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Mr. Anil Jain, Managing Director, Jain Irrigation Systems Ltd. (JISL)

" The biggest entry barrier is knowledge and knowledge transfer apart from resource requirement."

January 14, 2008 12:00 IST | India Infoline News Service

Jain Irrigation Systems Ltd. (JISL), founded as a family business in 1963 in India, is a diversified company with more than 6,400 employees and market capitalization in excess of $600mn. Product portfolio encompasses Irrigation Products, Piping Products, Plastic Sheets, Dehydrated Foods, Fruit Puree and Juice concentrates. Jain Irrigation has pioneered drip irrigation for small farmers in India and has the major market share in one of the fastest growing irrigation markets in the world. 

Anil Jain, Managing Director, Jain Irrigation, joined the company?s management team in 1984 and was in charge of US-based marketing operations.  His achievements are, specifically, in the field of drip irrigation, agriculture related plastics, food processing and industrial plastics. He has an extensive background and 22 years experience in Finance, Banking, Mergers & Acquisitions, Strategic Planning, Restructuring Operations, Import & Export Marketing, International Business Relations, Collaborations and Joint Ventures.  He completed his   B.Com. from Pune University, in 1983 and LL.B [Law Degree] from Mumbai University in 1988. Jain Irrigation has bagged 193 Awards since 1993 under his leadership. He successfully undertook and executed business and Balance Sheet restructuring which erased the loss making years and has again made the company a fundamentally sound and growth oriented. 

Speaking with Anil Mascarenhas of India Infoline ,Mr. Jain says, "The biggest entry barrier is knowledge and knowledge transfer apart from resource requirement." 

Briefly walk us through your various segments.

We have four different businesses. Micro Irrigation, Piping, Fruit & Vegetable processing and plastic sheets? business. Each business has very different dynamics in terms of growth.  

Micro Irrigation is one of the most profitable and fastest growing businesses for us. India is the fastest growing market in the world for this business with a huge potential. India has around 140mn hectares of land under cultivation, which is the largest in the world. Around 50% or 70mn hectares of this is irrigated land. The remaining 70mn hectares are rain-fed land. In irrigated land, most of the farmers use flood irrigation. Around 2mn hectares has been converted into drip and sprinkler irrigation.  

What growth rates are you seeing in micro irrigation?

To begin with, farmers in India don?t pay much for water and energy. We have been able to popularize the system purely on the basis of productivity increase. This is a unique experiment in the world. We are creating a customized system even for a one-acre farmer along with knowledge transfer. This is a mammoth challenge in India.  

For the last four years, we have achieved a CAGR of 63%. This fiscal, we expect to see a growth of around 70%. The business is of two types. The first is a matured market. Here, there is a dealer network and farmers would have experienced the benefits of micro irrigation and hence make investments in the same. The second is states where the government is pushing farmers to get acquainted with the benefits of micro irrigation. States like Andhra Pradesh and   Gujarat have specific programs to support micro irrigation.  

This concept, which originated in Maharashtra, was well received in the South and is now moving to Central and Northern parts of India. Madhya Pradesh has witnessed 100% growth this year while Chattisgarh, Rajasthan, Punjab and Haryana are also showing similar encouraging signs.  

Besides growth in geography, are you looking at covering more crops?

While we will continue to cover more geographical areas, we are also looking at expanding the crop coverage. The earlier system was more adopted for fruit crops like grapes, bananas and mangoes. On the drip side, we are now seeing this happen with cotton, chilly, sugarcane and vegetables. On the sprinkler side, there is interest in pulses and groundnuts.  

What are the growth triggers here?

The growth would come from additional geographical areas,   additional crops and replacement business and more growth in existing crops.    

What is your market share and what edge do you have against your competitors?

In India, we have over 55% of the overall market share. We expect to maintain and sustain our lead. There are 60 to70 manufacturers in this segment. Most players manage to make some basic system, which can save water. The key differentiator here is knowledge transfer. We share our expertise to enable farmers to improve productivity. Our focus is to increase farmer prosperity. 

Tell us more about the replacement business

In micro irrigation, around two-third parts get replaced within five to seven years. The remaining parts, which include steel filters, get replaced in 10-20 years.  

What is the revenue contribution from micro-irrigation business?

Micro-irrigation brings in over 35% in terms of revenues. Profitability is better compared to all other divisions.  Our challenge and goal is to minimize the cost per hectare for farmer by redesigning and R&D. Ultimately, the farmers would look at a lower cost per hectare when making a purchase. Our strategy is to reach maximum number of farmers and cover larger land areas rather than trying to just focus on the margins. These margins allow us to continuously invest in R&D, building additional production capacities and to build newer sales and marketing network. 

Brief us about your pipes business.

In revenues, over Rs6bn would come from pipes business this year, which translates into 40% of our revenues. Margins are in lower double digit. However, the return on capital employed is very good.  Our original business of PVC pipes was traditional business. We sold pipes to farmers for irrigation and some for drinking water supply schemes. Over the last three years, we started manufacturing Jain Polyethylene Gas Pipes which are suitable for Gas distribution. The infrastructure segment is witnessing tremendous growth. We are supplying gas pipes to city gas distribution. Our pipes are also used by telecom companies and for sewage and effluent waste disposal. We supply pipes for potable water applications too.  

Earlier, our products were restricted to 300mm. We are now going beyond 1 meter diameter. With huge infrastructure spending expected the requirement for pipes would also increase significantly.  

Raw material prices have been on the rise. What impact have you felt here?

With crude oil skyrocketing from US$35 to US$100 over last three years, our raw material costs have indeed spiraled. However, we have been able to pass on the increase. Our balance sheet shows that we have been able to sustain our margins. Besides plastic prices, the prices of metal prices have also shot up. Piping, this year, is set to grow over 50%.  

Any new launches here?

We are launching our SWR, which is for home drainage for the housing market.  Earlier, we were not present in this segment. Next year we would be launching piping products for plumbing applications. We are launching corrugated pipes in the next quarter. This saves material and offers more strength for various applications. End use would be for drainage and sewage.  We supply pipes to City gas distribution. Today, there are only five cities for city gas distribution. They have identified 200 cities and ultimately it would cross a thousand. We are also increasing our capacity.  We have the largest market share in this segment.  

What made you enter the Fruit and Vegetable processing business?

The demand for juices is growing. People are going for more alternative health drinks.   Demand for tropical fruits is growing outside India. Being inside the entire value chain of the farm business, we felt this as a logical conclusion. Contract farming is spoken by many. But we are among the few who are practicing it. We buy the fruits and vegetables from farmers and process the same thereby adding value. This is sold in India as well as exported.  

What growth do you see in this business?

India processes hardly about 2-5% of its agricultural produce. Brazil processes 68 to 70%. There is a lot of room to grow. We have backend links through contract farming. We have our relationships with farmers as we supply drip irrigation etc. We are more suited to make further inroads into the business.  

We expect this business to grow in excess of 50% this year. It contributes about 15% of our revenues. With growing population and more urbanization and better retail chains and cold storage infrastructure coming through, we see more demand. 

The margins are between 15 and 20%. Besides pulp, we are planning to do frozen cubes of mangoes and bananas mostly for export markets. Eventually, these would find their way into the domestic market. We mostly do bulk supplies for juice manufactures. In onion processing, last year was not so good due to higher raw material prices. This year we expect to do better.  

Are you looking at your own retail brands?

We have our own brand Farm Fresh for bulk supplies. We may look at retail for some products but have no plans to go aggressive with our own retail brands. We have a supply arrangement with Coke for their mango drink Maaza. We may look at selling on our own 1 kg mango pulp packages through retail stores. These are however, ideas still on the drawing board stage.  

Is cold chain infrastructure an issue?

It may be an issue for the industry. But we have our own cold chain. The issue with any agricultural-related business is consistency and predictability. These are inherent issues for agriculture. Infrastructure issues do exist in India viz lack of power and lack of proper transport. Successful companies have to learn to deal with it, grow with it and hope that it will change.  

You have a plastic sheets business, which caters to the US and European home market. How has the slowdown in the US affected this business?

We are the only manufacturers of PVC & Polycarbonate Sheets under one roof in South East Asia. This environment friendly product is mostly used in US and  Europe. Its utility lies in graphic display applications and partly home building applications.

Home building segment may see a negative growth this year due to the slowdown in US. For the last four years, this division had a 40% CAGR. From high levels of growth, this would be the first significant year of negative growth. We will still make money this year and hopefully next year will be better. We have increased our R&D efforts for this product and are introducing it to newer markets.  

Overall, what kind of revenues are you targeting?

Our sales last fiscal was around Rs12.50bn. In the current year, we should add around Rs10bn to last year?s turnover. This is consolidated numbers and will include our overseas acquisitions. 

How big is the gap between you and the global leader Netafim?

The gap is not much if you take into account the entire market share of the Israeli company we invested in. We had bought 50.01% stake in an Israel-based company NaanDan Irrigation Systems. By 2010 we should be able to bridge the gap.     

To what extent have you hedged against currency fluctuations?

We adopted a strategy two years ago where we started shifting our European sales to Euro rather than dollar. Our raw material imports are paid in dollars. That has to a large extent offset the losses on exports.  

We get lot of working capital and long term loans in foreign currency. We, in fact, benefited with the rupee appreciation. We took timely action. We have around 30% sales coming from exports. For the last six to seven quarters, where most export companies have suffered because of rupee appreciation, we have made some profit.   

What is your current debt to equity ratio ?

Post conversion of full FCCB into equity, our FY08 overall debt equity ratio would be 1.2 times. By FY09, it should be less than 1.  

What are the revenues from overseas business?

Those are matured markets and are growing between 10 and 20%. This was the first year post our acquisition. We would expect around 4bn to come from overseas business.  

What are your plans on the inorganic front?

We have done our fair bit where we have acquired additional product lines and access to technologies. New M&A activity will depend on the opportunity, whether it is technology or market.  

Our current year focus is on integration because we want to improve the profitability in the overseas entities in the coming year.

Any plans to hive off any business?

As of now there is no such plan. We will do it at the right time and right opportunity. We have to attain critical mass and then evaluate whether there is true value unlocking through such spin offs. 

Do you have any plans for current capacity expansion?

We have recently started manufacturing in Hyderabad & Tamil Nadu. We would also be going to North. Adding capacities, adding dealer networks and becoming pan Indian company is our primary focus.   

What is you current net worth of business. What capacity enhancements are you undertaking?  

Networth for March ?07 was Rs.4.75bn and is expected to grow significantly in the current year. 

Capacity keeps changing; as we are continuously adding new capacities. Overseas also we have planned to expand through adding capacities. For example in USA we will go on big way into agriculture segment where until now we were in landscape segment The Israeli investment we have, they would be investing in countries like Turkey.

In fruits & vegetables we are putting more capacities.  So in each product line we have ability to grow vertically & horizontally.  

What kind of investment would you be making for expansion?

We would be investing every year around Rs2.50bn on expansion, upgradation and modernization. We are focusing on more productivity & more capacity.  

What are your strengths amongst your peer group?

First, we are end-to-end solution provider. Second we believe in knowledge transfer, so we are not selling merely equipment but we are transferring knowledge and adding value to the customer. Third, our production technologies are one of the best in the world and costs are also low and we have global footprints. In micro irrigation we are now No.2 in the world. We have the largest mango processing capacity in the world. Our capacities are global, but our roots are very much local. Our relationship with the farmers, the goodwill & trust we enjoy with the farmers is one of the biggest strength we have.  

What is your current employee strength?

Manpower strength has now reached around 5,000, including about 750 employees outside India. In India, we should be adding in excess of 500 people this year. This would be mostly for sales and marketing.  

Update us on your R&D facility?

We are consistently doing R&D in the agricultural area. For eg, we have a biotechnology division where we do tissue culture in bananas. We sell tissue culture plants to farmers to improve productivity. Now we are working on tissue culture for pomegranate.  We have also improved solids in Onion seeds.  We are developing different ripening practices for Banana.   We are working on Energy from agricultural waste.  

Do you face issues relating to micro irrigation, government funding etc?

The issues regarding government funding are more streamlined now. Government support is more institutionalized and transparent.  The delivery is effective.  

What are the entry barriers in this industry segment?

The biggest entry barrier is knowledge and knowledge transfer apart from resource requirement.  You have to really understand the small farmers. We have to deal with a one acre farmer and provide customized solution along with knowledge transfer. Not many people can do it. Being very committed to rural India is very difficult.  

What is Promoter?s shareholding?

It is between 28-29%. Post warrant, it would be around 37%.  

Who are your major investors?

Almost 50% are the FIIs, remaining includes mutual funds and the institutions. About 7-8% is for public. The limit for FIIs buying is about 60%, so there cannot be single large holding. It is fairly spread.

Any offer for taking stakes?

We have constant interest from investors who are looking to invest in water and agriculture themes. The new shareholder can enter the holding only through share market right now.  

Usually budget is a trigger for interest in your company. Your views?

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