Dalal Street Investment Journal - July 09, 2019

20 DALAL STREET INVESTMENT JOURNAL I JULY 8 - 21, 2019 DSIJ.in^

Nevertheless, the company has not

defaulted on any debt repayments.

Despite its struggles, the company

remains a profit-making and dividend-

paying entity.

Strategy

The JISL board of directors has decided

to pare down the debt of the company

and its subsidiaries by at least `200 crore

over the course of the upcoming 12 to 24

months. It intends to do so by means of

demergers, divestments and equity

infusion in the food and plastic business

in India as well as in the overseas

irrigation business. It will enlist the help

of bankers to assist with this process by

September 2019. Presently, the company

has an order book of `5,152 crore. The

focus will be on executing the same with

the intention of lowering receivables.

The management also intends to focus

on overseas orders of MIS and plastics,

which are secured and will entail a

receivable cycle of 90 days.

Order Pipeline and Acquisitions-

JISL bagged an order of integrated micro

irrigation project in Karnataka for

improving water use efficiency in canal

command areas through conduit

distribution and the use of drip irrigation

system from the main canal onwards.

The project will engender revenues to the

tune of `584 crore. Furthermore, the

company acquired the smart irrigation

pioneer ETwater. The acquisition will aid

in expanding the ETwater efficiencies,

not only across the US, but also across

the world. The company received an

export order of `127 crore from Rwanda

Agriculture Board (RAB) for irrigation

and watershed development in the

Mahama sector under the Export

Targeted Modern Irrigated Agriculture

Projects in Rwanda. The project is

financed by the EXIM Bank of India

under the Government of India Line Of

Credit (LOC) programme. JISL has

undertaken complete responsibility of

the development infrastructure for

various irrigation systems such as

sprinkler irrigation, centre pivot and

pipe hydrant system. These irrigation

systems, which will work under gravity,

will be designed by JISL under an EPC

contract. The project is scheduled to be

completed in the next 18 months. In

DS

Analysis Equity

JISL’s balance sheet is

burdened with a massive

amount of debt. The

company reported debt

of `4,954 crore in March

2019 as against `3,

crore in March 2018,

a growth of 27.31 per

cent. This led to rating

downgrades by the credit

rating agencies such as

India Ratings and Fitch

Ratings.

The mounting debt is attributable to delays in receiving

payments from the government to fund the company’s

micro-irrigation business. Owing to the nature of JISL’s

business, a major chunk of its debt is in working capital.

Furthermore, the company’s consistent acquisition of

assets also contributed to the rising debt. Nevertheless,

the company has not defaulted on any debt repayments.

addition, JISL will also execute an

integrated drip irrigation project worth

`240 crore in the Vidarbha region of

Maharashtra. The project will be executed

within 24 months and will improve water

use efficiency up to 90 per cent (from the

present level of 35 per cent) in canal

command areas by means of pressurized

piped distribution network and on-farm

micro irrigation (drip/sprinkler).

Conclusion-

Although servicing the existing debt is

not a tremendous challenge as the debt

repayments are scheduled in such a

manner that they are spread out across 5

to 6 years, they depend on expected

normal cash flows which are based on the

success of the company’s growth plan.

Investors have reacted strongly to the

company’s struggles, thereby eroding the

company’s market capitalisation by

two-thirds over the last few years to

`1,280 crore. This is in stark contrast to

the peak market cap of `9,827 crore,

which the company had reached in 2010.

By virtue of these factors, we urge our

reader-investors to SELL this stock.

Historical Share Price Performance (%)

Company Name 1 month 3 months 6 months YTD 1 year 3 years 5 years

Finolex Industries 7.27 6.37 -1.76 -3.83 -5.10 22.26 76.

Jain Irrigation Systems -49.40 -57.65 -62.67 -63.50 -75.51 -61.23 -79.

Jindal Poly Films 5.11 -1.39 8.74 8.78 21.25 -41.13 -5.

Supreme Industries 6.06 4.04 0.52 -1.70 1.66 26.29 103.

Uflex -9.65 2.64 -12.94 -13.65 -3.73 6.31 86.

Source: BSE Data as on 02nd July, 2019