Maharashtra-based Jain Irrigation Systems Ltd reported a more than three-fold jump in consolidated net profit at Rs 976.9 crore in the March quarter of the financial year 2022-23, aided by a one-time gain from the sale of its global irrigation business.
The agri-business and irrigation systems company also pared debt by Rs 2,800 crore to Rs 3,721 crore in FY23 following the merger of its global arm with Rivulis, backed by Singapore-based Temasek Group.
In an interview with Moneycontrol, vice chairperson and chief executive officer Anil B Jain said promoters are working towards reducing pledged shares and also increasing their holding, as he talked about a potential listing of Rivulis over the next few years. Edited excerpts:
How was the fourth quarter of 2022-23 for the company? Jain Irrigation Systems completed the deal to merge its global irrigation business with Temasek-owned Rivulis in March. What was its impact on the company’s performance?
Our business panned out quite well in terms of revenue across different divisions. The drip irrigation division grew almost 24 percent for the whole year and the plastic business grew 36 percent. So there has been good growth and the momentum continues.
What we have reported is comparable, as the last year’s result is without the discontinued business. Because we merged that business, we got close to Rs 1,200-odd crore of one-time gain, which has helped us improve our net worth which now stands at Rs 1,525 crore.
Another impact was that debt went down by Rs 2,683 crore. So net worth has improved and debt reduced. We had a contingent liability of $300 million corporate guarantee that is relinquished now. Plus, we continue to hold a sizable stake of 18.8 percent in a large company now, the merged entity, which is a $750 million revenue company. Eventually, that company will grow, will get listed somewhere in New York, etc. Our stake is valued at about close to about $137 million.
Talking of value-unlocking opportunities in the merged entity, what is the plan?
It is too early to say, the transaction took place only at the end of March. The overall idea between us as two shareholders — Temasek and us — has been to look at this over the next two to three years as the business grows. I think it's a three-year journey for the time we look at a listing opportunity, but we can’t predict right now.
This is a water technology company and worldwide there is interest in this because it is good on the ESG (environmental, social, and governance) side. It helps support the environment and creates a good level of income for farmers, so also addresses social and governance aspects. It is a positive business to have — a virtuous cycle business.
In FY23, the company reduced consolidated debt by Rs 2,683 crore (41.9 percent) to Rs 3,721 crore. To what extent can you reduce it further?
If you look at the borrowing, at a standalone level it is Rs 2,700 crore in March 2023, and around Rs 3,700 crore at the consolidated level. We would be able to reduce the standalone debt through internal accrual and cash flow by about Rs 500 crore in the current year (FY24). And we will be able to reduce another Rs 100 crore at a consolidated level, which means an overall debt reduction of Rs 600 crore in the current year.
The debt reduction in FY23 was a very big chunk. To do even Rs 600 crore in the current year out of internal accrual is going to be a big milestone for the company.
How has the finance cost reduced and what will it be for FY24?
In FY24, we are expecting that the physical cash payment of interest would be about Rs 200-210 crore. The other debt which we have, an additional debt of around Rs 1,000 crore in the consolidated numbers, would mean another Rs 110 crore. So you're looking at about Rs 310-320 crore total interest outflow for FY24.
All your business verticals — high-tech agri, agro-processing, and plastic — seem to have done well in FY23. Going ahead, what will be your key growth drivers? Are you looking to enter a new business?
No, in the current year, I think our focus would remain to stay in the existing business. We see more than a 30 percent growth opportunity in revenues in the current year and FY24 compared to FY23. The momentum in the first 45 days of the fiscal year has been good.
In terms of new growth opportunities, we will do some different things in our existing business. For example, we have a planting material business, tissue culture, where we primarily sell banana or pomegranate plants. We are now adding more items like oranges, potatoes, coconut, etc, which could grow the business. This business is currently small but has high EBITDA (earnings before interest, tax, depreciation and amortisation) margins. We expect this business to grow by maybe 40 percent.
In the plastic pipe business, we have been selling pipes to farmers for irrigation purposes. But this year we will take some concrete steps to start selling pipes and fittings into the urban market for plumbing, building and construction as the production process is similar. We need to build an urban marketing infrastructure and distribution network for this. The plumbing business revenue was hardly Rs 40 crore but the market is very large. So I think we could grow from a smaller base substantially to three times this year. We will be building a new capacity, so that the year after that, in FY25, it becomes a much larger business for us.
What’s your guidance for margins and the order book?
We have an order book of about Rs 2,300 crore right now. We would look at growing more than 30 percent in top line in FY24 and EBITDA margin growth should be higher than that — say 35 percent-37 percent.
As for the order book, a lot of our business is from repeat orders from the dealer every other month. This doesn't get captured in the order value but the momentum is very positive from the dealer business. This is also important because one of the other important things we have done in FY23 is that we have brought down our working capital levels and we expect to bring it down further.
As of March 2022, our networking cycle days were 314 days which stands at 250 days as on March 2023. In the current year, we plan to bring it down to close to 150 days. That means most of the growth in the new business is coming from where you take advance from the dealers, not the government business where you have to give a lot of credit. Also, exports now will be within 90 days payment term. Earlier, we used to give longer time to our subsidiaries. All of this will help us to reduce working capital so whatever EBITDA we generate, almost most of that should come into free cash flow.
What’s the proportion of government-backed orders and non-government orders?
Government-backed orders are still at about 50 percent to 60 percent in the current order book. The orders from dealers are not in the order book because they come and go as we supply them. But if I look at the total business which we will do this year, I think approximately about 30 percent would be government-backed and the rest should be straight to the dealers on a cash-and-carry basis.
The general election is scheduled for 2024 and typically, the ordering process slows down ahead of it. Given your exposure to government orders, what is your expectation?
Yes, generally speaking, about six weeks before the election dates, there is an impact as the focus of the government and the bureaucracy moves to the election rather than their usual jobs. But most of the government-linked orders are already with us so we are not anticipating a lot of new government orders; we are not dependent on that.
The other aspect is with respect to agriculture and irrigation, what happens is that during election time or before election time, the government wants to be seen to have done some good work. So actually they push for the completion of projects and for faster use of the budget so that they can show it to their constituents. Irrigation projects are physical things to be seen. So in our past experience in India, elections happen every year or every six months, at some level or the other. We don't think it is going to create any meaningful impact, even if there is some impact for two-four weeks, but not much will reflect in FY24 since the election is expected in May or June.
What will be your capital expenditure for FY24 and how much was it in FY23?
Last three-four years, we have not done any growth capex. We've just been doing maintenance capex of under Rs 100 crore. This year we will do about Rs 100 crore on growth capex and Rs 75 crore on maintenance. The major benefit of this will come in the next fiscal.
Promoters have pledged another 12.03 percent of shares in the last quarter. Total pledge now stands at 58.50 percent of promoter holdings. Is there a plan to reduce this?
We have a plan, as a family, to ensure that before March 2024, we should remove all the pledges on the shares. This should happen through value monetisation in some of the family assets to pay off these loans.
From time to time, whenever the company needed equity through warrants, etc, we have invested in the company. As a part of restructuring last year, we invested around Rs 90 crore. But I think with value monetisation, which is already planned in the current year, we expect most of the pledge would be totally gone. Some small amount of pledge might still remain linked to the restructuring, which we recently did with the bank but that should also get released over the next couple of years.
The promoter's holding was low at 28.36 percent in the March quarter. Will the promoters increase their holding?
After we have managed to remove the pledge on shares, as things improve overall, we will definitely be looking at using creeping acquisition to increase the stake. We ourselves don't feel comfortable at the current level of promoter holding in the company. We want to increase it.
So, in FY24, your focus is to clear up the pledged shares and the year after, you want to increase promoter holding through creeping acquisition?
Right, yes.
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