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Last Updated : May 18, 2015 02:55 PM IST | Source: CNBC-TV18

See pipes business growing 20% this year: Jain Irrigation

The company reduced its overall debt by Rs 360 crore during the March quarter, and aims to reduce it by another Rs 300 crore this year.


Jain Irrigation Systems is looking to sell a 25-30 percent stake in its food processing business, the company’s Managing Director Anil Jain said in an interview to CNBC-TV18. Jain said he was expecting to complete the sale by September this year.


He said the company is targeting capital expenditure of Rs 150 crore this year


The company reduced its overall debt by Rs 360 crore during the March quarter, and aims to reduce it by another Rs 300 crore this year.

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The company's pipes business grew 30 percent last year, and Jain expects growth to be in double digits—at least 20 percent—even if monsoon is below par.


Below is the transcript of Anil Jain's interview with Reema Tendulkar and Sonia Shenoy on CNBC-TV18.


Reema: Walk us through the outlook for next year because in your statement you have indicated that you are cautiously optimistic, you are watching for the way monsoon will play out, so with respect to micro-irrigation or MIS, what can be the expected revenue growth for FY16?


A: Having come through this quarter and this year which went through a lot of ups and downs, our domestic business in micro-irrigation grew almost 17 percent. We expect similar level of good growth going forward. Based on combination of factor we expect lot more project revenue in India as well as through export and we continue to expect steady growth into what we call retail market where we sell to farmers through our dealers especially because we also have got our non banking financial company (NBFC), which is going to fund farmers to buy irrigation system, they also raise capital end of March. So, we will be able to grow the revenue without using our own capital, so we also expect more capital efficiency.


Sonia: So if you do see steady growth in the retail market and more capital efficiency, then don’t you expect to grow better than what you did this year because this year as well your domestic MIS business saw 17 percent growth?


A: Yes but when I said I am being cautiously optimistic, El Nino has developed in Australia, Philippines has already seen drought etc., so we do not know what exactly the situation will be in India. In India what impact would have on monsoon is not known. As of now people are saying that by June 1 monsoon would be in Kerala. If monsoon is good, we should look at robust growth. If there is a drought kind of scenario where farmers have no water to manage, it could impact our business and that is why we feel that based on what we know and what we have already, we feel fairly comfortable to say that we will have a double digit growth.


The higher or lower level of double-digit will partly become clear in the second half and again the company usually has more stronger business, almost 2/3rd of our business comes from second half, so if we speak in August-September, we might have a far more clarity, but overall we feel quite positive that all our businesses, not just about micro-irrigation, our food business grew 22 percent for the whole FY in terms of 2015 and the pipe business in fourth quarter was the highest growth, almost 30 percent and that is dependent on infrastructure and we have seen some good orders coming in on infrastructure side for the pipe demand. So all three businesses, when they do well and even if something goes wrong due to bad weather or bad season, overall as a company we should maintain positive growth momentum.


Reema: So basically your guidance would be a double digit growth in the domestic MIS business. If there is a deficient monsoon perhaps it will be in low double digits and if monsoon is fine, it will be better than what we saw in FY15; that is more than a 17 percent growth right?


A: Yes that would be correct.


Reema: Can you tell us a little more about the company’s debt reduction plans? What helped in reducing your debt by Rs 300 crore in the quarter and what is your targeted debt reduction in FY16?


A: Overall debt came down by Rs 360 crore; Rs 60 crore was in our overseas operation and about Rs 300 crore in standalone operation and that was just better management of our receivables as well as inventory and control on the capex, we have reduced our capex. We expect to plan to do the same thing coming year where we plan again to reduce debt by at least about Rs 300 crore through what I would call internal accruals and better management of working capital overall as an efficiency. However, today our debt-equity is 1.2 and on a standalone basis and on consolidate is about 1.8 and with this Rs 300 crore reduction in normal course over next one year we expect standalone debt-equity already less than 1 and consol should be maybe closer to 1.6.


Thereafter as we had already earlier announced to the market that the food transaction, where we are making our food business, which is also now sizeable becoming a 100 percent owned subsidiary and then we are planning to get some capital in that business to a minority dilution. As that happens and possibly that should happen in second half of the year then that should further add to this debt reduction.


Our long-term plan over next two years is that to consol basis we want to try and bring the debt down to 1:1 because we believe at that level of debt-equity of 1:1 and where our overall interest cost goes down to less than 5 percent of revenue, our bottom line that is profit after tax (PAT) earnings or earnings per share (EPS) would be significantly up than what it is today.


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Sonia: You did mention that you have reduced your capex as well. For FY16 what does your capex stand at?


A: For FY16 we should have about Rs 150 crore of capex. Last year we did about Rs 109 crore so, little bit more than the last year but less than the earlier years, between let’s say ’11-12 and ‘13, in those years we were spending somewhere between Rs 200 and Rs 400 crore in capex. So, compared to that it is lower.


In our micro-irrigation business there is enough capacity left still for us to maintain growth for this year and next year, so most of this capex I am talking about is partly maintenance capex, small amount of that is in growth capex but maybe from next year we would require little bit more of growth capex but we believe we have reached that situation of earnings and balancing different portfolios of business we have that any capex required in future, we should generate from internal accruals and continue to pare down the debt because we really want to bring it to 1:1 on consol basis.


Reema: What is the timeline with respect to stake sale in your food processing business, the company raising some money there?


A: We are looking at all possible options. We believe most likely the transaction should happen in the second half of this fiscal year.


Reema: What is the percentage stake that you are looking to divest in the food processing subsidiary?


A: We are looking at 25-30 percent or in that region. It is a minority dilution and we believe compared to some of the parts, the valuation which will come out will be far better. It is also an exciting business because our different portfolios within that business like there is mango pulp or dried onion; tomato paste which goes into tomato ketchup, the mango pulp which go into the Maaza juice, so it is kind of proxy to fast moving consumer goods (FMCG) in that sense and we have also good portfolio in terms of exports in geographical market. In fact last year between the processed fruits and vegetable, we exported almost more than Rs 500 crore and that should continue to grow because there is more demand for these kind of products and within India there is more demand for convenience food or ready-made food or ready-to-eat category, so we plan to add more fruits, vegetables to what we are doing. So that business grew 24 percent for the whole FY15 and that is almost sixth year in a row we are having a very high growth rate in that business, we expect that to continue over next few years as well.


Sonia: You were telling us that you have seen a 30 percent growth in this year gone by and you have a good order book as well. What kind of growth do you expect in the pipes business in FY16 and can you give us a break-up between domestic and exports and where the growth looks like it could be stronger?


A: Pipe business grew 30 percent in the fourth quarter, not for the whole year. For the whole year it was negative because we had almost about 20 percent negative growth in first nine months. We picked most of that into the fourth quarter but current year as we have started in the FY16, the first quarter looks good, it seems we would again have a very high growth rate in first quarter and if the momentum continues then we should maintain at least a 20 percent growth for the whole year.


There are not much of exports in the pipe business, pipe is primarily a domestic business and the demand we are seeing right now has been more on water and telecommunication side but we also expect some of the larger projects to come through, some of our export orders to come through in Africa, that should happen in the second half, so overall our long-term average growth in piping business is about 15, if we carry the momentum of the last quarter and the current quarter then it could be 20. Therefore, 15-20 percent looks like to be a good range into FY16 for the piping business.


Reema: So just some numbers about the food processing subsidiary, what will be the rough valuation that the company could get if you do sell 25-30 percent stake sell, any rough idea if you could share with us?

A: It would be premature to speculate on the valuation. I believe it would be significantly higher than sum of the part calculation as it shows right now in company’s overall valuation but again the thought process is one, value unlocking but then thereafter what is also important is that we bring more focus on that business. Now that business was almost close to about Rs 1,550 crore globally for us this year but we are expecting again high growth rate of more than 20 percent going forward every year, so that business is on a track to become a significantly much bigger business going forward. We are participating in this whole entire value-chain. On one hand with the help of drip irrigation and tissue-culture plants and solar water pumps, we are helping farmers to grow more and on other hand we are buying from them. So many touch points with the farming community and more and more farmers are moving into more value-added products. All of that put together and there are not too many companies who can build such scale, we are now largest processor of mangoes in the world for example, we are third-largest processor of onions in the world, so as we build more and more of this capacity and the scale, that would allow is to maintain that significant growth rate in that business and I hope the valuation should match according to that high level of growth going forward.



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First Published on May 18, 2015 09:55 am
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