mahindra epc irrigation ltd share price Management discussions

Company Profile

Mahindra EPC Irrigation Limited, one of the pioneers of Micro Irrigation in India (Since 1986), enables farmers to Rise through Sustainable Precision Farming Solutions in the space of Micro Irrigation, Water Management, Automation, Community Irrigation and Protected Cultivation.

Mahindra EPC is a part of the Mahindra Agriculture Sector and responsibly carries the legacy of over 75-Year-old Diverse Mahindra Group. We work for ‘Driving Positive Change in the lives of our community and believe in ‘Only when we enable others to Rise will we Rise #TogetherWeRise. The Company is known for its quality and its ability to provide customized Irrigation and Water Management solutions to individual farmers as well as communities. This is made possible through its Wide Presence, Synergies with Mahindra Group, Technical Expertise, Superior Manufacturing Facilities, Wide range of Quality Products, and Highly Qualified Capable team. To serve our customers better we have set up multi-locational manufacturing facilities in India. Further, the Company is also known for its Quality Services in the space of Planning, Design, Installation, Agronomy, and After-sales Services – In person as well as Digital delivery. Last few years, we have worked on successfully proving Drip Technology in Non-Traditional Crops for Drip Irrigation such as Paddy. With the Indo Israel Joint Venture ‘Mahindra Top for Protected Cultivation Solutions, we have conceptualised, designed, and delivered, innovative and profitable solutions to Hundreds of small and marginal farmers, other than our core competency of High-end Technology Solutions. While we do so, we are aligned to Sustainability Commitments and have signed up for Science Based Targets and Committed to a Carbon Neutrality Road map.


Agriculture continues to be a significant contributor to Indian Economy; fiscal policy statements highlighted that the Indian agriculture sector is projected to grow by 3.5 per cent in FY 2022-23. Apart from meeting domestic requirements, India has also rapidly emerged as the net exporter of agricultural products in recent years ($50.2 Bn in FY 2022-23). According to the estimates, released by the Ministry of Statistics & Programme Implementation (MoSPI), the GVA of agriculture and allied sectors in 2020-21 was 20.1% and 19% in 2021-22, it has further come down to 18.3% in 2022-23. This is primarily on account of improvements in other sectors. Thus, Agriculture continues to be a major sector for Indias growth and sustenance.

With this background, one must analyze the most critical resources for Agriculture, i.e., Water. The agriculture sector accounts for 70% of freshwater withdrawals as per World Resources Institute (WRI) whereas as per Central Water Commission, in India the figure is a whopping 80% for the agriculture sector leaving just 7% for industries and power generation, 6% for domestic use and 7% for other use. Further, the water requirement by 2050 shall be 1,180 BCM, whereas the total availability of water in the country from all available sources is going to be lower than this projected demand, at 1,123 BCM and we are staring at a shortage of approx. 57 BCM in 2050. To survive, feed the increasing population and ensure the success of growth-contributing programs such as Make in India, the only solution is to improve the water use efficiency and the major contribution must come from the Agriculture sector. Other than surface/ groundwater conservation/ recharge projects, on-farm water management and efficiency improvement are a must. Micro Irrigation comes as the single largest contributing solution, unfortunately, so far it has achieved a penetration level of only 13-14%, leaving a huge scope to cover further. Understanding the importance of Micro Irrigation and its ability to improve productivity other than saving water, has been a critical element of programs such as ‘Doubling Farmers Income.

Industry Structure and Developments

The market of the Micro Irrigation System (MIS) Industry in India has been broadly segmented based on types of micro irrigation systems (drip and sprinkler irrigation systems), applications of micro irrigation systems and with or without subsidy assistance. The subsidy business has been further segmented basis the approach of solution delivery and subsidy disbursement into the project market and open market. For the initial part of the year F23, the industry continued its struggle to come out of the hangover of two consecutive restrictive years. Just to recollect, the industry faced severe challenges in recent years on account of a steep increase in input costs, especially Raw Material, capped prices for the largest contributing subsidy market as well as a temporary shift in the State Government priorities on account of the Pandemic. To note, the overall industry is estimated to be around 5-6% higher v/s F22. The industry is estimated to have done better in H2 of F23 on the top line. A major state like AP got activated towards Mid of Q3 F23 which also had a positive impact on the industry numbers. The state of AP has cleared the pendency leading to improved cash flow for the industry. The profitability of the Industry primarily is driven by the Prices from State Governments and the Raw Material Prices which is the largest contributor to input costs. In F23 much against the expectations of an immediate end price increase various state Governments effectively increased the prices towards the second half of the year. Though the prices were declared, the work orders were delayed to late Q2 of F23 or in Q3 of F23. During this period the Raw material (RM) prices increased by 23.5% impacting the margins. Though in the later part of the year, the RM prices saw some stabilisation with few variants showing softening. Though this has helped improve profitability, especially in H2 F23 compared to previous periods, still on account of Geopolitical events and Dynamics in the Oil Market, the Avg. RM prices led by Crude prices are much above the F20 and F21 levels, and the prices increased in F23 are not covering these increased input costs in entirety. This has made sales of a few popular product lines unviable.

The Government of India (GoI) strongly believes in Micro Irrigation as one of the key tools to save water as well as double farmer Income and thus Hon Prime Minister has been pushing for 20 Lakh Ha a year target for Micro Irrigation. Further, as we look at the various key states, the stable policy states like Maharashtra, Gujarat, and Tamil Nadu are likely to continue their contribution in F23, in addition to this States like AP, and Telangana also shows a promise, though in their limited capacities. Some states in the North also have shown positive signs in the past couple of years viz. Rajasthan and Uttar Pradesh.

Though this is very encouraging, the buy-in, funding and Priorities of State Governments also is equally important. They play a vital role in controlling Funds, Pricing as well as administrative aspects.

With prices partially increased, RM Stabilised, dormant states getting active and new states emerging, various Industry players expect reasonable growth in the coming years.

Opportunities and Outlook

Micro-irrigation solutions create a win-win scenario for all stakeholders involved. The farmer benefits from the increase in crop production by 20-30%, also it helps farmers save on various costs such as labour for de-weeding which results in savings for the farmers.

In F24 several current active states are expected to remain active giving a positive push to the industry, though few key states are going for state elections thus living some part of the year impacted on account of regular operations. As we see recent data on Industry few non-traditional states are showing promise such as Uttar Pradesh, with processes becoming more and more transparent these states are likely to contribute to the overall Industry. Though at industry levels the relevant bodies are working with GoI and state agencies for certain suggested improvements (to be discussed in relevant portions of this document later), significant progress is yet to be seen.

Further, the Central and State Governments are focussing on Water conservation and use efficiency improvement. This is evident from a push for groundwater utilisation efficiency through ‘Atal Bhujal Yojana. The objective is to improve the management of groundwater resources in select water-stressed areas in identified states viz. Gujarat, Haryana, Karnataka, Madhya Pradesh, Maharashtra, Rajasthan, and Uttar Pradesh, through convergence among various_ ongoing_ schemes. In a few states such as Gujarat, the industry has started seeing increased subsidies in select_ districts identified under this scheme. Added to this, few states have recognized the importance of, Surface water conservation and use efficiency improvement through Canal_ Command Area Development on the principle of Integrated Water Resources_ Management (IWRM), which throws few opportunities for community projects on water management/ distribution linked to ‘On Farm Water Management.

The Company will focus on small, faster cycle projects for which some early success is seen in previous years.

Though the RM prices are expected to be range bound at current levels, on account of ongoing Geopolitical matters, it is difficult to precisely predict the same. This highlights the continued efforts to safeguard or improve margins with a focus on Cost-saving measures, leaner organization, and balancing the revenue portfolio through optimizing State, Product, and Segment mix. As a continuation of actions initiated in F22 and F23, the Company will focus on asset efficiency improvement, reduction in working capital, reduced dependence on subsidy-driven markets, outreaching farmers through digital avenues etc. This will be supported through focused teams. With this background Price increase effect seen in H2 of F23 will be helpful for the industry for a full year of F24.

In F23 Company initiated actions to tap opportunities in the space of water use efficiency in ‘Water Guzzling Crops such as paddy. With few like-minded players operating in the associated space Company has developed success stories for ‘Drip in Paddy, and this has befitted the farmers too by improvement in productivity. These efforts will continue in F24 too, though the real commercial benefit will take some more time as farmers adopt these technologies on a large_scale.

Through its JV ‘Mahindra Top, in F23 Company worked on a Proof of Concept and developed an affordable protected cultivation solution for small area farmers, the same will be put to the commercial test in F24.

The overall Agriculture Space is experiencing a lot of technological interventions in precision agriculture, leaving possible opportunities for adoption, convergence, and collaboration.

Operations and Financial Performance

In F23, few challenges from the previous years continued such as delayed price rise, increased RM prices for the major part of the year and key states remaining Dormant/Unviable. This had an impact on Revenue as well as Profitability. Though a couple of stable states such as Maharashtra and Gujarat witnessed smooth operations.

During the year 2022-23, your Company achieved a Sales Turnover of Rs. 210.37 crores as compared to Rs. 211.94 crores in the preceding year.

Looking at the uncertainties the Company focused on debtor management and cost optimization while continuing its efforts on improving its non-subsidy business as well improving its share in stable policy states. The Company consciously controlled the operations in certain states of strength to strengthen processes including Revenue Recognition, Debtor reduction etc. While doing so the Company worked on improving the product mix, state mix and segment mix. For the consecutive second year Company has improved on its share of more profitable products such as Drip. In this process looking at the viability as well as future recoverability, the Company restricted its Revenue from Sprinkler systems in certain states even to an extent of ‘Nil sales. The strategic actions and the results envisaged in F21 and F22 have fallen in place giving the Company a much-awaited push in select markets as well as the non-subsidy segment. This included actions on Geographies, Channel, people, and processes. A continued focus on cost containment and/ or reduction resulted in keeping Fixed costs such as Manpower costs lower than F20 levels consecutively for 3 years. The marketing and manufacturing variable costs too are contained in F23 as a percentage of revenue, mainly through state and product mix optimization. The Company continued its focus on serving the Customers needs, it introduced a new range of non-subsidy sprinkler systems in F23, which are High quality compared to many in the market and in line with our Brand reputation.

The Company further continued efforts on asset efficiency improvement through TQM practices and frugal engineering as well as the reduction in working capital to reduce the impact on the bottom line. The Companys commitment to sustainability (SBTi), social responsibility and delivering quality services to the farming community will strengthen further in times to come, as an acknowledgement of this_ Mahindra EPC, retained its grading to ‘Stage 5 in ‘The Mahindra Way (TMW) assessments. The customers too have acknowledged the Companys efforts by rating it high on CaPS (Customer as Promoter Score A_Group-wide initiative for assessing the level of advocacy at the customer end), a survey undertaken through a third party.

Key Financial Ratios

The Key Financial Ratios of the Company are given below:


Numerator Denominator


Debtors Turnover (Days)

Average Debtors Net Sales FY 2023 304.70 FY 2022 332.04 % Change -8.23%

Inventory Turnover (Times)

COGS Average Inventory 3.31 3.79 -12.90%

Debt Service Coverage Ratio

Earnings available for debt service Debt Service 0.81 0.09 806.64%

Current Ratio (Times)

Total Current Assets Total Current Liabilities 2.20 1.96 12.15%

Debt Equity Ratio (Times)

Debt Shareholders Equity 0.09 0.14 -36.12%

Net Profit Margin (%)

PAT Net Sales -5.82% -4.06% 43.22%

Return on Equity (%)

PAT Net Worth -7.23% -4.76% 51.94%

Trade Payable Turnover

Average Trade Payables Net Purchases 166 171 -2.64%


Return on Capital employed

EBIT Capital Employed -7.58% -4.06% 87.02%

Working Capital Turnover

Net Sales Average Working Capital 1.96 2.12 -7.57%


Return on Investments

Income generated from invested fund Average invested funds in treasury investment 2.84% 5.53% -48.76%

In these challenging times, the Company has been consistent in its efforts to improve product mix, the share of the non-subsidy business to the overall revenue, and cost-saving measures, all have yielded results year on year and helped in balancing revenue, and margins and thus contain the impact on profit. The efforts in this area will continue in future too. The Company has also steadily balanced its state portfolio and has reduced dependence on a few markets. Going forward this will help the Company as the industry opens up states which are currently dormant or going slow.

As explained earlier the Company always has focused on small land-holding farmers and directed its efforts to help farmers Rise through a sustainable source of income. In this quest Company through its JV has proven an affordable solution for farmers at a small investment and less than a 2-year payback period, more over this solution will provide farmer earning opportunities around the year. The farmer groups are being exposed to this advanced prototype. With focused efforts on receivable optimization, the company has reversed the increasing trend of COVID years (F21 and F22 v/s F20) and has reduced the receivables in F23 by an absolute Rs. 47.62 Crs., and significant 74 No. of days. This resulted in a positive cash flow of Rs. 14.57 Cr., and a reduction in Debt by Rs. 10.19 Cr. With continued efforts, improvement in the collection process as well as expected normalcy at the nodal agencies we expect an improved performance in F24. The Company has done a detailed review of old receivables and taken actions to recover the same. Further as a measure of abundant caution have provided sufficiently for receivables that have been due for a longer period.

During F23, the Company strengthened its processes through a digital application for the facilitation of field force to have complete control over the sales process. This has helped in better customer service, compliance adherence, transparency, and reduction in the collection cycle.

The Company continues to provide support to farmers by way of the Agri Helpline for online support besides undertaking initiatives such as showcasing Demo Plots, organizing farmer meetings, creating success stories and agronomy services for farmers to improve farm productivity. These value-added services certainly help enhance the number of farmers achieving Farm Tech Prosperity.

During the year under review, the Company continued to achieve a high rating in ‘The Mahindra Way (TMW) assessment, which measures business excellence across business processes. The Company continued its focus on Total Productive Maintenance (TPM), Total Quality Management (TQM) Continuous Improvement Team (CIT), Mahindra Yellow Belt Programme, Kaizen, Quality Parameters on all machines and Service Quality Index. These measures have resulted in improvements in production efficiencies, reduction in rejections and improvement in customer satisfaction levels. As part of its drive to add value to its value chain partners, the Company has extended its ‘Mahindra Yellow Belt program to its vendors, six of our vendors completed improvement projects, thus improving efficiencies, defect prevention, and cost savings and as a result, we are improving the partner engagement.

Risks, Concerns and Threats

Though the intent of the GoI as well as state governments is to increase the speed of MI coverage, still the perennial issues of the industry are yet to be fully addressed such as the early Opening of the scheme and continuance around the year, formula Linked dynamic pricing or free Pricing like Maharashtra, transparent nodal agency portals and reductions in inspections. In addition to this, there is an industry-wide need for De-risking models for subsidy disbursement such as Direct Beneficiary Transfer Models to be implemented by all states. There are many deliberations taking place through the competent Industry bodies and the importance of the same has been conveyed to the relevant authorities. In the future, consistent and cohesive Central and State policies will bring in effective solutions on the same. Till then tighter internal controls have been exercised for debtor monitoring along with rigorous cost controls. The Company has identified certain markets and is focusing on developing these for year-round business opportunities. However, the implementation of Per Drop More Crop (PDMC) by the Central Government, is bringing some uniformity in the release of subsidies. Many States are now releasing subsidies online.

Further, uneven distribution of rainfall, unorganized sector and dependence on polymer prices are a few more risks. The risks due to seasonality and distribution of monsoon get addressed with Mahindra EPCs well-spread operations in different States, where despite different monsoon months, the Companys operations are balanced to a certain extent. In the recent past, an increasing preference for low-cost -_ medium-life non-subsidy products are observed. The Company has its readiness to address these requirements. Considering that natural resources like land and water are limited and cannot be increased, there is an imminent need to address the key challenges surrounding the agriculture sector which include innovation in technology and mechanisation with increased penetration. The Company has developed capabilities to cater to the technology needs of the farmers through its collaborations and tie–ups with various partners in this space.

Given the future scarcity and pressure on the reduction in the availability of water for Agriculture and the role of Micro Irrigation in improving water use efficiency as well as productivity, the demand for MI systems in agriculture will not diminish; it will indeed increase. Even though surface irrigation will still dominate as the primary irrigation method for some years, the efforts of the Government agencies to include connection to on-farm water management will further improve the scope for Micro Irrigation, and the area under micro-irrigation will continue to expand.

Internal Control Systems

The Company has an effective and reliable internal financial control system commensurate with the nature of its business, the size, and the complexity of its operations. The internal financial control system provides for well-documented policies and procedures, that are aligned with Mahindra Groups standards, processes, and policies; and enable the Company to adhere to statutory requirements for the orderly and efficient conduct of business, safeguarding of assets, detection and prevention of frauds and errors, adequacy and completeness of accounting records and timely preparation of reliable financial information.

The user-friendly digital application introduced in the previous year covers the sales process for compliance adherence. This has further strengthened the recording of the process at one click to centralised data storage for monitoring and tracking. The Company uses an ERP System as a business enabler and to maintain its books of accounts. The transactional controls built in the ERP System provide segregation of duties and appropriate levels of approval mechanism and maintenance of supporting records. The System and the Standard Operating Procedures are reviewed by the management and strengthened wherever required. These systems and controls are audited by the Internal Auditors and their findings and recommendations are reviewed by the Audit Committee. The Action Plan is prepared by the management for all the Audit findings and recommendations and is continuously monitored on monthly basis, while the action taken report is reviewed by the Audit Committee every quarter. The Company continuously makes efforts to automate its processes to enhance the controls.

The internal control framework covers all major business processes and the risks therein, bringing control and integrity. These are tested by the management based on the Risk Control Matrix.

Based on managements assessment and testing of controls, it is concluded that the Company has proper internal financial controls which are considered adequate and are operating effectively.

Human Resources and Industrial Relations

In line with its commitment to deliver superior performance through its dedicated, capable, and agile workforce in all spheres of business, the Company has focused on Collaboration at work, improved capability management systems, a new way of Learning & Development and Work-Life Balance to ensure higher productivity. With the core purpose of Together We Rise philosophy, the introduction of Refresh Rise has shown the new path towards "Rise for a More equal world", "Rise to be Future-Ready", and "Rise to create Value" in the life of our communities.

Given the challenging environment the Company has made changes to its performance management system and has brought in weightages to Collaborative, Agile and Bold Behaviours, the employees would be assessed twice a year during the performance appraisal period. This process covers all four aspects – financial perspective, customer perspective, and Internal business process along with innovation and learning for performance evaluation and strategy deployment. This practice ensures balance across multiple dimensions of the performance of employees. Human resources initiatives such as skill level upgradation, online training courses, re-deployment of manpower for better utilization, productivity improvement of sales force through building crop-specific capability, appropriate reward and recognition systems and productivity improvement are the key focus areas for the development of the employees of the Company. As we look ahead, we are confident that our strong, positive people philosophy and practices will make us a preferred organization for talent.

The organisation has established a proactive Grievance handling mechanism and addressed issues at the very initial stage, to ensure industrial peace and higher productivity. In line with the wage settlement in force, the organisation has ensured to comply with each clause in the LTS to ensure harmony at the workplace. The organisation engages with the union and opinion makers to ensure better engagement of the workforce leading to better productivity.

The Company is also sensitizing its people to maintain all-around wellness to ensure the safety of themselves, their families and society at large in the era of new pandemics. As of 31st March 2023, the total number of employees in our Company was 349.

Cautionary Note

This report contains forward-looking statements based on certain assumptions and expectations of future events. Actual performance, results or achievements and risks and opportunities may differ from those expressed or implied in any such forward-looking statements. The Company assumes no responsibility to publicly amend, modify or revise any forward-looking statements, based on any subsequent developments, information, or events.