Considering the farm sector’s imperatives, some market analysts appear to have identified two winner stocks — Jain Irrigation Systems (JISL) and Kaveri Seed Company (KSCL). The immunity to a possible adverse impact of El Nino and the new BJP Government’s likely thrust on the agriculture productivity growth seemed to have favoured the two.

According to GEPL Capital, after being free cash flow (FCF) negative for several years, JISL turned marginally FCF positive in FY13 (₹68 lakh). It said lowering of cash conversion cycle and greater emphasis on receivables management would improve the net margins. JISL has foreign currency debt of $200 million, and any appreciation in the rupee will also aid margins.

Motilal Oswal expected strong free cash generation, which should aid in reducing the debt equity from 1.6x in FY14 to 1.0x in FY16E. JISL has gradually been moving away from doing business in Tamil Nadu, Karnataka and Andhra Pradesh due to substantial delays in payments. “Growth over FY14-16E will be driven by higher contribution from Maharashtra and Gujarat (with shorter payment cycle) whose revenue contribution is expected to increase from 47 per cent in FY14E to 53 per cent in FY16E,” said Motilal Oswal.

GEPL pointed out that JISL was likely to benefit from the BJP’s intention of promoting drip irrigation and incentives for food processing industry.

The market also caught on to the idea that seed companies would remain unaffected by below normal monsoon rainfall. “Around 90 per cent of KSCL’s cotton (seed) sales are concluded before June, well ahead of any meaningful assessment of monsoon for the season… concerns over El Nino for the company are overdone,” said Motilal Owal. Impact of monsoon will be felt on the crop protection sector (pesticides, fertilisers, etc) as farmers will decide on their use depending on rainfall. “Given acreage increases in cotton and maize and market share gains, we believe KSCL is in a sweet spot for higher growth in FY15,” Motila Oswal added.

JISL stock on Tuesday moved up 9.5 per cent to close at ₹109 on the BSE. Kaveri Seeds was up 2.85 per cent at ₹560.05.

comment COMMENT NOW