I exited sometime back with decent gains and the Q3 result confirms my worry. They have failed to deliver on deleveraging and operational leverage aspects. This is the best quarter from sales perspective but hardly any gains in the margins. The biz is complex and they have mastered the art of finding excuses quarter after quarter. Demerger of agri processing div was a good story as they promised 20% CAGR but it has hardly grown over the last one year. They guided for 25% growth in EBITDA last year potentially doubling PAT this year. Now after 3 qtrs they need to report 500cr of EBIDTA in Q4 to meet the guidance. They will definitely fall short once again. Despite best quarter and improvement in working capital they could not reduce debt. Now the yields are hardening which is another dampener for the medium term.
Few red flag for the company 
- High level of debt.
2.Frequent equity dilution. - Un- related diversification like infrastructure, owning retail dealership etc.
- Various subsidiaries and step down subsidiaries.
- Promoters shares pledged.
If i have summarise it, it would be their incompetence to generate enough margins from their businesses. That has led to higher leverage, frequent diluation is its impact. Addionally, they have consistently overestimated revenue growth except the last quarter.
Jain Irrigation had bagged project for Rs 287.66 Cr
This integrated project involves:
-
Detailed engineering topographical Survey, construction of
Approach channel, Jack well cum Pump House. -
Supply and installation of MS Rising Mains and pumping unit at
Jack well. -
Erecting of power transmission line, substation and necessary
electrical infrastructure. -
Supply and installation of pressurized MS/HDPE/PVC pipe
distribution network from source to each farmer’s field. -
Supply and installation of automated control along with primary and
secondary automated self-cleaning filters at zonal and sub zonal
level. -
Supply and installation of Drip Irrigation System.
-
Formation of Water User Association and Training to WUA’s.
Press Release For Immediate Dissemination
Jain Irrigation has been awarded integrated drip irrigation
project worth Rs. 287.66 crore (Rs. 2.87 billion) -
Operation and Maintenance of the system for 5 year and Handover
of project to VJNL.
Out of above the work under Point No 1,2,3,5,7,8 are not area of Core Competence of JISL.
I am unable to understand which way the company is going.
I would rather be comfortable if any 3rd company being awarded the project and JISL supplying PVC pipes and Drip irrigation system.
True, that’s why I exited just before the correction started recently. Additionaly, they got opportunity to reduce debt which they missed for variety of reasons and now yields have started rising. They are hardly serious about bottomline as their whole communication is centred around sales growth and EBITDA. Not only this they acquired one food distribution company in Europe which I felt was a very poor decision.
One thing funny about the management is that now instead of reducing debt in absolute terms they have now linked it to EBIDTA . Their current target is around DEBT/EBIDTA of 3, so now if you improved your EBIDTA by 300 Cr the promoter have the room to increase the debt by 1000 Cr.
Secondly for increasing EBIDTA, the company needs to increase its sales which it is doing by ;
Making unrelated acquisitions.(Dealer acquisition, Food distribution, etc)
Taking Projects where it does not have core competence.(Is the company supposed to take infrastructure projects like municipal water supply (ridiculous).)
The company is into sollar pumps, I just do not understand neither the company manufactures Solar Pumps nor Sollar PVC panels so why to be in such kind of assembly buisness(Purchasing solar pumps from one vendor and Solar PVC panels from another and then assembling and supplying ). It mean to sell my drip first I will have to take project for Sollar Pumps and then supply my drip irrigation.
My valid question is why the company which claims itself to be number one in drip irrigation in the world is not able to sell its drips and pipes to the infrastructure company. ( Alternatively thinking, will a infrastructure company install a PVC pipe factory and drip irrigation or simply it will buy from existing manufacturers) . I presume the company is not competitive enough (for various reasons ) to push it products into the market and I think rather then beating around the bush the company requires an introspection.
Jain Irrigation bags India’s Largest Major Irrigation ProjectJISL.pdf (1.7 MB)
The Mohanpura Major Project is the largest of its kind, “Future Ready” Micro
Irrigation project. In this project, the total Cultivable Command area of 228,475 acre
is to be brought under Micro irrigation. The value of the project is INR 9,750 Million
and the project is to be completed in 36 months.
The project involves survey, design, engineering, planning and execution of various
components like Pump houses and Pumping Machinery electrical sub stations,
delivery chambers, civil work, up-gradation of “Rojya” Dam, MS rising mains,
distribution network up to 1 Ha chak, automation, SCADA for the pumping and
network system and Operation and Maintenance for three years after completion.
This pressurized piped irrigation project is to be designed in such a way that every
farmer will be able to attach their micro irrigation systems at a later stage to the
outlets provided at every 1 Ha level. This will ensure “Har Khet Ko Pani”.
- The project involves survey, design, engineering, planning and execution of various
components like Pump houses and Pumping Machinery electrical sub stations,
delivery chambers, civil work, up-gradation of “Rojya” Dam, MS rising mains,
distribution network up to 1 Ha chak, automation, SCADA for the pumping and
network system and Operation and Maintenance for three years after completion.
The project can be divided into two parts 1 and 2
- This pressurized piped irrigation project is to be designed in such a way that every
farmer will be able to attach their micro irrigation systems at a later stage to the
outlets provided at every 1 Ha level. This will ensure “Har Khet Ko Pani”.
The part 1 work is purely related to construction and which will constitute around 80 to 90% of the project cost.
The part 2 work of the project pertains to core competence of Jain Irrigation.
My only point which I had been repeatedly raising is why to take any project( along with its risk) in which your core competence work is merely 10 to 20%. Had Jain irrigation been so competitive it would have automatically get order from construction company which would have taken the project.
Well, these guys love getting into the value chain, everywhere feasible!
- They did not have to do agro-processing, but with CSR kind of mindset, they do everything from seedling to plantation to agro-processing. Are not doing that bad. They are trying to get into branded foods, also.
- They do not have to do irrigation/water-supply turnkey projects but it allows them to use their materials and some expertise. Civil Contract work is not a heavy duty exercise, and pay offs are not so bad. So, why not?
- Buying into businesses abroad is good to get better foothold into promising markets. As long as you get a good deal.
- Shakti pumps only expanded into Indian markets because of slowing middle-east. Solar pumps are a big success. What expertise do they have, other than making pumps? Who will do the paneling and electrical work? A solar pump is not a different type of pump, it is simply a pump integrated with a solar power system. No manufacturer has expertise in both domains. Jain could at least have some market goodwill to bank on for sales, plus their traditional catchment areas have high solar radiation levels and low surface water availability.
Stock might still be expensive.
But looks a good long term story for agri-business, other than agri-chem and mechanization plays.
If only they try, will they succeed!
Management looks okayish, family seems quite committed.
Disc: Invested.
Q1 results:
Share looks less expensive now!
I think this is just throwing a stone in the bush to distract attention from real issues. They bought a tiny amount at a very cheap price from the open market anyway.
Sharp fall in price. It coincides with increase in pledged shares, from 27 % in sep to 48 % in March.
They are planning an IPO of one of their subsidiaries.
If the share price continue to fall, the FIs who have these pledged shares will probably keep selling unless promoters can offer more shares to cover up the margin. So, promoter holding will continue to go down. If someone buy these shares from open market, can he stake claim on the company, will it be treated as hostile take over bid ?
If the basic things like reducing debt and receivables can be understood by a common man it is highly unlikely that the management is not able to under stand, the only reason I can figure out is that there is some thing seriously wrong with the company and they are manipulating things or the management is highly incompetent and needs a replacement. I dont know where the company has diverted the Rs 800 Cr Equity infusion 2 -3 years back. The promoters should be punished but I pity for share holders. I was very lucky to exit this stock after decent return of 50% in 4 years.
I can pat my self as I had exited this stock from my own analysis. All credits to this forum.
listening to the concall of the company is so irritating becasue I am hearing the same commentary from the management for the last 24 quarters…pathetic management. The management is now casting the blame on the economy for its poor performance. Out of the total Q1 Concall of around 42 minutes, the management commentary was for whole 42 minutes and no questions were allowed to be asked…it seems the investors have given up and are are least interested in asking repeated questions to the management. Thankfully i have exited but I still follow it as I was invested in this company for around 5 years and it was major portion of my portfolio.
This is turning out to be next Sintex. When the investors had been following up with the Company for debt reduction why the management kept on sleeping and the irony is that they were still going for overseas acquisition. Reason for exit of my investment of around Rs 2 Lac in this Company was concern of high debt and I had exited this company in Sept 2017. Why the promoters did not had the same concern before allocating Crores of rupees in overseas acquisition.
The current management should be stripped off for not learning lessons from its past.
If inflation is 1% and effective lending rate is 15% which business can survive? Story of so many, crushed under NPAs.
Inflation seems to be the only concern of populist politics. Interest rates are manipulated to keep inflation figures low, while even 6% should be good for a booming economy. It is a perpetual chicken-egg problem and our policy makers adjust the knob so painfully slowly the patient will die.
Which business has margins to sustain in such an environment?
Anyway, seems like there is a default here. Company has informed about setting up an Inter Creditor Agreement. On June 7, RBI had issued revised guidelines for resolution of stressed assets. Under the new framework, it is a mandatory requirement for lenders to enter into an Inter-Creditor Agreement (ICA) during the review of the borrower account within 30 days from date of first default to any lender.
https://www.bseindia.com/xml-data/corpfiling/AttachLive/2ea2d583-2377-4b81-a84b-61c8f4e0c3c2.pdf
About 6 weeks before CARE ratings had written about this EXACT thing. I quote from the very beginning of the report:
The revision in the ratings assigned to the bank facilities of Jain Irrigation Systems Limited (JISL) takes into consideration the increasing stress in the liquidity of the company due to delay in realization of debtors. JISL is in discussion with banks for increase in working capital limits to address their immediate liquidity concerns. The enhanced limits are yet to be sanctioned by banks. Uncertainty exists on the timelines and likelihood of obtaining the same in the wake of recent decline in credit profile of JISL and its increased debt levels. Further, the lenders of JISL have also signed an Inter-Creditor agreement which is indicative of ongoing stress in the company. The working capital borrowings of the company on consolidated level had increased from Rs. 1,498 crore as on March 31st, 2018 to Rs. 1,917 crore as on March 31st, 2019. There were also frequent instances of overdrawals in the company’s working capital limits. The rating also factors in a moderate operational performance of the company in FY19. The ratings are tempered by the company’s heavy dependence on the agriculture sector and thereby its exposure to government policies, volatility in the prices of raw materials and the increasing debt levels a result of its various debt-funded expansions and growing working capital requirements. The ratings, however, continue to factor in promoters extensive industry experience, well-diversified product offering and market reach along-with a widespread distribution network domestically and globally. Deleveraging of the consolidated balance sheet, improvement in the liquidity position and maintenance of JISL’s operating margins shall remain the key rating sensitivities. Also, any further debt funded acquisitions or increasing in working capital borrowings, leading to an increase in the overall debt levels will remain a key rating monitorable.
Poor @VALUE2017, the patient 
tracker has been scared about this exact scenario developing and eroding value.
Nirmala madam meets only lenders and decides there is absolutely no liquidity problem in the market. Maybe she means the rainfall or floods when talking about liquidity 
When will RBI grow a pair and slash the rates?
It looks like Jain irrigation has defaulted on loans. Care has downgraded the rating to ‘D’.
Jain Irrigation Systems Limited-10-10-2019.pdf (319.2 KB)
The rating agencies have advised that as per confirmation from Bankers, the company has defaulted in loan repayments.
Highly incapable management, they should be stripped off. Now you can further see lower circuits in share prices which can trigger selling of pledge share.
They had also defaulted in past but pity that they did not learnt the lesson.
An old article but worth reading…