Good monsoon will trigger double-digit growth: Jain Irrigation

Jain Irrigation’s fourth quarter performance was weak on account of weak orders, but the company expects the put up a good show in FY17, Anil Jain, Managing Director told CNBC-TV18.

The company is hopeful of a good monsoon which could trigger a double-digit growth revenue growth for the company. Jain said the company's de-growth in FY16 was on account of lack of orders and now that the company has bagged a few orders, FY17 will be a better year. he said, a better monsoon, new orders and its preparations will help the company clock a double-digit growth and much better earnings in FY17.

In the fourth quarter, Jain Irrigation's revenue fell 1.6 percent to Rs 2,010 crore agains Rs 2,042 crore in the year-ago quarter. Net profit slipped 8.8 percent to Rs 89.8 crore, while total income slipped 1.6 percent to Rs 2,010 crore in the quarter.Below is the transcript of Anil Jain’s interview with Nigel D’souza and Reema Tendulkar on CNBC-TV18.Nigel: We are seeing some pressure on the stock. We do have your revenues. In fact, overseas business grew over around 6.6 percent. However, the derived domestic revenues appeared to have disappointed because that is likely to come down by around 6-7 percent. What exactly called for this and going ahead will you see an uptick in the domestic revenues?A: Good afternoon to both of you. This has been a weak quarter and it was expected because of the huge drought which has been for most part of the country. And when there is almost no water to drink, farmers cannot buy drip irrigation because they have also no water to irrigate their farms. And, our irrigation systems are water management systems. So, it was expected, but we think if we talk of now fiscal year 2017, and expected good monsoon, we expect 2017 to be a much more positive year for revenue growth. And for micro irrigation, we have different type of business what is called retail business where we sell to farmers through the dealers. In fact, that business, despite such a strong drought, grew by 6 percent in FY16. So, that was positive. And next year, we can build on that and make it double digit growth. The last year, the degrowth we see mostly is due to the less project business, but for the current year, we already have the project orders in hand including solar water pumps. So, we are fairly confident of a significant growth there as well. And our exports also shall be growing because our overseas subsidiaries are also doing well. So, all-in-all, we are expecting that FY17 would be a big growth year for us in for micro irrigation business, as well as other businesses. Piping is also partly dependent on water and monsoon. And that also, we expect to improve. And another major issue which we have already tackled last quarter has been this getting the funding and equity infusion done of Rs 800 crore. So that has made our balance sheet much stronger with reduction in debt, improved working capital, lower interest cost, next year looks much better.Nigel: You were giving us some guidelines in terms of double digit growth on a particular segment or is it on your total revenue for FY17?A: We believe our overall revenues should grow double digit. If monsoon is really good, it could be on higher double digit otherwise lower double digit. All businesses I was talking about, even piping business is growing quite a lot based on the infrastructure growth. We are getting a lot of orders from the gas or the power plants and others. We expect also better accounting on the food business, and our overseas business is also doing well. So entire ecosystem has become much better. In fact, even today’s newspaper there is a big article about drip irrigation on sugarcane and Maharashtra government has announced that they want to make it mandatory. They want to really start ensuring that to happen starting from October. Even last four weeks, Prime Minister had meeting with 11 Chief Ministers talking about the whole drought redressal issues. And in fact, he tweeted after each meeting and you see those tweets, he talks about micro irrigation specifically. So, that higher focus from the government policy, better monsoon and our own preparedness should allow us to have very good growth in FY17.Reema: So double digit revenue growth for FY17. But particularly on your micro irrigation system, your consolidated MIS business was down 1.7 percent. On a standalone basis, it declined by 5 percent on a year-on-year basis. On MIS, if you could give us a guidance for next year.A: On MIS itself, what I am saying there is a good chance that we could grow somewhere between 12 and 18 percent. And depends on how the rains go, but that is the degree of the range. But we believe there are lots of factors which are quite positive. And in fact, you see for the last year also, while fourth quarter was weak overall, for the whole year, our earnings have grown from Rs 55 to Rs 88 crore. And with this reduction in the debt, at the last day of the year, should allow us much better interest cost. So, all-in-all, we expect a positive growth and much better earnings this year.Nigel: I was looking at your industrial products business. In the last quarter there was a dip. In terms of revenues, the profitability continues to improve over there. Do you expect the same to continue. And you told us that 10 percent growth on the topline for the last year, you have done margins of around 13 percent with improvement in these margins. That is industrial products division. Do you believe the margins can move to maybe 13.5-14 percent?A: Some amount of improvement on margins definitely possible. And on our industrial products part of that is this piping systems which goes into infrastructure and polymer prices continue to remain low which allows us to have input margin and also our capacity utilisation is going up. So, that can improve our fixed cost absorption.Reema: Post the equity raise, your consolidated net debt to equity has improved to 1.2x from earlier 2x. What will this mean in terms of your earlier interest cost? How much will it come down by in FY17?A: We expect interest cost to go down somewhere between Rs 80 crore and Rs 100 crore in FY17 compared to FY16. And that should all get added straight to the bottomline. And we also at the 1.2 debt equity which is there now, we are targeting by the FY17 by March. We should try and go closer to 1:1. So, we will have a further additional focus on working capital efficiencies as well as some value creation opportunities if any. And so that we can definitely ensure that we reach to 1:1 because we definitely want to take this interest issue behind so that we can become more competitive in market place and also add to our earnings per share (EPS) earnings.Nigel: You have indicated in the past that as a percentage of your revenues, you are expecting it to come to around 3-5 percent. If you do a topline growth of around 10 percent or thereabouts or even if you save close to around Rs 80 crore on the interest portion, still it works out to roughly around 6-6.5 percent. How soon can we see your interest to revenues come down to around that 3-5 percent that you had guided for earlier?A: That guidance was also over a period of time, not immediately because this transaction only happened on March 31. I expect on annualised basis, in the next 12-18 months, you would see already that happening.Reema: Can you give us some projections on your MIS receivables? It currently is at Rs 581 crore for the MIS. If I include even the export government subsidy, etc. it is at Rs 10,030 crore. Could you give us some guidance?A: It is at Rs 1,030 crore in total. We are expecting as I said, our business could grow at 15 percent plus this year and actually receivables will be down by about Rs 100 crore or so. So, our business will grow, we expect absolute amount of receivables to go down by about Rs 100 crore.Nigel: Then you had indicated your solar water business should move to around Rs 500-700 crore. What was it in FY16 and could you tell us by FY17 are we sticking to around that Rs 500-700 crore?A: FY16 and when we spoke about that number, that was sometimes in February or March, we are coming very close in FY17 to the number. And that overall business, part of that business is housed under micro irrigation projects division and part of that business is housed under renewable energy division. But combined together, this year, we are definitely hitting that Rs 500 crore.