Why Jain Irrigation Share Price is Rising

Once on the brink due to crushing debt, Jain Irrigation Systems, is showing signs of a comeback.

India's irrigation giant was struggling when its receivables were stuck, and it was left to service its mounting financial obligations.

This even impacted their core micro-irrigation business, crucial for water-saving solutions in agriculture. However, the company undertook several measures for debt restructuring, and it seems to be working.

Jain Irrigation Systems' share price surged 63.5% in the last one year, with a further 6.7% gain in the last five days.

Let's explore the reasons behind this turnaround and see if the upward trend can hold.

#1 Strong Financial Performance

In FY24, company's net profit before discontinued operations soared to Rs 9.1 billion (bn). This is a significant jump compared to FY23's net loss of Rs 12.1 bn. This surge was fuelled by dwindling of finance costs.

The company's revenue enjoyed a healthy uptick. Total revenue reached Rs 61.4 bn, reflecting a 7% year-on-year (YoY) increase.

Its earnings before interest, tax, depreciation, and amortisation (EBITDA) has also grown considerably at a higher level than the revenue growth. In FY24 its EBITDA stood at Rs 8.5 bn up 16.8% from Rs 7.3 bn reported in FY23.

By the end of the financial year, the company's order book valued at Rs 19.3 bn.

#2 Sectoral Tail Winds

While Jain Irrigation's drip irrigation business is inherently linked to seasonal fluctuations and monsoons, the recent forecast by the IMD predicting a timely and adequate monsoon is a positive sign.

Of course, actual rainfall patterns remain to be seen, but a good monsoon typically translates to strong business for the company over the next four quarters.

With ample water readily available, farmers can confidently irrigate their crops, leading to a less worrisome environment. This encourages them to invest more in their farms. This translates to increased demand for Jain Irrigation's solutions.

It's important to note that heavy monsoon rains during the peak July-September period could potentially lead to subdued results in the second quarter. However, this would likely be offset by a surge in business during the following quarters as farmers play catch-up on irrigation needs.

What Next?

Over the years Jain Irrigation Systems faced two major challenges, a slow working capital cycle and mounting debt. The company continued to face the same in FY24. However, it seems to be actively addressing these issues.

In FY24, while the overall debt burden remained relatively unchanged at Rs 36.6 bn, the company made progress in reducing debt at its standalone India business by Rs 3.8 bn. Additionally, CRISIL reaffirmed the company's long-term credit rating at investment grade.

Also, the company observed an improvement in its days sales outstanding (DSO) metric, particularly in India where the working capital cycle was historically long. The company's net working capital cycle improved from 250 days in March 2023 to 235 days.

This trend is expected to continue in FY25 with a significant reduction in project receivables. However, there was a slight increase in the consolidated net working capital cycle (12 days) due to strategic decisions like settling overdue payables to improve purchasing power and boost profitability.

Going forward the company has laid down 3 priorities.

1. Reduce government receivables: It aims to recover a significant portion (approximately Rs 6-8 bn) of outstanding government receivables within the next 18 months. This will help reduce debt and improve return on capital employed.
2. Strengthen distribution network: The company plans to further strengthen its existing distribution network in western and southern India, while also expanding into new geographical regions - Uttar Pradesh, Rajasthan, Punjab, Haryana, and others. This expansion is expected to take 2-3 years to establish but should lead to increased business in these areas by FY25.
3. Grow the food business: Jain Irrigation aims to significantly increase profitability in its food subsidiary by FY25. It is targeting double-digit growth (around 15%), driven by higher sales volumes even if commodity prices remain low.

Apart from this, the company's overseas plastic sheet business has performed well post-pandemic and is expected to continue its strong growth trajectory.

The company might not show significant upfront revenue growth due to a reduction in government projects. The success of the company's strategic initiatives will be crucial for achieving positive results.

How Jain Irrigation Systems Share Price has Performed Recently

In the past five days, Jain Irrigation Systems share price has rallied 7.6%. In the last month, it is up 3.6%.

In 2024, so far it is up 4.1% and up 64.8% in the last year.

The stock touched its 52-week high of Rs 73.4 on 20 November 2023 and a 52-week low of Rs 38.4 on 26 June 2023.

About Jain Irrigation Systems

Jain Irrigation Systems is an Indian multinational conglomerate based in Jalgaon.

It develops, manufactures, supports and sells diversified products, including drip and sprinkler irrigation systems and its components, integrated irrigation automation systems for monitoring and control, dosing systems, PVC and PE piping systems, plastic sheets, greenhouses, bio-fertilizers, solar power, solar water heating systems, solar water pumps, turnkey biogas plants, photovoltaic systems, and tissue culture plants.

The company also processes dehydrated vegetables, spices, concentrated & frozen fruits or pulp. It also provides turnkey projects and agronomical support services.

It employs over 12,000 employees, 11,000 dealers and distributors and has 33 manufacturing plants worldwide.

To know more about the company, check out Jain Irrigation Systems' fact sheet and quarterly results.

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