Jain Irrigation confident of turnaround by FY14

Jain Irrigation is confident of a turnaround in business by fiscal year 2014, says managing director Anil Jain. Mumbai-based company reported a net loss of Rs 31.17 crore for the third quarter ended December, 2012, due to sluggish sales.

The company had clocked a net profit of Rs 1.24 crore in the same quarter last fiscal. Total income declined to Rs 770.97 crore during the reported quarter from Rs 832.12 crore in the year-ago period, the company said in a BSE filing. The micro irrigation business was down 18 percent in the period. "The lower margin in Q3 were led primarily by poor MIS business," Jain told CNBC-TV18. However, he said the numbers were much better compared to first and second quarter.  While income has decreased, the company's expenditure has risen to Rs 674.50 crore from Rs 670.95 crore in the review period. That apart, interest cost has increased to Rs 102.83 crore in the third quarter of this fiscal from Rs 95.15 crore in the year-ago period. The company manufactures drip and sprinkler irrigation systems, solar water heating systems and agro-processed products, among others. "We may see reduced interest costs in FY14," Jain said adding, liquidity situation is stable at this point in time for the company. Below is the edited transcript of his interview to CNBC-TV18 Q: How many more quarters of adjustment would you require before the business gets back on track? A: Infact in the Q4 itself the micro irrigation business will turn positive. First two quarters June and September micro irrigation business is down almost more than 33 percent. In December, it is down about 18 percent. So, it is already improving compared to what we saw in the first half. We expect Q4 to turn positive already. That would mean next fiscal year we should definitely be positive in terms of bringing business back on track, in terms of growth and revenue.
 
Q: Do you expect to see more margin pressure through the course of this calendar year? A: Margin pressures have been on three counts.  one is ofcourse lower business of micro irrigation itself and which is a most profitable out of our entire product basket. Second have been things like food products etc. Like onion we had a lower margin because of this whole drought situation, higher price of raw material in a given particular quarter. Q4 being a larger quarter in terms of overall sale. Our ability to address the cost will be better. So, the sharp erosion of margins you have seen in Q3 may not go through in the Q4. Overall, net earnings in first three quarters we have paid higher amount of interest. Everything will not be corrected back in the Q4, even though we expect Q4 to be better Not only better in terms of micro irrigation growth, we expect solid growth in food business in Q4. Our green energy business is there also doing very well. Q: What kind of tangible balance sheet improvements you would be able to report in the next financial year? A: From where we are compared to March 12, we are expecting the receivables to be down by Rs 750 crore. Or we can say that our receivables used to be one year receivables and we are expecting them to be around 210-240 days by next year. So that would be a reduction of about 4-5 months on the receivable front. Overall we are expecting overall debt down by almost Rs 1,000 crore, compared to March 12 in the next financial year. Combination of these both should result into reduction in interest cost next year of about Rs 80-90 crore, compared to the current year. Next year we are looking to lower the interest cost and improved earnings, based on the higher sales of micro irrigation. While we have de-grown in India 12 percent for first 9 months, our overseas business has grown about 10 percent. So, on a net basis for the entire year we would still be on a positive side in terms of revenue. While earnings would be lower because of higher interest cost and some of the erosion in margin, which was reflected in the first 9 months. Q: Will you look at doing any more equity raising? Will you look at that any kind of equity option? A: No, we raised the equity and now we are comfortable in terms of liquidity. The fact that we don’t have big issue on the long-term loan was the short-term working capital loan with improved receivables, better inventory management that pressure has gone. So, I don’t think we need to do equity. However, with company’s re-rating we expect the interest cost to go down apart from the fact that equity which already came in and as the business starts earning. Next year is going to be a lower capex year compared to the earlier year. Previously we used to have Rs 400-500 crore capex, looking at Rs 200 crore capex. So, internal accruals should suffice, despite the margin erosion etc. Last year, we had about Rs 950 crore of earnings before interest, tax, depreciation, and amortisation (EBITDA). Even this year, which was kind of a washout year with all the consolidation, change in business model. After 10 years of growth, which we were trying to do we will still end up with about Rs 850 crore plus level of EBITDA. So, despite all the bad news end performance is not going to be that bad. It could have been much better, but we thought that it is better to take one year consolidation and change business model so that we create again, sustain growth for the next 5-10 years.