Thursday, August 28, 2008

Indian stock picks: Jain Irrigation Systems

India's largest provider of micro-irrigation systems Jain Irrigation Systems Limited (JISL) is now trading at reasonable potential and company will announce robust performance in the upcoming quarters due to recent strategic acquisitions. This niche company's strategic acquisitions will help the company to post robust earnings in the coming quarters. As drip irrigation and food processing are priority sectors for Government, Jain Irrigation will benefit from Government spending.

Jain Irrigation stock price analysis:

CMP: 439.3
P/E: 22.4
1 year high-low: 767-410.

Jain Irrigation target price:

18-20 month target: 750-800 (conservative estimates). It is currently trading at a forward P/E of 11 for FY2010.

Ideal investment duration: 2 years.

Chart courtesy: Business Week.

Why Jain Irrigation is a good long term pick:

1. Government will promote micro-irrigation and food processing in a big way as agriculture is a priority sector. Jain Irrigation is the stock to watch out in agriculture sector.

2. Despite bad economic conditions and rising crude oil prices, company announced robust performance in Q1 FY09.

3. The International Finance Corporation (IFC) is betting big on Jain Irrigation Systems.

4. BSE moved Jain Irrigation from group B to Group A. This decision will change investors sentiment in positive manner.

5. Falling crude oil prices will raise margins due to decrease in raw material costs.

6. Company is expecting around 35% growth in U.S irrigation market despite slow down in American economy.

7. Its recent acquisitions will help the company to post very good results in the coming quarters. It acquired companies in United States, Greece, Israel and Switzerland. It made 5 acquisitions in the last 5 years.

8. It is the only listed company in the drip irrigation business.

9. Good results in Q1 FY09 but Forex losses spoilt the sentiment. 45% increase in revenues.

10. Many mutual funds are betting big on this stock due to its long term potential.

What are the negative points?

1. Comparatively high valuations.

2. High interest rates.

3. Uncertain crude oil prices.

4. American economy is slowing down.

5. Frequent dilution of equity.

6. High foreign investor holding.

Final analysis: Jain Irrigation is a niche agriculture player which will give very good returns for long term investors. Strong management, strategic acquisitions coupled with Government priority made this stock a "Must and Safe buy" for long term investors. Don't forget to accumulate Jain Irrigation aggressively on further falls for long term gains.
Source/Credit: Dr. Krishna (IndianStockGuide)

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