Expect fund raising to complete by October: Jain Irrigation

Jain Irrigation board approved raising upto USD 200 million  via various instruments including preferential allotment at Rs 80 a share.

Anil Jain, managing director, Jain Irrigation told CNBC-TV18 that fund raising will be completed by October. The preferential allotment will be made to IFC and PE inventors. It expect 15-20% growth next year onwards.

Below is the edited transcript of Jain’s interview with CNBC-TV18.

Q: Can you take us through exactly how much money you are raising and how?

A: We are raising overall approximately around USD 200 million. Close to USD 75 million of that will be in equity that would be at about Rs 80. There will be convertible bond approximately USD 55 million ,so about Rs 300 crore and that should be at about Rs 115 conversion price with 3% coupon and YTM of about 6%.

There is also ECB and that would be another USD 75 million or so and with a long term tenure. It would be somewhere between 6-10 years, longer term tenure at fairly very reasonable rates of interest as well.

Q: On an average, what would the cost be, all these USD 200 million put together in terms of an interest out go for you?

A: Interest out go would be on this Rs 1,100 crore would be hardly about Rs 25 crore a year. It would be 2.2%. A good part of this money would help is to reduce lot of borrowings which we have at about 14-15%.

Q: Can you take us through the equity route and what sort of dilution would you see on the company or the promoter level then?

A: The route which we are taking is preferential allotment route, where subscription would be from private equity firm and IFC. Promoters are also taking warrants, so partly dilution of promoters will be taken care of.

On the upfront there would be a dilution because of this equity for all shareholders, but we believe it is a value accretive dilution because overall fund raising is going lead to reduction into significant resistance into interest cost. Therefore, it will add back to the bottomline. So, overall earning would be more than that dilution.

Q: Which would be this private equity firm that you are talking about besides IFC which was already approved in August?

A: That would be Mount Kellett.

Q: What would their stake stand at post this?

A: Mount Kellett’s stake would be slightly less than 10%.

Q: How would your debt equity pan out, how does it stand now and what will it be a year or two down the line assuming conversions happen?

A: Our debt equity including all the working capital loans etc is close to two debt and one equity. Purely on standalone basis if you don’t take into account discounting it is close to about 1.5. We expect it to be down by March 14 to 1:1.

Q: You basically averaged interest costs of around Rs 103 crore in the quarter gone by which was an increase of 30% on YoY basis. What sort of average are you working with for the remaining part of the fiscal in terms of interest cost? What sort of pressure are we going to see on the bottomline for the company?

A: Interest cost for March and June quarter has been around Rs 100 crore per quarter. Once this fund flows in, which is I expect from times in middle of October then interest will go down. On annualized basis, we are expecting to reduce interest cost at about Rs 80- 100 crore for the same level of business.

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Q: Your stock has been going down quite significantly and a few days ago it was at a three year low. Anything which you have heard from investors or anything which you think would possibly be worrying investors at this point in time, possibly your entry into NBFCs, etc?

A: NBFC issue has been resolved. I believe once NBFC starts functioning it is very positive for the company because NBFCs merely supports the company’s main business. Therefore, its not that company is trying to do something new or different. That would be taken very positive once it starts. Otherwise, investors have been worried about higher costs of interest, which will get addressed through this fund raising.

Investors have been worried about foreign currency issue. They know that with the new dollar financing, which we have already raised we can repay some earlier dollar so, that it does not come into our bottomline. We now get eight year maturities so that’s also very favorable for the company.

The third part which investors have been concerned about is about micro irrigation business as we tighten that and and reduce the long term subsidiary receivable, whether growth can be maintained or not. We have very clearly told investors that there is going to be a few quarters where things are low but then business model becomes very sustainable.

We have grown so much over last 10 years this year is a kind of a consolidation year. Thereafter you have a sustainable platform. The whole idea of this fund raising is also to strengthen the balance sheet, lower the interest cost, create more long term funds available, so that hereafter the new growth, new capex required and all of those things can come directly from internal accruals. Company’s gearing improves, and interest cost goes down, so you have more sustainable growth. World is very volatile, you don’t know what's going to happen in two years.

Q: It was a drop in total income that we noticed in the first quarter so when you say we will consolidate - are you seeing this year being a contraction in terms of sales compared to last year and when might growth really start kicking in?

A: We have different businesses, so major contraction you saw was in the micro irrigation business in first quarter, will continue in the second quarter we already said that but in third and fourth quarter we expect to be positive. Overall, for the year we should be flat to positive in this business.

Overall as a company, we will also be positive for the entire year even though its consolidation year. Our overseas businesses are also doing well. We have been used to growing 20% or more constantly over last 10 years, so that level of growth may not be there this year.

From next year, we should be back to those levels of growth not only because we would have changed the business model of micro irrigation but our other businesses like solar energy, tissue culture and food processing also picking up a lot of good traction.

Q: In the previous quarter your MIS business like you mentioned was down 30% in order for you to actually reduce your receivables. Give us a sense in FY12 you have consolidated receivables if I am not mistaken was 166 days, what would you like to end or what would you focus ending FY13 with considering that is the biggest worry investors have or one of the biggest?

A: Overall receivables were 366 days for March 2012 on micro irrigation gross level. We are expecting by March 2013 that to be down to 270 days. So, there would be significant saving of those receivables. Thereafter, once NBFC also becomes more regular, more stable and its plant starts working the next year onwards it would further go done from 270.