Rejig angst scythes Jain Irrigation share price a third in three days

Jalgaon-based Jain Irrigation Systems (JISL) on Tuesday saw the biggest drop among BSE 500 scrips due to concerns over its equity dilution and new business plans.

The stock plummeted nearly 18% to close at Rs157.50. This followed a 10.81% and a 4.77% slide on Monday and Friday, respectively. BSE 500, on the other hand, shed 3.7% in the last three trading sessions to 7011.87 on Tuesday, when it fell 1.63%. The Sensex on the same day tanked 305.54 points, or 1.67%, to 18022.22.

JISL has said it plans to raise Rs700 crore through a qualified institutional placement (QIP) which will lead to an equity dilution of over 10%, and also set up a non-banking finance company (NBFC), neither of which, experts believe, go down well with the investors.

“NBFC is a completely different business from JISL’s current areas of operations and may be the market is not quite appreciative of it at the moment,” said an analyst tracking the firm at a domestic brokerage.

An analyst with a global brokerage said the fact that a part of the QIP proceeds is to be pumped into the NBFC could’ve made investors jittery.

“MIS is a high-growth business and JISL has always been valued quite highly by the market. The entry into NBFC will bring down the return on capital employed (ROCE),” he said.

Anil B Jain, managing director, JISL, wasn’t available for comment but he had on Friday said the NBFC would help the company boost its sales. JISL’s unimpressive third-quarter numbers, owing to the heavy monsoon, did not help matters either. Net sales grew by less than 10% to Rs693 crore while net profit rose 24.6% to Rs71.47 crore.

But what no one’s able to fathom is why on Friday, the day JISL announced its results and the other developments, the scrip fell just under 5%. “We thought there would be 10-12% correction on Friday but an 18% fall on Tuesday is surprising. It’s just some FIIs (foreign institutional investors) going for a major sell-off,” said the analyst with the domestic brokerage. FIIs hold 55.24% of JISL.

Despite the current apprehensions, analysts opine that the company is fundamentally strong.

Manoj Bahety and Varun Guntupalli of Edelweiss Research believe that an additional 1.5 crore hectare of agricultural land will have micro irrigation over the next seven years from the present 37 lakh hectare with a business potential of Rs45,000 crore. “JISL stands to gain the most, being the market leader in this space,” they wrote in the report dated January 28.