BackJain Irrigation: balance sheet improvements offset modest operational performance
Improvement in balance sheet is one of the main triggers for this stock and investors would do well to follow developments on that front
Premium
Jain Irrigation Systems Ltd reported modest results for the June quarter. Consolidated revenue increased 10.2% year-on-year to ₹ 1,553 crore, missing analysts’ estimates. The main disappointment came from the piping business, which saw a year-on-year decline in revenue. Revenue from exports of micro-irrigation systems (MIS) also declined. However, domestic MIS revenue grew at a decent pace.
Things were far from rosy on profitability. Jain Irrigation Systems’ operating profit margin in the June quarter stood at about 13%, representing an annual decline as well as sequential. Reasons for the fall include increases in raw material costs and higher employee costs as a percentage of revenue.
The situation appears to be relatively better on the balance sheet. Net working capital days declined by 61 days year-on-year and 20 days quarter-on-quarter to 235 in the MIS business, led by a sharp decline in MIS gross receivable days, said a report by Motilal Oswal Securities Ltd. “Management guided for further decline in gross receivable days to 180 in FY15 and 120 in FY16, which would help in freeing up working capital and retiring debt," said Motilal Oswal.
Improvement in balance sheet is one of the main triggers for this stock and investors would do well to follow developments on that front. The stock has declined from its high of about ₹ 132 in July to ₹ 93. The sharp correction was because the new government’s budget announcements fell short of expectations. The stock had increased in the run-up to the elections and expectations of positive announcements in the budget.
Still, investors haven’t lost out from a medium-term perspective. Since the beginning of this financial year, the shares have appreciated by as much as 42%, which gives ample reason for investors to celebrate but also suggests most of the positives are already in the price. Revival in growth rates is one factor that will keep sentiment upbeat for the stock from these levels. As IIFL Research analysts say in a recent report, “The delicate balance between managing growth and managing the balance sheet will need to be effectively struck in order to pave the way for a sustainable earnings rebound."
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!
