7 July 2014
Update | Sector: Agri
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
Subsidy rate cut to augment MIS implementation
Clear policy on MIS in upcoming budget could accelerate re-rating
Recently, the Centre has cut its subsidy rate from 40% to 35% for small and
marginal farmers (<2Ha) and 25% for other farmers (>2 Ha). With cut in subsidy
per farmer coupled with expected increase in absolute subsidy in the upcoming
budget, we believe more farmers will be able to come under the ambit of MIS.
Given the government’s focus on micro-irrigation systems, we believe a clear
road-map and policy for MIS can accelerate improvement in JI’s working capital
cycle and thus drive re-rating.
In our recent meeting, Managing Director, Mr Anil Jain pointed out that JI is on
track to achieve it annual growth guidance of 20% and INR3b debt reduction.
Financial Snapshot (INR Million)
2015E 2016E 2017E
70,249 84,071 99,517
9,663 11,787 13,953
2,773 4,921 6,935
Cut in subsidy rate to ensure more farmers come under MIS ambit
A recent government notification suggests the central government has cut its
share of subsidy per farmer from 40% to 35% for small and marginal farmers
(<2 Ha) and to 25% for other farmers (>2 Ha) with effect from 1 April 2014. With
absolute subsidy expected to be revised upwards in the upcoming budget from
current level of INR16b and cut in subsidy rate per farmer, we believe more
farmers will be able to come under the ambit of MIS. Majority of the current
installations (70-80% of total) are towards small and marginal farmers.
However, clarity from state governments is still awaited on whether they will
increase their allocation share to keep total subsidy rate at 50%.
SAFL to work as a business correspondent for banks
Shareholding pattern (%)
Mar-14 Dec-13 Mar-13
The Reserve Bank of India (RBI) recently permitted banks to appoint non-
deposit taking NBFCs as their business correspondents (BCs). JI intends to
capitalize on this; Sustainable Agro Finance Ltd (SAFL) will act as a BC for a bank.
This will enable SAFL to broaden relationships with farmers apart from
incrementally seeding more MIS financing through banks. SAFL is targeting a
book size of INR2.5b in FY15 against INR1b in FY14.
Note: FII Includes depository receipts
Replication of GGRC model on a pan-India basis could be a key reform
Given the government’s focus on MIS, there is a possibility of replication of
efficient models like the Gujarat Green Revolution Company (GGRC) on a pan-
India basis. Further, there are strong chances of a sharp increase in the Center’s
allocation towards MIS from the current INR16b. While increase in Center’s
allocation can drive growth for the industry, administrative reforms on the lines
of GGRC can drive significant working capital improvement for the company.
Stock Performance (1-year)
Sensex - Rebased
Maintain Buy; budget announcements could accelerate re-rating
We believe JI is on track to post 20% revenue growth in FY15. The management
targets to raise INR5b through a 25% stake in food processing business in FY15.
We believe the upcoming budget could be a key event for the company and
strong reforms in the budget can accelerate the stock’s re-rating process. We
with price target of INR170 (16x FY16E EPS), implying 29% upside.
(Atul.Mehra@MotilalOswal.com); +91 22 3982 5417
(Niket.Shah@MotilalOswal.com); +91 22 3982 5426
Investors are advised to refer through disclosures made at the end of the Research Report.