If not for forex losses, company could have put out a healthy performance
Jain Irrigation became another victim of foreign currency fluctuations and rising interest rates as its September quarter net profit dipped 81% to . 11.6 crore. The company displayed reasonable revenue growth, however, it has come at a cost of record high debts. The company doesn’t seem to have addressed its structural problem related to very high working capital, which alone could re-rate it on bourses.
Jain Irrigation’s share price has nearly halved from February this year as the mounting problems of working capital became evident. The company depends heavily on the subsidy payments from government in its key micro-irrigation business and delays in these payments have created a huge burden. Almost the entire . 1,730 crore of the company’s receivables as of September 2011 represented these.
As a result, it needed to borrow heavily to keep the business running. The company’s debt burden at . 2,746 crore was nearly 41% higher compared to a year ago. This translated in a debt-to-equity ratio of 1.55 as on end September 2011 compared with 1.33 a year ago. To service this huge debt, the company had to shell out . 81.4 crore as interest payments —a hefty jump of 56% from the yearago period.
The company’s tied-up investments in its working capital have reduced the efficiency of its overall investment in the business. This had prompted a foreign brokerage JP Morgan to downgrade the company in a recent report. “For the Jain Irrigation stock to re-rate from here, it will have to demonstrate improved discipline in capital deployment. We believe that besides improving its receivables cycle (necessary, but not sufficient), the company also needs to demonstrate better fixed asset efficiency, lower capex intensity and divestments of unrelated ventures, like plastic sheets,” it mentioned.
The biggest hit came in the form of mark-to-market foreign exchange losses on the company’s foreign currency loans of $150 million. The company had to provide for . 59.3 crore in the September 2011 quarter, when in the corresponding quarter of last year it had a gain of . 21.6 crore.
Had it not been for the impact of foreign exchange, the company’s operational performance for the quarter was healthy. It posted a 20% revenue growth with margins inching up 150 basis points. Its operating profit was 28% higher on year-on-year basis. Earlier this year, the company had discussed two alternatives to bring down its debts and debtors. Its first plan to issue more shares is not feasible at the currently low stock price.
Its second plan to float an NBFC is under process and could take another 6-8 months to fructify. As a result, there is little the company can do but hope for the government to pay its dues at the earliest.
Jain Irrigation’s share price has nearly halved from February this year as the mounting problems of working capital became evident. The company depends heavily on the subsidy payments from government in its key micro-irrigation business and delays in these payments have created a huge burden. Almost the entire . 1,730 crore of the company’s receivables as of September 2011 represented these.
As a result, it needed to borrow heavily to keep the business running. The company’s debt burden at . 2,746 crore was nearly 41% higher compared to a year ago. This translated in a debt-to-equity ratio of 1.55 as on end September 2011 compared with 1.33 a year ago. To service this huge debt, the company had to shell out . 81.4 crore as interest payments —a hefty jump of 56% from the yearago period.
The company’s tied-up investments in its working capital have reduced the efficiency of its overall investment in the business. This had prompted a foreign brokerage JP Morgan to downgrade the company in a recent report. “For the Jain Irrigation stock to re-rate from here, it will have to demonstrate improved discipline in capital deployment. We believe that besides improving its receivables cycle (necessary, but not sufficient), the company also needs to demonstrate better fixed asset efficiency, lower capex intensity and divestments of unrelated ventures, like plastic sheets,” it mentioned.
The biggest hit came in the form of mark-to-market foreign exchange losses on the company’s foreign currency loans of $150 million. The company had to provide for . 59.3 crore in the September 2011 quarter, when in the corresponding quarter of last year it had a gain of . 21.6 crore.
Had it not been for the impact of foreign exchange, the company’s operational performance for the quarter was healthy. It posted a 20% revenue growth with margins inching up 150 basis points. Its operating profit was 28% higher on year-on-year basis. Earlier this year, the company had discussed two alternatives to bring down its debts and debtors. Its first plan to issue more shares is not feasible at the currently low stock price.
Its second plan to float an NBFC is under process and could take another 6-8 months to fructify. As a result, there is little the company can do but hope for the government to pay its dues at the earliest.
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