Jain Irrigation Systems (NSE:JISLDVREQS) Q2 2020 Earnings Call

0:00 Ladies and gentlemen, good day, and welcome to Jain Irrigation Systems Limited Q2 and H1 FY 'twenty seven Earnings Conference Call. Today, we have on call Mr. Anil Jain, CEO and MD and Mr. Bipin Valame, CFO. As a reminder, all participant lines will be in the listen only mode and there will be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded. I now hand the conference over to Mr. Anil Jain to take us through the company's business outlook and financial highlights, after which we will open the floor for questions.

0:48 Thank you and over to you, sir. I would like to welcome all the listener to this call for Q2 results of Jain Irrigation. This has been a good quarter for us. I think we have grown overall revenue by more than 10% double digit at close to INR $15.76 crores And our EBITDA is also up compared to the earlier year to INR $20.07 crores. So both are quite positive. Overall margin has come at about INR 13.2 crores as against INR 13.9 crores. But what is important to see is that High-tech has maintained high teen level of margin at about 18.8%, while plastics and agroprocessing, they remain around full double digit load with Food being around 12% and Plastics being at around 9%.

1:48 With the good significant revenue growth, good level of better than last year, same period EBITDA. Our overall company has been profitable and adjusted path after adjusting for NCD wind down from the P and L works out to about INR40 crore. So I think that is quite good. Overall, when we look at this quarter in the perspective of the first quarter, first quarter was quite weak, especially the business out of India. And we had almost 24% or 25% negative revenue growth and the resultant impact on the EBITDA as well as net earnings. And I think this quarter, we have come out quite strong both in terms of overall revenue, profitability and in fact also improved working capital cycle, we have been able to reduce EBITDA sorry, we have been able to reduce the level of receivables as well.

2:54 When we think through six months, as a company, we have incurred revenue of approximately INR 3,100 crores, higher about 4% than the last year, covering for the deficit, which was in the first quarter. Overall EBITDA is at INR $3.72 crores, which is quite significantly good at 12.1%. And adjusted PAT continues at about INR 43 crores. So when we look at in perspective, the this quarter as well as six months, company is steadily but surely improving its overall performance. In terms of when I look at various businesses this quarter, what worked, what did not work. I mean, our overall trip irrigation business continues to be good. The retail business, it grew domestic business almost 18% or so.

3:58 And the piping business, which was significantly negative, 25%, 30% in the first quarter, has come back to almost same level as last year. So compared to the first quarter, that is better. And DRIP and tissue culture, the high-tech agribusiness has continued to maintain high teen level of growth, which augurs very well overall for the company. And when I combine both of these businesses, the retail total business has grown approximately at 12%. And with some changes in the, what you call, project, which is a chosen reduction into the project business, the domestic revenue growth works off to approximately 10% or so.

4:52 So overall, in terms of positive part, in terms of the revenue growth, all businesses, MIS business, plastic business, tissue culture business, all have been positive. Overall, when I look at our subsidiaries, one is the full subsidy. They are doing well. Their performance has been also quite good. And if I look at even the overseas plastic sheet business, that has also done well. Agro processing at about INR $5.60 crores in a single quarter registered almost 8.4% growth. And plastics, including overseas plastic and domestic, also registered almost 17% growth.

5:44 So that way, overall revenue wise, all businesses have done their bit and have been positive for the company. In terms of when I look at the overall financially, how company has done during this period of time, that as we said, the EBITDA has in fact improved compared to the earlier this period. Cash flow has been quite positive in totality, where significant amount of cash, which was generated. So out of INR $20.08 crore of EBITDA, almost INR $20.06 crores have been converted into cash.

6:34 So that provided big support for us also to honor our obligation. We had INR230 crore of the prepayments due of N series and those were paid with the improved substantial performance from the company's cash flow. And net result was that our working capital cycle came down from above by four days from one hundred eighty three to one hundred seventy nine days during this period. And when I, in fact, look at for the entire first half, working capital, in fact, from March onwards, if we look at or compared to the same period last year, last year, end of September, our overall working out cycle was two zero five days.

7:28 And now it is down to one hundred and seventy nine days. And out of this improvement of almost twenty five days or so, fifteen days improvement on DSOs is account receivable and rest is shared between improvement on inventory as well as accounts payable. So as we have said, as a management, we are very focused on cash flow because this one single year is a significant year in terms of repayments, which we needed to do and one part is already owed. Second part is due in March. We believe we don't anticipate any issue in terms of our ability to honor those obligations. In terms of the underlying business scenario, situation is somewhat uncertain, especially due to the deficient monsoon we had as a country.

8:27 And some states, things are okay in terms of North and Northeast. But especially states in West and South, there is an issue which we have. And in West and South, if we look at 80%, 85% business of company takes place in West and South. And I think that's where there is a larger challenge. And the experts are saying that this is the worst monsoon in last thirty five years or so. In case of state of Maharashtra, which is a very important state for us, it is said that this is worst monsoon in more than fifty years. And Kharib crops were already hit and Rabbi is likely to be hit.

9:15 But all said and done, I think we as a management are aware of the situation, are taking necessary steps, working with our dealers and farmers, working into areas where there is adequate water to see that we are able to put through our capacity back into the market. But in some areas, right, there is going to be a significant impact because the government is wants to ensure that water is safe for drinking. So they won't give water to agriculture. And if there is no water, of course, farmers can't do irrigation and don't need drip or pipe. But in certain areas, it is going to be that kind of a difficult situation. But in some areas, there is adequate water.

10:01 So we need to balance that out, also improve exports because this is this superalnino has really impacted India badly. The way this Asian, West Asian war impacted India disproportionately in terms of energy needs and downstream polymer availability as well as polymer cost. Same way, I think, superalnino is definitely significantly impacting India. And we have got into crosshairs of this higher polymer prices or unpredictable supply on one hand and this climate change linked monsoon deficits on the other. But I believe company, its management, its team has necessary wherewithal to fight all these odds, which were also present to an extent in Q2 and come out fair and in terms of ensure that operations remain profitable and we continue to maintain growth momentum.

11:11 That is our effort. In terms of when you generally say what is more positive beyond these two large issues, I think there is more demand for large diameter pipes coming through because more of infrastructure projects are being put through now into India. So I think that will continue. We see also a continuous demand for the solar water pumps. We are seeing in our food processing business, globally more demand for the food products we make as well as now the whole beverage business is also picking up the steam in totality. And our overseas plastic sheet business continues to do well.

11:59 So while on Dip and Pipe business, I think we are being cautious and focused on, as I said, certain geographies, more exports, etcetera. But in other businesses, we definitely see a good revenue growth opportunity in totality without losing the discipline on the working capital. And as one would note that over last few years, we are continuously improving working capital cycle. But there are we still need to go a distance further to further improve it, which I think will happen maybe over next twelve months or so. And as we move forward into next FY 'twenty eight, I think we expect balance sheets to look much better than what it is today.

12:59 And but underlying, we as a company, we have a technological leadership across different product zone. Our brand equity with farming community is very strong. And because of the integrated business model, our ability to earn better margin exists. And as company solve this balance sheet issues, I think P and L will continue to become stronger in that sense. So overall, on a net basis, right, on the project basis also, the receivables have come down, whether they were linked to the state governments or related to solar.

13:49 The overall, we see that the receivable reduction is happening from places where it was earlier difficult to reduce, and that's a definite positive. And I think that way, we expect over next few quarters, most of all legacy receivables should come through. That should help us to, one, repay the obligations which are falling due on one hand. And also it will create some cash liquidity for further growth as we move into the next fiscal. So to summarize, overall, a good quarter, positive revenue growth, higher EBITDA than the last year, profitable quarter, good conversion of EBITDA into cash, reduction in working capital cycle, all five big positive things and far better performance compared to the first quarter when we were facing lot of challenges.

14:50 Some of the challenges still continue and some of our beyond our control, some we continue to act on. And so we need to remain watchful. But with all what we can do and what we are doing, we still expect positive performance in H2. And definitely, years forward, they look much stronger. And overall, as a company, I think we are getting into that place, right, where legacy would be behind us as we move forward in FY 'twenty eight. And we are significantly looking at higher capacity utilization, further reduction in working capital cycle and automatic results should be further improvement in net margins.

15:38 So that is where we are. And we again would like to thank all the investors, all the listeners for your patience. And I'm very happy to answer any questions you may have on the Q2 results. Thank you again. Thank you very much. We will now begin with a question and answer Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Your first question comes from the line of Ramesh with SJ Investments.

16:37 Go ahead. Hi, Thank you for the opportunity. Impressive performance in terms of cash generation. I just wanted to understand in terms of our pricing division, we've noticed that there's not been much growth while other peers and other players in the industry, debating the smaller players have shown reasonable growth. Could you explain like what's happening there and is there any prospects of it turning around? So I think what we have seen during first quarter and this quarter, piping per se domestically has been weak for us because as you know, we sell almost entire quantities into rural areas for agriculture application. And that's where we have seen lot of our competition sell significant parts into urban areas, into commercial building markets, the plumbing and the other stuff, the drainage.

17:34 And I think that is the difference. What we have seen commentary from other people that rural area demand remains subdued for everybody because when the price goes beyond a point when the resin costs are very high, people postpone purchase decision. Having said that, we see in second half some of the pipes applications which we have, which go beyond agriculture, we are seeing good demand. So overall for the entire year, while this quarter has been revenue neutral, earlier quarter was negative growth. But for the overall year, I think piping would show positive growth. I think we should I think all goes well, we should end up for the whole year at 8% to 10% positive growth in pipe also.

18:29 Got it. So, basically, you're expecting the market outside agriculture to grow and that's supposed to mostly drive the growth for the year? Yes, yes, yes. Got it, sir. And with regards to receivables, I think in our stand alone business we have around INR1850 ish crores remaining by September quarter. I was just trying to understand by March how much of this are you expecting to receive? First, like how much is it applicable to government receivables and how much of it of the government receivables are expected to get by March? So if I look at the breakup of INR1860 odd receivables which we have, right, About INR 800 crores is linked to the projects. And the MIP, which is where government plays a role, government subsidy, is about INR 400 crores.

19:18 So that's about INR 1,200 crores. The rest is the normal retail or institutional or solar and export, etcetera. So out of this INR 800 crore project and MIP of INR 400 crores, which is about INR1200 crore directly linked to the government out of this INR1800 crores. We expect by March net reduction, right, because we will be also doing additional business, whatever the remainder of the billing. Not much on the project side, but MIP is an ongoing business. We would expect these to be reduced on a net basis at least by INR300 crore plus between now and March. So just trying to clarify because at MIP anyway we continue to revolve the credit around, right, and you are going to get more product as we are fulfilled.

20:08 I was just trying to understand, on the receivables side, only related to government projects, we are expecting a net 0 point dollars reduction. So almost a third of the receivables we expect to collect by March. Yes, about 40%, right, INR800 crore 40% in 03/20. Got it, sir. And for the remaining payment we need to complete by March, are we looking for any other sources or this should be enough with other things combined? This should be enough, right? Also other actual generation of EBITDA will happen, etcetera. So we are okay for March with this INR300 crores reduction. Understood, sir. And there's any project leftover in terms of all projects? How many have we closed during the year? And are there by will there any move on to next year also? Could you just give an idea on that? So I think when we started this whole story, right, it's coming in we were at some 78 projects or something, large number.

21:02 I think active projects which are going on now are about seven to eight. About I think in last six months, we have closed about 15 to 20 projects. But after we physically close the project, to get everything sorted with the government, it takes a little bit some more time. So but what I would say is that, as I said, March 27, this INR800 crores goes down to, let's say, by INR300 crores on net basis. So INR500 crores, some additional revenue, those seven or eight ongoing projects which are there, some additional revenue, especially one in Puna would be higher revenue because still good amount of work is still to be done there. But next fiscal year, we expect all this project business to come to zero and recovery also to be become zero. So and most of that work should happen between next twelve months, right, so end of September to next September.

21:55 After next September, anything hardly should be left behind. So how much were the projects did we enter and revenue did we do this year, sir, the projects? The project revenue, I think first half, I think this quarter was small amount. I think we did about INR14 crores or so. And the second half, I think, if I include Puna project, the total revenue may be about INR 60 crores, 70 crores. Most of other projects, we have no revenue. Except when you close the project, right, there is some additional billing related to whatever was left over and so on, but that's nominal. And so when I'm saying net basis INR300 crore recovery, so billing might be INR360 crores, INR370 crores, but actual recovery would be more. So, net basis, we would go down by INR300 crores.

22:55 Got it, sir. But are there any plans Sorry to interrupt, Ramesh, sir. We would request you to return to the question queue for any further follow ups, please. Sure. Thank you. Thank Our next question comes from the line of Ankit with AB Investment. Please go ahead. Hello. Sir, my first question will be, sir, like your high-tech ME, micro irrigation has grown very well. Sir, are you seeing the signs that farmers are now willing to adopt this technology in a great way because the quarter results have shown a significant improvement in High-tech division.

23:48 What's the view of overall in that? I think it's a good question what you're saying asking. We are seeing more so there are two ways, right, the business is looking at growing. One, the farmer, especially the next generation farmers who are coming in now are looking to do more value added agriculture. And for them, micro irrigation or drip irrigation becomes essential part of the agriculture and not optional anymore, flood irrigation versus drip irrigation. So that is helping that momentum and growth. And right now also, water is short, right? So more farmers need to then use drip to conserve with limited water, they still need to do agriculture.

24:34 So both are playing a role. But structurally speaking, we are seeing next generation farmers are looking and more and more farmers are looking for more value added agriculture. And as soon as that decision is made that we are not doing merely agriculture for livelihood or for the government MSP, but we are doing this as a business to make money or grow, then they buy more drip irrigation. So structurally, we see Indian agriculture moving towards value added agriculture. So we think overall next decade or two as more value added agriculture takes place in India because exports are also growing and domestic consumption of processed food is growing, which requires standard more uniform agriculture commodity supply and with better logistic chain, right, to equate the product out of villages or small farms into the nearest market. When you look at all of this, what is happening, we expect that this would remain a very positive going forward. On other hand, at the government level, government, I think, is investing massive sums in doing this river linkages.

25:45 And if you do the river linkages, then also it creates more water available because half the country today farmers don't irrigate beyond monsoon period and then that becomes the issue. So structurally, I think this would remain positive. Okay. Then my next question will be on that MOU for coffee, how far that has reached? What's the new development in that revenue or new project or new orders from that? Any you want to tell? Yes. So I think we have received orders from the coffee board for the coffee, tissue culture plants. But as you know, in some cases in agriculture, like you supply some plants, but something like coffee, it would take you two, three years before you start to see result. And once they see result, then much larger area or many more farmers will be placing the orders. So when I look at our overall tissue culture business, coffee is still very small. Banana continues to remain the largest crop, followed by, I think, pomegranate.

26:53 And then would be things like we do mango or orange or coffee, those type of products. So as of now, coffee is positive. It's a good momentum, but it's still small in scale. Okay. Sir, how you... Sorry to interrupt. Ankit, sir, we request you to return to the queue for further follow-up questions, please, as there are several other participants waiting for their turn. Thank you. The next question comes from the line of Ravi Kumar with Varaga Investment. Please go ahead. Hello. Congratulations, sir, on a good quarter, especially in a difficult environment. My question is relating to the growth CapEx that is expected for the remaining part of the year, specifically for the Food division given that we'll be missing something for the tomato JV and also additional beverage line or maybe the bio carb, additional bio carb projects.

27:58 If you can give us just the growth CapEx, not the maintenance CapEx? So, I think growth CapEx, and you talked about three different aspects. One was the tomato JV, I think there it is subject to some of the still finalization, which is taking place on acquisition of the assets. Once that happens in December, I think the March quarter would look at about INR30 crores to INR40 crores would be required for that project. That's one. But as I said, it's subject to closing of that acquisition of assets, which is in process. We are hoping that it gets done by December. In that case, before March quarter, that amount will be required. In terms of the Phase two of the beverage business, work has already started, and we would have to invest on our side approximately, I think INR100 crores or between, let's say, March and June quarter, mostly that would be required over that period of time.

29:11 In case of biochar, I think I would anticipate major growth CapEx coming into next fiscal, not in the current fiscal. Because current fiscal is one is proof of concept that you're doing we are already producing one of the best quality biochar in the world. And so but some quantities now need to go to the market into the field and all of that, which is taking place. Some carbon credits need to come through. All of that is going to happen this year. So growth CapEx should be for the next fiscal for that particular. Yes. Thanks. My second question is relating to first half of the year.

29:59 How much business do you think we let go because of the tight liquidity situation and relatively longer cycle collection? Just say your estimate about how much business we would have let go? I think approximately I would tell you that about INR100 crore of the micro irrigation business in states like Andhra, Telangana, Tamil Nadu, etcetera, where money is slow to come, we have let go. And that's one part. I think in terms of of course, we let lot of projects go. We let some of the solar pump business go because the cash was not coming fast enough and that would be also about INR 150.

30:49 So total somewhere around INR 200 crores, $2.50 crores of business, we have let go, let's say, in the first half because of one, we needed cash in hand to be able to repay the obligations of the entities which are following you, plus just to bring a more working capital discipline in time line, let's I would just say, if you have a 25 EBITDA and sometimes payment is going to come after one year, you will wait, right, because 10% goes for interest, but you'll still make reasonable money. But if because of higher polymer cost, if your EBITDA is getting squeezed down now to 12% or 14%. And then if you have to wait for one year to come, then you're hardly making 23% EBITDA, it does not make sense. So, I think combination of that, we have let good amount of business go.

31:42 But structurally, again, directionally, we are moving to businesses which are more cash generation, right? And as you can see from last few quarters, there's so much of focus that whatever EBITDA we generate, how much we are able to convert into cash. And I think that would remain focus for next few quarters, right, which I think is good for overall health of the company going forward. Okay. So can I just do a link question first? The land monetization and others would add to liquidity. Do we have any view Maharashtra incentive? Do we have any view when that money will come? We expect in this H2 all of that should happen.

32:29 The land incentive, Maharashtra incentive, reduction in this project receivable, the combination, right, of multiple these things should definitely happen in the second half. So land and the incentive, can you give a number, sir, just like you gave INR300 odd crores for the receivable? I think yes, the incentive about we anticipate by March about INR100 crores and on the land also somewhere between INR150 crores and INR150 crores. Okay. Thank you. All the best. Thank you. Thank you. The next question comes from the line of Amit Mehendale with Robo Capital. Please go ahead.

33:16 Sir, my question is on second half. How do you see the H2 second half shaping up compared to last year? Do you think we'll be able to do some year on year growth or it will be flattish or it will be how do you see it? I think looking at this drought scenario, right, I'm a little bit hesitant to commit. I think we will with whatever I know and I can see, I think at least we will remain flattish. Whether we are able to do better than last year in terms of H2, that I would not comment more on January because what happens related to this climate change and also polymer prices, The climate change part, you know water is not there or limited there.

34:04 In some areas, it increases the business opportunity, right? Because if there is less water, then farmer have to use the irrigation. So it's a two way street in that sense. But this high polymer prices, which have been there due to uncertainty, Shenwat and so on, if that changes due to geopolitical situations meaningfully, I think between December to March, then I think we would look at booster in terms of demand, where a lot of farmers, etcetera, postpone their purchase decisions might come back to market. And that way then we would look at a definite positive growth. But otherwise, as of now, I think flattish growth, but again, focused on cash flow, repayment of this INR450 crores, INR500 crores, reduction on receivables and maintaining margin, that's our focus.

35:02 Right, sir. And in terms of project revenue, can you just elaborate what was the project revenue for full year FY 'twenty seven and 'twenty eight government projects? And is there any write off that you expect from the receivables? So to answer second question first, we don't expect write off from receivables. Wherever we had expected write off, those provisions we have already made in the past. So as of now, whatever receivables you see on the books, all good, they will come. In terms of the overall project revenue, I think the first half revenue has been about INR30 crores and INR33 crores as of now total for the first half.

35:49 And as I said, the second half could be INR60 crores or INR70 crores. If we do INR40 crores or INR50 crores into the Puna project, remainder would be hardly about INR20 crores also. Puna is a water supply project where we still need to do some more work. Okay, sir. And how do we like if we were to model interest cost for next year FY 'twenty eight, once our repayments are done, what will that number any estimates on that annual interest cost? SRINIVASAN Yes. So, annual interest cost rate remain around this INR50 crore a quarter approximately. Now once we pay off this, what the debt which we are paying right now is 0% debt, the NCDs which we are paying. So that is not going to create major impact on the interest reduction per se. But what will go from the interest and finance line in terms of is the unwinding charges, which get debited every time.

36:59 So that will be how much? I mean, I'm looking to quantify the interest savings for FY 'twenty eight for the full year 'twenty eight versus 'twenty seven? Any ballpark given any estimated number on that? I think actual saving on interest with all improvement, etcetera, might be about INR 20 crore per year because INR 800 crore which we are repaying this year is a 0% NCD which we are repaying. Right, understood. And if I can squeeze in one last thing, I just wanted to check whenever polymer prices go down or the wall stalls either way, how do you see that impacting our margins? Or like how do you see you think that we'll be able to retain higher margins and I mean, we'll not pass all the things to the end customer? How do you see that?

37:57 See, in terms of margin, even if you look at the current quarter, right, if you look at High-tech, our margins are around 18%, right. So despite difficult time, I think we have managed to maintain those. We think in plastic business, we'll have a better opportunity to take the margins. Our medium term idea is that plastic business should go to towards 12% or so in terms of margin. And High-tech maintaining 18% to 19%. So when the prices come down, I think the benefit would be the demand growth comes, capacity utilization improves and that fixed cost absorption gives you that extra leverage in terms of improving margin by 1% to 2%.

38:47 Okay. But do you expect like once the prices go down, do you expect like at least for a quarter or so, there will be some weight on the margins because our procurement cost would have been also higher in the like for this quarter or so. And if there is any When our system is when we do pricing decisions with dealers or customers, they are not based on the latest price. That is they are based on the average price of inventory we have. So let's say, have existing finished goods, right, coming out of the old raw higher cost raw material. We take the new cost, average it out and based on that, we do the pricing. So we don't anticipate anything any negative impact when prices come down in terms of the margins of the business. Okay, sir. Perfect. Thank you very much. Thank you.

39:35 You. Ladies and gentlemen, we will take that as the last question for today. I now hand the conference back to the management for closing comments. Yes. So again, I thank everybody, thank all listeners. I think this has been a very good quarter for us overall company for short term, medium term. And I think some issues related to biochar, which I can talk about, it's really good for long term as well. And next six months remain challenging due to drought and higher prices of raw materials. And we remain watchful. We are taking a lot of steps to ensure that the business will remain at a certain level, will remain profitable and major focus will continue to remain on how to generate more positive free cash flows to take care of the debt and reduction of the debt on one hand and provide the necessary funding for the growth for the next fiscal.

40:34 Thank you again. Happy to one to everyone. Thank you, members of the management. Ladies and gentlemen, on behalf of Jain Irrigation Systems Limited, that concludes this conference. Thank you, everyone, for joining us, and you may now disconnect your lines. Thank you.