JAIN IRRIGATION - UPDATE

This stock recommended @ Rs.57  on 6th April ,2013 . ( Link HERE ) which is currently trading above Rs.110  . Company reported good numbers in latest March quarter ( Link HERE ) and declared a dividend of 25 % .This is one of the best agri-related stocks available . Requesting to HOLD it for the long term.

JAIN IRRIGATION - BUY

 

                  

 

While analysing EPC Industrie ,we have discussed about the potential and road blocks of micro irrigation industry in India in detail.Till now this industry is mainly driven by subsidy provided by governments and the delay in releasing subsidy by various states eroded the financial position  of companies operating in this sector.From last year onwards companies are taking efforts to change the business model  to reduce high receivable days and improve cash collection and now they are not  taking the responsibility of subsidy collection .This shift in business model partially affected the growth during this transformation phase.But ,on the other side ,potential is very vast in a water scarce country like India where a lion share of farm land  is still irrigated through flooded irrigation method.New farming techniques like precision farming also increasing the potential of MIS.Jain Irrigation is the second largest micro irrigation company in the world which is operating in other parts through various subsidiaries .Other than MIS ,Jain having presence in other sectors like plastic and food processing .Repeating drought like situation in India forcing governments to allocate more funds for irrigation and Jain is one of the major beneficiary .Recently Maharashtra Government decided  to make drip irrigation mandatory for sugarcane in next three to five years ( Read news HERE) . I believe many states and many crops will be forced to follow this in coming years .  In my opinion ,in another few years MIS will change to a necessity from a subsidy driven business due to changing climate and changing farming techniques.Revival in US economy is also positive for the company  where the company having larger presence.Company is now taking every efforts to clean its balance sheet .This management have enough experience and expertise in handling such situations and they proved the same even in the  past .They bring back the company from near collapse ( from first half of 1990's) to the position of world leader in 10 year.Promoters are one of the very few business houses showing higher level of business ethics in Indian Corporate world too. I believe , the worst will be over for Jain Irrigation in another few quarters and most of the negatives are already reflecting in its current market price.Recommending a buy in SIP mode for long term investors from CMP of Rs.57

Related Readings

1) Jain Irrigation Systems: Learning from mistakes

2) Strawberry fields: Bhavarlal Jain formulating strategies to sustain Jain Irrigation for 100 years

Link to Company Website HERE

Links to its Subsidiaries  

1)  NaanDan Jain Israel

2) Jain Irrigation Inc USA 

3) Jain Sulama Turkey

4) Sleaford Quality Foods USA

5) Nucedar Mills Inc USA

6) Cascade Specialties Inc USA

Disc: I have vested interest in JIS

EPC INDUSTRIE - BE READY TO REAP

Nowadays I am receiving lot of queries regarding the strategy to be followed on EPC Industrie Ltd ( BSE Code - 523754) . I have recommended this company @ Rs.61/- in last August (Old posting  HERE ) which is currently quoting around Rs.140/- . In my old post ,I clearly mentioned that EPC is a potential takeover target by big players. As expected ,auto major Mahindra and Mahindra ( M & M) took over this company by subscribing 65,58,065 Equity Shares @ Rs.66.10/- . Mandatory open offer for another 20 % is currently going on . On the new equity base of 17 Cr .M&M will hold close to 38 % , two foreign P/E players will hold 32 % ,old promoters will hold 16 % and the general public  will hold 14 % .On completion of the open offer ( nothing is expected to get since market price is above open offer price) , share holding will be re classified so as M& M will be the new promoters and old promoters will be moved to public category. In many of the recent interviews Mahindra's indicated their decision to concentrate in futuristic industries other than Automobile.Takeover of EPC is a bold decision in this direction.The potential of Micro irrigation in India is huge and a major portion is still untapped .As on date there is only one major player in the listed space ,ie,Jain Irrigation.Due to lack of sufficient working capital EPC could not tap the opportunities available even if it an  approved supplier to the Micro irrigation projects initiated by Gujarat and Andhra Pradesh State governments .Last year central government upgraded its micro irrigation  scheme to a national mission with an outlay of Rs 8032.90 Crore .Recent fund infusion by M&M is really a game changer for EPC which currently having a debt burden of around 30 Cr.It is indicated  that the fund raised through preferential issue will be utilized for repayment of debt , working capital requirements, capacity expansion and implementation of new generation drip irrigation technology .Moreover,doing micro irrigation projects on a turnkey basis is the money spinner now and many private parties are demanding such models .Till now EPC lacks the money power and other facilities to execute such projects ,but the situation will change in future. As a coincident , M & M recently de-merged its agri related business division Mahindra Shubhlabh Services Limited.This de-merged entity is handling  M &M's Agri Inputs Business, produces and distributes seed, seed potato ,selling  crop care products and also handling contract farming in large area for  Basmati, Maize, Barley, Cotton, Moong, Soybeans, Durum, Hyola ..etc  and other oilseeds such as Sunflower and Mustard. At this stage there is no chance for a merger of both these companies ,but we can't ruled out an integration of all the agri related businesses under the fold of  the listed EPC Industries in future.


Another point is ,tracking the trading pattern and price movement of EPC Industrie in the past few months ,I strongly feels that huge accumulation is happening in this counter even at a level double to the open offer price by  M & M . In nut shell,In the hands of a management like M & M with large network of agriculture related business( Tractor) , good reputation with money power - EPC Ind having a chance to grow by leaps and bounds especially at a time the parent is seriously thinking beyond their conventional auto business.So one should hold the stock at current level and try to add in small lots if there is any correction below Rs.120/- due to the over all weakness of the market. If everything clicks well and you have patience , EPC Ind may go even beyond your imagination. CMP is Rs.140/-                                                                                                                                                                                                                                                               

EPC INDUSTRIE Ltd - BUY

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Even if the potential  of Micro Irrigation is very vast in a

country like India, listed Companies other than

Jain Irrigation in this sector is ignored by investors  mainly

because of their inability to scale up the business.

EPC INDUSTRIE is the second largest pure listed player

in this space. This Nasik based company having an installed

capacity of 8100 Mt per annum Micro Irrigation Systems.

Company was in pathetic situation and a BIFR case  for

past many years mainly because of severe working capital.

crunch . Later in 2007, UK based PE player  Schroder

Credit Renaissance Fund  interested in EPC and invested

about Rs.18 crore to revive the company .

 The same fund again invested

in EPC and raised its stake upto the current level of  52.3 %.

In these preferential allotments ,  Schroder Credit took stake

at a price higher than the then prevailing market price of EPC ,

which indicates their confidence in this company. Meanwhile

promoters also hiked their stake through a preferential allotment.

Even there is fund infusion , turnover of the company was not

improving earlier. But now there is some  earlier signs of

improvement in this company. By effective use of working

capital , company is now started to improve capacity utilization

and margins . For the three months ended June qtr, Company

posted a turnover of Rs.23 Crore and a net profit of Rs.81 Lac

which is  higher than 50% and 300% respectively over  same

period last year. EPC is an approved supplier to the Micro

irrigation projects initiated by Gujarat and Andhra Pradesh 

State governments  which ensures a ready market for its

products. Along with this ,due to high food inflation many state

governments and Central government  taking active steps to

increase the penetration of MIS in our country .As part of this,

recently central government upgraded its micro irrigation  scheme

to a national mission with an outlay of Rs 8032.90 crore ,which

is very positive for companies like EPC. When we look through

another angle , seeing the potential here ,many world leaders are

interested to enter into the Indian MIS market .Since ,controlling

stake held by a P/E player with world wide operation ,EPC

Industries is a potential take over target for these biggies going

forward. So, those who are willing to take risk and ready to

wait, this may turn as a multibagger .CMP is Rs.61 /-

AGRICULTURE / FARMING - THE NEXT BIG ' THEME ' IN INDIA ?

Different ‘themes’ catching up in any stock market time to time,

and company’s from such sectors giving many fold returns in

short period. In India ,earlier it was IT, then Real Estate

(based on land bank stories), again Power, Education,

Bio technology …etc. A common feature in all these times are

,lot of companies changing their name to add such hot ‘tags ‘ along

with their name to lure retail investors in order to rig the  price

easily  and then offload their own shares to public at higher rate

and make money. Most of these chameleon companies may not

have any relation with such new ‘themes’ other than its names .

So even if that theme really works ,price of  such name changed

companies will not  sustain at higher level when people realize

the facts. What I mean is  , don’t buy a stock  only because

of its name but do  some basic  home work to ensure that the

particular company have at least some operations in such high

potential ‘theme’ sectors.                

          Considering the thrust of government ,changing lifestyle

and disposable income level - ‘Agriculture’,  to more specific

‘Farming’ is considered as the next big theme in India.

All allied businesses of farming are expected to get re-rated

in future which include Micro Irrigation , Seeds,

Agrochemicals, Bio fertilizer, Pesticides, Micro nutrients etc.

(Since the prices of most of the fertilizers other than Bio

fertilizers are  under govt control in India  , this sector may

not out perform) .In the first leg , till farming developed in   a

corporate level and production of such agri products improve

substantially  ,companies processing these agri products

without proper backward integration may face stiff margin

pressure. In order to avoid such a contraction  in

margins , food processing companies should go for

farming and produce - what they need.

              Unfortunately most of our listed players with ‘AGRO’
tag are merely processors of agri products after procuring the
same from farmers. So when we look into investment
opportunities in agri related company’s  ,we should clearly
distinguish  whether the company is in farming and  related
sector or only in agri processing sector. If it is in agri
processing sector only , it may enjoy a valuation which is
available for food processing sector now and not get a
premium as in the case of  farming may get in future. Needless to
say ,JAIN IRRIGATION is the undisputed beneficiary 
( by all means ) of improved activity in farming related sectors
 and it is difficult to imagine another company in near future in
its place due to its top class management , aggressive and
 inorganic growth plans , and integrated status. We have
already discussed some other companies like Aries agro ,
Rungta Irrigation ..etc in past  and expected to bring few
more companies to your attention in coming weeks.
So before catching anything with ‘AGRO’ tag –Think twice                        

RUNGTA IRRIGATION Ltd. - In a Space with Huge Potential.

                                               
About the Industry 
---------------------------

Micro irrigation technology is rapidly expanding all

over the world especially in the water scarce areas

of developing  countries.This system is best utilized

in India and China but still there is ample market

potential with changing trend in agriculture. 

Water scarcity is the most important driving

factor of the Micro Irrigation Systems (MIS)industry

in India. Along with this ,the area available for

crop production,growing population in the country

and GDP of the agriculture sector also contributes

to the growing demand for MIS.
The water use efficiency under conventional  method 

of irrigation, which is predominantly practiced in

Indian agriculture, is very low due to substantial

conveyance and distribution losses. Recognizing the

fast decline of irrigation water potential and

increasing demand for water from different

sectors, a number of demand management strategies

and programmes have been introduced to save water

and increase the existing water use efficiency in

Indian agriculture. One such method 

introduced relatively recently in Indian

agriculture is micro-irrigation, which includes

both drip and sprinkler method of irrigation.

Micro-irrigation is proved to be an efficient method

in saving water and increasing water use efficiency as

compared to the conventional surface

method of irrigation, where water use efficiency 

is only about 30 percent. Micro-irrigation is also

found to be reducing energy (electricity) requirement,

weed problems,soil erosion and cost of cultivation. 

Investment in microirrigation also appears to be
economically viable .Despite this, as of today, the coverage
of drip (2.13 percent) and sprinkler (3.30 percent) method
of irrigation is very meager to its total potential, which is 
estimated to be 21.01 million hectares fordrip and 50.22 million
hectares of sprinkler irrigation method.

About the Company
--------------------
There are mainly three listed players in this space, 
JAIN IRRIGATION ,EPC INDUSTRIES and RUNGTA IRRIGATION.
There is also some other small players like Sturdy 
Industries,Tulsi Extrusion ..etc.But these two can be
avoided - first one due to lack of quality of
management and Tulsi Extr.due to the small share 
of micro irrigation products to its total turnover.
There is no justification for comparing an elephant
with an ant ,so no question of comparing 
Jain Irrigation and  Rungta.Incorporated
in 1986, Rungta Irrigation Ltd
is engaged in manufacturing, designing, assembling
and marketing of Micro irrigation systems 
(including sprinkler and drip irrigation systems). 
Rungta’s Manufacturing units located in the Sirmour
district of Himachal Pradesh,Ghaziabad in 
Uttar Pradesh, and in the Yanam district
within the Union Territory of Pondicherry with 
combined installed capacities of 4,500 MTPA HDPE
pipes, 200,000 HDPE pipes with couplers, 
5,000 MTPA rigid PVC pipes and profiles, 
750 MTPA linear low density polyethylene tubes,
and 350,000 aluminum pipes with couplers.The company
is focused on PVC Pipes as well as its core product
Sprinkler Irrigation System and Drip Irrigation
System to the retail segment, were margins
are high.It is expected  that recovery  in economy
and thrust of  the  government in agriculture area
will together result in ample business opportunities
for the  company.



Recent Developments
-------------------
Rungta Irrigation Ltd has at its meeting
held on January 12,2010 has allotted 20,50,000
equity shares of Rs. 10/-each at a premium
of Rs. 25/-each against the conversion of 20,50,000
convertible warrants.Samara Realty Pvt.Ltd got
9,50,000 shares and Pleasure Investment Pvt.Ltd to
allotted 11,00,000 Number of shares. Moreover
the main promoter of the company Mr M P Rungta is
consolidating his holdings through off market
transactions within the promoter group itself.
Such activities can be taken as a  proof of the
management’s confidence in the growth potential
of the company’s business.


Financials
-------------
For the last FY, the company has reported a sales income of Rs. 35 crore and net profit of Rs. 63 lakhs. For the nine month ended Dec.2009 company already  posted a NP of 77 lakhs and expected to post more than 1 crore in this full year. At present the results are not encouraging but the notable point is that ,for the last three years company’s NP is growing steadily. Considering the immense thrust of the government in agriculture sector and huge potential for  the company’s products along with increasing promoter/big share holders commitment, we can expect a bright future for Rungta Irrigation. Currently it is trading at Rs.58/-