“We don’t hide MTM forex losses in the balance sheet”

Anil B. Jain, Managing Director, Jain Irrigation Systems Ltd. Heading a company that earns a big chunk of its revenue from the politically sensitive farm sector is not an easy job. Things hot up more if you have to continuously answer shareholders why a spectacular rise in the topline is not translating into profits. To understand how he deals with such issues and his strategy to turnaround Jain Irrigation Systems, we caught up with its MD, Anil Jain Interview by Sachin Manawaria | @TheDollarBiz

Anil B. Jain, Managing Director, Jain Irrigation Systems Ltd.

TDB: Give us a brief breakup of your various business segments and exports. AJ: Micro Irrigation Systems (MIS) is the largest business of Jain Irrigation, which accounts for more than 50% of our topline and primarily includes drip irrigation and sprinklers. A fourth of our business is pipes, which mostly caters to the domestic market. Similarly, around 20% of our business comes from the food processing segment, which includes onion dehydration, fruit puree, concentrations, juices etc. A small chunk of our revenue also comes from the solar and plastic sheets business. The food processing segment accounts for more than 40% of our export revenue. Last year, around Rs.300 crore worth of exports came from the MIS business, around Rs.200 crore from PVC sheets, Rs.50 crore from plastic pipes, and the rest from our food processing business. Total exports last year were about Rs.975 crore. As far as the geographical spread is concerned, we do MIS business directly from India into Africa. In other countries, we export through a dealer network or through our subsidiary companies, who in turn, sell to their own dealers. We have subsidiaries in almost all continents and a wide distribution network. TDB: The fruit processing segment is one of the highest margin businesses among all your segments. Are you taking steps to increase its share in your overall revenue? AJ: Firstly, we want to cater to more and more markets. For example, when it comes to mango, we sell to around 40 odd countries, but there are far more countries where mango pulp products can be exported to. Secondly, we want to grow new product lines like banana, tomato pulp, guava etc. Thirdly, until now, we have only entered fruit pulp and juices business, but going forward, we want to get into ready-to-eat frozen cubes and frozen/dried fruits business. As part of our strategy, we want to replicate our business model in the vegetable segment too – in onion, garlic etc. We also want to grow more in the B2B category. For example, we currently supply mango pulp to Coca Cola, which they use to make Maaza. We also sell dried onion to Nestle. On the other hand, in the Middle East, we have started B2C as well, wherein we directly reach consumers through our frozen 1 kg pack of sweetened mango pulp, which has a lot of demand from expats. So, the whole idea is to increase the product line, with the same raw material, apart from reaching more and more categories of consumers to increase the revenue from this segment. TDB: Your MIS segment has been growing at single digits over the last five years. Do you expect the current government to push the current drip irrigation penetration levels to the global average of about 14%? AJ: This product category will continue to grow for the next several years as firstly, farmers like it very much, and secondly, water is increasingly becoming a very scarce resource. The growth of this segment doesn’t even require the government to do a lot because it not only saves water, but also increases productivity. So, in a way, it’s a necessity for farmers in India. TDB: With the new government making all the right noises on solar energy, do you have the capacities to benefit in a big way if there is a big push in this direction? AJ: Solar business is still a very small component of our overall business and contributes just 2.5-3% to our turnover. But we do have the capacity to scale up. The main growth in this segment will come from solar water pumps, which can be very useful to farmers. But it might take a year or two before we see healthy momentum in this segment. TDB: Not only has your total debt been consistently rising, but also the cost of debt is in double digits. What are you doing to reduce debt and also lower the cost of it? AJ: We have already started reducing our high debt burden by changing our business model, apart from improving our working capital efficiency. We plan to reduce our debt by Rs.300 crore this year and will further reduce it by a similar or bigger amount in the coming year too. Further, we have given a guidance to the market that by March 2016 our debt to equity ratio would be around 1:1, which I think is reasonable. To make this happen, our debt should come down to around Rs.3,000 crore and our net worth should rise to that level. Once we achieve this, our company will be re-rated on the credit front and, subsequently, we would be able to borrow at a much cheaper rate than what the case is now. TDB: In the last two years, about 2/3rd of your EBITDA has been spent in servicing debt. What can we expect over the next few years? AJ: This year, we are expecting our EBIDTA to be around Rs.950-1000 crore and the interest outgo to be around Rs.450 crore. So, this fiscal will certainly be better than FY2014 and only 40-45% of our EBITDA would go to service debt. TDB: Can we expect your EBITDA margin to rise to the mid-20s as was the case in FY2009 and FY2010? If yes, by when? AJ: Our EBIDTA margins were high in FY2009 and FY2010 due to higher EBIDTA margins enjoyed by the MIS business in the old model. In the new model EBIDTA margins in MIS are lower because we provide upfront cash discounts to customers. Therefore, EBIDTA margins now appear optically lower. However, as the interest reduction kicks-in from next year, the overall net margins will certainly go back to the levels of earlier periods. TDB: You have been badly hurt by forex losses in the last three years. In what way(s) are you trying to check this? AJ: Our forex losses are just MTM losses or book losses, and not cash losses, that occurred primarily because of the sudden and significant rupee depreciation in the last couple of years. On a cash basis, we are a net foreign exchange earning company. Moreover, being a prudent company we take these losses in our P&L account, unlike others, who show them in their balance sheet. We have long-term foreign currency loans of around $220 million, which are going to get repaid in the next 10 years or so. As a part of our strategy, we have kept most of them unhedged. TDB: One of your strategies to fight rising cost and rupee depreciation is to focus more on exports. Which new geographies are you eyeing to expand to in the near future? AJ: We are currently focusing on regions like Central South America and North America, apart from Africa for our MIS business. MIS will continue to grow globally because of increasing water scarcity, besides more funding being available for drip irrigation through various multilateral agencies. We feel that with these factors in place, we will continue to outpace the industry’s growth and hence witness decent exports growth going forward. Food processing business will also continue to grow in markets like US and Europe. So, the new hot spots for our product line would be Central South America, Southern Europe, Central Asia and Africa.

“We don’t hide MTM forex losses in the balance sheet”

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