09 to
6.6% in FY13.

19 May 2014

18

Jain Irrigation
PVC spot price has seen sharp rise since 2009
PVC spot price (USD)

3/1/2014

12/1/2013

9/1/2013

6/1/2013

3/1/2013

12/1/2012

9/1/2012

6/1/2012

3/1/2012

12/1/2011

9/1/2011

6/1/2011

3/1/2011

12/1/2010

9/1/2010

6/1/2010

3/1/2010

12/1/2009

9/1/2009

6/1/2009

1,700
1,550
1,400
1,250
1,100
950
800
650
500

Source: Bloomberg, MOSL

EBITDA to post 34% CAGR over FY14-16E


We expect EBITDA to clock 34% CAGR from INR703m to INR1.2b, with EBITDA
margin improving by 60bp to 6%.
EBITDA to post 34% CAGR
EBITDA (INR m)
7.4%

EBITDA margin (%)

6.6%
5.4%

726

742

703

FY12

FY13

FY14E

5.7%

6.0%

856

1,258

FY15E

FY16E

Source: Company, MOSL

Working capital cycle to be stable


We expect working capital to remain stable at the current level of -10 days.
Cash conversion cycle
Sundry debtors

Inventory

Current liabilities

NWC

138

16

39

112

100

100

100

115

38
55

50
40

50
40

50
40

FY12

-19 FY13

-10

FY14E

-10
FY15E

-10

FY16E

Source: Company, MOSL

19 May 2014

19

Jain Irrigation

Plastic sheets business heading for a recovery

As US housing markets are


on the way to recovery, we
believe JI will be the major
beneficiary, and plastic
sheets business will
gain traction

Plastic sheets business was started in 1990 in India. In 1995-96, JI started exporting
to US markets. Sheets became very popular in the US housing market as was used as
partition material replacing plywood. It has major applications in the housing sector.
Sheets are used for roofing, interior designing, home sliding, advertising billboards
etc. Traditional lumber had major application in the housing furniture and roofing
etc. However, due to its vulnerability to pests attack and water absorption, plastic
sheets proved a sustainable alternate. Majority of the plastic sheets revenue come
from exports. The US and Europe are the major export markets for JI. Company
acquired NuCedar in 2006 for USD4m, paving the way for US markets. However,
sheets business took a big hit arising from the crash in US housing sector, post
subprime crisis in 2008. As US housing markets are on the way to recovery, we
believe JI will be the major beneficiary, and plastic sheets business will gain traction.
US housing index on an uptick
US Housing Index
600
500
400
300
200
100
0
May-09

May-10

May-11

May-12

May-13

Source: Bloomberg, MOSL

Growth likely to pick up


PVC sheets revenue stood at INR1.5b in FY13 and contributed ~3% of the total
revenue. Growth in PVC sheets segment has largely remained subdued due to
stagnation in the housing sector. However, with the revival in economy, housing
segment is expected to pick up, thus driving the demand for PVC sheets.
PVC sheets revenue trend (INR m)
Revenue (INR m)

as a % of net sales

4%
3%

3%

1,826

1,543

1,859

FY12

FY13

FY14E

3%

2,241

FY15E

3%

2,700

FY16E

Source: Company, MOSL

19 May 2014

20

Jain Irrigation

EBITDA margin to pick up marginally


PVC sheets business is typically a low margin business, with EBITDA margin ranging
from 6-8%. However, in FY13, margins fell to a low of 4.7% due to the rise in raw
material cost. We believe that margins will improve to 5.5% and will remain in that
level for FY14-16E, with the recovery in economy.
EBITDA margin trend
EBITDA (INR m)

EBITDA Margin %

7%
5%

121

73
FY13

FY12

5%

99

FY14E

6%

123

FY15E

6%

157

FY16E

Source: Company, MOSL

Working capital cycle lower compared to other business


Unlike other segments of business, PVC sheets have a lower working capital cycle.
FY13 NWC days were at 137, which is likely to remain stable, going forward. It had
debtor days of 60, which is significantly lower than its MIS business.
Working capital trend (days)
Inventory

Sundry debtors

138

112

106

106

FY12

NWC

100
140

100
125

112
60

105
70

100
70

95
70

FY13

FY14E

FY15E

FY16E

137

83

Current liabilities

100
120

Source: Company, MOSL

19 May 2014

21

Jain Irrigation

Food processing - a promising business


JI is Indias largest food processing company with ~30% market share

JI is Indias largest player in the food processing sector with a market share of ~30%
and is third largest in the world.
The world DHO market is ~180,000MTPA growing at ~4-5%. JI is India largest and
worlds 3th largest player in onion dehydration space. It has 7% of world market share
in dehydrated onions market.
JI produces high quality seeds at its in-house facilities which it supplies to the contract
farmers.
JI accounts for ~50% of India have dehydrated vegetable exports and ~40% of
dehydrated onion exports. With acquisition of Cascade Specialities Inc, Jain has
established its manufacturing presence in the US.
JI is involved in the processing of fruits like Mango (80%), Guava, Papaya and Tomato.
India is the largest producer of Mangoes with a 60% share of the world market. JI is
the largest producer of mango pulp, puree and concentrate in the world with 35% of
the world production.
Only 2% of the total produce is processed as compared to ~60-80% in some developed
countries.
JI has procurement contracts with over 6000 farmers which helps it source over 70% of
its requirements. The balance 30% is sourced from open markets.

Indias largest player in food processing industry


JI is Indias largest player in
the food processing sector,
with a market share of
~30% and is the third
largest in the world

JI is Indias largest player in the food processing sector, with a market share of ~30%
and is the third largest in the world. Its food business is involved in the processing of
onion, vegetable dehydration and fruits. JI has 6 processing facilities, 4 in India and 1
in the US and UK each. In India, it has fruit processing units in Jalgaon, Maharashtra
and in Chittor and Hyderabad in AP.

Dehydrated onion largely an export product


JI is India largest and
worlds 3th largest player in
onion dehydration space

The world DHO market is ~180,000mtpa and growing at ~4-5%. The US is the largest
producer of DHO, while India is the other major producer. Of the total onion
production, only 2% is dehydrated. Thus, it provides immense opportunity for
players like JI to capture on the global presence. JI is India largest and worlds 3th
largest player in onion dehydration space. It has 7% of the world market share in
dehydrated onions market. Due to ease of use and relatively long shelf life, its
popularity is expected to increase. JI has a capacity of 28,000mt, of which it
recorded a sale of 19,000mt as in FY13.
Companys DHOs are exported under the brand 'Farm Fresh'. JI employs contract
farming in Maharashtra to procure its white onion supply. It produces high quality
seeds at its in-house facilities, which it supplies to the contract farmers. The onions
produced from these seeds have a 17-18% TSS (total soluble solids), as compared to
a normal 12-13% TSS. These seeds have better germination rate and give good yields
with lower bacteria count. This helps JI get better yields while processing onions. JI
also provides MIS support to its contract farmers, ensuring high quality onion
produce. Companys ability to ensure a good quality white onion supply via contract

19 May 2014

22

Jain Irrigation

farming and high quality DHO manufacturing procedures make it a preferred


supplier.
JI is the worlds only producer with manufacturing facilities in two different
countries, enabling it to produce dehydrated onions throughout the year
(December-March in India and April-July in the US). Company has also expanded its
business by increasing the usage of dehydrated onion in the custom made dry
ingredients blends for food industry through its subsidiary in the UK for European
market. JI is also planning to increase production of value-added products like fried
onion, frozen onions, dry vegetable ingredients, industrial blends and other
vegetables in the coming years.
JI procures 60-70% of its
onion requirements
through contract farming
with >2,000 farmers and
5,000 acres of land under
coverage and the rest
through open market
purchases

JI procures 60-70% of its onion requirements through contract farming with >2,000
farmers and 5,000 acres of land under coverage and the rest through open market
purchases. Onion prices in India have historically been volatile, thereby leading to
uncertainties in margins for dehydration industry. However, to reduce uncertainty,
JI contracts part of its onion requirements at fixed prices during middle of the
season (thus having a greater control on input costs, compared to entering into
contracts at the beginning of season), with the rest being negotiated depending on
realizations for dehydrated onions. On the revenue side, JI sells finished products at
contracted rates, which get determined a year in advance.

Vegetable dehydration extending expertise in onions to other vegetables

JI accounts for ~50% of


Indias dehydrated
vegetable exports and ~40%
of dehydrated onion
exports

JI has also made good inroads in offering related vegetables like garlic, capsicum,
dehydrated leeks etc, the results of that will be visible in the coming years. The
major application for companys dehydrated products is in pizzas, chips, burgers,
noodles etc. Globally, demand for dehydrated vegetables has increased due to their
longer shelf life. JI accounts for ~50% of Indias dehydrated vegetable exports and
~40% of dehydrated onion exports. With the acquisition of Cascade Specialities Inc,
JI has established its manufacturing presence in the US. The US market is protected
by tariff barriers and hence this acquisition becomes even more significant as it
allows JI access to the US as a local producer and opens up the global customer base
for JIs products.

Fruit processing - dominant presence by JI in mango processing


JI is the largest producer of
mango pulp, puree and
concentrate in the world,
with 35% of the world
production

19 May 2014

JI is involved in the processing of fruits like mango (80%), guava, papaya and tomato.
India is the largest producer of mangoes, with a 60% share of the world market. JI is
the largest producer of mango pulp, puree and concentrate in the world, with 35%
of the world production. Processed mango is used in beverages, fruit juices and as a
base in jams. JI processes both Totapuri and Alphonso mangoes. Around 70% of the
mango pulp produced goes to 'Coca-Cola India' for its famous mango drink 'Maaza'.
Coca-Cola expects to triple its mango pulp sourcing for Maaza over the next 5 years,
which gives strong visibility for this segments revenue over medium term. JI also
supplies banana pulp to HUL for its fruit jam products etc. It exports the rest to
Middle East, China and the US. Recently, company entered into a JV with 'Coca-Cola
India' to implement UHDP (ultra high density plantations) for mango. This initiative
will help improve the productivity of farmers and help JI source better and larger
mango produce.
23

Jain Irrigation

Although mango processing remains the main product for JI in the fruit processing
segment (~80%), it also processes other fruits such as guava, pomegranate and
tomato. Tomato provides a strong opportunity as presently most of the tomato
paste requirements are met via imports from China. Also there is a marked shift in
consumer preference from the more traditional fruit juices such as citrus and apple
to the more exotic ones like mango and guava. Company is also working on setting
up a processing line for mosambi and other citrus varieties. This will help JI diversify
its revenue base and tap a larger segment of fruit processing market, thus negating
the seasonal nature and overdependence on mango processing.

Huge untapped potential of food processing sector in India

Only 2% of the total


produce is processed,
compared to ~60-80% in
some developed countries

India has the second largest arable land in the world and with diverse agro-climatic
zones across the country, has tremendous production advantages in agriculture.
India produces 15% and 8% of world's total vegetables and fruits respectively.
However, due to the lack of adequate storage facilities and transportation, it is in
the bottom in terms of food processing. Only 2% of the total produce is processed,
compared to ~60-80% in some developed countries (80% US and Malaysia). Also,
India's share in the global food trade is a miniscule 1.5%. Given the growing demand
for processed food, due to lifestyle changes and storage advantages, the segment is
witnessing a strong growth. For example, the packaged juices segment is witnessing
a CAGR of ~25%. JI is well placed to capture this strong growth opportunity in the
fruit processing segment.
Food processing in India largely under penetrated
% of food processed
80%

80%

70%
30%
2%

USA

Malaysia

France

Thailand

India

Source: Ministry of Food Processing India, MOSL

Level of processing in perishable products


Organized

Unorganized

Total

Fruits and Vegetables

Products

1.4%

0.8%

2.2%

Milk & milk products

13.0%

22.0%

35.0%

Meat and Poultry


Buffalo Meat

21.0%

21.0%

Poultry

6.0%

6.0%

Marine Products

8.0%

8.0%

Source: Ministry of Food Processing India, MOSL

19 May 2014

24

Jain Irrigation

Export demand likely to increase


Indias share in the global food trade is only 1.5% even though it is a leading
producer of several fruits and vegetables such as mangoes (41%), cauliflower (30%),
tea (28%), banana (23%), cashew nuts (24%), green peas (36%) and onions (10%).
This implies there is a great potential to broaden the industry. Indias lower cost of
production and good quality export produce have led to robust export demand.
Segments such as mango pulp have seen exports surge to INR7.5b, a CAGR of 20%,
in the past five years. We believe JI is likely to gain from the higher export demand.

Indias lower cost of


production and good
quality export produce
have led to robust
export demand

Experience with farmers gives an edge in sourcing


JIs extensive experience and high involvement with the farmers have given it an
edge in the most crucial aspect of the food processing business, sourcing. Our
interaction with the management suggests sourcing has been one of the major
reasons for JIs success in food processing. Company has procurement contracts
with over 6,000 farmers which helps it source over 70% of requirements. The
balance 30% is sourced from open markets.

JI has procurement
contracts with over 6,000
farmers which helps it
source over 70% of
requirements

Food processing contributes 20% to JIs consolidated revenue. With strong growth
opportunity in exports, we expect that agro processing revenue will post 24% CAGR
from INR6.7b in FY14 to INR10.2b in FY16E. We expect EBITDA to clock 25% CAGR to
INR1.8b in FY16E, with margins expanding by 30bp to 17.6%. While fruit processing
enjoys margins of 20%, onion dehydration is a relatively lower margin business of
12.5%. On the working capital front, dehydrated onions enjoy negative working
capital, while fruit processing has a working capital cycle of 70 days, largely due to
higher inventory requirements in this business.
Revenue to post 24% CAGR

EBITDA margin trend

Revenue (INR m)

YoY Growth
24%
24%

23%
17%

5%
5,441
FY12

EBITDA (INR m)

EBITDA margin (%)


1811

19.9%

1457

19.1%

8,329

6,739

1085

1097

1166
17.3%

17.5%

17.6%

FY12

FY13

FY14E

FY15E

FY16E

10,295

5,736
FY13

FY14E

FY15E

FY16E

Source: Company, MOSL

Source: Company, MOSL

Working capital days for fruit processing segment


Sundry debtors

Inventory

Sundry debtors

Inventory

Current liabilities

NWC

Current liabilities

NWC

223
62

240

200

286 95

290 130

49

32

40

FY12

FY13

FY14E

252

Working capital days for onion dehydration segment

200
250 90
40
FY15E

200
230 70
40
FY16E

Source: Company, MOSL

19 May 2014

58
44
100
114
FY12

195
41
106
-48
FY13

150

150

150

40
100 -10

40
100 -10

40
100 -10

FY14E

FY15E

FY16E

Source: Company, MOSL

25

Jain Irrigation

Tissue culture a unique farming solution


Unique proposition to improve yields

JI provides a complete farming solution to farmer which is a INR ~0.9-1b business.


JI Green house protection solution ensures that the plants do not suffer from stress or
strain of less and over watering, different climatic conditions.
The system installed at the farmers field is commissioned and training imparted to
the farmer, followed by regular after sales services.
It has resulted in increase in yield up to 5x to 8x. While for mangoes yield has
improved by 4x. JI Greenhouse improves the yield significantly.

Protected cultivation unique farming solution


Protected farming is ~INR900-1,000m business for JI. It is involved in providing a
complete solution to farmers under protected cultivation. Four solutions are offered
under protected cultivation:
1. Green House: Green Houses are climate controlled. Jain Green Houses have a
variety of applications, the majority being off-season growing of vegetables,
floriculture, planting material acclimatization, fruit crop growing for export
market and plant breeding and varietals improvement.
2. Poly House: Poly houses are naturally ventilated and climate controlled. Jain
Poly houses have a variety of applications, the majority being growing of
vegetables, floriculture, planting material acclimatization, fruit crop growing for
export market.
3. Poly Tunnels: Poly Tunnels are naturally ventilated and climate controlled. Jain
Poly Tunnels have a variety of applications, the majority being growing of
vegetables, floriculture, planting material acclimatization, fruit crop growing for
export market.
4. Net House: Net houses are naturally ventilated and climate controlled. JI net
houses have a variety of applications, the majority being growing of vegetables,
floriculture and fruit crop growing for export market.
Protected cultivation
controls light, temperature,
humidity and irrigation with
fertigation and other
required growth substances
directly into the root zone
of the plant

The above solutions protect the crop from high intensity of light, high rainfall, winds,
insects through structure, polyethylene film/polycarbonate sheet, shading nets/
thermal nets, insect net, cooling pad, exhaust fan, foggers and drip systems,
fertigation equipment etc. The above structure controls light, temperature, humidity
and irrigation with fertigation and other required growth substances directly into
the root zone of the plant.
Water and nutrients enter the soil from emitters, moving into the root zone of the
plants through the combined forces of gravity and capillary. In this way, the plants
withdrawal of moisture and nutrients are replenished almost immediately, ensuring
that the plant never suffers from water stress, thus enhancing quality, its ability to
achieve optimum growth and high yield. JI has been exporting various components
of Green House/Poly House/Poly Tunnels/Net House to Asia, Africa and Far East Asia
and also is supplying within India.

19 May 2014

26

Jain Irrigation

Jain Green House improves yield significantly


Post detailed study of inter-relationship among soil, water, crop, land terrain and
related agro climatic conditions, JI designed a suitable and economically viable
system to the grower which protects the crop at certain limits and delivers a
measured quantity of water at the root zone of each plant at regular intervals. This
is to ensure that the plants do not suffer from stress or strain of less and over
watering, different climatic conditions. The system installed at the farmers field is
commissioned and training is imparted to the farmer, followed by regular after sales
services.
JI provides agronomic and
extension support, after
sales services and all
technical supports for
getting better crop return

JI also sells plantlets which are grown with indigenous technology, resulting in
improved yields. It provides agronomic and extension support, after sales services
and all technical supports for getting better crop return. It has more than 500
technocrats, engineers, agronomists, horticulturists and regional offices and trained
dealers, distributors all over India and abroad. There are 7-8 major products -banana, mango, pomegranate, onion etc.
Benefits of Jain Green House
Disease-free plantation.
Increase in yield up to 5 to 8 times. For mangoes, yield has improved up to 4
times.
Crop grows consistently, healthier, uniform quality fruits and matures fast.
Early maturity results in higher and faster returns on investment.
Saves water up to 50%, compared to open filed flood irrigation. Higher yield
from smaller area.
Fertilizer use efficiency increases by 30%.
Cost of fertilizers, inter-culturing and labor use get reduced.

Revenue to post 19% CAGR over FY14-16E


Tissue culture forms mere 2% of the total revenue for JI. However, we believe that
the water shortage and need for higher yield plantation will drive growth, going
forward. We expect revenue to post 19% CAGR over FY14-16E, from INR954m in
FY14 to INR1.3b in FY16E.
Revenue trend of tissue culture business
Revenue (INR m)
1%

as a % of net sales
2%

2%

2%

1%

457
FY12

699

FY13

954

FY14E

1,177

FY15E

1,357

FY16E

Source: Company, MOSL

19 May 2014

27

Jain Irrigation

Solar water heaters, lanterns similar to MIS model


Small but potential business opportunity

With energy prices climbing in India, and supply not keeping up pace with steep
demand, solar power is becoming a huge opportunity
Ministry of New and Renewable Energy (MNRE) launched The Jawaharlal Nehru
National Solar Mission on the 11th January, 2010. The Mission has set the target of
deploying 20,000 MW of grid connected solar power by 2022
Solar energy business of Jain Irrigation is similar to its MIS business which is largely
subsidy driven.
Revenue and working capital model are similar to MIS business. It has long working
capital cycle. For FY13 net working capital stood at 406 days which is expected to
improve to 370 days going forward.

Solar power holds strong promise

It is estimated that over the


decade, market for solar
equipments will be USD6-7b
and annual revenue for grid
connected solar generators
will be USD4b

With energy prices increasing in India and supply not keeping up pace with steep
demand, solar power is becoming a huge opportunity. Indias solar potential is huge.
It is estimated that over the decade, market for solar equipments will be USD6-7b
and annual revenue for grid connected solar generators will be USD4b. We believe
that JI is poised to capture this growth. Companys renewable energy division is
working with Solar thermal, Solar photovoltaic, Wind, Solar + Wind hybrid systems
and bio-energy related manufacturing and application development. The current
range includes domestic, commercial and industrial solar powered pumping
systems, CFL/LED based home lighting, CFL/LED based street lighting, blinkers,
advertising boards, power packs (inverters), traffic signals, wind + solar hybrid
systems, biogas plants and turnkey projects based on all the above technologies.

Largely subsidy driven business


Management believes that
once the new government
is in office, fresh budget will
be allocated to this
segment, which will be a
huge boost to JIs revenue

Solar systems demand comes from both farmers and government projects.
However, majority of the business is through government projects which is subsidy
driven. Government announces various welfare schemes under which budget is
allocated for solar system. The lack of focus by Government resulted in slow growth
in this business. However, management believes that once the new government is in
office, fresh budget will be allocated to this segment, which will be a huge boost to
JIs revenue.

Governments Solar Mission to boost segment


The Jawaharlal Nehru
National Solar Mission to
boost growth

19 May 2014

The Ministry of New and Renewable Energy (MNRE) launched The Jawaharlal
Nehru National Solar Mission on January 11, 2010. The mission has set the target of
deploying 20,000mw of grid connected solar power by 2022. It is aimed at reducing
the cost of solar power generation in the country through (i) long term policy, (ii)
large scale deployment goals, (iii) aggressive R&D and (iv) domestic production of
critical raw materials, components and products, to achieve grid tariff parity by
2022. Objective of the mission is to make India a global leader in solar energy. Jain
Solar Powered Pumping systems are empanelled with MNRE. This initiative, we
believe, will create enough demand for JI's solar products.

28

Jain Irrigation

Working capital model similar to MIS


JIs solar energy business is
similar to its MIS business

JIs solar energy business is similar to its MIS business, which is largely subsidy
driven. Subsidy is received by the dealer and farmer buys products at a subsidized
rate. Dealer passes the subsidy back to JI and thus transaction is completed.
However, the time taken to monetize receivables from the Government is very long,
which makes this segment less attractive. Similar to its MIS business, renewable
energy business has long working capital cycle. For FY13, net working capital stood
at 406 days, which is expected to improve to 370 days, going forward. Solar business
revenue has grown 8x from a mere INR288m in FY09 to INR2.5b in FY14. We expect
revenue to post 13% CAGR to INR3.2b by FY16E primarily driven by Governments
objective to boost renewable energy resource.

Revenue rose over past 5 years


Revenue (INR m)

Working capital days to improve


4%

4%

2%

1%

1%

1,804

288

358

785

FY09

FY10

FY11

as a % of net sales
4%

4%

2,259

2,519

2,863

3,221

FY13

FY14E

FY15E

FY16E

Source: Company, MOSL

19 May 2014

Inventory

Current liabilities

NWC

4%

116
110
210

FY12

Sundry debtors

204

FY12

135
219 406

130
200 370

130
200 370

130

322

300

300

300

FY13

FY14E

FY15E

FY16E

200

370

Source: Company, MOSL

29

Jain Irrigation

International operations profitability to improve


Higher sourcing from India, focus on project business to drive profitability

Led by acquisitions, JI is now the second largest MIS player globally with a market
share of 20% as against 30% market share held by Netafim.
We expect improvement in profitability of international MIS business on the back of
greater degree of sourcing from low-cost countries like India and focus on higher
margin project business.
On the back of 10% revenue CAGR, we expect EBITDA for the international operations
to post 28% CAGR over FY14-16.

MIS acquisitions integrated to form Jain Irrigation Inc


Globally, JI is now the
second largest MIS player
with a market share of 20%
as against 30% market
share held by Netafim

JIs MIS acquisitions over the years have enabled it to gain market share on a global
basis. Globally, JI is now the second largest MIS player with a market share of 20% as
against 30% market share held by Netafim. JI has acquired companies globally to
gain distribution reach and access new technologies. In MIS in the US, JI has
conducted two major acquisitions during FY07-09, with total cost of USD29m.
Aquarius was acquired by JI in FY07 for USD7m and Chapin Watermatics was
acquired for USD22m.
Aquarius is a leading manufacturer of micro irrigation systems for agriculture,
landscape and nursery applications. Chapin is a pioneer and leading manufacturer of
drip tape and is known as a complete source for field crop, nursery and green house
drip irrigation systems. Both these acquisitions have given JI a technology advantage
(especially Chaplins subsoil irrigation technology which is the best in case of
sugarcane crop) and helped it introduce new product categories in Indian markets
and bring more crops under MIS. Aquarius and Chapin have been integrated to form
Jain Irrigation Inc. JII primarily caters to the US MIS market, and for FY13 reported
revenues of USD61m posting 10% growth.

NaanDan Jain Irrigation - JIs global entity to implement MIS


JI acquired NaanDan (Israel) (NJI) in May 2007 for USD22m. Company is engaged in
implementing drip/sprinkler irrigation in over 100 countries worldwide. Apart from
Israel (10% of revenue), NJI also has manufacturing facilities in Chile, Brazil and
Spain. NJIs product range includes comprehensive irrigation and climate-control
technologies for green houses and nurseries, open fields, orchards and plantations,
residential and landscape areas. NJIs acquisition by JI has been fruitful with respect
to technology, new crops and extending its network reach.

International MIS profitability set to climb on the back of new initiatives


Management expects
overseas business
profitability to improve with
the current 7% margin
expected to expand to 12%
over the next 3-4 years

19 May 2014

MIS export growth for JI has been strong led by Africa and increase in contribution
from projects. JI is increasingly sourcing more MIS products from low cost centers
like India to cater to international markets, which is expected to drive profitability
for overseas subsidiaries. Also, JI is actively working on more project business (~10%
of revenue) in places like Latin America where margins are higher, compared to
selling tubing or tape products through dealers, which are comparatively lower
margin. Further, JIs Greenfield capacity in Turkey is expected to ramp up revenue
over the next couple of years, thus translating into better profitability from Turkish
operations. Management expects overseas business profitability to improve with
the current 7% margin expected to expand to 12% over the next 3-4 years.
30

Jain Irrigation

Acquisitions in food processing give JI direct access to overseas clients


JI has also done acquisitions in agro processing (Onion Dehydration-Cascade
Specialities) and food business (Sleaford Quality Foods Ltd - SQFL) to give it access to
international food processing markets.

Cascade Specialties
Cascade Specialties (USA) was acquired in 2006 for USD4.75m for strengthening JI's
dehydrated onion business. It is engaged in onion, garlic dehydration and frozen
foods business, with specialization in natural low bacteria and organic dehydrated
products. We believe Cascades acquisition offers perfect synergies as it gives JI an
opportunity to market Indian onion basket to Cascades ready clientele (like Tesco)
and use the marketing network of the company effectively.

Sleaford Quality Foods Ltd (SQFL)


SQFL (UK) was a client of JI for white onions before its acquisition. SQFL is UKs
leading supplier of dried, dehydrated and canned foods. Post acquisition, JI has been
able to market its product to SQFL's clients directly and further enhance its
marketing network. Moreover, it will also help JI expand its food basket. JI is in
advanced stages of supplying spices procured from Nashik to SQFL to derive
advantage of its wide distribution network.
Performance of operating subsidiaries (USD m)
Sr.
1
2
3
4
5
6
7
8
9

Name of the unit


Naandan Jain Irrigation Ltd
SQF 2009 Ltd, UK
Jain Irrigation INC, California
Jain Europe Limited, UK
Cascade Specialities Inc, Oregaon
Jain (Americas) INC, Ohio
The Machine SA, Switzerland
Jain Sulama Sistemleri, Turkey
Pro Tool AG, Switzerland
Total

Turnover
130
62
61
51
33
24
19
16
2
398

PAT
1
1
-1
0
0
-4
1
-2
0
-4

Net worth
11
5
14
-4
7
39
7
7
-1
86

PAT margin (%
RoE (%)
1%
12%
1%
14%
-1%
-6%
0%
-3%
0%
2%
-17%
-11%
4%
11%
-14%
-33%
-2%
6%
-1%
-5%
Source: Company, MOSL

Overseas acquisition history


Subsidiary name
Nucedar Mills Inc.
Eurodrip
Chapin
Cascade Specialties Inc.
Aquarius
NaanDan
Thomas Machines S A
Sleaford Quality Foods Ltd.

19 May 2014

Segment
MIS
MIS
MIS
Food
MIS
MIS
Plastics
Food

Current Stake
100.00%
7.40%
100.00%
100.00%
100.00%
50.00%
69.80%
85.00%

Subsidiary Country
USA
Greece
USA
USA
USA
Israel
Switzerland
UK

Date of acquisition
Feb-06
Feb-06
Apr-06
Nov-06
Feb-07
May-07
Mar-08
Nov-10

Acquisition Price
USD 2.1 mn
NA
USD 7 mn
USD 4.75 mn
USD 22 mn
USD 22 mn
N.A
N.A
Source: Company, MOSL

31

Jain Irrigation

Revenue to post 10% CAGR, EBITDA 28% CAGR over FY14-16E


We expect revenue for the international business to clock 10% CAGR over FY14-16E
from INR17.6b to INR21.6b. We expect profitability to improve substantially with
EBITDA expected to post 28% CAGR.
On the overseas business front, international MIS is a lower working capital
intensive business compared to international food processing, with a net working
capital cycle of ~120 days versus 170. Working capital cycle is likely to improve from
155 days in FY14 to 140 in FY16E.
Revenue to post moderate 10% CAGR
Revenue (INR m)

17,695

19,568

21,651

14,291
9,605

FY12

FY13

FY14E

FY15E

FY16E

Source: Company, MOSL

EBITDA to clock 28% CAGR on the back of new initiatives to improve margins
EBITDA (INR m)
7%

6%

EBITDA margin (%)


10%

831

10%

7%

8%
1,957

1,779
993

10%

6%
4%

1,192

2%
0%

FY12

FY13

FY14E

FY15E

FY16E

Source: Company, MOSL

Working capital to witness improvement led by lower debtor days


Sundry debtors
194

Inventory

Current liabilities

NWC

157

155

145

60

65

70

70

133

140

140

140

76

84

80

75

70

FY12

FY13

FY14E

FY15E

FY16E

89

207

140

Source: Company, MOSL

19 May 2014

32

Jain Irrigation

Earnings to post 48% CAGR over FY14-16E


Balance sheet stress to ease on the back of improvement in profitability

Revenues to grow at 16.8% CAGR over FY14-16E led by improvement in growth


outlook for domestic MIS business.
EBITDA to grow in line with revenue growth; margins to be maintained.
Adjusted PAT to post 48% CAGR over FY14-16E.
Working capital to improve from 213 days in FY14 to 160 days in FY16E.
Debt to equity to decline from 1.6x to 1.0x
Return ratios to improve; RoCE/RoE to improve from 11% / 9.1% in FY14 to 15.4% /
16.1% in FY16E.

Expect revenue CAGR of 16.8% over FY14-16E


We expect consolidated revenue to post a CAGR of 16.8% led by strong growth in
food processing and MIS businesses, which are expected to clock 23% CAGR and
21% CAGR respectively over FY14-16E. We expect overseas business to post a
moderate 10% CAGR over FY14-16E.
Revenue to post 16.8% CAGR
Revenues (INR m)

49,206

50,217

FY12

FY13

60,430

FY14E

70,533

FY15E

82,407

FY16E

Source: Company, MOSL

EBITDA to grow in line with revenue growth; margins to be maintained


We expect EBITDA to grow in line with revenue at 16% CAGR over FY14-16E. We
expect margins to be maintained at current levels of 13.8%.
EBITDA to clock 16% CAGR
EBITDA (INR m)
16.6%

8,155

FY12

Margins (%)
13.8%

14.8%
7,419

FY13

13.8%

13.8%

8,326

9,718

11,354

FY14E

FY15E

FY16E

Source: Company, MOSL

19 May 2014

33

Jain Irrigation

Adjusted PAT to post 48% CAGR over FY14-16E


We expect adjusted PAT to post 48% CAGR over FY14-16E, from INR2.0b to INR4.5b.
PAT (INR m)
PAT (INR m)
4,549
3,012
2,286

2,074
442

FY12

FY13

FY14E

FY15E

FY16E

Source: MOSL

Working capital cycle set to improve


We expect the consolidated working capital days to improve from 234 days in FY13
to 160 in FY16E, largely led by MIS business.
Cash conversion cycle (days)
Inventory Days

Debtor Days

Creditor Days

Cash Conversion Cycle

211

234

213

168

142

127

110

101

108

125

121

113

109

-121

-116

-108

-113

-117

FY12

FY13

FY14E

FY15E

FY16E

160

179

Source: MOSL

Operating and free cash flows to improve led by improving working capital;
capex to be limited to maintenance related over FY14-16E
Operating cash flows are expected to improve significantly to INR8.9b, while free
cash is expected to improve to INR6.8b over FY14-16E led by an improvement in
working capital in MIS business. We expect capex to be limited to maintenance
related and be capped at INR2b for FY14-16E.
Operating cash flow to improve led by working capital

Free cash generation to be robust led by limited capex

Operating Cash Flow (INR m)


9,639

Free Cash Flow (INR m)


8,986

7,491

6,812

FY15E

FY16E

3,006

5,156
3,217

518

781
FY12
FY12

FY13

FY14E

FY15E

FY16E

Source: Company, MOSL


19 May 2014

FY13

FY14E

-4,420

Source: Company, MOSL


34

Jain Irrigation

Debt-equity to decline to 1x on the back of robust cash generation


We expect net debt to equity to decline from 1.6x to 1.0x as cash generated from
improved working capital is utilized towards retiring of debt.
3QFY14 saw JIs long term debt upgraded to investment grade rating BBB minus.
Short term debt however has a rating of A3, which management expects to go to A1
in 1QFY15. Improvement in credit ratings resulted in lower domestic cost of debt
which declined from 13.7% to 12.2% in 3QFY14.
Net debt to equity to decline to 1.0
Net Debt (INR m)

Net DER (x)

2.0
1.7

1.6
1.3

34,442

1.0

37,510

35,854

34,363
31,620
FY12

FY13

FY14E

FY15E

FY16E

Source: Company, MOSL

Return ratios to witness improvement


With 16.8% revenue CAGR, stable margins and improvement in working capital, we
expect JIs return ratios to improve over FY14-16E. We expect RoCE to improve from
11.0% in FY14 to 15.4% in FY16E, similarly we expect RoE to improve from 9.1% in
FY14 to 16.1% in FY16E.
RoCE (%)

RoE (%)
RoCE (%)

14.0
11.1

11.0

RoE (%)

13.0

15.4

16.1

13.5

12.1
9.1
2.2

FY12

FY13

FY14E

FY15E

FY16E

Source: Company, MOSL

19 May 2014

FY12

FY13

FY14E

FY15E

FY16E

Source: Company, MOSL

35

Jain Irrigation

Initiating coverage with Buy rating


Target price of INR140 implies 40% upside
Attractively valued at
10x FY16E earnings

With a focus on progressive states and switch to cash-based model, we expect JIs
working capital concerns to be allayed over FY14-16E.
Hence, we expect strong free cash generation which should help in reducing debt to
equity from 1.6x in FY14 to 1x in FY16E.
Policy impetus from the new Government in the form of direct credit of subsidy or a
reduced working capital model on the lines of GGRC can be potential game changer
events.
We value JI at 14x FY16E EPS of INR10 and arrive at a target price of INR140, implying
40% upside. We initiate coverage with a Buy rating.

Price to Earnings

Price to Book

P/E (x)
5 Yrs Avg(x)

12 Yrs Avg(x)
10 Yrs Avg(x)

30

1.5

1.4

Source: Company, MOSL

Mar-14

Jan-13

Nov-11

Oct-10

Aug-09

Jun-08

Feb-06

Dec-04

0.0

Oct-03

Apr-14

Feb-13

Jan-12

Nov-10

Sep-09

Aug-08

Jun-07

May-06

Mar-05

Feb-04

Dec-02

2.8
2.3

Aug-02

17.1

2.9

3.0

13.9

Jun-01

19.0

Apr-07

Negative
Earnings
Cycle

20

Oct-01

12 Yrs Avg(x)
10 Yrs Avg(x)

4.5

20.9
10

P/B (x)
5 Yrs Avg(x)

6.0

Apr-00

40

Source: Company, MOSL

EV/EBITDA
EV/EBDITA(x)

41

Peak(x)

Avg(x)

33

Median(x)

34.8

Min(x)

25
17

13.7
7.2

11.3

Apr-14

Feb-13

Dec-11

Oct-10

Aug-09

Jun-08

Feb-06

Dec-04

Oct-03

Aug-02

Jun-01

Apr-00

Apr-07

6.3

Source: Company, MOSL

19 May 2014

36

Jain Irrigation
Key assumptions (INR m)
Business segments
1. Micro Irrigation Systems
% growth (YoY)
% of net sales
EBITDA Margin %
2. Plastic Piping Systems
% growth (YoY)
% of net sales
EBITDA Margin %
3. PE & PVC sheets
% growth (YoY)
% of net sales
EBITDA Margin %
4. Agro Processing
% growth (YoY)
% of net sales
EBITDA Margin %
5. Solar Systems
% growth (YoY)
% of net sales
EBIDTA margin
6. Tissue Culture Plants
% growth (YoY)
% of net sales
EBIDTA margin
7. Net Subsidiary Sales
% growth (YoY)
% of net sales
EBIDTA margin
8. Others
% growth (YoY)
% of net sales
EBIDTA margin
Total Sales

19 May 2014

FY12
18,848
11%
38%
30%
9,856
4%
20%
7%
1,826
30%
4%
7%
5,441
23%
11%
20%
1,804
130%
4%
22%
457
64%
1%
22%
9,605
41%
20%
7%
1,367
3%
22%
49,206

FY13
14,248
-24%
28%
27%
11,269
14%
22%
7%
1,543
-15%
3%
5%
5,736
5%
11%
19%
2,259
25%
4%
18%
699
53%
1%
18%
14,291
33%
28%
6%
172
-87%
0%
18%
50,217

FY14E
17,447
22%
29%
22%
13,016
16%
22%
5%
1,859
21%
3%
5%
6,739
17%
11%
17%
2,519
12%
4%
18%
954
37%
2%
18%
17,695
10%
29%
8%
200
17%
0%
18%
60,430

FY15E
FY16E
21,139
25,661
21%
21%
30%
31%
22%
22%
15,015
17,321
15%
15%
21%
21%
6%
6%
2,241
2,700
21%
21%
3%
3%
6%
6%
8,329
10,295
24%
24%
12%
12%
17%
18%
2,863
3,221
14%
13%
4%
4%
18%
18%
1177
1357
23%
15%
2%
2%
18%
18%
19,568
21,651
10%
10%
28%
26%
7%
7%
200
200
0%
0%
0%
0%
18%
18%
70,533
82,407
Source: Company, MOSL

37

Jain Irrigation

Risks and concerns

High receivables

JI has large receivables equivalent to 247 days of sales. This is a drag on the
company's balance sheet. Most of these receivables are subsidies pending from the
respective state government. We believe that with the formation of NBFC, company
will be able to improve its receivable scenario. However, if the receivables burden
deteriorates, JI's balance sheet could pose a risk.

Raw material price risk

Resins form ~64% of the total raw material cost. Any fluctuations in resin prices in
the short term will impact margins negatively. However, as most of the raw material
price rise is pass-on, we believe such price fluctuations should not have any
significant impact on margins in the long run. JI procures white onions from farmers
at market price. Any price rise in onions will negatively impact margins in DHO
business as the price rise cannot be passed on easily in the export market where
prices are determined based on global white onion availability.

Subsidy removal

Subsidy is a huge incentive for farmers to buy MIS equipments. Any


reduction/removal of subsidy provided for micro irrigation equipments will have a
negative impact on demand for MIS systems. However, we believe that given
Governments high focus on MIS, subsidies on equipments will stay intact.

19 May 2014

38

Jain Irrigation

Management
Mr Bhavarlal H Jain, Chairman
Mr Bhavarlal H Jain is the founder of the Jain group of companies and Chairman of
the company. He began his business in 1963 by trading in agricultural inputs and
equipments. In 1978, he acquired a sick unit which he used to manufacture Papain.
In 1980, he commenced PVC pipe manufacturing operations. Post 1986, he
pioneered the concept of micro irrigation in India. He has received many awards and
accolades for outstanding work in agriculture, including the prestigious Crawford
Reid Memorial Award instituted by Irrigation Association, U.S.A. for Significant
Contribution to the Irrigation Industry outside the United States. Three honorary
doctorates have been conferred on him from different universities acknowledging
path breaking work he has done for improvement of agriculture in India.

Mr Ashok B Jain, Vice Chairman


Mr Ashok B Jain is the Vice Chairman of the company. He holds a graduate degree in
commerce from Pune University, India. He joined the management team in 1982
and was in charge of marketing and extension services in Maharashtra and other
states. In 1993, he became Director and was responsible for Corporate
Administration, Corporate Image and Relationships, Events Management,
Personnel/Human Resource Development, Communication, Public Relations, Art
and Publicity. At present, he also acts as Director in charge of the Food Processing
Division.

Mr Anil B Jain, Managing Director


Mr Anil B Jain has been the Managing Director of the company since 1993. He has a
commerce degree from Pune University and Law Degree from Mumbai University.
He joined the management team in 1984 and was in charge of the US-based
marketing operations. Mr Anil Jain has an extensive background and experience in
Finance, Banking, Mergers & Acquisitions, Strategic Planning, Restructuring
Operations, Export Marketing, International Business Relations, Joint Ventures.

Mr Ajit B Jain, Joint Managing Director


Mr Ajit B Jain has been the Joint Managing Director of the company since 1994. He is
a engineering graduate from Dnyaneshwar University. He is a Director in charge of
drip irrigation division, including guidance for extension service and development of
new applications and products. He joined management of the company in 1984 and
started his training in production and maintenance in the pipe division. In 1991, he
was appointed Director with the overall responsibility of the pipe manufacturing
plant at Jalgaon, including production, maintenance and marketing.

Mr Atul B Jain, Director of Marketing


Mr Atul B Jain is Director of Marketing. He holds a graduate degree in commerce
from Pune University, India. He joined the management team in 1992. From 1994
2000, he was in charge of Europe-based marketing operations and was responsible
for developing and maintaining the market for PVC sheets, dehydrated onion, fruit
pulp etc. Presently, he focuses on marketing products on a global basis in addition to
being Director in charge of piping division.

19 May 2014

39

Jain Irrigation

Company overview
Corporate structure
Established in 1986, JI is a transnational organization headquartered at Jalgaon,
Maharashtra, India. JI employs over 5,000 associates and manufactures a number of
products, including drip and sprinkler irrigation systems, PVC & PE piping systems,
plastic sheets, green houses, bio-fertilizers, solar products including water-heating
systems, photovoltaic appliances and solar pumps. JI processes fruits and vegetables
into aseptic concentrates, frozen fruits and dehydrated vegetables, respectively. It
has 21 manufacturing plants spread over 5 continents and its products are supplied
to 110 countries through 3,000 dealers and distributors worldwide.
Product-wise revenue contribution
Solar
Products,
4.4%

Geography-wise revenue contribution

Other
Products,
7.5%

Food
Products,
20.4%

Rest of
World,
14.7%
North
America,
11.1%

Micro
Irrigation,
45.5%

India,
57.2%
Europe,
17.0%

Piping
Products,
22.2%

Source: Company, MOSL

Source: Company, MOSL

Revenue composition by business verticals (INR m)


Business verticals

FY09

FY10

FY11

FY12

FY13

Mix (2013)

CAGR

Micro Irrigation

15,084

18,722

23,311

26,798

22,903

45.5%

11.0%

Piping Products

7,425

8,418

9,464

9,855

11,154

22.2%

10.7%

Food Products

3,701

5,015

5,875

8,352

10,260

20.4%

29.0%

Solar Products

276

352

744

1,691

2,203

4.4%

68.1%

2,682

2,072

2,240

2,704

3,766

7.5%

8.9%

29,167

34,579

41,634

49,400

50,286

100.0%

14.6%

Other Products
Total

Source: Company, MOSL

Revenue composition by geographies (INR m)


Geographies

FY09

FY10

FY11

FY12

FY13

Mix (2013)

CAGR

17,484

22,567

28,263

31,280

31,280

57.2%

13.2%

Europe

3,258

4,110

4,243

7,222

7,222

17.0%

27.3%

North America

2,715

3,934

4,389

4,590

4,590

11.1%

19.7%

Rest of World

5710

3968

4739

6,308

6,308

14.7%

6.7%

29,167

34,579

41634

49,400

49,400

100.0%

14.6%

India

Total

Source: Company, MOSL

19 May 2014

40

Jain Irrigation

Unparallel soft infrastructure biggest entry barrier


JI has built an unparalleled soft infrastructure by maintaining strong networking with
farmers, which is helping it to continue its journey on the growth path, especially in
rural India. JI provides extreme value-addition to farmers prosperity through:
Knowledge: Provides training to farmers inhouse and onsite.
Assured price: JI is engaged in contract farming. It buys back farm produce at
predetermined prices from over 3,000 farmers.
Increased productivity: Company increases farmers productivity through water
management and high tech agri inputs such as MIS/SIS, tissue culture, green houses,
biofertilizers etc.
Adequate and timely credit: Spending and support towards agriculture has stepped
up with the aid of Government both central and states.
JIs unique farmer oriented model

Source: Company, MOSL

19 May 2014

41

Jain Irrigation

Geographical reach
JI has a strong supply chain within and outside India. It has a strong dealership
network of over 2,700 pan-India, 81 offices and 40 depots and 12 manufacturing
facilities. Similarly, JI has a strong global network aggregating over 900 distributors,
23 warehouses and sales offices and 15 manufacturing facilities.
JIs Indian network

Source: Company, MOSL

JIs global network

Source: Company, MOSL

19 May 2014

42

Jain Irrigation
JIs corporate structure

Source: Company, MOSL

19 May 2014

43

Jain Irrigation

Annexure
Drip irrigation
Drip irrigation is a method of micro irrigation, which saves water and fertilizers by
allowing
water to drip slowly and directly to the roots of plants through a network
Pump
of pipes, valves, tubing and emitters/drippers. The dripping of water can happen
Water filter (sand separator like
hydro-cyclone, screen filter, media either onto the soil surface (normal drip irrigation) or directly onto the root zone
filters)
(subsurface drip irrigation where the laterals and drippers are buried under the
Fertigation systems and
surface). The emitters/drippers allow for a uniform and controlled supply of water
chemigation equipment
directly into the root zone of the plant. This helps the plant to absorb only the
Backwash controller (backflow
required amount of water, thus resulting in saving the plants from water stress,
preventer)
Main line (larger diameter pipe and saving of water and increased yield of plants. Drip irrigation also provides the option
of having a fertigation unit, which helps supplying growth nutrients like fertilizers to
pipe fittings)
Control valves and safety valves
plants in a controlled fashion, helping the yield of plants and also in saving the
(hand-operated, electronic, or
wastage of fertilizer.
Key components

hydraulic)
Laterals (smaller diameter
polytube)
Poly fittings and accessories (to
make connections)
Emitter/ Drippers

We shall briefly see how the drip irrigation mechanism functions. First, the pump is
connected to the water source which pumps water into the water filters. These
water filters help in increasing the yield by providing cleaner water to plants as well
as in protecting the tubing from clogging, thus decreasing the maintenance cost. The
water then enters into the fertigation system to take up the plant nutrients fed into
this unit and then enters into the main lines. From the main line, the water would
travel into sub-main lines and then further into polytubes/laterals. These polytubes
run along the rows of plants and have emission points where drippers are arranged
for the purpose of dripping of water. From these drippers, water drips directly near
the root area of individual plants.

Drip irrigation system

Source: Company, MOSL

19 May 2014

44

Jain Irrigation

Sprinkler irrigation
Sprinkler systems help distribute water over a large area above the surface. A
sprinkler irrigation system, unlike a drip irrigation system, operates above the
surface and distributes water through emitters to simulate a rainfall.
Sprinklers contain nozzles and a rotating part. The most important component of a
sprinkler irrigation system is, as the name suggests, the sprinkler. This is the emitting
device which typically comes with nozzles for emitting water and rotating parts so
that water can be sprinkled over large areas depending on aperture size of the
nozzle, angle at which nozzles are fixed and the water pressure in the system. When
many sprinklers are used, a pipe network similar to that used in drip irrigation
systems, is required.

Sprinkler irrigation system

Source: Company, MOSL

Area-wise potential of MIS in India


State

Area under irrigation (m ha)

% of total

Maharashtra

7.4

11

Andhra Pradesh

3.2

Gujarat

2.9

Tamil Nadu

1.6

Karnataka

3.5

Rajasthan

5.9

Madhya Pradesh

7.2

10

Punjab

4.2

Haryana

3.8

13.9

20

16

23

69.5

100

UP
Others
Total

Source: Micro Irrigation Task Force Report, 2004, MOSL

19 May 2014

45

Jain Irrigation

Crop-wise potential for implementation of drip and sprinkler (m ha)


Crop

Drip (m ha)

Sprinkler (m ha)

Total (m ha)

Cereals

27.6

27.6

Pulses

7.6

7.6

Oil seeds

3.8

1.1

4.9

Cotton

7.0

1.8

8.8

Vegetables

3.6

2.4

6.0

Spices & Condiments

1.4

1.0

2.4

1.0

1.0

Sugarcane

4.3

4.3

Fruits

3.9

3.9

Coconut & plantation crops (Oil Palm)

3.0

3.0

42.5

69.5

Flowers

Total

27.0

Source: Micro Irrigation Task Force Report, 2004, MOSL

Crop-wise potential for implementation of drip and sprinkler (% of area)


Crop

Drip (% area)

Sprinkler (% area)

Total (% area)

Cereals

65

40

Pulses

18

11

Oil seeds

14

Cotton

26

13

Vegetables

13

Spices & Condiments

Flowers

Sugarcane

16

Fruits

14

Coconut & plantation crops (Oil Palm)

11

100

100

100

Total

Source: Micro Irrigation Task Force Report, 2004, MOSL

State-wise MIS market share


States

Jain Irrigation

Netafim

Maharashtra

65

n.a.

Andhra Pradesh

35

12

Gujarat

30

35+

Tamil Nadu

60

n.a.

Karnataka

60

n.a.

Madhya Pradesh

60

n.a.

Others

50

10

India

50

15
Source: Industry sources, MOSL

19 May 2014

46

Jain Irrigation

Financials and valuations


Income statement
Y/E March
Net Sales
Change (%)
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
Other Income
Extraordinary items
PBT
Tax
Tax Rate (%)
Reported PAT
Adjusted PAT
Change (%)
Min. Int. & Assoc. Share
Adj Cons PAT

(INR Million)
2011
41,528
21.4
7,480
18.0
1,222
6,258
3,270
1,106
0
4,094
1,213
29.6
2,881
2,881
16.2
-74
2,807

2012
49,206
18.5
8,155
16.6
1,441
6,714
4,768
345
0
2,290
4
0.2
2,286
2,286
-20.6
-51
2,235

2013
50,217
2.1
7,419
14.8
1,696
5,723
5,166
668
1,100
125
80
63.9
45
442
-80.7
-14
428

2014E
60,430
20.3
8,326
13.8
1,843
6,482
4,590
181
1,800
274
0
0.0
274
2,074
368.9
-14
2,059

Balance sheet
Y/E March
Share Capital
Reserves
Net Worth
Debt
Deferred Tax
Total Capital Employed
Gross Fixed Assets
Less: Acc Depreciation
Net Fixed Assets
Capital WIP
Investments
Current Assets
Inventory
Debtors
Cash & Bank
Loans & Adv, Others
Curr Liabs & Provns
Curr. Liabilities
Provisions
Net Current Assets
Total Assets

19 May 2014

2015E
70,533
16.7
9,718
13.8
1,939
7,779
4,226
212
0
3,764
753
20.0
3,012
3,012
45.2
-14
2,997

2016E
82,407
16.8
11,354
13.8
2,034
9,320
3,881
247
0
5,686
1,137
20.0
4,549
4,549
51.0
-14
4,534

(INR Million)
2011
772
14,787
15,558
29,842
1,239
47,164
28,467
8,050
20,417
956
211
41,396
14,864
16,924
4,144
5,463
16,394
15,674
720
25,002
47,164

2012
810
16,726
17,537
37,986
1,755
57,775
33,528
9,793
23,735
1,980
236
48,180
14,614
22,712
3,308
7,546
17,073
16,365
708
31,107
57,775

2013
910
20,770
21,680
38,251
1,841
61,772
37,738
11,640
26,098
737
38
50,405
17,231
19,547
2,359
11,269
16,436
15,895
541
33,970
61,772

2014E
910
22,563
23,473
38,251
1,841
63,565
39,738
13,483
26,255
887
38
53,756
19,992
20,975
703
12,086
18,300
17,807
493
35,456
63,565

2015E
2016E
910
910
25,241
29,350
26,151
30,259
35,251
32,251
1,841
1,841
63,243
64,352
41,738
43,738
15,422
17,456
26,316
26,282
1,035
1,209
38
38
57,325
62,967
21,846
24,690
21,227
22,851
850
593
13,401
14,833
22,400
27,075
21,801
26,311
599
764
34,924
35,893
63,243
64,352
E: MOSL Estimates

47

Jain Irrigation

Financials and valuations


Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation(x)
P/E
Cash P/E
Price / Book Value
EV/Sales
EV/EBITDA
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
Turnover Ratios (%)
Asset Turnover (x)
Debtors (No. of Days)
Inventory (No. of Days)
Creditors (No. of Days)
Leverage Ratios (%)
Debt/Equity (x)

2011

2012

2013

2014E

2015E

2016E

7.5
10.6
40.3
1.0
15.6

5.6
9.2
43.3
1.0
20.6

1.0
4.7
47.7
0.6
588.3

4.6
8.6
51.6
0.6
97.2

6.6
10.9
57.5
0.7
10.6

10.0
14.5
66.5
0.9
9.4

13.4
9.4
2.5
1.7
9.5
1.0

17.7
10.8
2.3
1.6
9.8
1.0

102.6
21.2
2.1
1.6
11.0
0.6

21.9
11.6
1.9
1.4
10.0
0.6

15.1
9.2
1.7
1.1
8.2
0.7

10.0
6.9
1.5
0.9
6.8
0.9

20.2
18.0

13.5
14.0

2.2
11.1

9.1
11.0

12.1
13.0

16.1
15.4

0.9
145.6
130.6
136.1

0.9
165.4
108.4
121.7

0.8
139.0
125.2
114.6

1.0
124.2
120.8
103.9

1.1
107.7
113.1
110.0

1.3
99.2
109.4
114.3

1.9

2.2

1.8

1.6

1.3

1.1

2011
4,094
1,222
0
2,717
1,047
-6,069
1,059
-4,930
-142
34
-5,038
780
5,507
-2,717
-355
3,183
-796
4,940
4,144

2012
2,286
1,441
0
4,157
938
-6,166
850
-5,270
-114
44
-5,340
14
8,143
-4,051
-448
3,684
-805
4,114
3,308

2013
125
1,696
0
4,855
295
-3,164
3,460
-2,943
-459
-15
-3,418
3,903
266
-4,843
-469
-982
-939
3,298
2,359

2014E
2,074
1,843
0
4,409
0
-3,142
5,183
-2,150
0
181
-1,969
0
0
-4,590
-266
-4,871
-1,656
2,359
703

Cash flow statement


Y/E March
OP/(Loss) before Tax
Depreciation
Others
Interest
Direct Taxes Paid
(Inc)/Dec in Wkg Cap
CF from Op. Activity
(Inc)/Dec in FA & CWIP
(Pur)/Sale of Invt
Others
CF from Inv. Activity
Inc/(Dec) in Net Worth
Inc / (Dec) in Debt
Interest Paid
Divd Paid (incl Tax)
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance

19 May 2014

(INR Million)
2015E
2016E
3,764
5,686
1,939
2,034
0
0
4,015
3,634
753
1,137
679
-1,225
9,644
8,991
-2,148
-2,174
0
0
212
247
-1,937
-1,927
0
0
-3,000
-3,000
-4,226
-3,881
-319
-426
-7,560
-7,321
147
-257
703
850
850
593
E: MOSL Estimates

48

Jain Irrigation

NOTES

19 May 2014

49

Disclosures

Jain Irrigation

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In respect of any matter arising from or in connection with the research you could contact the following representatives of Motilal Oswal Capital Markets Singapore Pte Limited:
Anosh Koppikar
Kadambari Balachandran
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Email : kadambari.balachandran@motilaloswal.com
Contact(+65)68189232
Contact: (+65) 68189233 / 65249115
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Motilal Oswal Securities Ltd


19 May 2014

Motilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025
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