Jain Irrigation: Working capital set to improve due to shift in favor of NBFC-based model

Jain Irrigation

Jain Irrigation: Poised for a recovery

Page No.

Summary

..........................................................................................................

3-4

Story in charts: Poised for a recovery

...............................................................

MIS - set for a recovery

................................................................................

6-10

Huge potential for micro irrigation in India

.............................................

11-15

PVC pipes business to post steady growth

...............................................

16-21

Food processing - a promising business

....................................................

22-25

Tissue culture - a unique farming solution

...............................................

26-27

Solar water heaters, lanterns - similar to MIS model

..............................

28-29

International operations - profitability to improve

................................

30-32

Earnings to post 48% CAGR over FY14-16E

...............................................

33-35

Initiating coverage with Buy rating

...........................................................

36-37

Risks and concerns

............................................................................................

Management

.....................................................................................................

Company overview

.....................................................................................

40-43

Annexure

......................................................................................................

44-46

Financials and valuations

...........................................................................

47-48

Investors are advised to refer through disclosures made at the end of the Research Report.

19 May 2014

Initiating Coverage | Sector: Agri

Jain Irrigation

BSE Sensex

24,363

S&P CNX

7,264

CMP: INR100

TP: INR140

Buy

Poised for a recovery

Working capital set to improve due to shift in favor of NBFC-based model

Stock Info

Bloomberg

Equity Shares (m)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

M.Cap. (INR b)

M.Cap. (USD b)

JI IN

443.1

100/46

37/33/27

44.9

0.8



Financial Snapshot (INR m)

2014E 2015E 2016E

Y/E March

Net Sales

60,430 70,533 82,407

EBITDA

PAT

EPS (INR)

Growth (%)

BV/Share (INR)

RoE (%)

RoCE (%)

P/E (x)

P/BV (x)

8,326 9,718 11,354

259 2,997 4,534

4.6

368.9

51.6

9.1

11.0

21.9

1.9

6.6

45.2

57.5

12.1

13.0

15.1

1.7

10.0

51.0

66.5

16.1

15.4

10.0

1.5

With a focus on progressive states and switch to a NBFC-based model, we expect

Jain Irrigation’s (JI) working capital concerns to be allayed over FY14-16.

Hence, we expect strong free cash generation which should aid in reducing debt

equity from 1.6x in FY14 to 1.0x in FY16E.

Policy impetus from the new government in the form of direct credit of subsidy or

a reduced working capital model on the lines of GGRC can be potential game

changer events.

We value JI at 14x FY16E EPS of INR10 and arrive at a target price of INR140,

implying 40% upside. We initiate coverage with a Buy rating.

Direct credit of subsidy by Center can be a mega game changer

MIS industry’s growth has been adversely impacted over the past two years due

to delay in payments at the state level. Centre contributes 40% towards subsidy

for MIS while states contribute another 10% towards subsidy taking the total

subsidy for MIS to 50%. As majority of the subsidy contribution is from the

Center, direct release of subsidy by the Center in favor of the farmer can

substantially reduce the payment delays associated with the states. In our view,

changing landscape at the Center and progress on initiatives like Aadhar can

result in direct credit of subsidy to farmers, which can be a game changer event.

Working capital to improve led by focus on progressive states…

Shareholding pattern (%)

As on

Mar-14 Dec-13 Mar-13

Promoter

Dom. Inst

Foreign

Others

28.7

2.2

54.0

15.2

27.5

1.6

57.6

13.2

27.5

1.3

56.2

15.1

JI’s management has moved away from doing business in TN, Karnataka and AP

due to substantial delays in payments. As a result, revenue contribution from

these states has declined from 21% in FY12 to 8% in FY14 and is further slated to

decline to 3% of total MIS revenue in FY16E. Growth over FY14-16E will be

driven by higher contribution from progressive states like Maharashtra and

Gujarat whose revenue contribution is expected to increase from 47% in FY14E

to 53% in FY16E.

…and switch to NBFC-based model

Stock Performance (1-year)

Apart from moving the business in favor of progressive states, JI is focusing on

NBFC-based model wherein payment to dealers will be made instantly by the

farmer and farmer’s financiers. JI-owned NBFC SAFL or banks will typically act as

financiers to farmers for the subsidy portion. These actions, in our view, will

collectively ease concerns on working capital for its MIS business. Thus, we

expect gross debtor days in MIS business to decline from 247 days in FY14E to

180 days in FY16. Currently, 30% (INR2b out of INR6.6b) of all MIS business in

Maharashtra is being carried out though the NBFC route. We expect JI to garner

80-90% MIS revenue in Maharashtra from this new model in next 2-3 years.

19 May 2014

Jain Irrigation

GGRC’s role has been a strong positive for MIS players like JI

JI’s experience in Gujarat has been highly favorable ever since the formation of

GGRC in 2006. The state is the third largest (~10% of MIS revenues) and fastest

growing market for MIS. JI’s MIS receivables in Gujarat are ~120-140 days,

compared to >300 days for AP and TN, and the average of 250 days company-

wide. The new government at the Center can possibly replicate GGRC model

across other states which can be a game changer event for MIS players like JI.

PVC piping is a logical extension to JI’s MIS business

JI is primarily present in the agri-piping segment of PVC pipes (derives more than

90% from agriculture). Agri-pipes are used for connecting the farmland with the

nearest river/canal to ensure water supply. Since JI already has a strong

foothold in the agriculture space through its dominance in the MIS business,

agri-pipes is a complimentary business for the company. At present, only 40% of

the total arable land is under irrigation, with the balance being rain fed. With

the continuous depletion of water tables across the country, farmers are

increasingly being forced to source water from faraway places. Thus, demand

for rigid PVC pipes is expected to increase driving growth for JI in this segment.

JI is India’s largest player in food processing industry

India has the second largest arable land in the world and with diverse agro-

climatic zones across the country, has tremendous production advantages in

agriculture. However, due to the lack of adequate storage facilities and

transportation, it is in the bottom in terms of food processing. Only 2% of the

total produce is processed, compared to ~60-80% in some developed countries.

JI is India’s largest player in the food processing sector, with a market share of

~30% and is the third largest in the world. Its food processing business is

involved in processing of onion, vegetable dehydration and fruit processing. JI’s

extensive experience and high involvement with the farmers have given it an

edge in the most crucial aspect of the food processing business, sourcing.

International MIS profitability set to climb on the back of new initiatives

JI is increasingly sourcing more MIS products from low cost centers like India to

cater to international markets, which is expected to drive profitability. Also, JI is

actively working on more project business (~10% of revenue) in places like Latin

America where margins are higher. Further, JI’s Greenfield capacity in Turkey is

expected to ramp up revenue over the next couple of years, thus translating into

better profitability from Turkish operations. Management expects overseas

business profitability to improve with the current 7% margin expected to expand

to 12% over the next 3-4 years.

Initiating coverage with a Buy and target price of INR140

With a focus on progressive states and switch to NBFC-based model, we expect

JI’s working capital concerns to be allayed over FY14-16. Hence, we expect

strong free cash generation which should help in reducing debt equity from 1.6x

in FY14 to 1x in FY16E. Policy impetus from the new government in the form of

direct credit of subsidy or a reduced working capital model on the lines of GGRC

can be potential game changer events. We value JI at 14x FY16E EPS of INR10

and arrive at a target price of INR140, implying 40% upside. We initiate coverage

with a

Buy

rating.

19 May 2014

Jain Irrigation

Story in charts: Poised for a recovery

JI is the market leader in MIS business in India.

MIS penetration in India is among the lowest in world.

Gross debtors set to decline due to improved strategy.

Hence, debt to equity to decline from 1.6x to 1x.

Food processing is another key opportunity for JI.

RoE to improve to 16% in FY16E.

2. MIS penetration in India is among the lowest in world

MIS penetration across countries (%)

90%

78%

1. JI is the market leader in MIS business in India

Market share of key players in micro irrigation systems in India

55%

65%

20%

25%

55%

52%

10%

Jain Irrigation

Netafim

Others

Israel

Russia

Spain

Brazil

China

India

Source: MOSL, Company

3. Gross debtors set to decline due to improved strategy

Gross Sundry Debtors

369

316

255

343

352

247

200

4. Hence, debt to equity to decline from 1.6x to 1x

Net Debt (INR m)

2.0

1.7

1.6

1.3

37,510

34,363

31,620

1.0

Net DER (x)

181

34,442

35,854

FY09

FY10

FY11

FY12

FY13 FY14E FY15E FY16E

FY12

FY13

FY14E

FY15E

FY16E

Source: MOSL, Company

5. Food processing is another key opportunity for JI

% of food processed

80%

6. RoE to improve to 16% in FY16E

RoE (%)

16.1

12.1

9.1

70%

30%

13.5

2.2

USA

Malaysia

France

Thailand

India

FY12

FY13

FY14E

FY15E

FY16E

Source: MOSL, Company

19 May 2014

Jain Irrigation

MIS – set for a recovery

Shift towards progressive states to drive improvement in working capital



JI is India’s largest player in India's organized micro irrigation sector, with a dominant

market share of 55%.

Focus on progressive states and NBFC-based model to drive gross debtor days lower

from 255 days to 181 days over FY14-16E.

With majority of the subsidy being contributed by the Center, possibility of direct

credit of subsidy to the farmer can be a game changer for JI

Similarly, with new government at the Center, steps towards replicating successful

models like Gujarat Green Revolution Corporation (GGRC) across other states can

reduce working capital requirements for JI.

Largest player in MIS…

JI is the largest player in

India's organized micro

irrigation sector, with a

dominant market

share of 55%…

JI is the largest player in India's organized micro irrigation sector, with a dominant

market share of 55%. The second largest player with a 20% market share is Netafim,

which is the global leader in MIS. Other key players include EPC Industries, Deere &

Company, Finolex Industries and Supreme Industries.

JI is the market leader with 55% market share

Market share of key players in micro irrigation systems in India

55%

20%

25%

Jain Irrigation

Netafim

Others

Source: Company, MOSL

…with a strong dealership network

JI has a strong sales

network of 3,400 dealers in

the domestic market, with

300 more expected to be

added every year…

JI has a strong sales network of 3,400 dealers in the domestic market, with 300 more

expected to be added every year. Most dealers come from farming background and

are influential in their respective regions. This strong local sales force helps the

company increase reach in deep suburbs and also helps improve after sales service.

At present, Maharashtra accounts for close to 44% of its total dealership, followed

by AP (16%), Rajasthan (15%), Gujarat (10%) and TN (9%).

JI has a strong delaership network comprising 3,400 and adds 300 dealers annually

Dealers

3,100

3,400

1,000

1,500

1,800

2,200

2,500

2,800

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

Source: Company, MOSL

19 May 2014

Jain Irrigation

Payment delays in states like TN,

AP and Karnataka where

receivable days had expanded

to 644 days as against 265 for

other states …

Revenue contribution from TN,

Karnataka and AP has declined

from 21% in FY12 to 8% in FY14

and is further slated to decline

to 3% of total MIS revenue in

FY16E …

Delay in payments from TN, Karnataka, AP led to funding problems

Working capital cycle for JI worsened considerably led by higher receivable days,

which expanded from 255 days (gross basis) in FY09 to 369 days (gross basis) in

FY11. This was due to payment delays in states like TN, AP and Karnataka where

receivable days had expanded to 644 days as against 265 for other states.

Management corrected this by de-focusing on TN, Karnataka and AP

JI’s management has moved away from doing business in TN, Karnataka and AP due

to substantial delays in payments. As a result, revenue contribution from these

states has declined from 21% in FY12 to 8% in FY14 and is further slated to decline

to 3% of total MIS revenue in FY16E. Growth over FY14-16E will be driven by higher

contribution from progressive states like Maharashtra and Gujarat whose revenue

contribution is expected to increase from 47% in FY14E to 53% in FY16E.

…switch to NBFC-based model to further ease working capital concerns

JI is focusing on reducing credit

period to dealers to 180 days

by FY16…

Apart from moving the business in favor of progressive states, JI is focusing on

NBFC-based model wherein payment to dealers will be made instantly by the farmer

and farmer’s financiers. JI-owned NBFC SAFL or banks will typically act as financiers

to farmers for the subsidy portion. These actions, in our view, will collectively ease

concerns on working capital for its MIS business. Thus, we expect gross debtor days

in MIS business to decline from 247 days in FY14E to 180 days in FY16.

Gross receivables trend to improve led by focus on progressive states and NBFC model

Gross Sundry Debtors

369

316

255

343

352

247

200

181

FY09

FY10

FY11

FY12

FY13

FY14E

FY15E

FY16E

Source: Company, MOSL

Change in revenue composition for JI over FY12-16E

Progressive states FY12

Maharashtra

46%

Exports

Rajasthan

12%

Gujarat

Others States

Contribution

79%

Other states

13%

Karnataka

Contribution

21%

FY13

41%

15%

10%

85%

10%

15%

FY14E

38%

20%

15%

92%

Change (FY12-14E)

-8%

13%

12%

-9%

-1%

-3%

-12%

FY15E

41%

22%

15%

95%

FY16E

44%

22%

15%

97%

Change (FY14-16E)

-2%

-4%

-2%

-6%

Source: Company, MOSL

19 May 2014

Jain Irrigation

NBFC – set up to encourage MIS funding

JI floated an NBFC named

Sustainable Agro-commercial

Finance Ltd (SAFL) in 2012 to

encourage funding towards

MIS systems…

Working mechanism of SAFL

With a focus on improving the current working capital cycle, JI floated an NBFC

named Sustainable Agro

-commercial Finance Ltd (SAFL) in 2012 to encourage

funding towards MIS systems. JI and IFC (a member of World Bank Group) are the

initial promoters of the venture. JI has invested ~INR930m in the NBFC while IFC has

invested ~INR70m. Going forward, JI’s stake in the NBFC will be diluted to <49%.

Source: Company, MOSL

How SAFL works



SAFL focuses on farmers and operates in rural India. Thus, it gets funds at

attractive rates as this brings it in the ambit of priority sector lending (PSL).

Earlier, JI was getting ~30

-50% amount from the farmers and they had to wait

for the balance subsidy amount till the state governments disburse subsidies,

which took six months to a year and resulted in an increase in working capital.

With the advent of this model, JI no longer has to wait for disbursal of subsidies

from state governments. SAFL funds the farmer the subsidy amount at net

interest rate of 12% (gross interest rate is 16%, which is offset by JI as it

contributes 4% by forgoing 4% margin from MIS business).

The farmer repays the loan to SAFL on receipt of subsidy from the government.

SAFL penetration in Maharashtra to increase from 30% to 90%

SAFL is currently only operational in the state of Maharashtra. Maharashtra with

revenues of INR6.6b accounts 41% of JI’s MIS business. SAFL has been able to lend

~INR1b of loans in Maharashtra which implies INR2b of MIS business (INR1b

contributed by farmer and INR1b lent by NBFC towards subsidy) being conducted

through the NBFC route. Thus, 30% (INR2b out of INR6.6b) of all MIS business in

Maharashtra is now being carried out though the NBFC route. We expect JI to

garner 80-90% MIS revenue in Maharashtra from this new model in next 2-3 years.

Management indicates that on a fully leveraged basis, SAFL can fund loans worth

INR5-6b, which can be achieved by SAFL’s expansion in other states.

NBFC set up to drive

endorsement in favor of funding

for MIS subsidy…

SAFL to act as an endorsement mechanism for MIS funding

SAFL has been formed to drive endorsement in favor of funding for MIS subsidy. As

SAFL has demonstrated that lending to farmers for MIS receivables is a profitable

business, this has led to the entry of banks, especially state-owned in this sector. For

19 May 2014

Jain Irrigation

JI in March 2014 entered into a

national level tie-up with Dena

Bank to fund farmers for

MIS purchase…

instance, JI in March, 2014 entered into a national level tie-up with Dena Bank to

fund farmers for MIS purchase. JI has a similar arrangement with State Bank of India.

Possibility of direct credit of subsidy by Center can be a mega game changer

MIS industry’s growth has been adversely impacted over the past two years due to

delay in payments at the state level. Centre contributes 40% towards subsidy for

MIS while states contribute another 10% towards subsidy taking the total subsidy

for MIS to 50%. As majority of the subsidy contribution is from the Center, direct

release of subsidy by the Center in favor of the farmer can substantially reduce the

payment delays associated with the states. In our view, changing landscape at the

Center and progress on initiatives like Aadhar can result in implementation of

mechanisms like direct credit of subsidy to farmers.

Gujarat and AP are the only

states in the country which

have designated a specific

body to ensure effective

implementation of micro

irrigation…

Gujarat – a differentiated model led by GGRC acting as an intermediary…

In sharp contrast to rest of India, Gujarat and AP are the only states in the country

which have designated a specific body to ensure effective

implementation

of micro

irrigation. Gujarat Green Revolution Company Ltd (GGRC) is the implementing

agency for Micro Irrigation Scheme on behalf of the Government of India and

Government of Gujarat in the state. GGRC employs reputed and authorized micro

irrigation system suppliers, who provide and install the micro irrigation system and

also agro services pertaining to MIS to farmers. Although Andhra Pradesh has a

similar body in the form of Andhra Pradesh Micro Irrigation Project (APMIP), the

body has not been functioning effectively due to unrest caused by Telangana issue.

…GGRC’s intermediation has been a strong positive for MIS players like JI

JI’s MIS receivables in

Gujarat are ~120-140 days,

compared to >300 days for

AP and TN…

JI’s experience in Gujarat has been highly favorable ever since the formation of

GGRC in 2006. The state is the third largest (~10% of MIS revenues) and fastest

growing market for MIS. GGRC conducts education and training programs for

farmers with help from the suppliers. GGRC is also responsible for subsidy follow-

ups and collection from both the central and state governments. Thus, JI’s MIS

receivables in Gujarat are ~120-140 days, compared to >300 days for AP and TN, and

the average of 250 days company-wide. The new government at the Center can

possibly replicate GGRC model across other states which can be a game changer

event for MIS players like JI.

GGRC functions in an

effective manner with final

funds released to suppliers

within 120 days…

How GGRC works



Companies such as JI, Netafim, Finolex, Supreme etc are registered with GGRC

to implement MIS in states.

Pricing is regulated by GGRC and is fixed on an annual basis.

Companies such as JI through dealers source business and register each farmer’s

application with GGRC.

Once approved by GGRC, farmer pays 100% of dues to GGRC

GGRC releases 25% of total amount upfront to suppliers like JI.

Post implementation, suppliers like JI will receive the balance 75% from GGRC.

Final funds will be released in 120 days by GGRC.

19 May 2014

Jain Irrigation

MIS business to post 21% CAGR over FY14-16E

Revenue for MIS business clocked -4% CAGR over FY12-14 largely due to deliberate

reduction in business in states like TN, AP and Karnataka. Going forward, we expect

revenue to post a 21% CAGR over FY14-16E, led by strong growth in Maharashtra.

Revenue to post 21% CAGR

Revenue (INR m)

25,661

18,848

14,248

17,447

21,139

FY12

FY13

FY14E

FY15E

FY16E

Source: Company, MOSL

EBITDA to post 21% CAGR, margins to remain stable over FY14-16E

We expect EBITDA to post 21% CAGR over FY14-16 driven by strong revenue growth

and stable margins.

EBITDA margin to sustain at current levels of 22%

EBITDA (INR m)

5,635

3,802

30%

27%

22%

4,651

3,838

EBITDA margin (%)

5,645

35%

30%

25%

20%

15%

10%

FY12

FY13

FY14E

FY15E

FY16E

Source: Company, MOSL

Working capital cycle set to improve

We expect JI’s working capital cycle to improve from the current level of 305 days in

FY14 to 180 days in FY16E. This will be led by a further shift in mix in favor of

progressive states (with lesser working capital issues), coupled with greater degree

of business contributed from NBFC-based model.

MIS working capital cycle set to improve

Net Sundry debtors

224

319

262

-90

FY12

123

267

-71

Inventory

287

110

247

-70

215

200

-80

FY15E

181

-90

FY16E

Current liabilities

NWC

FY13

FY14E

Source: Company, MOSL

19 May 2014

Jain Irrigation

Huge potential for micro irrigation in India

MIS remains a key thrust area for the government



Penetration of MIS is lowest in India at 3.5% as against global penetration of 14.4%

thus providing strong growth potential.

MIS implementation leads to ~30-70% savings in water and ~20-100% increase in

yields thus making it an obvious choice for farmers.

MIS remains a key thrust area for the government with subsidies ranging from ~45-

70% and budget allocation to MIS having grown at 26% CAGR over FY09-14 to

INR16.9b.

Maharashtra government’s order mandating drip irrigation for sugarcane crop and

MWRRA’s order mandating drip irrigation for cash crops by June, 2015 will further

drive growth.

Penetration of MIS lowest in Asia, specifically India

The penetration of irrigation worldwide is ~14.2%, with Asia logging the weakest

coverage at 4.4%. Europe and America top the list with 47% and 36% penetration

respectively. There remains immense potential for micro irrigation in Asia in general

and India in particular. In India, there is a total irrigation potential of ~140 Mha, of

which MIS potential is ~69.5 Mha. Of this 69.5 Mha, only 5 Mha (~3.5% of the total

irrigation potential) is covered under MIS. MIS potential thus remains highly

untapped in India.

MIS penetration is lowest in Asia at 4.4%...

Region

Americas

Europe

Asia

Africa

Oceania

Total

India

No of countries

174

Available irrigated Sprinkler irrigated Drip irrigated area Total irrigated area

% of available

area (Mha)

(Mha)

irrigated area

area (Mha)

(Mha)

41.9

13.3

1.9

15.2

36.3

25.2

10.1

1.8

11.9

47.2

194.0

6.8

1.8

8.6

4.4

12.5

1.9

0.4

2.3

18.4

2.6

0.9

0.2

1.1

42.3

276.2

33.0

6.1

39.1

14.2

140.0

5.0

3.6

Source: Company, MOSL

…even lower at 3.5% in India

MIS penetration across countries (%)

90%

78%

65%

55%

52%

10%

Israel

Russia

Spain

Brazil

China

India

Source: Company, MOSL

19 May 2014

Jain Irrigation

MIS - an edge over traditional irrigation

MIS has started gaining popularity with a number of states starting to adopt the

system on account of the following reasons 1) thrust on water saving and 2)

substantially higher crop yield.

1) Thrust on water saving

In both drip and sprinkler

irrigation, savings in water range

from ~30-70% post

implementation…

MIS is commonly used in developed countries in areas with water paucity. These

systems aid the judicious use of water and improve productivity, raise incomes

through good crop yields and enhance food security of households. A number of

states have thus started encouraging MIS with a key objective to save water. In

India, water scarcity due to ground water depletion is a major concern. The

country's rainfall has been estimated at 4,000 cubic kms annually, of which only 690

cubic kms is harnessed for useful purposes. Against this backdrop, micro irrigation

practices such as drip and sprinkler irrigation can help ease the problems of water

scarcity. In both drip and sprinkler irrigation, savings in water range from ~30-70%

post implementation.

Crop-wise water savings post implementation of drip irrigation

Water supplied (cm)

Banana

Grapes

Sugarcane

Tomato

Watermelon

Cotton

Chillies

Papaya

Conventional

176

215

110

228

Drip

% Saving in water

Source: Company, MOSL

2) Substantially higher crop yield

In both drip and sprinkler

irrigation, the yield per acre for

all crops increases substantially

by ~20-100%, post

implementation…

In both drip and sprinkler irrigation, the yield per acre for all crops increases

substantially by ~20-100%, post implementation. This ensures that the payback

period for farmers is less than one season.

Crop-wise yield enhancements post implementation of drip irrigation

Yield(Quintal/Ha)

Banana

Grapes

Sugarcane

Tomato

Watermelon

Cotton

Chillies

Papaya

Wheat

Conventional

575

264

1,280

320

240

Drip

875

325

1,700

480

450

% Increase in yields

Source: Company, MOSL

19 May 2014

Jain Irrigation

NMMI to fuel growth in MIS

With the onset of NMMI,

allocations are now done under

the five year planning, which is a

long term commitment from

the government…

The National Mission on Micro Irrigation (NMMI) was launched as a mission in June

2010. Prior to this, it was implemented as a centrally sponsored scheme where

budget allocations were done annually. With the onset of NMMI, allocations are

now done under the five year planning, which is a long term commitment from the

government. Under NMMI scheme, farmers are educated on the use of micro

irrigation system through demonstration, training and awareness programmes.

NMMI is likely to derive following benefits:

1) It will help state governments to focus on micro irrigation, with assistance from

the central government. This will help increase the area under MIS and also increase

the number of crops under MIS via this mission.

2) NMMI will consolidate all the micro irrigation schemes under major government

programmes such as the National Food Security Mission (NFSM), Integrated Scheme

of Oilseeds, Pulses, Oil palm & Maize (ISOPOM), Technology Mission on Cotton

(TMC) etc under one head, which will help to improve the programme’s efficiency.

3) Apart from increasing the number of crops and area under MIS, NMMI will also

help streamline the process of subsidy disbursement and assist companies like JI get

subsidies faster and improve their working capital cycle.

Budget allocation to MIS has grown at 26% CAGR

Budget allocation to MIS has

risen over the past few years

and has clocked 26% CAGR

over FY09-14…

Budget allocation to MIS has risen over the past few years and has clocked 26%

CAGR over FY09-14. The amount earmarked for MIS subsidies stood at INR16.9b for

FY14. Given the advantages of MIS and an increased government focus on

propagation of MIS systems, we expect its strong growth to continue.

Budget allocation for MIS clocks 26% CAGR

Budget allocation - MIS (INRm)

15,000

16,930

9,700

4,300

4,800

11,300

13,000

FY08

FY09

FY10

FY11

FY12

FY13

FY14E

Source: Company, MOSL

19 May 2014

Jain Irrigation

Government subsidies range from ~45%-70 aiding farmers to adopt MIS

Combined central and state

government subsidies range

from ~45-70%…

State-wise subsidy for MIS

States

Maharashtra

Rajasthan

Gujarat

Andhra Pradesh

Karnataka

Tamil Nadu

Madhya Pradesh

Chattisgarh

Punjab

Bihar

Himachal Pradesh

Kerala

Uttar Pradesh

Uttarakhand

Drip (%)

Sprinkler (%)

JI's market share (%)

JI's revenue share (%)

41%

15%

< 1%

Source: Company, MOSL

Combined central and state government subsidies range from ~45-70%, which are

driving more farmers to adopt MIS even as the initial cost is substantially higher in

MIS than in traditional irrigation.

Mandatory drip irrigation for sugarcane growers – key growth driver

The Maharashtra government

has made it mandatory for

sugarcane growers to use drip

irrigation systems over the next

three years…

The Maharashtra government has made it mandatory for sugarcane growers to use

drip irrigation systems over the next three years, a move prompted by the drought

that created a severe shortage of drinking water in the Marathwada region and

some parts of western and northern Maharashtra. Maharashtra produces one-third

of India’s sugar and nearly three million farmers are engaged in sugarcane farming.

Around one million hectares is under sugarcane cultivation in the state, of which

only 100,000 hectares (ha) has drip irrigation systems, making drip irrigation

penetration stand at 10%. This opens up a large growth opportunity over the next

two to three years for leading MIS players like JI.

Almost all the sugarcane in the state is produced in the rain shadow areas using

canal water. This method of sugarcane production is neither economically

sustainable nor environmentally sustainable. The rain shadow areas are places

which receive 700mm or less rain annually and sugarcane requires around 2,000mm

of rain. According to government officials, sugar factories consume ~1.5-3 lakh litre

water per day during the crushing season. Recent estimates state the water

requirement from sugarcane plantation to sugar production is 3,500 litre per kg.

Pertinently, nearly 17% of water from the command area of irrigation project is

consumed by sugarcane cultivation alone, compared with 2% by oil seeds and 4.5%

by pulses. Thus, the government’s proposal for drip irrigation is crucial.

Currently, the state government gives a 50% subsidy to farmers and 60% to marginal

farmers—those who own less than 2ha—to buy drip irrigation systems. Given that a

drip irrigation system costs ~INR90,000 per hectare, the state will have to provide

Nearly 17% of water from the

command area of irrigation

project is consumed by

sugarcane cultivation alone,

compared with 2% by oil seeds

and 4.5% by pulses …

19 May 2014

Jain Irrigation

~INR40b by way of subsidies to implement drip irrigation on the remaining

900,000ha of land. Sugar factories in the state will be given the responsibility to

implement the scheme in their command area, failing which the state may suspend

or revoke their licenses.

MWRRA directive on drip irrigation for cash crops to further drive growth

MIS demand is expected to surge in Maharashtra due to recent initiatives by the

Maharashtra Water Resources Regulatory Authority (MWRRA). In its bid to prevent

wastage of irrigated water and make irrigation system effective, MWRRA has

decided to make drip irrigation mandatory for farmers growing cash crops with

effect from July 1, 2015, giving a one-year timeframe to farmers. More than 75% of

the irrigated water is utilized by agriculture consumers, 15% water goes to domestic

use, while the remaining 10% is for industrial use. The proposal is to charge only

75% of tariff from farmers growing cash crops like cotton, soyabean, sugarcane and

horticulture. Farmers will get 25% extra rebate if they adopt drip irrigation. But they

will have to pay 150% tariff on failure to set up drip irrigation in the prescribed time

limit.

This move by MWRRA is a strong positive for JI as Maharashtra contributes ~40% to

its domestic MIS revenue. Earlier, Maharashtra made it mandatory for the use of

MIS in sugarcane crops. With these dual initiatives, we expect strong growth in

Maharashtra over the next 2-3 years.

Micro irrigation sector in India on steady growth path

According to experts, for India to manage its water resources efficiently, the focus

has to be on agriculture. According to the Indian Agricultural Research Institute

(IARI), the country’s farm sector alone accounts for 83% of all water use. Whether it

is in the use of rain water or water from traditional irrigation system, the wastage is

colossal and the blame is to be shared by government agencies and farmers. This

creates a strong need for techniques aimed at water safeguard and the prime

among these being MIS.

The estimated size of MIS industry is INR30b and is growing at more than 20%

annually. Although MIS adoption by farmers is growing at a fast pace, the

penetration is still very low (only 3.5%). Due to the advantages of MIS (improved

yield, low water consumption) over conventional irrigation, it remains a key thrust

area for the government.

19 May 2014

Jain Irrigation

PVC pipes business to post steady growth

Logical extension of JI’s MIS business



JI, with a 15% market share, is the second largest player in the organized market,

offering pipes in 20mm to 560mm diameter range.

Center's allocation of INR2.3t (USD38b) on water management and INR5t (USD83b) in

the 12th Five Year Plan is expected to provide significant growth opportunities for

rigid PVC pipes manufacturers in India.

JI has a domestic market share of 35% in polyethylene pipes (PE) business, with a

sheer domination in gas distribution business.

Post the implementation of GST, we believe that the pricing difference between

organized and unorganized players will not be significantly different, which will allure

customers to choose quality over price.

Plastic sheet has its major application in the housing sector. This sector was affected

due to a slowdown in the US housing segment post subprime crisis. We believe that

with the recovery of housing sector, JI will be the major beneficiary.

PVC pipes business – recovery on the cards

Polyvinly Chloride (PVC) pipes find application in agri and construction segments.

Agriculture/rigid PVC pipes account for over 60% of industry's size, with the balance

being catered by building/plumbing pipes (~40%). The agricultural pipes industry

(size INR100b) has been posting 10% CAGR. It is largely unorganized, with a large

number of fragmented/unorganized players accounting for over 60% of industry's

size. PVC pipes are majorly used in portable water supply, domestic and

international plumbing, drainage system etc. They are sold to the retail market,

government bodies and corporates. JI has current capacity utilization of 80% and we

believe that the current capacity of 295,000 MT will suffice the upcoming growth

and thus no additional capex will be required.

Capacity utilization of Piping business

Capacity (MT '000)

260

121

47%

FY11

Production (MT '000)

295

230

117

40%

FY12

FY13

FY14E

FY15E

FY16E

78%

Capacity Utilization (%)

295

253

86%

295283

96%

325317

98%

Agriculture/rigid PVC pipes

account for over 60% of

industry's size, with the

balance being catered

by building/plumbing

pipes (~40%)

205

47%

226

113

50%

FY09

FY10

Source: Company, MOSL

PVC pipes product portfolio

Source: Company, MOSL

19 May 2014

Jain Irrigation

PE pipes to recover with telecom sector’s recovery

JI has a domestic market

share of 35% in the PE

business, with a sheer

domination in the gas

distribution business

Polyethylene pipes (PE) have major applications in telecom ducts, gas distribution,

water pipelines and dust suppression. JI has a domestic market share of 35% in the

PE business, with a sheer domination in the gas distribution business. It has 60%

market share in gas distribution business due to its ability to execute large and

complex government projects. This segment has shown a slowdown due to a slump

in infrastructure projects. Hence, revenue de-grew by 10% from INR1.7b in FY09 to

INR1.5b in FY13. Growth is likely to pick up with acceleration in telecom

infrastructure projects to connect rural India.

PE pipes product portfolio

Source: Company, MOSL

Logical extension to JI’s MIS business

JI is primarily present in the agri-piping segment of PVC pipes (derives more than

90% from agri). Agri-pipes are used for connecting the farmland with the nearest

river/canal to ensure water supply. Since JI already has a strong foothold in the

agriculture space through its dominance in the MIS business, agri-pipes is a

complimentary business for the company. The PVC pipe industry is comprised of a

small number of players in the organized sector. JI, with a 15% market share, is the

second largest player in the organized market, offering pipes in the 20mm to

560mm diameter range. While Finolex Industries is the largest player, other key

players include Supreme Industries, Prince Pipes & Fittings and Kisan Mouldings.

Even as plastic piping is a low margin business (~6% in FY13), it makes strategic

sense for JI to be present in this segment due to low capex and working capital

requirements and high scale of operations.

JI, with a 15% market share,

is the second largest player

in the organized market,

offering pipes in the 20mm

to 560mm diameter range

Low irrigation penetration provides strong growth visibility

With the continuous

depletion of water tables

across the country, farmers

are increasingly being

forced to source water from

faraway places

At present, only 40% of the total arable land is under irrigation, with the balance

being rain fed. With the continuous depletion of water tables across the country,

farmers are increasingly being forced to source water from faraway places. Thus,

demand for rigid PVC pipes is expected to increase. Center's allocation of INR2.3t

(USD38b) on water management and INR5t (USD83b) in the 12th Five Year Plan is

expected to provide significant growth opportunities for rigid PVC pipes

manufacturers in India.

GST implementation can shift the demand from unorganized to organized

GST’s implementation can

reduce the pricing

difference between

organized and unorganized

players

The unorganized market has gained advantage on price due to tax evasion. JI’s

products sell at a premium of 12% due to the impact of excise duty, which

unorganized players do not pay due to tax evasion. However, GST’s implementation

can reduce the pricing difference between organized and unorganized players. Thus,

all organized players, including JI, will be significantly benefitted from this shift.

19 May 2014

Jain Irrigation

Largest plastic processor in India with world class manufacturing facility

JI is one of the largest plastic processors in India, processing over 100,000mt of

different polymers (p.a.). It is the only manufacturer of PVC and Polycarbonate

Sheets under one roof in the entire South East Asia. It has a 25-year old brand “EX-

CEL Plastic Sheets”, which is a registered one in the world since 1990. Its

manufacturing facility in Jalgaon is ISO 9001:2000 & ISO 14001 - 2004 certified by

TUV Germany, providing high quality standards. JI has manufacturing capacity of

36,000mt and capacity utilization ranges in 35-45% in the past 5 years. We expect

no major capex requirement, with growth picking up in this segment.

No major capex required for expanding capacity in plastic sheets business

Capacity (MT '000)

39%

41%

Production (MT '000)

48%

37%

44%

Capacity Utilization (%)

46%

54%

JI is one of the largest

plastic processors in India,

processing over 100,000mt

of different polymers (p.a.)

FY09

FY10

FY11

FY12

FY13

FY14E

FY15E

FY16E

Source: Company, MOSL

Revenue to clock 15% CAGR over FY14-16E

Revenue for piping segment has posted 15% CAGR over FY12-14. We expect this

segment to maintain its growth rate and post 15% CAGR over FY14-16E from

INR13.1b to INR17.3b.

Revenue to post 15% CAGR

Revenue (INR m)

15,015

17,321

9,856

11,269

13,016

FY12

FY13

FY14E

FY15E

FY16E

Source: Company, MOSL

Margins hit due to rising global PVC prices and INR depreciation

With PVC resin being largely linked to global crude oil prices and currency

fluctuations, piping segment has taken a hit on margins due to surge in raw material

costs and INR depreciation. Piping segment’s margins slumped from 9.9% in FY09 to

6.6% in FY13.

19 May 2014

Jain Irrigation

PVC spot price has seen sharp rise since 2009

PVC spot price (USD)

1,700

1,550

1,400

1,250

1,100

950

800

650

500

Source: Bloomberg, MOSL

EBITDA to post 34% CAGR over FY14-16E

We expect EBITDA to clock 34% CAGR from INR703m to INR1.2b, with EBITDA

margin improving by 60bp to 6%.

EBITDA to post 34% CAGR

EBITDA (INR m)

7.4%

6.6%

5.4%

EBITDA margin (%)

5.7%

856

6.0%

1,258

726

742

703

FY12

FY13

FY14E

FY15E

FY16E

Source: Company, MOSL

Working capital cycle to be stable

We expect working capital to remain stable at the current level of -10 days.

Cash conversion cycle

Sundry debtors

Inventory

Current liabilities

NWC

138

115

112

-19 FY13

-10

100

FY14E

100

-10

FY15E

-10

100

FY16E

FY12

Source: Company, MOSL

19 May 2014

Jain Irrigation

Plastic sheets business heading for a recovery

Plastic sheets business was started in 1990 in India. In 1995-96, JI started exporting

to US markets. Sheets became very popular in the US housing market as was used as

partition material replacing plywood. It has major applications in the housing sector.

Sheets are used for roofing, interior designing, home sliding, advertising billboards

etc. Traditional lumber had major application in the housing furniture and roofing

etc. However, due to its vulnerability to pests attack and water absorption, plastic

sheets proved a sustainable alternate. Majority of the plastic sheets revenue come

from exports. The US and Europe are the major export markets for JI. Company

acquired NuCedar in 2006 for USD4m, paving the way for US markets. However,

sheets business took a big hit arising from the crash in US housing sector, post

subprime crisis in 2008. As US housing markets are on the way to recovery, we

believe JI will be the major beneficiary, and plastic sheets business will gain traction.

US housing index on an uptick

US Housing Index

600

500

400

300

200

100

May-09

May-10

May-11

May-12

May-13

As US housing markets are

on the way to recovery, we

believe JI will be the major

beneficiary, and plastic

sheets business will

gain traction

Source: Bloomberg, MOSL

Growth likely to pick up

PVC sheets revenue stood at INR1.5b in FY13 and contributed ~3% of the total

revenue. Growth in PVC sheets segment has largely remained subdued due to

stagnation in the housing sector. However, with the revival in economy, housing

segment is expected to pick up, thus driving the demand for PVC sheets.

PVC sheets revenue trend (INR m)

Revenue (INR m)

as a % of net sales

1,826

1,543

1,859

2,241

2,700

FY12

FY13

FY14E

FY15E

FY16E

Source: Company, MOSL

19 May 2014

Jain Irrigation

EBITDA margin to pick up marginally

PVC sheets business is typically a low margin business, with EBITDA margin ranging

from 6-8%. However, in FY13, margins fell to a low of 4.7% due to the rise in raw

material cost. We believe that margins will improve to 5.5% and will remain in that

level for FY14-16E, with the recovery in economy.

EBITDA margin trend

EBITDA (INR m)

EBITDA Margin %

121

FY13

123

157

FY12

FY14E

FY15E

FY16E

Source: Company, MOSL

Working capital cycle lower compared to other business

Unlike other segments of business, PVC sheets have a lower working capital cycle.

FY13 NWC days were at 137, which is likely to remain stable, going forward. It had

debtor days of 60, which is significantly lower than its MIS business.

Working capital trend (days)

Sundry debtors

Inventory

Current liabilities

NWC

138

106

112

137

112

FY13

100

140

105

FY14E

100

125

100

FY15E

100

120

FY16E

FY12

Source: Company, MOSL

19 May 2014

Jain Irrigation

Food processing - a promising business

JI is India’s largest food processing company with ~30% market share



JI is India’s largest player in the food processing sector with a market share of ~30%

and is third largest in the world.

The world DHO market is ~180,000MTPA growing at ~4-5%. JI is India largest and

world’s 3th largest player in onion dehydration space. It has 7% of world market share

in dehydrated onions market.

JI produces high quality seeds at its in-house facilities which it supplies to the contract

farmers.

JI accounts for ~50% of India have dehydrated vegetable exports and ~40% of

dehydrated onion exports. With acquisition of Cascade Specialities Inc, Jain has

established its manufacturing presence in the US.

JI is involved in the processing of fruits like Mango (80%), Guava, Papaya and Tomato.

India is the largest producer of Mangoes with a 60% share of the world market. JI is

the largest producer of mango pulp, puree and concentrate in the world with 35% of

the world production.

Only 2% of the total produce is processed as compared to ~60-80% in some developed

countries.

JI has procurement contracts with over 6000 farmers which helps it source over 70% of

its requirements. The balance 30% is sourced from open markets.

India’s largest player in food processing industry

JI is India’s largest player in

the food processing sector,

with a market share of

~30% and is the third

largest in the world

JI is India’s largest player in the food processing sector, with a market share of ~30%

and is the third largest in the world. Its food business is involved in the processing of

onion, vegetable dehydration and fruits. JI has 6 processing facilities, 4 in India and 1

in the US and UK each. In India, it has fruit processing units in Jalgaon, Maharashtra

and in Chittor and Hyderabad in AP.

Dehydrated onion – largely an export product

JI is India largest and

world’s 3th largest player in

onion dehydration space

The world DHO market is ~180,000mtpa and growing at ~4-5%. The US is the largest

producer of DHO, while India is the other major producer. Of the total onion

production, only 2% is dehydrated. Thus, it provides immense opportunity for

players like JI to capture on the global presence. JI is India largest and world’s 3

largest player in onion dehydration space. It has 7% of the world market share in

dehydrated onions market. Due to ease of use and relatively long shelf life, its

popularity is expected to increase. JI has a capacity of 28,000mt, of which it

recorded a sale of 19,000mt as in FY13.

Company’s DHOs are exported under the brand 'Farm Fresh'. JI employs contract

farming in Maharashtra to procure its white onion supply. It produces high quality

seeds at its in-house facilities, which it supplies to the contract farmers. The onions

produced from these seeds have a 17-18% TSS (total soluble solids), as compared to

a normal 12-13% TSS. These seeds have better germination rate and give good yields

with lower bacteria count. This helps JI get better yields while processing onions. JI

also provides MIS support to its contract farmers, ensuring high quality onion

produce. Company’s ability to ensure a good quality white onion supply via contract

19 May 2014

Jain Irrigation

farming and high quality DHO manufacturing procedures make it a preferred

supplier.

JI is the world’s only producer with manufacturing facilities in two different

countries, enabling it to produce dehydrated onions throughout the year

(December-March in India and April-July in the US). Company has also expanded its

business by increasing the usage of dehydrated onion in the custom made dry

ingredients blends for food industry through its subsidiary in the UK for European

market. JI is also planning to increase production of value-added products like fried

onion, frozen onions, dry vegetable ingredients, industrial blends and other

vegetables in the coming years.

JI procures 60-70% of its

onion requirements

through contract farming

with >2,000 farmers and

5,000 acres of land under

coverage and the rest

through open market

purchases

JI procures 60-70% of its onion requirements through contract farming with >2,000

farmers and 5,000 acres of land under coverage and the rest through open market

purchases. Onion prices in India have historically been volatile, thereby leading to

uncertainties in margins for dehydration industry. However, to reduce uncertainty,

JI contracts part of its onion requirements at fixed prices during middle of the

season (thus having a greater control on input costs, compared to entering into

contracts at the beginning of season), with the rest being negotiated depending on

realizations for dehydrated onions. On the revenue side, JI sells finished products at

contracted rates, which get determined a year in advance.

Vegetable dehydration – extending expertise in onions to other vegetables

JI has also made good inroads in offering related vegetables like garlic, capsicum,

dehydrated leeks etc, the results of that will be visible in the coming years. The

major application for company’s dehydrated products is in pizzas, chips, burgers,

noodles etc. Globally, demand for dehydrated vegetables has increased due to their

longer shelf life. JI accounts for ~50% of India’s dehydrated vegetable exports and

~40% of dehydrated onion exports. With the acquisition of Cascade Specialities Inc,

JI has established its manufacturing presence in the US. The US market is protected

by tariff barriers and hence this acquisition becomes even more significant as it

allows JI access to the US as a local producer and opens up the global customer base

for JI’s products.

JI accounts for ~50% of

India’s dehydrated

vegetable exports and ~40%

of dehydrated onion

exports

Fruit processing - dominant presence by JI in mango processing

JI is the largest producer of

mango pulp, puree and

concentrate in the world,

with 35% of the world

production

JI is involved in the processing of fruits like mango (80%), guava, papaya and tomato.

India is the largest producer of mangoes, with a 60% share of the world market. JI is

the largest producer of mango pulp, puree and concentrate in the world, with 35%

of the world production. Processed mango is used in beverages, fruit juices and as a

base in jams. JI processes both Totapuri and Alphonso mangoes. Around 70% of the

mango pulp produced goes to 'Coca-Cola India' for its famous mango drink 'Maaza'.

Coca-Cola expects to triple its mango pulp sourcing for Maaza over the next 5 years,

which gives strong visibility for this segment’s revenue over medium term. JI also

supplies banana pulp to HUL for its fruit jam products etc. It exports the rest to

Middle East, China and the US. Recently, company entered into a JV with 'Coca-Cola

India' to implement UHDP (ultra high density plantations) for mango. This initiative

will help improve the productivity of farmers and help JI source better and larger

mango produce.

19 May 2014

Jain Irrigation

Although mango processing remains the main product for JI in the fruit processing

segment (~80%), it also processes other fruits such as guava, pomegranate and

tomato. Tomato provides a strong opportunity as presently most of the tomato

paste requirements are met via imports from China. Also there is a marked shift in

consumer preference from the more traditional fruit juices such as citrus and apple

to the more exotic ones like mango and guava. Company is also working on setting

up a processing line for mosambi and other citrus varieties. This will help JI diversify

its revenue base and tap a larger segment of fruit processing market, thus negating

the seasonal nature and overdependence on mango processing.

Huge untapped potential of food processing sector in India

India has the second largest arable land in the world and with diverse agro-climatic

zones across the country, has tremendous production advantages in agriculture.

India produces 15% and 8% of world's total vegetables and fruits respectively.

However, due to the lack of adequate storage facilities and transportation, it is in

the bottom in terms of food processing. Only 2% of the total produce is processed,

compared to ~60-80% in some developed countries (80% US and Malaysia). Also,

India's share in the global food trade is a miniscule 1.5%. Given the growing demand

for processed food, due to lifestyle changes and storage advantages, the segment is

witnessing a strong growth. For example, the packaged juices segment is witnessing

a CAGR of ~25%. JI is well placed to capture this strong growth opportunity in the

fruit processing segment.

Food processing in India largely under penetrated

% of food processed

80%

Only 2% of the total

produce is processed,

compared to ~60-80% in

some developed countries

70%

30%

USA

Malaysia

France

Thailand

India

Source: Ministry of Food Processing India, MOSL

Level of processing in perishable products

Products

Fruits and Vegetables

Milk & milk products

Meat and Poultry

Buffalo Meat

Poultry

Marine Products

21.0%

6.0%

8.0%

21.0%

6.0%

8.0%

Organized

1.4%

13.0%

Unorganized

0.8%

22.0%

Total

2.2%

35.0%

Source: Ministry of Food Processing India, MOSL

19 May 2014

Jain Irrigation

Export demand likely to increase

India‘s share in the global food trade is only 1.5% even though it is a leading

producer of several fruits and vegetables such as mangoes (41%), cauliflower (30%),

tea (28%), banana (23%), cashew nuts (24%), green peas (36%) and onions (10%).

This implies there is a great potential to broaden the industry. India‘s lower cost of

production and good quality export produce have led to robust export demand.

Segments such as mango pulp have seen exports surge to INR7.5b, a CAGR of 20%,

in the past five years. We believe JI is likely to gain from the higher export demand.

India‘s lower cost of

production and good

quality export produce

have led to robust

export demand

Experience with farmers gives an edge in sourcing

JI has procurement

contracts with over 6,000

farmers which helps it

source over 70% of

requirements

JI’s extensive experience and high involvement with the farmers have given it an

edge in the most crucial aspect of the food processing business, sourcing. Our

interaction with the management suggests sourcing has been one of the major

reasons for JI’s success in food processing. Company has procurement contracts

with over 6,000 farmers which helps it source over 70% of requirements. The

balance 30% is sourced from open markets.

Food processing contributes 20% to JI’s consolidated revenue. With strong growth

opportunity in exports, we expect that agro processing revenue will post 24% CAGR

from INR6.7b in FY14 to INR10.2b in FY16E. We expect EBITDA to clock 25% CAGR to

INR1.8b in FY16E, with margins expanding by 30bp to 17.6%. While fruit processing

enjoys margins of 20%, onion dehydration is a relatively lower margin business of

12.5%. On the working capital front, dehydrated onions enjoy negative working

capital, while fruit processing has a working capital cycle of 70 days, largely due to

higher inventory requirements in this business.

Revenue to post 24% CAGR

Revenue (INR m)

23%

17%

YoY Growth

24%

EBITDA margin trend

EBITDA (INR m)

19.9%

19.1%

1085

1097

1166

17.3%

EBITDA margin (%)

1811

1457

17.5%

17.6%

5,441

FY12

5,736

FY13

6,739

8,329

10,295

FY14E

FY15E

FY16E

FY12

FY13

FY14E

FY15E

FY16E

Source: Company, MOSL

Working capital days for fruit processing segment

Sundry debtors

Current liabilities

Inventory

NWC

Working capital days for onion dehydration segment

Sundry debtors

Current liabilities

Inventory

NWC

223

252

FY12

240

286 95

FY13

200

290 130

FY14E

200

250 90

FY15E

200

230 70

FY16E

100

114

FY12

195

106

-48

FY13

150

100 -10

FY14E

150

100 -10

FY15E

150

100 -10

FY16E

Source: Company, MOSL

19 May 2014

Jain Irrigation

Tissue culture – a unique farming solution

Unique proposition to improve yields



JI provides a complete farming solution to farmer which is a INR ~0.9-1b business.

JI Green house protection solution ensures that the plants do not suffer from stress or

strain of less and over watering, different climatic conditions.

The system installed at the farmer’s field is commissioned and training imparted to

the farmer, followed by regular after sales services.

It has resulted in increase in yield up to 5x to 8x. While for mangoes yield has

improved by 4x. JI Greenhouse improves the yield significantly.

Protected cultivation – unique farming solution

Protected farming is ~INR900-1,000m business for JI. It is involved in providing a

complete solution to farmers under protected cultivation. Four solutions are offered

under protected cultivation:

Green House:

Green Houses are climate controlled. Jain Green Houses have a

variety of applications, the majority being off-season growing of vegetables,

floriculture, planting material acclimatization, fruit crop growing for export

market and plant breeding and varietals improvement.

Poly House:

Poly houses are naturally ventilated and climate controlled. Jain

Poly houses have a variety of applications, the majority being growing of

vegetables, floriculture, planting material acclimatization, fruit crop growing for

export market.

Poly Tunnels:

Poly Tunnels are naturally ventilated and climate controlled. Jain

Poly Tunnels have a variety of applications, the majority being growing of

vegetables, floriculture, planting material acclimatization, fruit crop growing for

export market.

Net House:

Net houses are naturally ventilated and climate controlled. JI net

houses have a variety of applications, the majority being growing of vegetables,

floriculture and fruit crop growing for export market.

Protected cultivation

controls light, temperature,

humidity and irrigation with

fertigation and other

required growth substances

directly into the root zone

of the plant

The above solutions protect the crop from high intensity of light, high rainfall, winds,

insects through structure, polyethylene film/polycarbonate sheet, shading nets/

thermal nets, insect net, cooling pad, exhaust fan, foggers and drip systems,

fertigation equipment etc. The above structure controls light, temperature, humidity

and irrigation with fertigation and other required growth substances directly into

the root zone of the plant.

Water and nutrients enter the soil from emitters, moving into the root zone of the

plants through the combined forces of gravity and capillary. In this way, the plant’s

withdrawal of moisture and nutrients are replenished almost immediately, ensuring

that the plant never suffers from water stress, thus enhancing quality, its ability to

achieve optimum growth and high yield. JI has been exporting various components

of Green House/Poly House/Poly Tunnels/Net House to Asia, Africa and Far East Asia

and also is supplying within India.

19 May 2014

Jain Irrigation

Jain Green House improves yield significantly

Post detailed study of inter-relationship among soil, water, crop, land terrain and

related agro climatic conditions, JI designed a suitable and economically viable

system to the grower which protects the crop at certain limits and delivers a

measured quantity of water at the root zone of each plant at regular intervals. This

is to ensure that the plants do not suffer from stress or strain of less and over

watering, different climatic conditions. The system installed at the farmer’s field is

commissioned and training is imparted to the farmer, followed by regular after sales

services.

JI provides agronomic and

extension support, after

sales services and all

technical supports for

getting better crop return

JI also sells plantlets which are grown with indigenous technology, resulting in

improved yields. It provides agronomic and extension support, after sales services

and all technical supports for getting better crop return. It has more than 500

technocrats, engineers, agronomists, horticulturists and regional offices and trained

dealers, distributors all over India and abroad. There are 7-8 major products --

banana, mango, pomegranate, onion etc.

Benefits of Jain Green House



Disease-free plantation.



Increase in yield up to 5 to 8 times. For mangoes, yield has improved up to 4

times.



Crop grows consistently, healthier, uniform quality fruits and matures fast.



Early maturity results in higher and faster returns on investment.



Saves water up to 50%, compared to open filed flood irrigation. Higher yield

from smaller area.



Fertilizer use efficiency increases by 30%.



Cost of fertilizers, inter-culturing and labor

use get reduced.

Revenue to post 19% CAGR over FY14-16E

Tissue culture forms mere 2% of the total revenue for JI. However, we believe that

the water shortage and need for higher yield plantation will drive growth, going

forward. We expect revenue to post 19% CAGR over FY14-16E, from INR954m in

FY14 to INR1.3b in FY16E.

Revenue trend of tissue culture business

Revenue (INR m)

699

954

1,177

1,357

as a % of net sales

457

FY12

FY13

FY14E

FY15E

FY16E

Source: Company, MOSL

19 May 2014

Jain Irrigation

Solar water heaters, lanterns – similar to MIS model

Small but potential business opportunity



With energy prices climbing in India, and supply not keeping up pace with steep

demand, solar power is becoming a huge opportunity

Ministry of New and Renewable Energy (MNRE) launched “The Jawaharlal Nehru

National Solar Mission” on the 11th January, 2010. The Mission has set the target of

deploying 20,000 MW of grid connected solar power by 2022

Solar energy business of Jain Irrigation is similar to its MIS business which is largely

subsidy driven.

Revenue and working capital model are similar to MIS business. It has long working

capital cycle. For FY13 net working capital stood at 406 days which is expected to

improve to 370 days going forward.

Solar power holds strong promise

With energy prices increasing in India and supply not keeping up pace with steep

demand, solar power is becoming a huge opportunity. India’s solar potential is huge.

It is estimated that over the decade, market for solar equipments will be USD6-7b

and annual revenue for grid connected solar generators will be USD4b. We believe

that JI is poised to capture this growth. Company’s renewable energy division is

working with Solar thermal, Solar photovoltaic, Wind, Solar + Wind hybrid systems

and bio-energy related manufacturing and application development. The current

range includes domestic, commercial and industrial solar powered pumping

systems, CFL/LED based home lighting, CFL/LED based street lighting, blinkers,

advertising boards, power packs (inverters), traffic signals, wind + solar hybrid

systems, biogas plants and turnkey projects based on all the above technologies.

It is estimated that over the

decade, market for solar

equipments will be USD6-7b

and annual revenue for grid

connected solar generators

will be USD4b

Largely subsidy driven business

Management believes that

once the new government

is in office, fresh budget will

be allocated to this

segment, which will be a

huge boost to JI’s revenue

Solar system’s demand comes from both farmers and government projects.

However, majority of the business is through government projects which is subsidy

driven. Government announces various welfare schemes under which budget is

allocated for solar system. The lack of focus by Government resulted in slow growth

in this business. However, management believes that once the new government is in

office, fresh budget will be allocated to this segment, which will be a huge boost to

JI’s revenue.

Government’s Solar Mission to boost segment

“The Jawaharlal Nehru

National Solar Mission” to

boost growth

The Ministry of New and Renewable Energy (MNRE) launched “The Jawaharlal

Nehru National Solar Mission” on January 11, 2010. The mission has set the target of

deploying 20,000mw of grid connected solar power by 2022. It is aimed at reducing

the cost of solar power generation in the country through (i) long term policy, (ii)

large scale deployment goals, (iii) aggressive R&D and (iv) domestic production of

critical raw materials, components and products, to achieve grid tariff parity by

2022. Objective of the mission is to make India a global leader in solar energy. Jain

Solar Powered Pumping systems are empanelled with MNRE. This initiative, we

believe, will create enough demand for JI's solar products.

19 May 2014

Jain Irrigation

Working capital model similar to MIS

JI’s solar energy business is

similar to its MIS business

JI’s solar energy business is similar to its MIS business, which is largely subsidy

driven. Subsidy is received by the dealer and farmer buys products at a subsidized

rate. Dealer passes the subsidy back to JI and thus transaction is completed.

However, the time taken to monetize receivables from the Government is very long,

which makes this segment less attractive. Similar to its MIS business, renewable

energy business has long working capital cycle. For FY13, net working capital stood

at 406 days, which is expected to improve to 370 days, going forward. Solar business

revenue has grown 8x from a mere INR288m in FY09 to INR2.5b in FY14. We expect

revenue to post 13% CAGR to INR3.2b by FY16E primarily driven by Government’s

objective to boost renewable energy resource.

Revenue rose over past 5 years

Revenue (INR m)

as a % of net sales

3,221

Working capital days to improve

Sundry debtors

Current liabilities

135

219

406

204

322

FY13

Inventory

NWC

130

200

370

300

FY15E

130

200

300

FY16E

370

288

FY09

358

FY10

785

1,804

2,259

2,519

2,863

116

110

210

130

200

370

300

FY14E

FY11

FY12

FY13

FY14E

FY15E

FY16E

FY12

Source: Company, MOSL

19 May 2014

Jain Irrigation

International operations – profitability to improve

Higher sourcing from India, focus on project business to drive profitability



Led by acquisitions, JI is now the second largest MIS player globally with a market

share of 20% as against 30% market share held by Netafim.

We expect improvement in profitability of international MIS business on the back of

greater degree of sourcing from low-cost countries like India and focus on higher

margin project business.

On the back of 10% revenue CAGR, we expect EBITDA for the international operations

to post 28% CAGR over FY14-16.

MIS acquisitions integrated to form Jain Irrigation Inc

Globally, JI is now the

second largest MIS player

with a market share of 20%

as against 30% market

share held by Netafim…

JI’s MIS acquisitions over the years have enabled it to gain market share on a global

basis. Globally, JI is now the second largest MIS player with a market share of 20% as

against 30% market share held by Netafim. JI has acquired companies globally to

gain distribution reach and access new technologies. In MIS in the US, JI has

conducted two major acquisitions during FY07-09, with total cost of USD29m.

Aquarius was acquired by JI in FY07 for USD7m and Chapin Watermatics was

acquired for USD22m.

Aquarius is a leading manufacturer of micro irrigation systems for agriculture,

landscape and nursery applications. Chapin is a pioneer and leading manufacturer of

drip tape and is known as a complete source for field crop, nursery and green house

drip irrigation systems. Both these acquisitions have given JI a technology advantage

(especially Chaplin’s subsoil irrigation technology which is the best in case of

sugarcane crop) and helped it introduce new product categories in Indian markets

and bring more crops under MIS. Aquarius and Chapin have been integrated to form

Jain Irrigation Inc. JII primarily caters to the US MIS market, and for FY13 reported

revenues of USD61m posting 10% growth.

NaanDan Jain Irrigation - JI’s global entity to implement MIS

JI acquired NaanDan (Israel) (NJI) in May 2007 for USD22m. Company is engaged in

implementing drip/sprinkler irrigation in over 100 countries worldwide. Apart from

Israel (10% of revenue), NJI also has manufacturing facilities in Chile, Brazil and

Spain. NJI’s product range includes comprehensive irrigation and climate-control

technologies for green houses and nurseries, open fields, orchards and plantations,

residential and landscape areas. NJI’s acquisition by JI has been fruitful with respect

to technology, new crops and extending its network reach.

International MIS profitability set to climb on the back of new initiatives

Management expects

overseas business

profitability to improve with

the current 7% margin

expected to expand to 12%

over the next 3-4 years…

MIS export growth for JI has been strong led by Africa and increase in contribution

from projects. JI is increasingly sourcing more MIS products from low cost centers

like India to cater to international markets, which is expected to drive profitability

for overseas subsidiaries. Also, JI is actively working on more project business (~10%

of revenue) in places like Latin America where margins are higher, compared to

selling tubing or tape products through dealers, which are comparatively lower

margin. Further, JI’s Greenfield capacity in Turkey is expected to ramp up revenue

over the next couple of years, thus translating into better profitability from Turkish

operations. Management expects overseas business profitability to improve with

the current 7% margin expected to expand to 12% over the next 3-4 years.

19 May 2014

Jain Irrigation

Acquisitions in food processing give JI direct access to overseas clients

JI has also done acquisitions in agro processing (Onion Dehydration-Cascade

Specialities) and food business (Sleaford Quality Foods Ltd - SQFL) to give it access to

international food processing markets.

Cascade Specialties

Cascade Specialties (

USA)

was acquired in 2006 for USD4.75m for strengthening JI's

dehydrated onion business. It is engaged in onion, garlic dehydration and frozen

foods business, with specialization in natural low bacteria and organic dehydrated

products. We believe Cascade’s acquisition offers perfect synergies as it gives JI an

opportunity to market Indian onion basket to Cascade’s ready clientele (like Tesco)

and use the marketing network of the company effectively.

Sleaford Quality Foods Ltd (SQFL)

SQFL (UK) was a client of JI for white onions before its acquisition. SQFL is UK’s

leading supplier of dried, dehydrated and canned foods. Post acquisition, JI has been

able to market its product to SQFL's clients directly and further enhance its

marketing network. Moreover, it will also help JI expand its food basket. JI is in

advanced stages of supplying spices procured from Nashik to SQFL to derive

advantage of its wide distribution network.

Performance of operating subsidiaries (USD m)

Sr.

Name of the unit

Naandan Jain Irrigation Ltd

SQF 2009 Ltd, UK

Jain Irrigation INC, California

Jain Europe Limited, UK

Cascade Specialities Inc, Oregaon

Jain (Americas) INC, Ohio

The Machine SA, Switzerland

Jain Sulama Sistemleri, Turkey

Pro Tool AG, Switzerland

Total

Turnover

130

398

PAT

-1

-4

-2

-4

Net worth

-4

-1

PAT margin (%

RoE (%)

12%

14%

-1%

-6%

-3%

-17%

-11%

11%

-14%

-33%

-2%

-1%

-5%

Source: Company, MOSL

Overseas acquisition history

Subsidiary name

Nucedar Mills Inc.

Eurodrip

Chapin

Cascade Specialties Inc.

Aquarius

NaanDan

Thomas Machines S A

Sleaford Quality Foods Ltd.

Segment

MIS

Food

MIS

Plastics

Food

Current Stake

100.00%

7.40%

100.00%

50.00%

69.80%

85.00%

Subsidiary Country

USA

Greece

USA

Israel

Switzerland

Date of acquisition

Feb-06

Apr-06

Nov-06

Feb-07

May-07

Mar-08

Nov-10

Acquisition Price

USD 2.1 mn

USD 7 mn

USD 4.75 mn

USD 22 mn

N.A

Source: Company, MOSL

19 May 2014

Jain Irrigation

Revenue to post 10% CAGR, EBITDA 28% CAGR over FY14-16E

We expect revenue for the international business to clock 10% CAGR over FY14-16E

from INR17.6b to INR21.6b. We expect profitability to improve substantially with

EBITDA expected to post 28% CAGR.

On the overseas business front, international MIS is a lower working capital

intensive business compared to international food processing, with a net working

capital cycle of ~120 days versus 170. Working capital cycle is likely to improve from

155 days in FY14 to 140 in FY16E.

Revenue to post moderate 10% CAGR

Revenue (INR m)

19,568

21,651

17,695

14,291

9,605

FY12

FY13

FY14E

FY15E

FY16E

Source: Company, MOSL

EBITDA to clock 28% CAGR on the back of new initiatives to improve margins

EBITDA (INR m)

1,779

831

FY12

993

1,192

1,957

EBITDA margin (%)

10%

FY13

FY14E

FY15E

FY16E

Source: Company, MOSL

Working capital to witness improvement led by lower debtor days

Sundry debtors

194

157

207

FY12

133

FY13

Inventory

155

140

FY14E

Current liabilities

145

140

FY15E

NWC

140

FY16E

Source: Company, MOSL

19 May 2014

Jain Irrigation

Earnings to post 48% CAGR over FY14-16E

Balance sheet stress to ease on the back of improvement in profitability



Revenues to grow at 16.8% CAGR over FY14-16E led by improvement in growth

outlook for domestic MIS business.

EBITDA to grow in line with revenue growth; margins to be maintained.

Adjusted PAT to post 48% CAGR over FY14-16E.

Working capital to improve from 213 days in FY14 to 160 days in FY16E.

Debt to equity to decline from 1.6x to 1.0x

Return ratios to improve; RoCE/RoE to improve from 11% / 9.1% in FY14 to 15.4% /

16.1% in FY16E.

Expect revenue CAGR of 16.8% over FY14-16E

We expect consolidated revenue to post a CAGR of 16.8% led by strong growth in

food processing and MIS businesses, which are expected to clock 23% CAGR and

21% CAGR respectively over FY14-16E. We expect overseas business to post a

moderate 10% CAGR over FY14-16E.

Revenue to post 16.8% CAGR

Revenues (INR m)

82,407

49,206

50,217

60,430

70,533

FY12

FY13

FY14E

FY15E

FY16E

Source: Company, MOSL

EBITDA to grow in line with revenue growth; margins to be maintained

We expect EBITDA to grow in line with revenue at 16% CAGR over FY14-16E. We

expect margins to be maintained at current levels of 13.8%.

EBITDA to clock 16% CAGR

EBITDA (INR m)

16.6%

14.8%

7,419

13.8%

Margins (%)

13.8%

11,354

8,155

8,326

9,718

FY12

FY13

FY14E

FY15E

FY16E

Source: Company, MOSL

19 May 2014

Jain Irrigation

Adjusted PAT to post 48% CAGR over FY14-16E

We expect adjusted PAT to post 48% CAGR over FY14-16E, from INR2.0b to INR4.5b.

PAT (INR m)

4,549

3,012

2,286

442

FY12

FY13

FY14E

FY15E

FY16E

2,074

Source: MOSL

Working capital cycle set to improve

We expect the consolidated working capital days to improve from 234 days in FY13

to 160 in FY16E, largely led by MIS business.

Cash conversion cycle (days)

Inventory Days

211

168

108

-121

234

142

125

-116

Debtor Days

213

127

121

-108

Creditor Days

Cash Conversion Cycle

179

110

113

-113

160

101

109

-117

FY12

FY13

FY14E

FY15E

FY16E

Source: MOSL

Operating and free cash flows to improve led by improving working capital;

capex to be limited to maintenance related over FY14-16E

Operating cash flows are expected to improve significantly to INR8.9b, while free

cash is expected to improve to INR6.8b over FY14-16E led by an improvement in

working capital in MIS business. We expect capex to be limited to maintenance

related and be capped at INR2b for FY14-16E.

Operating cash flow to improve led by working capital

Operating Cash Flow (INR m)

9,639

5,156

3,217

781

FY12

FY13

FY14E

FY15E

FY16E

-4,420

FY13

FY14E

FY15E

FY16E

518

8,986

3,006

Free cash generation to be robust led by limited capex

Free Cash Flow (INR m)

7,491

6,812

Source: Company, MOSL

19 May 2014

Source: Company, MOSL

Jain Irrigation

Debt-equity to decline to 1x on the back of robust cash generation

We expect net debt to equity to decline from 1.6x to 1.0x as cash generated from

improved working capital is utilized towards retiring of debt.

3QFY14 saw JI’s long term debt upgraded to investment grade rating BBB minus.

Short term debt however has a rating of A3, which management expects to go to A1

in 1QFY15. Improvement in credit ratings resulted in lower domestic cost of debt

which declined from 13.7% to 12.2% in 3QFY14.

Net debt to equity to decline to 1.0

Net Debt (INR m)

2.0

1.7

34,442

35,854

1.6

1.3

37,510

34,363

31,620

FY12

FY13

FY14E

FY15E

FY16E

1.0

Net DER (x)

Source: Company, MOSL

Return ratios to witness improvement

With 16.8% revenue CAGR, stable margins and improvement in working capital, we

expect JI’s return ratios to improve over FY14-16E. We expect RoCE to improve from

11.0% in FY14 to 15.4% in FY16E, similarly we expect RoE to improve from 9.1% in

FY14 to 16.1% in FY16E.

RoCE (%)

15.4

RoE (%)

16.1

12.1

9.1

2.2

14.0

11.1

11.0

13.0

13.5

FY12

FY13

FY14E

FY15E

FY16E

FY12

FY13

FY14E

FY15E

FY16E

Source: Company, MOSL

19 May 2014

Jain Irrigation

Initiating coverage with Buy rating

Target price of INR140 implies 40% upside

Attractively valued at

10x FY16E earnings…



With a focus on progressive states and switch to cash-based model, we expect JI’s

working capital concerns to be allayed over FY14-16E.

Hence, we expect strong free cash generation which should help in reducing debt to

equity from 1.6x in FY14 to 1x in FY16E.

Policy impetus from the new Government in the form of direct credit of subsidy or a

reduced working capital model on the lines of GGRC can be potential game changer

events.

We value JI at 14x FY16E EPS of INR10 and arrive at a target price of INR140, implying

40% upside. We initiate coverage with a Buy rating.

Price to Book

12 Yrs Avg(x)

10 Yrs Avg(x)

6.0

4.5

P/B (x)

5 Yrs Avg(x)

12 Yrs Avg(x)

10 Yrs Avg(x)

Price to Earnings

20.9

19.0

17.1

Negative

Earnings

Cycle

P/E (x)

5 Yrs Avg(x)

13.9

3.0

1.5

0.0

2.9

2.8

2.3

1.4

Source: Company, MOSL

EV/EBITDA

6.3

13.7

11.3

7.2

EV/EBDITA(x)

Peak(x)

Avg(x)

34.8

Median(x)

Min(x)

Source: Company, MOSL

19 May 2014

Jain Irrigation

Key assumptions (INR m)

Business segments

1. Micro Irrigation Systems

% growth (YoY)

% of net sales

EBITDA Margin %

2. Plastic Piping Systems

% growth (YoY)

% of net sales

EBITDA Margin %

3. PE & PVC sheets

% growth (YoY)

% of net sales

EBITDA Margin %

4. Agro Processing

% growth (YoY)

% of net sales

EBITDA Margin %

5. Solar Systems

% growth (YoY)

% of net sales

EBIDTA margin

6. Tissue Culture Plants

% growth (YoY)

% of net sales

EBIDTA margin

7. Net Subsidiary Sales

% growth (YoY)

% of net sales

EBIDTA margin

8. Others

% growth (YoY)

% of net sales

EBIDTA margin

Total Sales

FY12

18,848

11%

38%

30%

9,856

20%

1,826

30%

5,441

23%

11%

20%

1,804

130%

22%

457

64%

22%

9,605

41%

20%

1,367

22%

49,206

FY13

14,248

-24%

28%

27%

11,269

14%

22%

1,543

-15%

5,736

11%

19%

2,259

25%

18%

699

53%

18%

14,291

33%

28%

172

-87%

18%

50,217

FY14E

17,447

22%

29%

22%

13,016

16%

22%

1,859

21%

6,739

17%

11%

17%

2,519

12%

18%

954

37%

18%

17,695

10%

29%

200

17%

18%

60,430

FY15E

FY16E

21,139

25,661

21%

30%

31%

22%

15,015

17,321

15%

21%

2,241

2,700

21%

8,329

10,295

24%

12%

17%

18%

2,863

3,221

14%

13%

18%

1177

1357

23%

15%

18%

19,568

21,651

10%

28%

26%

200

18%

70,533

82,407

Source: Company, MOSL

19 May 2014

Jain Irrigation

Risks and concerns



High receivables

JI has large receivables equivalent to 247 days of sales. This is a drag on the

company's balance sheet. Most of these receivables are subsidies pending from the

respective state government. We believe that with the formation of NBFC, company

will be able to improve its receivable scenario. However, if the receivables burden

deteriorates, JI's balance sheet could pose a risk.



Raw material price risk

Resins form ~64% of the total raw material cost. Any fluctuations in resin prices in

the short term will impact margins negatively. However, as most of the raw material

price rise is pass-on, we believe such price fluctuations should not have any

significant impact on margins in the long run. JI procures white onions from farmers

at market price. Any price rise in onions will negatively impact margins in DHO

business as the price rise cannot be passed on easily in the export market where

prices are determined based on global white onion availability.



Subsidy removal

Subsidy is a huge incentive for farmers to buy MIS equipments. Any

reduction/removal of subsidy provided for micro irrigation equipments will have a

negative impact on demand for MIS systems. However, we believe that given

Government’s high focus on MIS, subsidies on equipments will stay intact.

19 May 2014

Jain Irrigation

Management

Mr Bhavarlal H Jain, Chairman

Mr Bhavarlal H Jain is the founder of the Jain group of companies and Chairman of

the company. He began his business in 1963 by trading in agricultural inputs and

equipments. In 1978, he acquired a sick unit which he used to manufacture Papain.

In 1980, he commenced PVC pipe manufacturing operations. Post 1986, he

pioneered the concept of micro irrigation in India. He has received many awards and

accolades for outstanding work in agriculture, including the prestigious Crawford

Reid Memorial Award instituted by Irrigation Association, U.S.A. for “Significant

Contribution to the Irrigation Industry outside the United States”. Three honorary

doctorates have been conferred on him from different universities acknowledging

path breaking work he has done for improvement of agriculture in India.



Mr Ashok B Jain, Vice Chairman

Mr Ashok B Jain is the Vice Chairman of the company. He holds a graduate degree in

commerce from Pune University, India. He joined the management team in 1982

and was in charge of marketing and extension services in Maharashtra and other

states. In 1993, he became Director and was responsible for Corporate

Administration, Corporate Image and Relationships, Events Management,

Personnel/Human Resource Development, Communication, Public Relations, Art

and Publicity. At present, he also acts as Director in charge of the Food Processing

Division.



Mr Anil B Jain, Managing Director

Mr Anil B Jain has been the Managing Director of the company since 1993. He has a

commerce degree from Pune University and Law Degree from Mumbai University.

He joined the management team in 1984 and was in charge of the US-based

marketing operations. Mr Anil Jain has an extensive background and experience in

Finance, Banking, Mergers & Acquisitions, Strategic Planning, Restructuring

Operations, Export Marketing, International Business Relations, Joint Ventures.

Mr Ajit B Jain, Joint Managing Director

Mr Ajit B Jain has been the Joint Managing Director of the company since 1994. He is

a engineering graduate from Dnyaneshwar University. He is a Director in charge of

drip irrigation division, including guidance for extension service and development of

new applications and products. He joined management of the company in 1984 and

started his training in production and maintenance in the pipe division. In 1991, he

was appointed Director with the overall responsibility of the pipe manufacturing

plant at Jalgaon, including production, maintenance and marketing.



Mr Atul B Jain, Director of Marketing

Mr Atul B Jain is Director of Marketing. He holds a graduate degree in commerce

from Pune University, India. He joined the management team in 1992. From 1994–

2000, he was in charge of Europe-based marketing operations and was responsible

for developing and maintaining the market for PVC sheets, dehydrated onion, fruit

pulp etc. Presently, he focuses on marketing products on a global basis in addition to

being Director in charge of piping division.



19 May 2014

Jain Irrigation

Company overview

Corporate structure

Established in 1986, JI is a transnational organization headquartered at Jalgaon,

Maharashtra, India. JI employs over 5,000 associates and manufactures a number of

products, including drip and sprinkler irrigation systems, PVC & PE piping systems,

plastic sheets, green houses, bio-fertilizers, solar products including water-heating

systems, photovoltaic appliances and solar pumps. JI processes fruits and vegetables

into aseptic concentrates, frozen fruits and dehydrated vegetables, respectively. It

has 21 manufacturing plants spread over 5 continents and its products are supplied

to 110 countries through 3,000 dealers and distributors worldwide.

Product-wise revenue contribution

Solar

Products,

4.4%

Food

Products,

20.4%

Other

Products,

7.5%

Micro

Irrigation,

45.5%

Geography-wise revenue contribution

Rest of

World,

14.7%

North

America,

11.1%

India,

57.2%

Europe,

17.0%

Piping

Products,

22.2%

Source: Company, MOSL

Revenue composition by business verticals (INR m)

Business verticals

Micro Irrigation

Piping Products

Food Products

Solar Products

Other Products

Total

FY09

15,084

7,425

3,701

276

2,682

29,167

FY10

18,722

8,418

5,015

352

2,072

34,579

FY11

23,311

9,464

5,875

744

2,240

41,634

FY12

26,798

9,855

8,352

1,691

2,704

49,400

FY13

22,903

11,154

10,260

2,203

3,766

50,286

Mix (2013)

45.5%

22.2%

20.4%

4.4%

7.5%

100.0%

CAGR

11.0%

10.7%

29.0%

68.1%

8.9%

14.6%

Source: Company, MOSL

Revenue composition by geographies (INR m)

Geographies

India

Europe

North America

Rest of World

Total

FY09

17,484

3,258

2,715

5710

29,167

FY10

22,567

4,110

3,934

3968

34,579

FY11

28,263

4,243

4,389

4739

41634

FY12

31,280

7,222

4,590

6,308

49,400

FY13

31,280

7,222

4,590

6,308

49,400

Mix (2013)

57.2%

17.0%

11.1%

14.7%

100.0%

CAGR

13.2%

27.3%

19.7%

6.7%

14.6%

Source: Company, MOSL

19 May 2014

Jain Irrigation

Unparallel soft infrastructure – biggest entry barrier

JI has built an unparalleled soft infrastructure by maintaining strong networking with

farmers, which is helping it to continue its journey on the growth path, especially in

rural India. JI provides extreme value-addition to farmers’ prosperity through:

Knowledge:

Provides training to farmers – in-house and onsite.

Assured price:

JI is engaged in ‘contract farming’. It buys back farm produce at

pre-determined prices from over 3,000 farmers.

Increased productivity:

Company increases farmers’ productivity through water

management and high tech agri inputs such as MIS/SIS, tissue culture, green houses,

bio-fertilizers etc.

Adequate and timely credit:

Spending and support towards agriculture has stepped

up with the aid of Government – both central and states.

JI’s unique farmer oriented model

Source: Company, MOSL

19 May 2014

Jain Irrigation

Geographical reach

JI has a strong supply chain within and outside India. It has a strong dealership

network of over 2,700 pan-India, 81 offices and 40 depots and 12 manufacturing

facilities. Similarly, JI has a strong global network aggregating over 900 distributors,

23 warehouses and sales offices and 15 manufacturing facilities.

JI’s Indian network

Source: Company, MOSL

JI’s global network

Source: Company, MOSL

19 May 2014

Jain Irrigation

JI’s corporate structure

Source: Company, MOSL

19 May 2014

Jain Irrigation

Annexure

Drip irrigation

Drip irrigation is a method of micro irrigation, which saves water and fertilizers by

allowing water to drip slowly and directly to the roots of plants through a network

• Pump

of pipes, valves, tubing and emitters/drippers. The dripping of water can happen

• Water filter (sand separator like

hydro-cyclone, screen filter, media

either onto the soil surface (normal drip irrigation) or directly onto the root zone

filters)

(subsurface drip irrigation – where the laterals and drippers are buried under the

• Fertigation systems and

surface). The emitters/drippers allow for a uniform and controlled supply of water

chemigation equipment

directly into the root zone of the plant. This helps the plant to absorb only the

• Backwash controller (backflow

required amount of water, thus resulting in saving the plants from water stress,

preventer)

• Main line (larger diameter pipe and

saving of water and increased yield of plants. Drip irrigation also provides the option

of having a fertigation unit, which helps supplying growth nutrients like fertilizers to

pipe fittings)

• Control valves

and safety valves

plants in a controlled fashion, helping the yield of plants and also in saving the

(hand-operated, electronic, or

wastage of fertilizer.

Key components

hydraulic)

• Laterals (smaller diameter

polytube)

• Poly fittings and accessories (to

make connections)

• Emitter/ Drippers

We shall briefly see how the drip irrigation mechanism functions. First, the pump is

connected to the water source which pumps water into the water filters. These

water filters help in increasing the yield by providing cleaner water to plants as well

as in protecting the tubing from clogging, thus decreasing the maintenance cost. The

water then enters into the fertigation system to take up the plant nutrients fed into

this unit and then enters into the main lines. From the main line, the water would

travel into sub-main lines and then further into polytubes/laterals. These polytubes

run along the rows of plants and have emission points where drippers are arranged

for the purpose of dripping of water. From these drippers, water drips directly near

the root area of individual plants.

Drip irrigation system

Source: Company, MOSL

19 May 2014

Jain Irrigation

Sprinkler irrigation

Sprinkler systems help distribute water over a large area above the surface. A

sprinkler irrigation system, unlike a drip irrigation system, operates above the

surface and distributes water through emitters to simulate a rainfall.

Sprinklers contain nozzles and a rotating part. The most important component of a

sprinkler irrigation system is, as the name suggests, the sprinkler. This is the emitting

device which typically comes with nozzles for emitting water and rotating parts so

that water can be sprinkled over large areas depending on aperture size of the

nozzle, angle at which nozzles are fixed and the water pressure in the system. When

many sprinklers are used, a pipe network similar to that used in drip irrigation

systems, is required.

Sprinkler irrigation system

Source: Company, MOSL

Area-wise potential of MIS in India

State

Maharashtra

Andhra Pradesh

Gujarat

Tamil Nadu

Karnataka

Rajasthan

Madhya Pradesh

Punjab

Haryana

Others

Total

Area under irrigation (m ha)

7.4

3.2

2.9

1.6

3.5

5.9

7.2

4.2

3.8

13.9

69.5

% of total

100

Source: Micro Irrigation Task Force Report, 2004, MOSL

19 May 2014

Jain Irrigation

Crop-wise potential for implementation of drip and sprinkler (m ha)

Crop

Cereals

Pulses

Oil seeds

Cotton

Vegetables

Spices & Condiments

Flowers

Sugarcane

Fruits

Coconut & plantation crops (Oil Palm)

Total

Drip (m ha)

3.8

7.0

3.6

1.4

4.3

3.9

3.0

27.0

Sprinkler (m ha)

27.6

7.6

1.1

1.8

2.4

1.0

42.5

Total (m ha)

27.6

7.6

4.9

8.8

6.0

2.4

1.0

4.3

3.9

3.0

69.5

Source: Micro Irrigation Task Force Report, 2004, MOSL

Crop-wise potential for implementation of drip and sprinkler (% of area)

Crop

Cereals

Pulses

Oil seeds

Cotton

Vegetables

Spices & Condiments

Flowers

Sugarcane

Fruits

Coconut & plantation crops (Oil Palm)

Total

Drip (% area)

100

Sprinkler (% area)

100

Total (% area)

100

Source: Micro Irrigation Task Force Report, 2004, MOSL

State-wise MIS market share

States

Maharashtra

Andhra Pradesh

Gujarat

Tamil Nadu

Karnataka

Madhya Pradesh

Others

India

Jain Irrigation

Netafim

n.a.

35+

n.a.

Source: Industry sources, MOSL

19 May 2014

Jain Irrigation

Financials and valuations

Income statement

Y/E March

Net Sales

Change (%)

EBITDA

EBITDA Margin (%)

Depreciation

EBIT

Interest

Other Income

Extraordinary items

PBT

Tax

Tax Rate (%)

Reported PAT

Adjusted PAT

Change (%)

Min. Int. & Assoc. Share

Adj Cons PAT

2011

41,528

21.4

7,480

18.0

1,222

6,258

3,270

1,106

4,094

1,213

29.6

2,881

16.2

-74

2,807

2012

49,206

18.5

8,155

16.6

1,441

6,714

4,768

345

2,290

0.2

2,286

-20.6

-51

2,235

2013

50,217

2.1

7,419

14.8

1,696

5,723

5,166

668

1,100

125

63.9

442

-80.7

-14

428

2014E

60,430

20.3

8,326

13.8

1,843

6,482

4,590

181

1,800

274

0.0

274

2,074

368.9

-14

2,059

(INR Million)

2015E

70,533

16.7

9,718

13.8

1,939

7,779

4,226

212

3,764

753

20.0

3,012

45.2

-14

2,997

2016E

82,407

16.8

11,354

13.8

2,034

9,320

3,881

247

5,686

1,137

20.0

4,549

51.0

-14

4,534

Balance sheet

Y/E March

Share Capital

Reserves

Net Worth

Debt

Deferred Tax

Total Capital Employed

Gross Fixed Assets

Less: Acc Depreciation

Net Fixed Assets

Capital WIP

Investments

Current Assets

Inventory

Debtors

Cash & Bank

Loans & Adv, Others

Curr Liabs & Provns

Curr. Liabilities

Provisions

Net Current Assets

Total Assets

2011

772

14,787

15,558

29,842

1,239

47,164

28,467

8,050

20,417

956

211

41,396

14,864

16,924

4,144

5,463

16,394

15,674

720

25,002

47,164

2012

810

16,726

17,537

37,986

1,755

57,775

33,528

9,793

23,735

1,980

236

48,180

14,614

22,712

3,308

7,546

17,073

16,365

708

31,107

57,775

2013

910

20,770

21,680

38,251

1,841

61,772

37,738

11,640

26,098

737

50,405

17,231

19,547

2,359

11,269

16,436

15,895

541

33,970

61,772

2014E

910

22,563

23,473

38,251

1,841

63,565

39,738

13,483

26,255

887

53,756

19,992

20,975

703

12,086

18,300

17,807

493

35,456

63,565

(INR Million)

2015E

2016E

910

25,241

29,350

26,151

30,259

35,251

32,251

1,841

63,243

64,352

41,738

43,738

15,422

17,456

26,316

26,282

1,035

1,209

57,325

62,967

21,846

24,690

21,227

22,851

850

593

13,401

14,833

22,400

27,075

21,801

26,311

599

764

34,924

35,893

63,243

64,352

E: MOSL Estimates

19 May 2014

Jain Irrigation

Financials and valuations

Ratios

Y/E March

Basic (INR)

EPS

Cash EPS

Book Value

DPS

Payout (incl. Div. Tax.)

Valuation(x)

P/E

Cash P/E

Price / Book Value

EV/Sales

EV/EBITDA

Dividend Yield (%)

Profitability Ratios (%)

RoE

RoCE

Turnover Ratios (%)

Asset Turnover (x)

Debtors (No. of Days)

Inventory (No. of Days)

Creditors (No. of Days)

Leverage Ratios (%)

Debt/Equity (x)

2011

7.5

10.6

40.3

1.0

15.6

13.4

9.4

2.5

1.7

9.5

1.0

20.2

18.0

0.9

145.6

130.6

136.1

1.9

2012

5.6

9.2

43.3

1.0

20.6

17.7

10.8

2.3

1.6

9.8

1.0

13.5

14.0

0.9

165.4

108.4

121.7

2.2

2013

1.0

4.7

47.7

0.6

588.3

102.6

21.2

2.1

1.6

11.0

0.6

2.2

11.1

0.8

139.0

125.2

114.6

1.8

2014E

4.6

8.6

51.6

0.6

97.2

21.9

11.6

1.9

1.4

10.0

0.6

9.1

11.0

1.0

124.2

120.8

103.9

1.6

2015E

6.6

10.9

57.5

0.7

10.6

15.1

9.2

1.7

1.1

8.2

0.7

12.1

13.0

1.1

107.7

113.1

110.0

1.3

2016E

10.0

14.5

66.5

0.9

9.4

10.0

6.9

1.5

0.9

6.8

0.9

16.1

15.4

1.3

99.2

109.4

114.3

1.1

Cash flow statement

Y/E March

OP/(Loss) before Tax

Depreciation

Others

Interest

Direct Taxes Paid

(Inc)/Dec in Wkg Cap

CF from Op. Activity

(Inc)/Dec in FA & CWIP

(Pur)/Sale of Invt

Others

CF from Inv. Activity

Inc/(Dec) in Net Worth

Inc / (Dec) in Debt

Interest Paid

Divd Paid (incl Tax)

CF from Fin. Activity

Inc/(Dec) in Cash

Add: Opening Balance

Closing Balance

2011

4,094

1,222

2,717

1,047

-6,069

1,059

-4,930

-142

-5,038

780

5,507

-2,717

-355

3,183

-796

4,940

4,144

2012

2,286

1,441

4,157

938

-6,166

850

-5,270

-114

-5,340

8,143

-4,051

-448

3,684

-805

4,114

3,308

2013

125

1,696

4,855

295

-3,164

3,460

-2,943

-459

-15

-3,418

3,903

266

-4,843

-469

-982

-939

3,298

2,359

2014E

2,074

1,843

4,409

-3,142

5,183

-2,150

181

-1,969

-4,590

-266

-4,871

-1,656

2,359

703

(INR Million)

2015E

2016E

3,764

5,686

1,939

2,034

4,015

3,634

753

1,137

679

-1,225

9,644

8,991

-2,148

-2,174

212

247

-1,937

-1,927

-3,000

-4,226

-3,881

-319

-426

-7,560

-7,321

147

-257

703

850

593

E: MOSL Estimates

19 May 2014

Jain Irrigation

NOTES

19 May 2014

Disclosures

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Jain Irrigation

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JAIN IRRIGATION SYSTEMS LTD

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19 May 2014

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