JAIN IRRIGATION: Co has to strike a balance between growth and debt

THE results of Jain Irrigation System (JISL) for the September 2010 quarter cheered investor sentiments on Monday as the scrip gained nearly 3% in an otherwise weak market. The company reported a 46% jump in its net profit for the quarter, traditionally its leanest. The stock is trading at more than 34 times its earnings for the past 12 months.
The company had reported losses in its subsidiaries for FY10, which had dampened the scrip’s performance over the past couple of months. The June quarter numbers, although operationally strong, was weak due to to forex losses. Against this background, the September quarter’s performance provided a muchneeded boost to investor sentiments.
Out of JISL’s outstanding loans of 1,941 crore, loans worth 750 crore are in foreign currencies. With currency rates fluctuating, the company has to book a mark-to-market loss or profit on these liabilities, which are notional in nature. These numbers influence the company’s quarterly earnings to a great extent. For example, in the June quarter, it booked a forex loss of 20 crore, which resulted in a drop in net profit drop when compared with the year-ago level. On the contrary, the strong net profit growth in the September quarter was helped by a 21.6 crore forex gain due to the rupee’s appreciation.
Discounting the effect of forex fluctuations, the company’s June quarter results were actually better than the September quarter’s. The company’s operating profit had grown by 31% in the June quarter; in the September quarter it grew by just 15% y-o-y. Nevertheless, the net profit at 62 crore made the September 2010 quarter the second-best quarter historically for the company after the March 2010 quarter, when it had posted a net profit of 117 crore.
The company’s agri-input business continued to do well with a 24% growth in sales and 45% growth in preinterest-and-tax profits during the September quarter. It was mainly a volume-led growth particularly in the micro-irrigation business, which contributes almost half of the company’s total turnover. As against this, the industrial inputs division registered a dip due to discontinuation of the polycarbonate sheet business last year.
The company plans to achieve over 25% growth at the topline level in FY11. Considering that the company is likely to generate two-thirds of its business in the second half of the year, it is expected to meet the target. The company is also spending nearly 400 crore in FY11 to expand its micro-irrigation capacities. As it continues to grow, managing its debts and the borrowing levels would remain the key challenge before it.