Our meeting with the management of Jain Irrigation (JI) reaffirms our view on Jain Irrigation’s growth—especially in the light of government’s announcement to spend Rs 50,000 crore under Pradhan Mantri Krishi Sinchayee Yojana (PMKSY) over next five years. The management says that directionally the government is focused on improving farm productivity; while exact contours of the programme are still unknown, the company believes PMKSY would strongly benefit JI’s MIS and piping businesses.
With subsidiarisation of food processing business likely to be concluded in H1FY16, the management believes 25% stake sale will be concluded over the next two quarters. JI is looking forward to raise $100 million through a minority stake sale, and will be most likely closing the deal with a financial investor as against the earlier plans of inducting a strategic partner.
The company’s consolidated net debt for Q4FY15 stood at R3,930 crore. The management maintains its target to reduce debt by R300 crore, majority of which is expected in H2FY16.
We expect strong free cash generation over FY15-17e which should reduce debt/equity from 1.6x in FY15 to 1.1x in FY17e.We expect 15% revenue CAGR and 18% ebitda CAGR over FY15-17, with financial de-leveraging ensuring EPS expansion from R1.9 in FY15 to R8.3 in FY17. We maintain buy with a target price of Rs 100.