Mid Cap Stock To Buy - Jain Irrigation

Jain Irrigation has been facing tough time since past year. This was due to delay in it's receivables from government. As a company, it looks like Jain Irrigation is working on to be less vulnerable to non-receivables and to expand the market abroad. The turn around for stock could be on next corner.

Business:
Jain Irrigation is in business of micro-irrigation systems (MIS) and it is the biggest player in it's industry. Sales of Micro-irrigation systems constitute half of Jain Irrigation's total revenues. Company's products are eligible for capital subsidy from central government. These subsidy payments were delayed by government (as you know how Indian government works!!) in past 6-9 moths. This created problems for Jain irrigation in terms of working capital requirements and have contributed to it's lackluster performance in last one year. The company lost more than half of its value in stock markets in 2011 for its inability to curb the receivables.



Jain Irrigation's PVC pipe business grew 36% Y-O-Y in previous quarter. Company is tapping foreign markets and expecting exports revenue to grow to $100 millions. If company achieves this target, it will be more than 6 fold growth in PVC pipe exports business. Company is also working towards reducing it's working capital cycle for better balance sheet stability. For the same reason, Jain Irrigation has decided to operate an Non-Banking Financial Company (NBFC) and has approached RBI to obtain the same. Operating NBFC will help company in it's working capital requirements.

Stock Financials
Reported Profit After Tax for last quarter was at Rs.1.2 Crore which is a fall of 98.3% Y-o-Y. Fall in PAT was on account of higher interest cost of Rs.91.6 Crores and forex loss of Rs71.1 Crores. However, adjusted PAT stood at Rs.72.4 Crores.

The company's profitability in the last two quarters was hit by mark-to-market losses on its $157-million outstanding loans. The losses stood at Rs 59.3 crore in the September quarter and Rs 71.1 crore in the December quarter. However, these mainly remain non-cash adjustments. The main source of pain was the interest cost, which at Rs 250.6 crore for the nine months ended December 2011 was up 58% against the year-ago period. The net profit in the same period almost halved to Rs 95.2 crore.

Stock Valuations
At current stock price of Rs.88, the stock trades at P/E of 17. In coming quarters, balance sheet would be without forex losses and company's profits would be boosted by significant difference. This makes it a stock to buy in mid cap space.

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Bajaj Hindustan Stock Analysis Report

Stock market investment research team of Religare Hichens stock brokers has advised to buy stocks of Bajaj Hindustan on the back of rising sugar prices.

Reco. price: Rs 207
Current market price: Rs 212.20
Target price: Rs 234
Upside: 10.3%
Brokerage: Religare Hichens, Harrison

For year ending September 2009, Bajaj Hindusthan’s sugar volumes dropped 27 per cent year-on-year to 6.7 MT, primarily due to lower cane crushing and a depleted sugar inventory. Nevertheless, a steep increase in sugar realizations aided a 1.7 per cent year-on-year growth in sugar revenues to Rs 1,870 crore for the full year.

The company crushed 5.4 MT of cane during the year, as against 10 MT last year. On account of such paucity of raw material (molasses and bagasse), both alcohol and co-gen (power) segments recorded a sharp drop in revenues and operating profits for the year.

Bajaj Hindusthan recorded an EBITDA margin of 22.5 per cent in September 2009 quarter as against 7.3 per cent in the quarter of last year. It recorded a currency swap gain of around Rs 70 crore, leading to a more than five-fold rise in its other income during the quarter. This, along with lower interest outgo, enabled the company to make a net profit of Rs 69 crore in September 2009 quarter as against a net loss of Rs 87.5 crore in year ago quarter.

Despite concerns on relatively higher cane procurement cost of around Rs 205-210 per quintal, buoyant sugar realisations of Rs 33-33.5 per kg have surprised the brokerage positively. Maintain Buy stocks rating.

Karuturi Global Expanding In Agri Business

Karuturi Global, better known as India's largest rose exporter, is moving ahead with its plans to expand its agriculture export business from the fields of Ethiopia and the vertical may soon overtake rose exports revenues by the end of next fiscal.

According to a two-year roadmap prepared by the company, it is expected to raise Rs 1,150 crore over the timeframe through a mix of debt and equity on top of the recently-raised Rs 480 crore.

Sai Ramakrishna Karuturi, MD, Karuturi Global, confirmed the fund-raising plans and said that clarity of the route and instruments will be in by December 2009. Industry sources indicate that the company is also mulling a GDR on the Kenyan or the Johannesburg exchanges to raise the equity part of the Rs 1,150 crore. The company had earlier this year raised Rs 480 crore, with debt accounting for around Rs 275 crore and the rest through equity.

The Rs 500 crore Karuturi Global has been allotted a little over 840,000 acres in Ethiopia to develop the agriculture land in which the company will be growing cereal crops (maize, wheat, rice), fresh vegetables, palm oil and then at a later stage will be getting into sugarcane.

Company officials told Business Standard that they will be kick-starting the cereal crop cultivation to start with and this will be sold to the African markets, while the fresh vegetables will be exported to the UK.
While palm oil will find its way to Asian countries, sugar, which will be cultivated later, will be shipped to various African countries while ethanol, a by-product of sugar manufacturing will be exported to fuel the hungry United States. Karuturi Global will raise close to $50 million debt for sugarcane cultivation.

The company expects around Rs 80 crore of revenues from the agriculture business during the present fiscal, the first year of this diversification. In addition to this large scale diversification, Karuturi Global has been in the business of cultivating gherkins, which brought in revenues of Rs 15 crore last fiscal.

Karuturi Global has been deriving 95 per cent of its revenues from rose exports and has been doing this business at a healthy profitable rate. While each stem is sold for 11-12 Euro cent, its cost of produce is around 7 Euro cent, a margin of around 70 on each stem of rose. The company has around 550 acres under cultivation for roses which is being expanded by adding another 150 acres in the near future.

Karuturi Global is in advanced discussions with a global food-processing major to set up a 1 million tonne unit for contract farming of tomatoes.

According to industry sources, the deal is expected to be announced this quarter and will involve value addition on top of farming. Sources indicate that Karuturi may be looking at Kolar to set up the unit.
Source: Business-Standard

Rallis India - Mid Cap Stock Idea

Rallis India is predominantly an agrochemicals manufacturer, which also sells other farm inputs such as hybrid seeds and specialty fertilisers. The company undertakes manufacturing work on contract for leading agrochemical majors.

This ensures that its plants works at higher capacity utilisation levels throughout the year besides providing a consistent cash flow. Apart from innovating agrochemicals business, Rallies India is also exploring new areas for growth.Through its contract manufacturing agreement with US-based Cytec Engineers, the company has emerged as the sole manufacturer of specialty polymer PEKK (poly ether ketone ketone), mainly used in aerospace industry, in the world.Last year, the company launched an enterprise value-creation programme "Disha" aiming at bringing in improvements in manufacturing and procurement, through plant modernisation, capacity de-bottlenecking, process improvements and cost reduction.

Its efforts towards targeted growth in its international business are also paying off well. Following the success of Disha phase 1, the company has initiated Disha phase 2 for creating value in sales and marketing.The global agriculture industry is facing challenges to improve productivity to cater to the food as well as the energy requirements of the ever-increasing population. This coupled with higher agro-commodity prices, is likely to maintain a healthy demand for pesticides in the coming years.

Rallies India has recently closed down its plant at Patancheru in Andhra Pradesh to unlock value in the land bank. Meanwhile, it is also setting up agrochemical plants in Dahej and Jammu, which will commence production in 2010. At Dahej, the company has secured land in special economic zone (SEZ) and notified chemicals zone (NCZ) and it also plans to spend over Rs 150 crore in two phases there. Besides, another captive power plant at Ankleshwar will also developed by the company.Rallies India's focus on specialty products is helping it earn better margins.

The company is expected to continue its new product launches to keep its innovative sales above 30% of its total revenues.

Rallis India has outperformed broader market and has maintained its price-to-earnings ratio (P/E) intact over the last one year. I expect the company to finish FY10 with EPS of Rs 71.3 excluding any extraordinary income.

Market Cap 710.21
EPS (TTM) 59.98
P/E 9.88
P/C 7.49
Book Value 217.51
Price/Book 2.72
Div(%) 160.00
Div Yield(%) 2.70
Market Lot 1.00
Face Value 10.00
Industry P/E 12.69

At the current market price, the scrip is trading at 9 times its expected net profits for estimated FY10 earnings.It paid Rs 16 per share as dividend in FY08 and is likely to maintain it in future. At its current price, the stock dividend yield works out to 2.7%, making it a safe mid cap stock to buy for risk adverse investors.