Costly polymer hit margins; H2 to better: Jain Irrigation

Jain Irrigation reported a net loss of Rs 65 crore in the July-September quarter. Its margins also dipped to around 16 percent from 19 percent in the year-ago period. Anil Jain, its MD says that depreciation in rupee and crude pushed polymer prices to all-time highs, which impacted margins.

The company also aims to reduce its forex debt going forward. The strategy will be to have net forex earnings of USD 50 million this year, he tells CNBC-TV18. Exports have risen to 60 percent in the first half and expect it to rise further, he adds. Also read: India's rice exports seen at record 11 mn tonnes: USDA Below is the edited transcript of his interview to CNBC-TV18.   Q: Take us through the margins. What compressed that? A: Overall margin compression of about 3.3 percent is partly due to the product mix. This quarter out polyethylene pipe business has grown up by 200 percent. It is low margin than micro irrigation. Micro irrigation also grew by about 20 percent. Last quarter the rupee depreciation at 68/USD and crude prices pushed the polymer prices at lifetime highs. I have never seen that level for last 30 years. It ate into our margins as well. So, we combined came down at 3.3. In second half, we should look at going back to 18-19 with lower prices of polymer and better capacity utilisation as we sell 60-65 percent of our sales in second half rather than in the first half. We got about 33 percent revenue growth in this quarter and our balance sheet size is same and that is also going to improve. While we have lost EBITDA but on interest side it is now 3 percent lower. Last year same quarter interest was almost 30 percent of sales and now it is down to 10 and for the whole year. We expect interest to be between 7-8 percent of sales. That is going to be a significant improvement on the balance sheet side as we go along, what we have already done and what we will be doing in the remaining part of the year. Q: How do you plan to reduce your forex debt? A: We have two types of debts; one is domestic which is working capital which is higher cost and forex rate which is in terms of cost it is LIBOR + closer to 3 percent which is fairly okay. Overall, forex debt is about 230 million and that gets stretched over next ten years including USD 60 million of Foreign Currency Convertible Bond (FCCB). On an average, we do not have more than USD 20 million of Forex debt in terms of repayment and as we have been focusing on export, you would see that our export for first half was about 440 crore or they have grown about 60 percent in first half and for the whole year we are expecting to close about 1,100 crore of export. So, our net foreign earnings this year would be somewhere between 300-400 crore once you remove the Forex repayment as well as the imports. So, business wise our strategy is that we must earn at least about USD 50 million plus every year on a net foreign exchange earning. Repayment is hardly 20-30. So, on cash basis we are not going to get hit. What hit you see last quarter as well as current quarter, when rupee moved from 54/USD to 62-70/USD at the end of September is that that hit has come which is mark to market, not real cash hit.