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Stock Review: JAIN IRRIGATION




THE results for the September 2010 quarter of Jain Irrigation System (JISL) cheered investor sentiments on Monday as the scrip gained nearly 3% in an overall weak market. The company reported a 46% jump in its net profit for the quarter, which is traditionally its leanest quarter, and is now trading at more than 34 times its earnings for last 12 months.


   The company had revealed 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 thanks to forex losses. Against this background, the September quarter's performance provided a much needed boost to the investor sentiments.


   Out of JISL's outstanding loans of Rs 1,941 crore, loans worth Rs 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 Rs 20 crore, which made its net profit drop below the year-ago level. On the contrary, the strong net profit growth for the September quarter was helped by a Rs 21.6 crore forex gain with the rupee appreciating.


   Removing the effect of these 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 Rs 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 Rs 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 for FY11. Considering 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 Rs 400 crore in FY11 to expand its micro-irrigation capacities. As it continues to grow, managing its debtors and the borrowing levels would remain the key challenges before it.


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