Improving balance sheet, likely MIS demand make Jain Irrigation a good buy
The company recently closed its fund-raising plan to mop up $120 million at Rs 80 a share, which has reduced its net debt-equity ratio to 1.24 as of FY16 end .
By Amit Mudgill, ET Online | Updated:
NEW DELHI: The stock of Jain Irrigation, which has been languishing at the same level as it was a year ago, got a new lease of life on Thursday after foreign brokerage Morgan Stanley raised its target price to Rs 92 from Rs 72 earlier, reflecting a 110 per cent potential upside for the stock in next 12 months.
The brokerage has raised the stock’s rating to overweight from equal weight, as it believes the steps taken to reduce net debt-equity ratio, rise in discretionary demand in H2 of FY17 and the government’s thrust on micro-irrigation systems (MIS) after two years of drought would auger well for the company to drive the stock performance.
The company recently closed its fund-raising plan to mop up $120 million at Rs 80 a share, which has reduced its net debt-equity ratio to 1.24 as of FY16 end .
“We project a further decline to 1.2 times in FY17 from 1.9 times in FY15. Most of the equity raised will be used to repay costlier debt. The interest expense burden will also come down by 12 per cent in F17 to Rs 42 crore. This explains 35 per cent of the incremental earnings that we forecast in FY17,” the brokerage said.
Anil Jain, MD of Jain Irrigation, told ET Now last week that his company wanted to bring down interest finance cost to about 3 or 4 per cent of its revenues. For that, Jain said, “We need to further bring down the debt to achieve that. And the idea about that is also to create more free cash flow, so that we continue to invest and grow and create a lot of shareholder value.”
Motilal Oswal in a note earlier this month had maintained a 'buy' rating on Jain Irrigation with a target of Rs 76.
“In anticipation of a better monsoon and the Maharashtra government’s thrust on irrigation, we expect the MIS business to bounce back. Overall, we estimate 14 per cent revenue CAGR and 19 per cent Ebitda CAGR over FY16-18, translating into PAT CAGR of 93 per cent to Rs 3.8 in FY18, mainly to factor in the lower interest outgo,” the brokerage said.
On Thursday, the stock rose 5.02 per cent to Rs 46. The stock has gained mere 2 per cent in the past one year.
The brokerage has raised the stock’s rating to overweight from equal weight, as it believes the steps taken to reduce net debt-equity ratio, rise in discretionary demand in H2 of FY17 and the government’s thrust on micro-irrigation systems (MIS) after two years of drought would auger well for the company to drive the stock performance.
The company recently closed its fund-raising plan to mop up $120 million at Rs 80 a share, which has reduced its net debt-equity ratio to 1.24 as of FY16 end .
“We project a further decline to 1.2 times in FY17 from 1.9 times in FY15. Most of the equity raised will be used to repay costlier debt. The interest expense burden will also come down by 12 per cent in F17 to Rs 42 crore. This explains 35 per cent of the incremental earnings that we forecast in FY17,” the brokerage said.
Anil Jain, MD of Jain Irrigation, told ET Now last week that his company wanted to bring down interest finance cost to about 3 or 4 per cent of its revenues. For that, Jain said, “We need to further bring down the debt to achieve that. And the idea about that is also to create more free cash flow, so that we continue to invest and grow and create a lot of shareholder value.”
Motilal Oswal in a note earlier this month had maintained a 'buy' rating on Jain Irrigation with a target of Rs 76.
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“In anticipation of a better monsoon and the Maharashtra government’s thrust on irrigation, we expect the MIS business to bounce back. Overall, we estimate 14 per cent revenue CAGR and 19 per cent Ebitda CAGR over FY16-18, translating into PAT CAGR of 93 per cent to Rs 3.8 in FY18, mainly to factor in the lower interest outgo,” the brokerage said.
On Thursday, the stock rose 5.02 per cent to Rs 46. The stock has gained mere 2 per cent in the past one year.
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