With the stock market ready for a roller-coaster ride taking leaps and tumbles along the way, a savvy way to build a robust portfolio would be to have a sprinkling of stocks in high growth areas. While infrastructure, real estate and retail have been getting all the attention, the agricultural sector has been quietly pegging away its gains. It is but natural that this sector will witness tremendous growth in the coming years and also will receive clear attention from the government.
Jain Irrigation, a diverse player in this sector, is expected to be one of the gainers from this thrust. It is well poised to have accelerated growth both through the organic and inorganic route. A close look at the financial performance indicates that the past three years have seen a near doubling in revenues and also in profits.
A similar performance has been seen in the first quarter of FY08, where revenues grew by 42.4% to touch Rs 327.40 crore, from Rs 229.95 crore in the same period of the last year. And net profit touched Rs 28.22 crore, a growth of 60.6% over the previous year. Substantial contribution to this growth in earnings came from foreign exchange earnings that the company had during this period.
Analysts expect similar growth rates to be maintained in the coming years. This is because the company has developed considerable strengths in the area of micro irrigation systems; these include strip tubing, emitters, jets and mini-sprinklers. Then there is the plastic pipes business, in which Jain Irrigations is a market leader. It makes polyethylene (PE) and polyvinyl chloride (PVC) pipes and sheets and is scaling up its business in a big way. Besides this, the company is also involved in fruit processing, onion and vegetable dehydration. All these businesses offer significant opportunity for growth.
Additionally, Jain Irrigation is also eyeing the global micro-irrigation systems business and has been picking up companies in the overseas markets. It will be focussing on the largest markets for micro irrigation and these are the Indian, US and the African markets. To cater to the US market, Jain Irrigation has acquired Chapin Watermatics and Aquarius. Its acquisition of a majority stake in NaanDan of Israel for $21.5 million also puts it at an advantageous position to cater to the African and US markets. Additionally, it can leverage Naan Dan?s distribution network in other continents as well.
Going forward, analysts reckon that the company would record a compounded growth of over 20% for the next three to five years.
The factors that could pull earnings growth are interest costs as the company leverages to fund acquisitions and fuel costs could dampen the margins. Overall, the company is expected to continue to get premium valuations as it does at the moment.
?The author does not hold any investment in the company