See large opportunities going ahead, more debt reduction in FY18: Jain Irrigation

Latha: Tell us more details about what margins it entails, what is the timeline and whether this is the beginning of more such?

A: It is definitely beginning of more such. Government of India has announced this programme to do irrigation project worth about almost Rs 80,000-90,000 crore. Typically earlier this projects involve merely building canals and reservoirs etc but now they have said that this will be done through pipe conveyance and at least 30 percent of area should be brought under micro-irrigation in any such projects. So together over next three years or so, this is creating a significantly very large outline type of an opportunity for us and if you look at this order plus other orders, which we already have in hand like in Rajasthan, we had received few months ago, a Rs 200 crore order and so on. That alone will ensure minimum more than 20 percent plus growth for the entire micro-irrigation division for the current fiscal.

Not only that, I think you will see in the next few quarters, we should be also getting more orders like these from other states. This was in Karnataka, but then there are orders coming from Maharashtra, Madhya Pradesh, Punjab, there are multiple states which are now embarking on this issue because water is short and water is required by the farmer and government is making that structural change to make it more efficient irrigation. That is where we are going to play an important role.

Sonia: The other newsflow is the investment that you have made in the largest micro-irrigation dealers in the US, Agri-Valley Irrigation Inc (AVI) and Irrigation Design and Construction Inc (IDC), what kind of revenue potential does that entail and how does it change value for you over the next one-two years?

A: They already had about close to more than 110 million plus revenue this year and because California had good rains, they expect a very robust growth in the current fiscal as well. So we are looking at another 120-130 million or so coming from that acquisition added to our overseas irrigation business.

They typically make double digit margins into irrigation business while we used to make single digit out of our US irrigation business. So there is not only a sales growth or revenue growth but there is also margin expansion going to happen.

More important than that, both of these things have given -- once it has been done is that we would also be closer to the farmers, do this end-to-end solution projects and deploy the agricultural technology where you use internet of thing and that is where with the large global framers we can create a far better margins going forward over next few years.

So again this acquisition provides a platform to create sustained growth with large farmers around the world and using technology while the orders in India is allowing us to reach out to the smallest farmers because in this particular order of Rs 570 crore, we are going to deal with almost close to 11,000 farmers or so and still deploy latest technology including censors and internet of things. So these are integrated projects and there again we are unique company. There are not too many companies. We have expertise, experience and pioneering the situation or position in these kind of business.

Latha: This is a visionary move for you, but still we would want to know something by way of numbers, what does it entail in terms of better orders or larger orders for the current year itself or for next year? Revenues or EBITDA?

A: In terms of revenue, our numbers are still to come out but last year we were closer to Rs 18 billion overall as a micro-irrigation division in India. Just execution of the orders in hand, which we already have today would alone give me additional maybe USD 3-4 billion. So that more than 20 percent growth is already in the pocket as one would say.

Then during the year, we are expecting maybe at least Rs 500-1,000 crore of additional orders which would be for the current year and the next year plus there could be a growth in our retail market segment where we sell through the dealers where each government -- now their budgets are out – is provided for additional funds.

So overall this looks like an inflection year. It is a breakout year for micro-irrigation division and it would not be just one year because the larger programme, which is being executed across the country would allow this kind of a sustained growth and higher avenue numbers over next few years.

Sonia: Just to confirm that you are raising your micro irrigation system (MIS) business guidance, because last time we spoke to you during demonetisation, you said in this fiscal you expect about 16 percent growth and now you are raising that to 20 percent growth, is that correct?

A: For FY18, I am saying that the growth would be higher than 20 percent. 20 is assured just on the project execution, we will be possibly doing more.

Latha: Will you also look at more acquisitions or strategic partnerships with probably non-banking financial companies (NBFCs) since you are saying there is a quantum leap in micro irrigation?

A: Not only NBFCs but also banking sector in general. We have promoted our own NBFC along with the World Bank, they would be growing quite a lot. In addition, we have recently signed, over the last couple of quarters, the memorandum of understandings (MoU) with State Bank of India (SBI), Bank of Baroda (BoB) and Union Bank of India where we are looking that they should lend directly to the farmers who want to invest into drip irrigation because water is short, farmers need cropping diversification and financing has been a key issue for our balance sheet and working capital.

However, now our working capital is stable, growth is there and we are starting this year with about Rs 500-600 crore of cash in hand. That has never happened before. So we are very confident this time that regardless of what happens to the monsoon, this kind of growth we will definitely deliver.

Latha: Will your debt also come down, any timetable for that?

A: This year we almost closed debt to be closed to debt to EBITDA close to 4, our target for March 2018 is to go towards 3. For March 2016, it was 5. So from 5 we have improved to 4. So Q4 has seen significant reduction in the debt. Overall in the current year, you will see further reduction in the debt because overall we want to go for that kind of a sustainable level on the debt where debt equity we are planning to target less than 1:1.