Jalgoan loss minor; adequately insured: Jain Irrigation

Below is an edited transcript of the interview. Also watch the accompanying video.

Q: Could you quantify the extent of the damage because of the fire and how much of it is covered by insurance?

A: The total damage is really minor considering the entire inventory. The damage should be around Rs 10-15 crore. Overall, inventory for the company is about Rs 1,000 crore. In that regards, it is hardly about 1%.

Overall insurance for the company is close to Rs 1,200 crore. This is really a minor issue in the total balance sheet and the operations of the company. The division, for which the pipes got lost in the fire, is expected to do more than Rs 50 crore sales in the month and the production or the remaining stock remains good for that to happen. So this is a small blip on the overall situation. It has no big impact on the operations of the company.

Q: Your stock has fallen quite a bit. It could be because a couple of other reasons like the delay in getting the government subsidy payments, which is creating a big strain on your balance sheet and receivables positions. What is the situation on that front?

A: Our receivables for the company were about Rs 2,400 crore at the end of March. Within micro-irrigation, they were at Rs 1,700 crore. By September, our overall receivables grew only by Rs 100 crore even though sales had grown by Rs 1,500-1,600 crore. This means money is flowing and we expect that by March 2011 to March 2012 the absolute amount of receivables to remain the same even the business would have grown north to 20%.

The days in terms of outstanding sales will come down especially in micro-irrigation division as against 370 days, which were the receivables as on March 2011. We are expecting that to be down to about 300-315 days by March 2012. The delays, which were there by various state governments due to procedural reasons, budget reasons, all are getting resolved.

We have maximum amount outstanding with Maharashtra government. Yesterday, the Nagpur Legislative Assembly announced that they are putting another Rs 500 crore to support additional drip irrigation. We expect the situation, which we had over the past three-four quarters, will getting resolved. By March, it should become comfortable.

Now the interest cost have also picked up. We expect that the next year should be overall better.

Q: What about the forex situation, which is also worrying your investors? What problem do you see cropping up with the rupee above 54?

A: There are two things. We have imports and exports and usually our imports and exports match because we have lot of exports of fruit pulp, onion, micro-irrigation where you gain when the rupee is depreciating.

We import the polymers and usually both of these get matched. We have long-term foreign loans which are to be paid over the next six-seven years. Now, when rupee goes down, we are taking mark-to-market rate at the end of the quarter depending on the rupee-dollar level, as of the last day of the quarter. 

I do not know what is going to happen with the rupee-dollar, let’s say as of March 31. If the rupee is at 54. then we should have, the kind of the losses we had in the last quarter. But those are notional losses, not actual losses, because these loans are not to be repaid over six-seven years. 

Our company over the last few quarters is changing the business model for micro-irrigation business to reduce the dependency on subsidy and receivables. We are increasing our export efforts especially in Africa and we will start to get good traction. So next year, we are expecting more than USD 100 million of additional export coming from that region.

So even if rupee remains at this weak level going forward we are making enough changes into the business structure itself so that it will not hurt us. But in a short quarter like December end or March, you would see additional notional losses, but it will not have any significant impact on the underlying performance of the company.

Q: Why your differential voting rights (DVR) have tanked so much? Have you seen the data on who might have exited because the fall has been disproportionate to your stock price?

A: Yes. The fall has been significant. If you look at the shareholding structure, almost 55% constitutes foreign institutional investors (FIIs) and during this crisis time if they have redemption, in short-term that creates a lot of pressure. This also happened in 2008 crisis where our stock came down by more than 75%, at Rs 250 then at Rs 10 and then it went back to Rs 1,250 because that was not warranted as my underlying performance in terms of growth and profitability continued to remain very positive and good.

This is what the investor will be able to see, but in short-term if the FIIs are leaving that creates pressure apart from this news about fire or the Forex. So currently all the negative news has hit the stock. When people will see our next few quarters or on annual basis, our numbers should remain positive in terms of growth and earning growth.