"The rains are very good now, so post October, we expect lot more demand. Also, some of the government action like making sugarcane mandatory with drip should result into a very strong domestic business," Anil Jain, MD of Jain Irrigation said.
Jain Irrigation's margins for the June quarter are up because of better absorption of the cost and better product mix, says Anil Jain, MD of Jain Irrigation.
He expects the firm margins to sustain for the rest of the year.
"The rains are very good now, so post October, we expect lot more demand. Also, some of the government action like making sugarcane mandatory with drip should result into a very strong domestic busines", he told CNBC-TV18
Below is the verbatim transcript of Anil Jain's interview to Anuj Singhal, Latha Venkatesh & Sonia Shenoy on CNBC-TV18.
Sonia: Your margins have spiked up almost 100 basis points year-on-year (Y-o-Y) at 12.1 percent tell us what led to that margin expansion and what kind of sustainable margins do you see for the rest of the fiscal?
A: If you see gross level earnings before interest, tax, depreciation and amortization (EBITDA) level margins are definitely up because of better absorption of the cost and better product mix. Now polymer prices are lower and oil prices remain lower and based on that we feel that if oil prices and polymer prices remain in the kind of where there are we should look at higher level of margins even in rest of the year.
Latha: What about finance cost, you have managed to bring it down? This is the season of NCDs should we see it substantially lower by the year end?
A: Yes, definitely, because what you see the reduction now was based on the equity infusion we got towards let us say end of March and that is the benefit. However, credit rating of the company should be up in the second half. Also some of these equity which we got in is compulsorily convertible debenture with some amount of interest cost.
However, as a combination of credit rating as well as, as and when over next few quarters this gets fully converted, overall interest benefit would be substantial. That is one part of the story, more important is we believe revenue growth, which was little bit muted in Q1 and as we had said that first half is going to be muted, but second half with the kind of order book we have, we expect very strong show.
Anuj: If you look at segment wise your plastic segment did well but agro was a bit muted especially the domestic business even the exports. What is the outlook on that front?
A: The micro irrigation business was domestically muted because this was a season when people didn’t have water. However, the rains are very good now, so post October, we expect lot more demand. Also some of the government action like making sugarcane mandatory with drip and so on should result into a very strong domestic business.
If you really look at our overseas business in micro irrigation, it grew more than double digits in our overseas subsidiary. So, all in all and the project business we have in micro irrigation including solar water pump, we have very large orders in hand.
So, we feel very comfortable to say that we would grow double digits and what we had talked about at the start of the year that it could be between 12-18 percent but it seems now that it would be more on the higher side than the lower side.
Sonia: You are raising your forecast for the full year so from 12 to18 percent earlier how much do you think the growth could be now?
A: When we said 12-18 percent now it seems based on the orders we have in hand, it would be closer to 18 percent rather than 12 that we know for certain. However, that we had said that post end of the monsoon season we would give the forecast for the whole year. However, we feel very confident and sure right now with the orders in hand we have that two businesses, which were little bit revenue neutral or lower revenue in Q1 MIS and food processing both should do well.
Just to talk about food processing, we just finished processing mango season and we processed more than almost Rs 575 crore worth of mango pulp and we have orders for almost 85 percent of that product already in hand. So, lot of that would get skipped out in the second half of the fiscal year. All in all as I said order flow, order booking is very good but most of the execution is going to be in second half.
Latha: Can you tell us a little more about food processing, what might it return you in terms of a revenue and EBITDA this year? I mean it is a nascent business how might it do next year?
A: The business was with us as a part of our division, but now it is a separate company subsidiary where we got an equity on March 31st. In that business, India business was about Rs 800 crore in size last year fiscal FY16, for the whole year we expect business to grow about more than 20 percent out of India. We have this business also in UK and US and those places which already grew about 15 percent in the current quarter overseas food business. So, all in all global consolidated food business, which last year was between Rs 1,500 and Rs 1,600 crore, we expect overall to grow 20 percent this year.
Sonia: The biggest positive is the equity infusion that you have done which has materially aided your balance sheet. The last numbers we have on debt-equity ratio is 1.24 times as on the end of FY2016. Can you tell us how much it has improved to if at all by the end of June and how much further do you expect the debt-equity ratio to improve?
A: We have given indication that our debt-equity ratio by end of March 2017 would be down to 1:1 from 1.2 that is the guidance we have. Now in terms of the current debt-equity ratio, we have seasonal changes for example in the current quarter we build lot in inventory talk about just now about mango processing. So, some of our cash which we had in March does get used during this particular quarter.
So, standalone our debt is less than March right now, but on overall net debt is little bit higher than what was in March. However, by March 2017 we expect it down to 1:1 and at 1:1, it would be very comfortable because last year in March 2015 we were at 1.8 so from 1.8 to 1.2 and now going to be 1:1 this year.