Jain Irrigation shares have fallen 2% since the equity infusion announcement on 6 November. Investors would want to see some results first given that balance sheet worries have persisted for some time now.
Higher finance costs have been a pain for Jain Irrigation Systems Ltd for some time now. For perspective, on a consolidated basis, for three months and six months ended September, interest cost as a percentage of operating profit was as high as 72% and 62%, respectively. The same measure for the last fiscal year stood at three-fifths, or 60%.
In that backdrop, the company’s announcement earlier this month to raise Rs.792 crore through equity issuance (combination of stake sale in the food processing business and investment in the parent firm) augurs well. Jain Irrigation intends to use the funds to reduce the debt on its books to some extent and also finance growth in its food processing business. Eventually, it aims to bring down its net debt-to-equity ratio to 1:1. At the end of September, its consolidated net debt stood at Rs.4,268 crore and its net worth was Rs.2,120 crore, translating into a net debt-to-equity ratio of 2:1.
Edelweiss Securities Ltd said that the company is targeting to prune debt by Rs.600-700 crore in the coming quarters, which will lead to an interest saving of Rs.100 crore in fiscal year 2017. That is slightly more than one-fifth of last year’s interest costs. With interest costs projected to start declining beginning FY16, even a modest growth in operating income could drive a sharp jump in net profit, said IIFL Institutional Equities in a note to clients on 16 November.
That is heartening. But Jain Irrigation shares have fallen 2% since the equity infusion announcement on 6 November. Investors would want to see some results first given that balance sheet worries have persisted for some time now, reckoned an analyst.
Moreover, the September quarter results offer little inspiration. Total operating revenues increased 3.6% year-on-year to Rs.1,316 crore. The micro-irrigation systems business declined 11.8%, while food processing, pipes and other businesses expanded by 20%, 26% and 9.2%, respectively. Overall operating profit increased merely 1% toRs.159 crore. In the June quarter operating profit had risen by 8.4%. The company posted a loss of Rs.12.3 crore in its earnings before tax and exceptional items last quarter compared with a loss of Rs.13.7 crore in the September quarter last year.
Nevertheless, the September quarter tends to be slow and going by the flat share price since the financial results’ announcement, investors seem to have taken the numbers in their stride.