Recommendation From Plastic Products Sectors

This section gives a recommendation of a stock having stock margin padding price below Rs 100 with sound fundamentals and expected to give handsome returns over a one-year time horizon

Jain Irrigation Systems 

BSE Code: 500219
CMP: Rs 63.65
FV: Rs 2
BSE Volume: 971,633

IRRIGATING FOR A PROFITABLE HARVEST 

HERE IS WHY
Robust order book
Consistent financial growth
Company's focus on debt reduction 

Jain Irrigation Systems is an agri-business company engaged in the manufacture of plastic products, fruit and vegetable juices, their concentrates squashes and powder. Its segments include hi-tech agri input products, industrial products and nonconventional energy. The high-tech agri input product segment consists of micro and sprinkler irrigation systems, polyvinyl chloride (PVC) pipes, tissue culture and other agri inputs. On the other hand, the industrial products segment includes various business lines, such as PVC sheets, polyethylene (PE) pipes for industrial applications, fruit processing, onion and vegetable dehydration and solar/green energy. It manufactures a range of precisionirrigation products.

The company has a philosophy of achieving continued growth through sustained innovation for customer satisfaction by producing quality products at an optimum cost. The company is focused on improving its debt situation as the business of the company is working capital intensive. With the company's growth, the working capital requirement has also gone up too. The company has invested in few facilities and acquisitions. Acquisitions in the USA and Europe are strategic in nature. In the short-run, it creates an issue of debt remaining at elevated level, but the company has been consistently improving on its working capital. The management has committed to bring down the debt to Rs 3000 mn level by FY19E. The management expects some amount of reduction in interest because of its better credit rating. 

On the financial front, on a consolidated basis, the net sales of the company posted 20 per cent growth in Q2FY19 at Rs 1895.11 versus Rs 1574.64 crore in the the corresponding quarter of the previous year. The profit before interest, depreciation and tax (PBIDT) for Q2FY19 came in at Rs 215.11 crore, an increase of 22 per cent from Rs 175.2 crore posted in Q2FY18. The profit after tax (PAT) in Q2FY19 stood at Rs 18.32 crore as against Rs 13.31 crore, witnessing an increase of 37.64 per cent on a YoY basis. 

On the annual front, the company's net sales for FY18 came in at Rs 7,946.76 crore, an increase of 17 per cent from Rs 6,769.78 crore in FY17. The PBIDT of the company came in at Rs 1111.78 crore in FY18, a rise of 11.11 per cent from Rs 1000.62 crore in FY17. The PAT has also surged by 25 per cent to reach Rs 217.67 in FY18 versus Rs 173.98 crore in FY17. On the valuation front, the company is available at a PE multiple of 12.97x on its TTM earnings as against industry PE of 16.86x. The return on equity (RoE) stood at 5.12 per cent and the return on capital employed (RoCE) at 9.11 per cent. 

The company has reported good financial results. Along with this, the management expects higher momentum in business cycles, aided by better order book. Also, the softening of crude prices will help. Its order book grew by 21.6 per cent and 36.39 per cent yoy in hi-tech agri inputs and plastic segments, respectively. The agro segment grew by 15 per cent yoy due to lower prices of few agro commodities. We see better exports and traction in hi-tech agri inputs segment should aid growth. Based on the above-mentioned factors, we recommend a BUY