Also read: Jain Irrigation Q2 net loss at Rs 80.7cr
"For the entire year, the overall micro-irrigation systems (MIS) business should grow between 20-30 percent and that would include 15-20 percent domestic growth and 50-70 percent export growth. So, all in all post-monsoon it looks like a very busy and good season for us," highlights Jain.
Below is the edited transcript of Jain's interview to CNBC-TV18.
Q: We do understand that your micro-irrigation systems (MIS) revenue growth has primarily been driven by the export business as opposed to the domestic business. Can you just tell us whether the export momentum is continuing for you and how does the domestic business look in comparison to that?
A: For the first half our domestic business had a negative growth of 4 and 7 percent while exports grew exponentially, but for the entire year, including for the second half, our exports will continue to do well.
Overall, exports for the whole year would be about 60-70 percent growth compared to what we had earlier. However, what is even more positive is that in the current quarter already we will have a positive growth in the domestic business, almost close to more than 20 percent and that would continue in the fourth quarter further. So, what that would mean that for the entire year is that overall MIS business should grow between 20-30 percent and that would include 15-20 percent domestic growth and 50-70 percent export growth. So, all in all post-monsoon it looks like a very busy and good season for us.
Q: What is happening with receivables? There was decline in Q2, but that is still at an elevated level. By when do you think the situation will return to normal?
A: The receivables in terms of overall absolute number have come down already by almost Rs 450 crore in first half and they will come down by another Rs 100-150 crore in H2. When that happens, by March 14, we will see that our receivables for the micro-irrigation business which were almost close to a year of outstanding sales would be down to close to almost six months.
So, we would have shaved off a significant amount of receivables already in this year and it should go down further in next year. Overall in absolute terms, in March 2012 our receivables were about Rs 2,500 crore. In March 2013 they were down to Rs 2,000 crore, by March 2014 they will be down to about close to Rs 1,400-1,500 crore. So, every year we are shaving off Rs 500 crore.
What that means is that by March 2014, the level we reach would be very comfortable. Overall for the company what used to be 270 days will be down to about 120 days or so and that is the nature of the business because certain amount of credit will have to be given to the farmers.
Q: Six months itself would also be high given the industry average of about three to four months. Wouldn't that be right?
A: That is not the industry average per se. By March 15 it will go down from six months maybe down to 90 days to 120 days. What we have to also keep in mind is that farmers and the entire business model was used to subsidy from the government for last two decades. We moved to the cash model. The first four quarters meant reduction into the business also when we change the business model.
Now, we have got the revenue growth back and receivables are coming down and by March 15, we will be in a very comfortable position in terms of overall outstanding days of receivables along with the growth.
We used to have the 30 percent growth all along for almost 2003-2011 and we will reach that good level of high level of growth already now from this quarter and that should continue going forward, because in rural India, with higher prices of agricultural commodities, farmers are making more money.
Due to the labour shortages, they need mechanisation and last year majority of the country also faced these water shortages due to drought, famine etc. Because of these droughts. farmers are also realising the importance of this whole water management. All in all, all these things auger very well for the growth and a sustained growth with a lower and asset light balance sheet.
Q: How is margin contraction looking in this quarter and what is the margin projection that you can give us possibly in the foreseeable future?
A: Margin contraction was combination of higher polymer and energy prices on one hand and also the fact that the product mix - we sold more of the pipes which have typically lower EBITDA.
Change of business model, that is in micro-irrigation we have started giving cash discount to the farmer as we are collecting cash, improves our net margin, but the EBITDA margins go down. So that was the reason.
As we have now come into busy season with better production capacity, utilization and fixed cost absorption would be better. That should improve margin. Polymer prices are off the high they had reached in August when rupee was 68-69 against the dollar. So, they are down by almost 5-7 percent.
Both higher capacity utilisation and lower polymer prices should improve margin now. But at least for another quarter compared to the earlier year, if one looks at the margin, it would still be lower because we have changed the business model where we will have lower EBITDA but at least the same level of net margin due to the cash discount we provide.
All in all, maybe this quarter or another quarter one might still see somewhat subdued margins. They would be better than first half, but as we move forward next year even margins would come back, because then one would be comparing with the new business model. Right now we are comparing model with the Y-o-Y basis based on the earlier business model. That is not the right comparison in that sense.
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