Infra creation through irrigation to rise: Jain Irrigation

Sonia: What is your own assessment of the allocation that has come through for the micro irrigation sector and in particular what is the pure allocation to micro irrigation system (MIS) that has come through this time around and what would the impact be on a company like yours?

A: Impact definitely would be positive. What they have done is clubbed couple of different programmes of the government related to irrigation under Pradhan Mantri Krishi Sinchai Yojana. The direct allocation to what they call ‘per drop more crop’, which is micro irrigation is Rs 1,800 crore.

Also the Pradhan Mantri Krishi Sinchai Yojana has about additional Rs 2,000 crore allocation where again micro irrigation is part of that. So some of those details would become clearer in next few weeks but overall it is a substantial increase compared to what it was last year and also finance minister said in his Budget that if he sees tax buoyancy, this is one programme you will be giving additional Rs 3,000 crore.

So all in all, it is a big leap compared to what it has been and shows the government intent. They have this programme called har khet ko paani, so they want to bring water to every farm and then use that judiciously. Over the next 8-10 years, this is going to be USD 30 billion size infrastructure project and this is just a start in that project. Every year, I hope they will be able to deliver on this infrastructure creation through irrigation.

Latha: How much are state governments involved in a micro irrigation and related activities. I am asking you because they are about to become very rich, they are going to get a goodish bit of money which is going to be untied to anything. They have got the same amount of money from the centre even in earlier years but they would be tied to power or roads or something that the centre was pushing. Now it is like free for them to use as they pleased. Do you notice or do you expect a step up in irrigation related work?

A: Definitely because the irrigation is very close to the hearts of the state government because they have to face the farmers literally on a daily basis. Farmer productivity in rural area becomes very important.

In the past what we have seen is in states like Maharashtra, Andhra Pradesh and so many others, they wanted to provide more funds for things like micro irrigation but they couldn’t and they used to draw loans from National Bank for Agriculture and Rural Development (NABARD) under the Rural Infrastructure Development Fund (RIDF).

Now they will have their own funds and I believe compared to a lot of other programmes, this is one programme where they can clearly see benefits being given to small farmers where productivity goes up and water is saved and all other costs are saved. So all of that put together, I feel this would be one programme where they can prioritise allocation. Now one has to wait and see the new Budgets which will come in the various states -- quickly whether they are able to use this opportunity to immediately increase but that direction is definitely going to be very positive.

Latha: In your routine activities, do you liaise more with the central government or state governments when you have to interface with irrigation projects?

A: There are two parts of the business within the micro irrigation issue, one is micro irrigation where we sell via the dealers to the farmers and there the liaison is more with the district level authorities but the irrigation projects, which you spoke about where there is end-to-end irrigation solution where you bring water up to the farm and then use drip and sprinkler what we call integrated irrigation solutions, there we are dealing with the state government irrigation utilities like the boards etc.

Those would be able to now issue -- there is also a mention in the Budget about this tax free irrigation bonds that would allow them to go for complete water conveyance solution and use water-use efficiency from current about 35-40 percent to about 80-85 percent. So that is also going to be a big change.

Sonia: How much will all this help your own business because even in the quarter gone by, MIS business especially in states like Maharashtra was under pressure because of the way prices moved as well as the untimely rains. You were talking about this har khet ko paani massive project, how much do you think it could impact your own business, what could the growth projections be?

A: If you look at our overall micro irrigation business for the first nine months, we grew within India domestic about 24 percent. That has been a hefty good growth, which we have seen despite Q3, which was negative due to various factors you mentioned. Q4 looks very positive. All of these changes which government is bringing is going to bring business next year and years after that.

So I think in a normal years, we should grow about 20 percent on an average but in good years with some of these things falling in place, I think the growth rates could be 20-30 percent, it could go to the higher levels of 30 percent once some of these things are already -- the new architecture related to support to irrigation gets in place between centre and states.

Latha: You have an outstanding DVR, don’t you? What is the percentage of your DVRs vis-à-vis shares outstanding and will you look to issue more because now it might find a place in indices?

A: Right now it is about 5 percent, total quantity of shares issued on the DVR. We had issued that as a bonus to our existing shareholders. If the difference between the main share and the DVR, if that closes to a sufficient level then that is something one can look at that in future.

Latha: It is the other way round. Only if it is at least 10 percent of the outstanding shares, it makes its way into the indices. So probably if you issued more and brought it to 10 percent, the chances of the two converging become higher. So that is not a line of thought at your board?

A: Yes, that was the kind of recent change, which has come into place where the stock exchanges are going to see whether this can be taken as a part of index and therefore the value can increase.

In the west also, if you look at US markets and other places, the difference is usually not more than 10 percent. In India, it has been 30-50 percent. I am sure as we go along, we will think about this issue but as of now, since that news came, our board hasn’t met. So we have not thought through this issue as of now.

Sonia: There were reports that the Maharashtra government has come out with a time bound schedule for a sugarcane drip irrigation to implement that process. Any update on that and what could the potential be for your own company from sugarcane?

A: There are two developments there, Maharashtra and Karnataka both states have announced that they would like to ensure that the entire sugarcane being grown in these two states are fully drip irrigated or micro irrigation irrigated. That gives you approximately 1.4 million hectares of area to be brought under drip irrigation, which in terms of price terms works out to approximately Rs 15,000 crore of business opportunity for the whole industry. Our market share is on an average about 50 percent.

Now the challenge is to see in what period this happens, whether this happens in three years, five years, seven years - those details are still being worked out but both the governments have made a law that all the sugarcane has to be drip irrigated. So it is now only a matter of time. Both governments are in process of also getting the finance tied up because this is a long-term project and they expect sugar factories to also chip in some amount. So all that is happening.

I believe post September this year, this would be a very good growth business opportunity again for us.