SSKI: Reiterates 'Outperformer' on JISL

SSKI has reiterates their 'Outperformer' view on Jain Irrigation Systems (JISL).

In line with their expectations, JISL has witnessed a steep revenue incline of 37% yoy to Rs 880 crore in FY06. Micro Irrigation (70% yoy) and pipes business (56%) continue to spearhead the growth, well backed by strong double digit growth in plastics business.

Favourable business mix and growing scale has helped maintain EBITDA margin, and PAT surge of over 107% to Rs 67.20 crore.

A Rs 1,000 crore allocation for irrigation projects by various states for FY07, Rs 850 crore of subsidy allocation by Centre and over 100% growth in JISL's micro irrigation systems (MIS projects) business are enough indicators to convince that Rs 61,500 crore micro irrigation opportunity will not just stay on paper.

While MIS business (46% 3 yr CAGR) will set the pace of growth, each of the other SBUs (PVC sheets, pipes and food processing) can also be potentially scaled up to JISL's existing size.

Confident of its ability to change gear and now take bigger strides, JISL is doubling its capacity in most of the SBUs and has also up the ante on acquisitions.

In last one year, JISL has acquired companies, stakes or assets in India (Terra Agro, mango processing unit of Parle) as well as globally (Eurodrip SA, NuCedar, Chapin Watermatics).

SSKI continues to like the derisked business model, scale of opportunity and growing appetite to take incremental risks of inorganic growth (and that too globally). They expect JISL's revenues growing at 32% 2 yr CAGR and PAT at 53% 2 yr CAGR.

At Rs 208, the stock currently trades at 13.2x FY07E earnings and
10.5x FY08E earnings.