Jain irrigation forex loss
Today, the company has facilities across five continents and exports its products to almost countries. Shakti Shankar Patra TheDollarBiz. Jain Irrigation Systems Ltd. JISL is the world No. Reading these two lines together one cannot but get the feeling that this Jalgoan-based company must be laughing its way to the bank. The reality, though, is anything but it. In FY, JISL had an EBITDA margin of The only bright spot in this period has been a strong rise in exports, which have almost doubled from Rs. This has also ensured that export incentives received by JISL have risen three-fold from Rs. One of the main reasons for its rising loss is its increasing dependence on short-term loans. In fact, the situation had become so dire a couple of years back that JISL had to tweak its strategy and reduce its dependence on government subsidies, even if it were to come at irrigation cost of lower revenue. The strategy also involved setting up a NBFC named, Sustainable Agro-commercial Finance Ltd. And this has not gone unnoticed by the market. With receivables reaching dangerous levels a couple of years back, JISL took a conscious decision to change its MIS business model, which had receivables days close to a full year, and simultaneously focus more on exports. This not only made sense from a cash flow perspective, but also from a natural hedge against forex volatility perspective. Why then did the company incur losses in FY? So, any adverse movement in the rupee, leads to mark-to-market forex losses, which were as high as Rs. Secondly, despite the Ind-Ra upgrade, the forex of debt for JISL is still in double-digits. And thirdly, the new MIS model that the company has implemented in the last couple of years means its EBITDA margin jain bound to be lower. For, instead of waiting for government subsidies, JISL has started encouraging farmers to buy drip irrigation systems by either paying cash or opting for loans. But to sweeten the deal, JISL has started offering cash discounts. Although this will lower margins, cash flow will improve significantly and consequently, debt and interest outgo. JISL is the global leader in a business, which is bound to grow over the years as cultivable land and water become scarce resources. Other than MIS, it is also the world No. It is also among the global leaders in onion and vegetable dehydration and can count global majors like Nestle among its clients. Today, the company has manufacturing plants across five continents and exports to over countries. Its PVC pipes segment, which contributes almost a fourth to the topline, also draws a lot of synergy from its MIS business. With all these positives in place, what ails the company is its finances. But with receivables on their way down, which has ensured no significant rise in debt irrigation the last three years, the worst seems to be over. On a much more brighter side, topline growth has never been an issue for JISL. Its revenue had grown by The only reason for revenue growth being flat in FY was that the company chose to not grow. So, once debt is pared back on the back of better cash flows and the company starts refocussing on even the topline, JISL could be one of the greatest turnaround stories in the years to come. One just wishes it soon gets its dues from the various state governments. Heading a company that earns a big chunk of its revenue from the politically sensitive farm sector is not an easy job. Things hot up more if you have to continuously answer shareholders why a spectacular rise in the topline is not translating into profits. Interview by Sachin Manawaria TheDollarBiz. Give us a loss breakup of your various business segments and exports. A fourth of our business is pipes, which mostly caters to the domestic market. A small chunk of our revenue also comes from the solar and plastic sheets business. Last year, around Rs. Total exports last year were about Rs. Forex far as the geographical spread is concerned, we do MIS business directly from India into Africa. In other countries, we export through a dealer network or through our subsidiary companies, who in turn, sell to their own dealers. We have subsidiaries in almost all continents and a wide distribution network. The fruit processing segment is one of the highest margin businesses among all your segments. Are you taking steps to increase its share in your overall revenue? Firstly, we want to cater to more and more markets. For example, when it comes to mango, we sell to around 40 odd countries, but there are far more countries where mango pulp products can be exported to. Secondly, we want to grow new product lines like banana, tomato pulp, guava etc. As part of our strategy, we want to replicate our business model in the vegetable segment too — in onion, garlic etc. We also want to grow more in the B2B category. For example, we currently supply mango pulp to Coca Cola, which they use to make Maaza. We also sell dried onion to Nestle. On the other hand, in the Middle East, we have started B2C as well, wherein we directly reach consumers through our frozen 1 kg pack of sweetened mango pulp, which has a lot of demand from expats. So, the whole idea is to increase the product line, with the same raw material, apart from reaching more and more categories of consumers to increase the revenue from this segment. Your MIS segment has been growing at single digits over the last five years. Forex product irrigation will continue to grow for the next several years as firstly, farmers like it very much, and secondly, water is increasingly becoming a very scarce resource. With the new government making all the right noises on solar energy, do you have the capacities to benefit in a big way if there is a big push in this direction? Solar business is still a very small component of our overall business and contributes just 2. But we do have the capacity to scale up. The main growth in this segment will come from solar water pumps, which can be very useful to farmers. But it might take a year or two before we see healthy momentum in this segment. Not only has your total debt been consistently rising, but also the cost of debt is in double digits. What are you doing to reduce debt and also lower the cost of it? We have already started reducing our high debt burden by changing our business model, apart from improving our working capital efficiency. We plan to reduce our debt by Rs. Further, we have given a guidance to the market that by March our debt to equity ratio would be around 1: To make this happen, our debt should come down to around Rs. Once we achieve this, our company will loss re-rated on the credit front and, subsequently, we would be able to borrow at a much cheaper rate than what the case is now. What can we expect over the next few years? This year, we are expecting our EBIDTA to be around Rs. Can we expect your EBITDA margin to rise to the mids as was the case in FY and FY? If yes, by when? Our EBIDTA margins were high in FY and FY due to higher EBIDTA irrigation enjoyed by the MIS business in the old model. In the new model EBIDTA margins in MIS are lower because we provide upfront cash discounts to customers. Therefore, EBIDTA margins now appear optically lower. However, as the interest reduction kicks-in from next year, the overall net margins will certainly loss back to the levels of earlier periods. You have been badly hurt by forex losses in the last three years. In what way s are you trying to check this? Our forex losses are just MTM losses or book losses, and not cash losses, that occurred primarily because of the sudden and significant rupee depreciation in the last couple of years. On a cash basis, we are a net foreign exchange earning company. As a part of our strategy, we have kept most of them unhedged. One of your strategies to fight rising cost and rupee depreciation is to focus more on exports. Which new geographies are you eyeing to expand to in the near future? We are currently focusing on regions like Central South America and North America, apart from Africa for our MIS business. MIS will jain to grow globally because of increasing water scarcity, besides more funding being available for drip irrigation through various multilateral agencies. Food processing business will also continue to grow in markets like US and Europe. So, the new hot spots for our product line would be Central South America, Southern Europe, Central Asia and Africa. Unlimited access to trusted and verified buyers and sellers. A platform to identify the right logistics partner and more…. Register now to get updates. Thank you for taking the time to provide us with your valuable feedback. 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