>Jain Irrigation (JISL) has finally received RBI’s approval to launch its NBFC

Jain Irrigation (JISL) has finally received RBI’s approval to launch its NBFC. This, we believe, will help the company ease its stretched working capital cycle (steep gross receivable days of MIS at 340 days at FY12 end). JISL plans to expand this NBFC into a pan-India player over the next 3-4 years. Maintain ‘BUY’.


NBFC launch to be followed up with aggressive expansion
• The NBFC will be incorporated as a JV named, “Sustainable Agro-commercial Finance Limited” (SAFL; pronounced as SAFAL). It will initially be promoted by JISL, promoter entities of JISL and International Finance Corporation (IFC) – a member of the World Bank group. Post the launch of SAFL and the initial phase of its expansion, JISL plans to bring in some banks and financial institutions into the equity shareholding of the JV.


• Main activities of SAFL would include financing farmers for MIS, agri projects, contract farming, small businesses, setting up solar pumps and other appliances.


• JISL indicated sometime back that the initial investment into SAFL would be ~INR0.8bn, in the proportion of 10% by IFC, 40% by JISL and rest by promoter entities. In the second phase, INR1.2bn is likely to be infused by bringing in strategic partners.


• SAFL plans to commence its business activities post the monsoon period this year, by setting up ~25 offices in Maharashtra by Aug 2012 end and another 15 offices in the state by Dec 2012. In the second phase, SAFL plans to expand operations to Karnataka, Andhra Pradesh, Tamil Nadu, Gujarat, Madhya Pradesh and Rajasthan. In the phase three, it plans to cover the remaining states. SAFL envisages a pan- India presence with over 150 offices within the next 3-4 years.


Outlook and valuations: WC likely to ease; maintain ‘BUY’
While high working capital, high leverage and unhedged forex loans remain key concerns, the NBFC license coming through after a long wait will accelerate the pace of rationalizing the WC cycle. Consequently, leverage concerns for JISL are likely to subside. The stock is currently trading at 9.9x and 8.0 x P/E for FY13E and FY14E, respectively. We maintain ‘BUY’ with a target of INR110 based on DCF.


To read report in detail: JAIN IRRIGATION
RISH TRADER

>Tata Consultancy Services

Tata Consultancy Services (TCS) reported Q1FY13 results touch-ahead of PLe/ consensus expectations. The management indicated no worrying signs in clients’ spending behaviour. Moreover, they indicated that some of the delays that they had witnessed at the beginning of the last quarter are allaying away. We see uncertain demand environment and weak pricing environment to restrict consensus estimate upgrade. We retain our ‘Accumulate’ rating, with a revise target price of Rs1,290.



􀂄 Beaten expectation in a challenging environment: TCS reported Q1FY13 results touch ahead of PLe/consensus expectation. Revenue grew by 12.1% QoQ to Rs148.69bn (PLe: Rs145.85bn; Cons: Rs146.41bn) and 3% QoQ in USD terms, led by better-than-expected volume growth of 5.3% QoQ (PLe: 3.7%). EBIT margins eroded by 20bps (PLe: +30bps, Cons: -20bps) to 27.5%. EPS grew by 11.7% QoQ to Rs16.76 (PLe: Rs16.53, Cons: Rs16.01).


􀂄 Is pricing at risk? The pricing in Q1FY13 declined by 1.06% QoQ in constant currency. However, the management sees no pressure on pricing. Nevertheless, as the demand environment gets challenging, the competitive landscape will give opportunities to client to take advantage and seek pricing cut. Moreover, peers would use pricing as a strategy to regain market share. We see pricing to remain under pressure in the near term.


􀂄 Growth ‐ broad‐based or select few? According to the management, the deal pipeline is more broad-based and the growth has come across the vertical. The strong growth in BFSI and telecom is led by one client ramp-up in each vertical. We see the growth getting scarce as the demand environment gets challenging. However, already pocketed deals for TCS gives better visibility of revenue compared to peers. The management is confident of achieving higher end of NASSCOM guidance in the constant currency terms.


􀂄 Valuation & Recommendation: The current price factors in strong performance by TCS. We tweak our model; hence revise our target price to Rs1,290 (from Rs1,270), 17x FY14E earnings estimate. We value TCS on FY14 due to better revenue visibility compared to Infosys, which we value on FY13 estimates.


To read report in detail: TCS


RISH TRADER

>ONGC: Aspiration to double overall production by 2030

Ad-hoc subsidy a near-term risk; sector reforms in the offing


 ONGC has chalked out a perspective plan, under which it targets to double overall production and increase production of its overseas subsidiary, OVL, six-fold by 2030.


 The company expects to increase its gas production to 100mmscmd by 2016-17, led by the development of its deepwater fields in KG basin and Daman offshore.


 Ad hoc subsidy sharing is near-term risk. Given the precarious government finances and easing of inflationary pressure, it believes sector reforms are in the offing.


 The stock trades at >40% discount to global peers at 10.3x FY13E EPS of INR27.3. Buy


To read report in detail: ONGC


RISH TRADER

>RALLIS INDIA: Metahelix Lifesciences and Zero Waste Agro Organic is a long-term growth driver

Key Highlights: Rallis India AR - 2012
􀁺 Competitively placed as a complete agri-service provider
􀁺 Focus on greener molecules & fast-growing segments along with scaleup of recent launches to aid topline growth
􀁺 Commencement of CRAMs business at Dahej facility to catapult sales from contract manufacturing
􀁺 Increase in revenue contribution from recent acquisition (viz., Metahelix Lifesciences and Zero Waste Agro Organic) is a long-term growth driver.


Industry Snapshot:
􀁺 Rising world population and economic growth in developing nations have led to significantly higher global food demand.


􀁺 Domestic agrochemical industry declined during the year; global counterpart grew 17% to USD 44.9bn.


􀁺 The Indian seed industry, world’s sixth largest (>` 70bn) has grown at 12% p.a. in the past couple of years compared to 6-7% internationally. In India, commercial seeds account for only 25% of the potential, providing tremendous opportunity in this space.


Rallis Poised Agenda: Harvesting growth
Rallis has an extensive network across India through its distributors and retailers, covering around 80% of India’s districts. Through this network, it supplies innovative products and services to maximize crop protection and production in response to evolving needs of farmers. Rallis Kisan Kutumb (RKK) now has 700,000 farmers enrolled and the company has launched “Samrudh Krishi” program in FY12, as a means to leverage on this database.


To read report in detail: RALLIS INDIA


RISH TRADER