Jain Irrigation – Sitting on a huge opportunity
Jain Irrigation (CMP Rs 249.20) has had a none too impressive past. Its management is not considered in the top scale and before I write anything else about the company this is one factor that has to be taken with some seriousness. But managements do change and some of the management who have changed or appear to have been changing are the Thapars, Mallyas etc. It would be unfair to generalize past performance and put it as a blanket comparison. A CIO of a very large Private Bank also having mutual fund interests once told me “Most management are like a dog’s tail but not all”.
The company’s website states that Jain Irrigation is into a lot of interesting things primary among them are:
- Drip irrigation
- Sprinkler irrigation
- Control and Safety Valves
- Water Irrigation Systems
- Pipe Fittings, Green Houses and Turnkey project systems
- Plant tissue, Micro plant, Bio fertilizer, agro engineering consultancy
- Processed food, Plastic Sheets and Solar water heaters
The opportunity that Jain irrigation at is huge. The total micro irrigation space is a Rs 60,000 crore opportunity. The grand budgetary policies of the congress Govt. and the entry of the big players into agriculture and farming will open up a scale of opportunity for Jain irrigation’s primary business. Over the next 2 to 3 years Reliance, Bharti and a few other major players would be spending thousands of crores into farming. More over the development of organized retail would also lead to better agriculture methods and newer and latest techniques of production would be employed.
Financial Snapshot |
Current Market price |
Rs 249.20 |
Market Capitalization |
Rs 1444 crores |
Sales FY 07 Q1 |
Rs 231.26 crores |
Net Profit FY 07 Q1 |
Rs 17.57 crores |
Sales FY 07(E) |
Rs 1100 crores |
Net Profit FY 07(E) |
Rs 80 crores |
EPS FY 07 (E) |
Rs 13.79 |
PE |
18 times |
Sustainable growth Fy 06 – Fy 09 |
30% |
PEG |
0.60 |
The task force committee report states that over the 10th and 11th plans agriculture shall be the focus area and an amount of Rs 60,000 crores shall be spent on irrigation alone. This shall be 300 times the size of the present market. These schemes are taking off and pilot projects are being initiated by various State Govt.
Over the next 5 years India Inc will spend over Rs 900,000 crores on infrastructure development. Primarily Jain Irrigation will be benefited since it manufacture PE and PVC pipes
Recently the US arm of Jain Irrigation acquired a 100 per cent shareholding in Chapin Watermatics for $6 million. Chapin Watermatics is a diversified company with more than 3,000 employees and sales in excess of $200 million. This acquisition will help Jain irrigation to extend itself into the Irrigation markets worldwide which are witnessing huge growth due to growing problem of water scarcity.
The Managing Director of Jain Irrigation Mr. Anil Jain remarked that "The focused marketing efforts that Jain brings to the deal will complement the products of Chapin and the acquisition will catapult Jain Irrigation and Chapin Watermatics to the forefront in growing global markets for irrigation equipment”.
PVC Sheets have become substitutes for wood in the home building market of North America and Europe. This business has been steadily growing and the company recently acquired NU Cedar Mills Inc for US $ 3 million to further augments its activities in this space.
Food Processing: Jain Irrigation has a good business model in food processing and vegetable dehydration business. The company has been a regular supplier to the International giants like Nestle In this connection the company acquired Terra Agro with 1200 acres of land and a 1600 ton per anum vegetable dehydration plant. The company plans to triple capacity over the next 3 years.
Recommendation: If the management of Jain Irrigation can think from the shareholders perspective this stock is in for some real activity. All the businesses of the company are showing great traction with superior growth. At a market cap of Rs 1,444 crores you could not go wrong on this one. While like all growth stocks Jain Irrigation does look expensive on near term PE ratios these ratios should substantially improve over the next couple of years. Clearly the risk reward favors the investor.
Edited by basant - 09/Sep/2006 at 12:53pm