We maintain our ‘buy’ rating on Jain Irrigation with a revised target price of R150 (14x FY16e EPS of R10.7). Strong visibility with improving balance sheet warrants a re-rating. With focus on progressive states and switch to NBFC-based model, working capital concerns should be allayed over FY14-16.
We expect strong free cash generation, which should help reduce debt-equity from 1.8x in FY14 to 1.1x in FY16. The management highlights that the current model in Gujarat, led by Gujarat Green Revolution Company, is efficient and its replication pan-India is likely under the new Modi-government.
The management expects consolidated revenues to grow 18% in FY15, led by over 20% growth in MIS business.
The management is targeting at least R300 crore of debt retirement annually over the next couple of years, led by better working capital efficiency. Further, a stake sale in the food processing business is likely in FY15, which could result in further decline in debt. The company continued with its trajectory of improved working capital this quarter, led by a decline of eight days in gross MIS receivables from 265 days in Q3FY14 to 257 days in Q4FY14.
Improvement in net working capital in the MIS business was even more impressive, having fallen by 41 days sequentially from 306 days in Q3FY14 to 255 in Q4FY14.