Jain Irrigation Systems Limited

8/8/2019 Jain Irrigation Systems Limited

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February 4, 2009

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Jain Irrigation Systems Limited

Analyst

Rajiv Bharati

Varun Guntupalli

Historical Stock Performance

CMP Rs 325BUY

Target Rs 505

Shareholding Pattern

Promoters

32.4%

MFs/UTI/FIs

7.4%FII

41.1%

Individuals

4.3%Bodies

Corporate

10.0%

Others

4.8%

Source: Company

2800

3860

4920

5980

7040

8100

00

10

20

30

40

50

Jan-08 Mar-08 Apr-08 Jun-08 Jul-08 Sep-08 Oct-08 Dec-08 Jan-09

JISL BSE MIDCAP INDEX

Key Informations

Market Cap (Rs. mn) 23,522

NSE Code JISLJALEQS

BSE Code 500219

Face Value (Rs) 10

52 Wk High 767

52 Wk Low 227

52 Wk Avg Volume 189,607

Revenue (in Rs. mn) EPS P/E

FY 08 22,159 19.4 16.7

FY 09 E 30,012 24.1 13.5FY 10 E 41,660 35.0 9.3

Synony-MIS-ing IrrigationIn an era where everyone talks about inclusive growth, agriculture has been

a laggard due to unavailability of resources, poor practices and erratic mon-

soon. Jain Irrigation Systems Limited (JISL) has stepped up to develop a

better and cost effective solution to tackle the irrigation problems in India.

Micro Irrigation Systems (MIS) is the flagship business of JISL which, on a

standalone basis grew by 66% CAGR (Compound Average Growth Rate)

during 2003-08 period. With 55% market share in MIS division we see JISL

as the best play to exploit the burgeoning demand.

Government of India (GoI) has an ambitious plan to bring 17 million hec-

tare (M Ha) of the arable land under MIS by the end of eleventh plan

(2012). Presently in India ~3 M Ha is covered under MIS. GoI has allocated

Rs 5,000 million for MIS in budget 2008-09. This opens up a Rs 350 billion

potential in Indian market within next three years. Given the size of the

market there exists a chance for each player to grow. Being the market

leader JISL definitely has an edge over its competitors.

Most Indian state governments have increased their subsidy contribution to

30%-35% from the earlier 10% levels. Central government provides 40%

subsidy to farmers who are adopting MIS for irrigation. These subsidies

change as per crop variations, farm area held by the farmer and resource

availability. Recently, GoI has decided to provide subsidies for the replace-

ment demand in MIS installation from FY09 onwards. This will further in-

centivize farmers to switch to MIS based irrigation systems.

Government of Maharashtra (GoM) has approved an IPS for JISL under

which waiver of actual tax to be paid to GoM, which includes VAT/CST,

Stamp duty, Electricity duty, to the extent of 100% of new capex done here

onwards will be provided. Currently this tax rebate will continue for 7 years

for plastics business and 12 years for Agro Processing. Incidentally, JISL

generates 40% of its revenue from Maharashtra.

At current stock price of Rs. 325 per share the stock is trading at 13.5

times of FY 09 earnings and 9.3 times of FY 10 earnings. We initiate cover-

age on JISL with a BUY rating and target price of Rs. 505 per share.

Industrial Promotion Subsidy (IPS) for New Capex

Stretching the subsidy net

Governments ambitious plans

Initiating Coverage

Source: Bloomberg


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About the CompanyIncorporated in 1986, JISL is currently Worlds second largest and Indias largest micro irrigation company. JISL is a divers i-fied company with business interests in MIS, Piping systems, Plastic sheets, Agro processing and other products like Tissue

culture, Solar devices. Revenue contribution from each unit is shown in the pie-chart below. The company employs over

5,000 people and has about 20 manufacturing bases spread over 5 continents. JISL supplies products to about 110 coun-

tries through a network of 3,000 dealers and distributors.

The management of JISL is in the hands of the promoter and promoter group, who have good amount of experience in the

industry. The promoters shareholding was 32.4% as on 31st December 2008. Mr. Bhavarlal Jain, who started the company,

is the current chairman and his sons hold key positions in the top management Ashok Jain (Vice Chairman), Anil Jain

(Managing Director), Ajit Jain (Joint Managing Director) and Atul Jain (Director-Marketing).

The company has been aggressive in making acquisitions overseas - (refer to Annexure I for details)

Chapin Watermatics (USA), NuCedar Mills (USA), Cascade (USA), Aquarius (USA), NaanDan (Israel), Thomas Machines

(Switzerland)

Jain Irrigation has an elite lists of clientele. It is one of the main suppliers of mango pulp to Coca Cola, which uses it in

Maaza drink. Hindustan Unilever Limited procures tomato concentrate from JISL for Kissan ketchup. Global players such as

Sun Juice (UK) and Langers Juice (US) also get the raw material from JISL. The companys piping division caters to telecom

companies in India and overseas mainly for ducting. PVC pipes find major usage in Water Supply and irrigation pipes. PE

pipes are used for gas transfer, sewerage transport and effluent transfer.

Micro Irrigation

Systems

49%

Piping Systems

29%

Plastic Sheets

7%

Agro Processed

Products

13%

Other Products

2%

Consolidated Revenue Distribution of JISL in FY08

Source: Company

Coca Cola Schumacher Tata Group Powergrid L&T

Heinz Alcatel Nestle Hutch IVRCL Infra

Nestle Cargill Bharti Group Coca Cola Reliance Group

Mars GE HUL BSNL Aditya Birla Group

Gujarat Gas Company

Domestic Market

Major Clients of JISL

Export Market

Source: Company


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Opportunities GaloreAsia has the largest landmass under irrigation (148.6 M Ha) among all the continents. In contrast, it has the smallest

proportion of its land (5.8%) irrigated by the much advanced Micro Irrigation Techniques. Europe leads the way with

~58% micro-irrigated land of its 20.7 M Ha. A notable fact is that drip irrigation still have to find foothold in global market

as 75%-80% of the farmers using Micro Irrigation use Sprinkler Irrigation.

0%

12%

24%

36%

48%

60%

Asia Americas Europe Africa Oceania World Total

Proportion of Micro Irrigated area to Total Irrigated Area Proportion of Drip to Total Micro Irrigated Area

(in M Ha) Asia Americas Europe Africa Oceania World Total

Total Irrigated Area 148.6 38.0 20.7 10.3 2.5 220.1

Source: Global Scenario of Sprinkler and Miro Irrigated Area - S A Kulkarni, F B Reinders, F Ligetvari

0%

20%

40%

60%

80%

100%

India China United

States

Russia Spain Brazil Japan Saudi

Arabia

Israel

Proportion of Micro Irrigated area to Total Irrigated Area Proportion of Drip to Total Micro Irrigated Area

(in M Ha) India China

United

States Russia Spain Brazil Japan

Saudi Ara-

bia Israel

Total Irrigated Area 57.0 55.9 21.3 4.5 3.6 3.4 2.6 1.2 0.2

Source: Global Scenario of Sprinkler and Miro Irrigated Area - S A Kulkarni, F B Reinders, F Ligetvari


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India and China which hold ~76% of Asias arable land have a meager 3.9% (2.22 M Ha) and 5.4% (3.01 M Ha) land under

Micro Irrigation respectively. This gap represents a huge untapped market to be brought into the Micro-Irrigation network.

The biggest barrier to get this is educating the farmer to think in terms of benefit per hectare as compared to cost per hec-tare. In India, a traditional irrigation system requires Rs 2,000 per Ha investment in contrast to Rs 45,000 per Ha in dripirrigation and Rs 17,000 for sprinkler irrigation. This difference in cost acts as a massive deterrent for switching from tradi-

tional irrigation to MIS.

Interestingly, Israel has all its lands watered by micro irrigation techniques. Though they have very small arable land but

they are the largest producers of MIS equipments globally. Charts on previous page shows a comparison of the proportion

of micro irrigated area to the total irrigated area is made across some of the major countries in the world. This chart ex-

poses the potential of the two major Asian markets, where penetration of MIS has been rather dismal. Overall, a huge op-

portunity is waiting to be unleashed.

Indias need for advanced irrigation systemsThe 1.1 billion population and the improving economic situation in India are driving the demand for food. India has 17% of

the worlds population but only 11% of the Worlds farmland and the crop yields vary from 20% to 50% of crop yields in US.

This clearly indicates the necessity of improving the crop yields in India by the usage of technology in farming. India defies

generalization with respect to the rainfall it receives in various part of the country, its soil type and the amount of land held

by each farmer. With 80% of farmers in India holding less than two hectares of land and grapple with uncertain availability

of electricity, there is a mouth gaping demand for low pressure irrigation systems in the country. Indias overall arable lan d

totals to ~140 million hectare (M Ha), of which only ~50% get good rain fed irrigation. The rainfall varies from the record

levels at North-Eastern states to scarce waterfall in the Western and Southern belt of India. Micro-Irrigation as a concept

began with the farmers in the latter regions as the target customers. Government of India realizes the necessity for working

towards having food security for India and in this context, it has been encouraging the usage of technologies like micro irri-

gation techniques which would help in providing for irrigation to crops while minimizing the usage of water and increasing

crop yield.

Drip irrigation and Sprinkler irrigation have received credence globally and have resulted in reduced cost of irrigation per

hectare. This concept of precise irrigation reduces the wastage of fertilizers (fertigation through soluble fertilizers), water,

labour and electricity. Such scientific irrigation procedures have improved the productivity for the farmers by ~200%. Also,farmers in high terrains find it very useful on the account of usual flood irrigation techniques being highly inefficient.

Competing against timeGovernment of India (GoI) has allocated Rs 5 billion in budget 2008-09 for micro irrigation. GoI has set an aggressive target

of covering 17 M Ha arable land under Micro Irrigation System (MIS) by the end of eleventh plan (2012). In India, 74% of

farmers using MIS use sprinkler irrigation. At an average cost of Rs 25,000 per Ha, this makes a business opportunity of Rs

350 billion (another 14 M Ha of the 17 M Ha to be covered in by 2012) in three years. In addition to this there is a replace-

ment market as two-third of the deployed MIS needs replacement every 5 years. Jain Irrigation Systems Limited (JISL) gen-

erated Rs 11.27 billion revenue from MIS business in FY08, 3.2% of the estimated market of Rs 350 billion. We see ampledemand for all players and the main area of growth is to capture market share as quickly as possible. Moreover, Govern-

ment of India has incentivized farmers to adopt MIS by providing 50% subsidy for upto 5 Ha of land holding. Also, in a re-

cent development farmers can also avail subsidy for replacement of parts uses in MIS. In India JISL holds 55% market

share in MIS space and is strongly poised to exploit the growth.


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Flow of Subsidy in Micro IrrigationA typical subsidy allotment process follows the course shown in the chart below. Implementing Agency (IA) plays a critical

role in the subsidy allocation. It usually takes a fair deal of time for estimation and release of funds which results in elonga-

tion of working capital cycle for the manufacturing units like JISL. Normally it takes 90-180 days to receive the subsidy

amount from the state and central government.

UsuallyJISL takes 5%-10% of the estimated cost in advance from farmers through the dealers. Rest of the amount is col-lected from the farmers in installments and from the government subsidy. Subsidies vary across states in a range of 50%-

75%. Ordinarily, 10%-35% of the total cost is borne by the States government as subsidy while the rest 40% is supported

from Central governments exchequer. States like AP, UP, MP, Chhattisgarh, Punjab and Rajasthan offer 30% -35% subsidy

while rest of the states are in the range of 10%-15%.

Two-third of the drip/sprinkler irrigation material requires to be replaced in every 5 years. Hence a huge replacement mar-

ket exists for these products. Interestingly, GoI has decided to extend subsidy for the replacement of material as well from

the current fiscal onwards. Going forward, as the concept of micro irrigation gains momentum, multiple sources of revenue

for companies like JISL would emerge:

new farmers adopting to MIS influenced from the success of their peers

existing farmers bringing more land under Micro Irrigation

addition of new crops to the existing set of crops for which MIS is suitable

using MIS to cultivate on dry lands

replacement demand (2/3rd of the setup needs to be replaced)

Source: Company, DDAV Research


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Micro Irrigation SystemsJISL is the largest player in the Micro Irrigation Systems market. This division comprises of two sub segments:

Drip Irrigation Systems (refer to Annexure II for details)

Sprinkler Irrigation Systems (bottom picture shows some of the part used in a Sprinkler system)

It has a 55% market share in the Drip Irrigation and about 35% market share in the Sprinkler Irrigation Systems. The indus-

try size of MIS is estimated to be Rs.12 billion and it is growing rapidly. JISL is currently the second largest player in the

global market with 20% market share. JISL has positioned itself as a complete solution provider with a host of products and

services. MIS systems consists of more than 1,000 items, of which over 95% are manufactured in-house by JISL. This scale

gives them expertise to provide all solutions under one roof. In FY08, the revenue from this segment stood at Rs.6,179

million, accounting for 35% revenues on a standalone basis and at Rs.11,276 million, accounting for 49% on a consoli-

dated basis. The CAGR in this segment has been about 66% for the period of 2003-08 on a standalone basis. JISL com-

mands 25%-30% operating margin in domestic market while in highly competitive international market it manages only 8%-

10%. In the next 3 years, we expect this segment to grow at 60-70% in India and at 15-20% overseas. The major competi-

tors for JISL in this segment are Israel based Netafim and a U.S. company, John Deere.

Netafim, an Agri-Business pioneer and the worlds largest provider of MIS for agriculture, controls 15% market share in In-

dia. Annual global turnover for Netafim is nearly $450 mn (Rs 18 billion) while in India they do a business of ~Rs 2 billion.

JISLs management is confident about surpassing Netafim at a global level, in net profit terms by FY09 and in revenue

terms by FY10. In the MIS segment, JISL made three major acquisitions Aquarius, Chapin and NaanDan. The first two

companies are US companies which gave JISL the access to the North American market and a market share of 10%. The

acquisition of NaanDan (Israel Company) helps JISL to get strategic access to markets like Europe, South America, Australia

and Middle-East Asian Countries.

The MIS segment of JISL has been growing at a tremendous pace on the back of the projects in the states of Maharashtra,

Andhra Pradesh, Gujarat and Tamilnadu. Among the states, Maharashtra contributes the highest which accounts for almost

40% of the total standalone revenues for the company in the MIS segment. JISL added 12,690 MT of capacity to this seg-

ment in FY08, bringing the capacity to 40,080 MT, by spending of Rs.610 million. The company has plans to continue with

significant investments in this division to have the necessary capacity to capture the explosive potential in this segment. It

is investing about Rs.3,000-3,500 million in FY09 and FY10 in the MIS segment for adding additional capacities.

Source: Company


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Piping DivisionJain Irrigation is the largest manufacturer of plastic pipes in India. This division is comprised of PVC (Polyvinyl Chloride)

pipes and PE (Polyethylene) pipes.

PVC pipes are used in water supply, farm irrigation, plumbing and cable ducting. JISL has a domestic market share of 15%in PVC pipes. The major competitors for JISL in the organized sector are Finolex Industries Ltd and Supreme Industries Ltd.

In FY08, this business accounted for about 16% revenues of JISL on a standalone basis. With the increased budgetary allo-

cation of government for water schemes, sanitation and water harvesting, demand is expected to be robust. In this context,

JISL added 12,995 MT capacity to PVC pipes in FY08 to have an overall capacity of 98,010 MT and it is adding another

15,972 MT in FY09.

PE pipes are used in water transport, sewerage transport, effluents transport, cable ducting andgas distribution. JISL has a domestic market share of 35% in PE pipes with a commanding busi-

ness in the gas and cable duct segments. This business showed good revenue growth of 130% in

FY08 with increasing demand on the back of increasing infrastructure investments. Massive infra-

structure projects being undertaken as part of Bharat Nirman Yojana, plans for piped gas in cities

and increasing investments in telecom industry continue to provide good demand for this busi-

ness. Moreover, Jain is the only company in India which is manufacturing pipes of above 1,000

mm diameter. This provides an edge for the company over its competitors in servicing the de-

mand in this segment. To provide for the rapidly increasing demand for PE piping, JISL added

24,036 MT capacity in FY08 to have an overall capacity of 81,360 MT.

In the Piping division, more than 90% of the revenue comes from India and the rest from exports. The revenue from thisdivision increased at a CAGR of 39% during the period 2003-08 and the standalone revenue from this division stood at Rs

6,585 mn in FY08. The operating margin in this division has been 10-11%. Though the operating margin has been low in

this division, the rationale for JISL to aggressively pursue this segment is the high Return on Capital Employed, which is over

20%. Furthermore, with the raw material prices coming off their highs in the last few months, this division is expected to

perform well with good margins. In the medium term, the prices of raw materials like PVC and PE are expected to be low

which would make the product more competitive and will help in getting additional demand from the substitute products

like metal pipes. The pipe division is expected to show revenue growth of about 15%-20% in FY09. We expect the growth in

this segment to increase to 30% by FY11, with the infrastructure industry picking up in India.

Contract prices in the US Polymer market began a downward

trend in the September-November period (as shown in the

graph below) due to falling feedstock ethylene and propylene

costs. Though the domestic demand remained intact the mar-

gin took a serious jolt. However, the sharp correction in polymer

prices improved the situation.

Source: Company

650

920

1190

1460

1730

2000

Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09

USDperMT

HDPE (High Density Polyethylene)

Source: Bloomberg


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Piping business of JISL would be riding on the infrastructure boom expected to happen in India in the next few years. The

following would be some of the major growth drivers for this division:

Rural water schemes

Rehab of existing drainage and sewerage network by municipal corporations

Increasing emphasis on sanitation through sewerage schemes

Extensive expansion of gas distribution networks in cities

Increasing infrastructure investments in SEZs, airports, construction etc

Huge investment by telecom companies in the context of increasing number of players, implementation of 3G and

4G technologies and also increasing rural connectivity

Pollution norms becoming stringent and thus requirement arising for proper pipelines for effluent disposal

Plastic SheetsJISL manufactures different varieties of Polyvinyl Chloride (PVC), Poly Carbonate (PC) sheets like PVC Free Foam, PVC Ce-

luka, PVC rigid, PC compact, PC corrugated. These sheets are used in array of applications ranging from advertising bill-

boards, roofing, interior designs, sidings for home and shop, marine industry, transport, and greenhouses. Plastic sheets

scores over traditional Lumber on being impervious to water absorption and being resistant to insects & rotting.

Acquisition of NuCedar in 2006 for $4 million was a step to enter the PVC building materials market. But unfortunately the

business hit a roadblock in the form of home mortgage crisis in USA. The current sub-prime crisis has had severe impact onplastic sheet business of JISL. The affect of slowdown in new house construction in US has resulted in the de-growth of

plastic sheets business of JISL. Plastics business on a consolidated basis generated Rs 1627 million in FY08 against Rs

2205 million in FY07, which is a de-growth of 26%. The run-up in the Crude oil prices resulting in high resin prices has com-

pounded the problems for JISL further.

Margins should improve with sharp correction in Crude oil prices, but the wilted demand affecting the topline is showing no

signs of revival. Also with looming recession in most European countries is not helping the cause any better. Looking at the

deteriorating situation, JISL may be compelled to put the plastic sheets business on the block.


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Agro Food Processing

In the agro processing division, JISL has two subdivisions dehydration of Onions and other vegetables; fruit processing

(fruit purees, pulp and concentrate). The dehydration subdivision is dominated by Onion dehydration while the dehydrationof other vegetables is just picking up. Jain Irrigation is Indias biggest producer of dehydrated Onions. Currently, JISL has a

market share of 20% in Onion dehydration globally and it is the 3 rd larg-

est Onion dehydration company in the world. The major part of the final

product is exported and is used for pizza toppings, cereal and soup

preparations. The adjacent figure explains the Onion dehydration proc-

ess. For dehydration, the company procures a White Onion variety

which is more pungent and has higher Total Soluble Solid (TSS) contents

than the pink Onion variant. Onions are partly grown in-house through

contract farming (60%) and buyback arrangements via a fixed price con-

tract (subject to seasonal revisions) and the rest is procured from free

market. Jain Irrigation has an annual capacity of 25,000 MT for Onion

dehydration. The company scores over unorganized players in this subdi-

vision because of its backward integrationto seed production & distribu-tion and using it for contract farming. In addition to this, the acquisition

of controlling stake in Cascade Specialties Inc. in US has helped Jain to

maintain the supply of dehydrated Onions even in the lean seasons exploiting the variation in harvesting season in US and

India. Along with this it also gives JISL direct access to the US market.

The fruit processing subdivision is dominated by mango processing followed by little quantities in banana, pomegranateand others like tomato, guava, amla, papaya. JISL is eyeing to replicate its success in mango business to other fruits like

banana and pomegranate. Currently, JISL has a market share of 40% in India in mango processing and it is the largestmango processor in India. JISL supplies processed mango pulp to Coca-Cola which is used in Maaza. The fruit processingindustry in India is growing at a pace of 20% per annum. The demand for fruit juices, drinks and other processed food prod-

ucts is increasing at a stupendous pace in India with increasing health consciousness, urbanization and organized retail.

The agro processing division had a CAGR of 35% for the period 2005-08. The standalone revenue from this division stoodat Rs.2,417mn in FY08. Of all the businesses of JISL, the margin in this business varied drastically from as low as 6.5% in

FY07 to as high as 26.2% in first half of FY09. However, the margin for this business is expected to be in the range of 15%-

18% in the next few years. JISL is planning Rs 1,000 million capex in this business segment in FY09 and FY10.



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0%

20%

40%

60%

80%

100%

Polytube

andLaterals

Injection

Moulded

Compone

nts

PVCPipes

&

Fittings

HDPEPip

es

andFittin

gs

Plastic

Sheets

Dehydrated

Onions&

Vegetables

FruitPure

e

&

Concentra

te

Water

Heating

Syste

ms

Photovoltac

Products

Tissue

Culture

Plants

Capacity Utilization

2006-07 2007-08 Capacity addition


Other InitiativesJISL has diversified into a host of other initiatives, some of them supporting the MIS segment while others are towards re-

newable energy

Solar:

Jain Solar Water heating System

Jain Jyoti - Solar Lantern

Others:

Plant Tissue Culture (refer to Annexure III for details)

Agri and Engineering Consultancy

Green Houses

Bio-fertilizers

Turnkey ProjectsBiogas Plant - 1.5 MW plant with Rs. 12 cr investment to be completed within 5 years. This will use fruit processing

waste, dehydrated onions waste and other agri waste.

The above graph shows that a good part of production capacities in each business unit is underutilized. The encircled verti-

cals are the focus area for JISL. Clearly JISL is upbeat on Polytube and Laterals segment with 58% capacity addition in

FY08. In the Injection Moundingunit the company is concentrating on improving the utilization of the plant in addition to

appending more capacity. Stepping-up the capacities in HDPE pipes and Fittings vertical indicates JISL conviction in Indian

infrastructure growth story to which the GoI is very committed. Dehydration business is an export oriented business and has

fair bit of unutilized capacity which can be used for dehydrating other vegetables as well. JISL has aggressive expansionplans for FY09 and FY10 with a total Rs. 5,000 million outlay in MIS (Rs 3,000-3,500 million), food processing (Rs 1,000

million) and piping (Rs 500-700 million) segments. This capex will be financed from ECB, Long Term suppliers credit and

Internal accruals.


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(In Rs. Million) FY08 FY09 E FY10 ERevenue 22,159 30,012 41,660

Total Expenditure 18,717 25,060 34,474

EBIDTA 3,442 4,952 7,186

Depreciation 558 780 1,104

EBIT 2,884 4,172 6,082

Interest 1,327 1,943 2,728EBT 1,557 2,228 3,354

Tax 540 582 822

Other Income 401 100

PAT 1,419 1,746 2,532

Minority Interest 25

Profit after Minority Interest 1393 1746 2532

Exceptional Item -34

Adjusted Profit after Tax* 1359 1746 2532

Sales Growth % 59.2% 35.4% 38.8%

Operating Margin % 15.5% 16.5% 17.3%

Net Margin % 6.1% 5.8% 6.1%

Net Margin* % 6.4% 5.8% 6.1%

* adjusted for Minority Interest and exceptional itemsSource : Company, DDAV Research

F Y 08 F Y 09 E F Y 10 EEPS (Rs.) 19.4 24.1 35.0

CEPS (Rs.) 27.2 34.9 50.2

P/E (x) (Rs. 325) 16.7 13.5 9.3

Book Value per Share (Rs.) 116.2 131.5 156.5

P/BV (x) 2.80 2.47 2.08

RONW 22.6% 19.5% 24.3%

ROCE 15.3% 16.4% 21.0%

EV/EBIDTA (x) 10.3 8.0 5.6


ValuationJISLs revenue in FY08 on a consolidated basis rose by 59.2% led by 64% rise in MIS (domestic) business and incremental

contribution from its subsidiaries. Piping and Agro segment grew by 55% and 35% respectively.

Management has indicated to achieve 0.3 M Ha area under JISLs MIS business by FY09, which is nearly twice the area

covered in FY08. This would propel the margins as MIS business is the highest margin business and the largest contribut-

ing business for JISL. Also, we expect a sharp rise in FY09 and FY10 EPS.


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0

24,000

48,000

72,000

96,000

120,000

0

31

62

93

124

155

FY08 FY09 E FY10 E FY11 E FY12 E FY13 E

Rs(inm

illion)

Rspershare

Estimated Growth

EPS (LHS) Revenue (RHS)

Overall, We expect JISL to do well riding on the success of its MIS business with help from piping and agro processing units.

On a consolidated basis, in the next 5 years, we expect MIS would grow at a CAGR of 47%, Piping at a CAGR of 23% and

Agro processing would grow at a CAGR of 39%. At a FY10 EV/EBITDA of 5.7, we see JISL as the best play in the Indian mar-

ket to benefit from the increasing demand in the country.

Impressive third quarter resultsJISL recorded a strong 30.6% YoY growth in Q3FY09. Operating margins improved by 180 bps on a YoY basis attributed to

fall in polymer prices and increase in contribution from MIS business. The company incurred Rs 109 million loss due to ex-

change rate fluctuation. The business has a seasonality with 35%-37% revenue generated in Q4 each fiscal. Looking at the

nine month performance we expect the company to post an outstanding result for a full year.

Standalone Performance

(In Rs mn) Q3FY09 Q3FY08 %Change Q2FY09 %Change

Revenue 5376.9 4117.2 30.6% 4758.9 13.0%

COGS 3305.4 2494.8 32.5% 2757.3 19.9%

Employee Cost 205.4 138.7 48.1% 172.5 19.1%

Operating Profit 1164.6 819.8 42.1% 957.6 21.6%Interest & Finance Charges 381.4 295.9 28.9% 379.9 0.4%

Depreciation 111.8 102.0 108.2

Other Income 0.1 30.7 1.0

PBT 671.5 452.6 48.4% 470.5 42.7%

Tax 6.0 4.1 6.0

PAT 665.5 448.5 48.4% 464.5 43.3%

Exceptional Item -109.1 -219.5

Adjusted PAT* 556.4 448.5 24.1% 245.0 127.1%

Operating Margin % 21.7% 19.9% 20.1%

Net Margin % 12.4% 10.9% 9.8%

EPS(excl excep item) 9.2 6.2 6.4

*PAT adjusted for Exceptional Item

Source : Company , DDA V Research

Source: DDAV Research


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Annexure I (Back)The company has been aggressive in making acquisitions in the overseas:

Chapin Watermatics, USA - JISL bought 100% of the company in Apr 2006 for $6.8 mn consideration. Chapin is a pioneer

and leading manufacturer of drip tape and is known as complete source for field crop, nursery and green house drip irriga-

tion systems. It generates annual revenue of $9 mn scalable to $15 mn if demand arises.

NuCedar Mills, USA - JISL acquired 80% stake in NuCedar for $4mn in Aug 2006. The company makescellular PVC archi-

tectural siding which acts as substitute for sidings made of Lumber.

Cascade, USA - 80.17% of the company was bought for $7.8 mn in Dec 2006. With the acquisition, Jain Irrigation becamethe third-largest dehydrated Onion producer in the world with a total combined capacity in excess of 25,000 MT.

Aquarius, USA - This debt free company was acquired for a consideration of $21.5 mn in Feb 2007. The Company provides

fittings, filters, air vents, tubing, emitters and accessories to the irrigation industry.

NaanDan, Israel - JISL took 50.001% stake in NaanDaan in May 2007 for $21.5 mn. It is an R&D focused company which

provide tailor-made cost effective irrigation solutions.

Thomas Machines, Switzerland - JISL acquired 69.75% stake of the company in Mar 2008 for a consideration of $1.5mn.

Thomas Machines is a manufacturer of specialist machines and equipment, including drip irrigation lines, quality control

and test equipment, automation equipment, laser machine centers and laser products.

Annexure II (Back)Drip irrigation is an irrigation method which allows water to drip slowly to the roots of the plant, either on the soil surface(Surface drip irrigation) or directly in the root zone through buried pipes (Subsurface drip irrigation). This kind of irrigation is

achieved by a network of main lines, sub-main lines and lateral lines with emission points spaced along their lengths. The

emitters/drippers allow us to have a uniform and controlled supply of water directly into the root zone of the plant. This al-

lows the plant to absorb the required quantity of water, saving the plants from water stress and thus increasing quality and

yield of the plants. Due to this drip mechanism, drip irrigation helps in minimizing the usage of water. Drip irrigation also

provides the option of having a fertigation unit which would help in supplying growth nutrients like fertilizers to the plants in

a controlled fashion, helping the yield of the plants and also in saving the wastage of fertilizer. The most suitable drip irriga-

tion system and the components to be used for a particular customer should be determined by careful study of the factors

like land topography, soil, water, crop and agro-climatic conditions.

Source: Company


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Components

Pump

Water Filter

Fertigation Systems

Backwash Controller

Main Line (larger diameter Pipe and Pipe Fittings)

Valves

Sub-main lines

Polytubes /Laterals

Poly fittings and Accessories (to make connections)Emitting Devices at plants (Emitters/Drippers)

The pump is connected to the water source which pumps water into the water filters. Though water filters are optional de-

vices, they are recommended in order to have cleaner water which would help in increasing the yield as well as in protect-

ing the tubing from clogging thus decreasing the maintenance cost. The water then enters into the fertigation system to

take up the fertilizers fed into this unit and then enters into the main lines. From the main line, there would be few sub-

main lines which are further connected to polytubes/laterals. These laterals run parallel to the rows of plants and would be

having emission points along their lengths where the drippers/emitters are arranged for the purpose of dripping of water.

There are two kinds of dripper arrangements online (external emitters are used) and inline (drippers are fitting on theinside of the pipe).

Inline drip irrigation systems are suitable for places where recycled municipal waste water is used for irrigation. Anothervariant of inline drip irrigation is Sub-surface drip irrigation. In this, water can be directly given to the roots of the plants.

Duration of service for such piping is longer as pipes are not directly exposed to Sun.

DrawbacksClogged emitters cannot be cleaned and becomes unusable

Emitter distances are fixed and cannot be varied as per spacing of different crops

Longevity suffers as the tube is exposed to Sun in case of Inline on surface tubes

On-line drip irrigation provides another level of customization as farmer can use external emitters wherever required. Alsoextenders can be plugged from one outlet and the reach can be increased. The biggest advantage of on-line emitters is that

they can be unclogged manually and thus provides higher duration of service.


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Annexure III (Back)Tissue CultureIn the process of becoming a complete solution provider, Jain Irrigation has setup an extensive nursery to develop high

yielding disease resistant varieties of fruits and vegetables. The chart below explains a typical tissue culture process for

Banana plantation. This process provides a host of benefits to the farmers:

Farmers save time in developing the seedlings

The crop is more disease resistant

Average yield is 30 kg per banana plant against 16 kg per plant in traditional varieties

Uniform age of all plants helps to improve productivity and also requires less management. Additionally they all can

be harvested at one time rather than having scattered harvesting cycle

Three crops in a 30 months period against one in 18 months

Selling to farmers for Rs 11-12 per banana plant

At present banana tissue culture is commercialized while prototype testing for other fruits and vegetables is under process.

JISL lately has put a lot of stress on tissue culture with heavy capex directed towards the same. Various programs are in

process for last 3-5 years and are expected to be completed in another 4-5 years. With the completion of these projects,

JISL would be expanding its business by venturing into more and more plant varieties and also the company would be hav-ing a full fledged integrated model for each variety of plant. JISL sells the plants developed by tissue culture to farmers and

buys back the farm produce from them which is later processed and sold to the customers of JISL.

Banana Tissue Culture Process



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