Jain Irrigation Systems Limited (500219) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Jain Irrigation Systems Limited Q1 FY '27 Earnings Conference Call. Today, we have on the call Mr. Anil Jain, CEO and MD; and Mr. Bipeen Valame, CFO. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Anil Anil Jain take us through the company's business outlook and financial highlights, after which we will open the floor for questions. Thank you, and over to you, sir.

Good afternoon to all the listeners on the call, and thank you for joining our call. This call is about the Q1 results for Jain Irrigation. And today, we also had an Annual General Meeting followed by the Board. And in the Board, the results were approved. So as we spoke, I think, sometimes in May, it was anticipated that the first quarter will be a muted quarter. So as a company, overall, our revenue has been about 2.5% less than the same period last year at about INR 1,500 crores. And within different segments, I think Hi-Tech segment registered a degrowth while plastic was almost similar to the last year same period. And Agro Processing registered significant growth due to additional beverage business and some growth in our overseas markets. So while overall revenue has remained similar, there was a reduction in EBITDA because especially stand-alone India business, we had less fixed cost absorption because of lower volume due to volatility linked to raw material prices and demand postponement and that has resulted into lower EBITDA, especially in the Hi-tech division. In fact, Plastic division improved its EBITDA. And Agro Processing also had seasonality issues to register lower EBITDA and impact on the ForEx side was negative compared to the similar period last year. So all in all, reduction in EBITDA temporarily in this quarter, but we believe we should be able to catch up in the second half of the current fiscal year to cover what is lost. In terms of when I look at the margins, Hi-tech division delivered about 14.4% margin versus similar period at 16.6%. So approximately 2% reduction. And Plastic, in fact, improved by about 1% or so from 10% to 11%, and Agro Processing also came down by about 3%. So post all of these changes in the margin profile of the company, adjusted PAT after adjusting the noncash NCD interest unwinding, adjusted PAT at about INR 3 crores versus last year's INR 30 crores, but company has still remained profitable. So overall, when we look at this quarter, the revenue, we have been able to almost maintain at similar levels. EBITDA margins are down by about 2% or so, but mostly linked to unabsorbed fixed cost, which can be captured in the second half. And adjusted PAT has remained profitable. We had -- in April -- month of April, when we were there, we felt that situation was going to be much worse. But I think May and June, we did better. July continues to be remaining good. So things are definitely improving than how the year started, especially due to volatility linked into the business. Now while this is consol result, on a stand-alone basis, again, majority of the degrowth this quarter particularly came from stand-alone business and while overseas consol business and business of food company has done well. If we -- and even on a stand-alone basis, on an adjusted PAT basis, company has remained profitable and also having a good cash. If I look at cash flow statement, the EBITDA of INR 164 crores, almost about 78% of EBITDA we have been able to convert into cash flow. That is quite a positive sign in terms of managing -- management of the working capital, which we have done. So I think that's a big plus. And this was possible due to further improvement in working capital cycle. If we look at on consolidated entire company basis, net working capital last year this time, June '25, was about 210 days. And this year, it has come down to 183 days. So that's a significant improvement during -- over last 1 year. And even on a stand-alone basis, it has come down from 296 days to 283 days. So that's a big improvement. If I just compare with March '26, also it was 186 days and now it is 183. So that's an improvement. Now -- and this is despite all the volatility, which was out there. In terms of business potential in terms of looking forward in the remaining 3 quarters, second quarter typically also remains muted because of the rainy season. And -- but the good news is there was a fear that a huge amount of this super El Nino will emerge and that would have a disaster in terms of total rainfall. But we have seen good level of rains in July. That will mean the farmer got adequate moisture into their soil for the crops to sustain themselves. And it is expected over the next couple of weeks, some good rains will continue in the country. So by and large, there was a big deficit in June because of the delayed onset of monsoon. So that was kind of covered partly into July, and we hope also into the August. So the news about the monsoon and the weather and the climate change is not as bad as it was forecasted. So I think that's a positive thing as far as we are concerned. For the rabi crop and for the next year's summer business, this would be very positive. Majority of dams in the country have water levels filled up to now 2/3, 67%. And by the end of the monsoon, if they do hit 80%, 85%, that means adequate water availability for irrigation in the next hot summer also, so which is positive. So the reduction in the revenue in the June was partially caused by postponement of purchase decision by customers due to very high prices. And second, it was also because of the delayed onset of monsoon, so farmers were not ready to sow their crop. And of course, then they couldn't also take the irrigation systems as well as pipes. But since then, as I said, July has been better. We have registered already positive revenue growth in July as against April to June quarter of significant revenue growth here. And August and September also seem to be good, but especially, we think with the kind of negotiations we are doing also with the institutional customers for larger diameter pipes, we see a lot more kind of suppressed demand coming through. Now subject to a little bit more stability on the geopolitical events, where oil stabilizes and polymer prices come down a little bit more than where they are, I think that would give that trigger momentum for the growth into the business. So reasonable quarter, but far more needs to be done in the second half of this year, and that looks good. The signs or the indicators are positive. In terms of -- as I already talked about, cash flow was positive this year. I mean, in terms of overall cash flow, we have been able to generate post working capital changes has been positive. And we have been able to maintain margin, except small reduction linked to unabsorption of fixed costs, and that can be covered in the rest of the year. In terms of the major issue, which I think is there is on the balance sheet, this year with about INR 690 crores of debt of the NCDs falling due in the current fiscal, partly in September, partly March, approximately INR 230 crores in September and the remainder in March of that INR 690 crores. So -- or maybe, I think, INR 680 crores now approximately. So we believe that, as we have said this earlier, company will be able to take care of these obligations in the current year through its cash flows. And company is also pursuing other alternatives as the backup plan just as a matter of prudency in terms of -- to ensure that come what may company does and will ensure that all obligations are paid on time as we have done in last 4 years. In terms of rest of the capital in terms of working capital, that is being managed properly. I think we have good support from current working capital banks. They have approved additional limits, new limits. So I think that thing is going well. And I think bankers understand what has happened due to this West Asia crisis, the impact where suddenly if your raw material prices go up by 50%, what happens. So they have provided necessary support to the company to come through this crisis and come out well. And so we're very thankful to them. But at the same time, we are quite optimistic about the remainder of the year. Overall, overseas plastic business did well. It's approximately a significant growth of 40% or so in terms of revenue. And because of that performance, I think overall EBITDA margin for plastics have improved in this quarter for us. In terms of structurally where we are going, I think we are entering into a cycle post this season where every single product line of the company, whether it is about irrigation business, piping, solar pump, tissue culture, food processing, we are seeing growth opportunities. So we're quite positive there. And as I said, this first quarter was a combination of postponement of decisions by customers due to high prices, delayed onset monsoon, less sales related to the [indiscernible] category, which is like companies considered decision to get out of that particular type of business as well as almost limited billing related to solar pump business, which will pick up in the second, third and fourth quarter. So I would say that overall, while one quarter -- first quarter results are muted, but we remain confident on the rest of the year. Within -- when I look at the details of the business, within even retail business, so I think we did quite okay in our Hi-tech business in like Maharashtra or in Western parts of the country. Even in North, the business grew. The business, which did not grow was -- which was linked to kind of government subsidies where we had opportunity to take revenue, but that would have meant a lot more impact on the cash flow and long receivables. So we chose not to do that business. Otherwise, I think this revenue negative growth, what you see would have been actually covered because easily, we could have sold INR 50 crores, INR 60 crores more of micro irrigation, but that would have meant much -- many more longer receivables. And especially this year with so much of debt due, we are choosing to pick up business, which is more and more cash flow positive or quicker turnaround and cash-to-cash cycle. So that is where it is. And in terms of overall receivables were compared to March, we were down by about INR 25 crores in June. And we'll continue to see between September, December and March, that to further go down and those extra collections would get used to honor the necessary debt obligations which company has. In terms of structurally speaking, while the polymer prices went up, we have been able to pass on majority of the increases to the customers. And if and when prices of polymers do come back, we think that could spur the overall demand into the business. So we are looking forward to get that done. So this is where kind of the first quarter's balance sheet, P&L as one would call it, in terms of overall business cycle. And I think we are getting into a stronger business cycle going forward. With that, I will stop here. I will again thank you for patiently listening to this update on a quarterly basis. And we look forward to taking any questions you may have now. Thank you.

[Operator Instructions] Your first question comes from the line of Ramesh with S. J. Investments.

Hello. I can't here you.

Am I audible?

Yes, yes.

Sir, I was trying to understand in terms of government receivables, did we get any during this month? And how many more projects are left to go in terms of completion? These 2 questions.

I think last quarter, we received approximately INR 60 crores from the government. And I think month of July, another INR 25 crores, INR 30 crores have come through from the government. So we see that as the rest of the year goes, it will continue. In terms of the projects to be completed, I think hardly now, as you saw, the total billing on the project was maybe INR 24 crores or so. for the quarter. I think second quarter could be maybe a little even less. There's one active large project, which is in Pune for water supply, where we still need to do, I think, a triple-digit billing going forward, the remainder part. But most of other projects, like 98%, 99% done, very small amounts are still happening.

Sir, so how much more scope of what is left?

In the other projects, apart from the one project in Pune, I think total billing left is about approximately closer to INR 40 crores, INR 50 crores only.

And in terms of the working capital we need to spend on it? Is there more to go?

No. I think we don't have to spend any working capital. It's mostly the last-mile connectivity, et cetera, material supply, the component supply, all of that has already happened. It's mostly service-related remainder of the work, which is codependent on something else the award has to do, the [indiscernible] Board or the Irrigation Board, they need to provide certain things for us to do the last connectivity, but no working capital is required to complete the remainder of billing.

Understood, sir. So out of the number of projects we did, so how many of them had an O&M component? And is there an O&M component with these projects?

Can you come again, the last part of your question?

Yes, sir, I was asking if there's an O&M component to the EPC projects? And will there be some remaining work we need to do over the next few years? Out of the overall project value we probably recognized over the last years, how much more is left to go?

I think out of the 70 projects, like 72 projects which we have completed or in process of completing, I think about 10 to 12 projects have O&M over the next, I think, 2 to 3 years. But on that O&M, if we need to spend money on O&M, we are also going to build that, right, in that given year. And this is -- the O&M total, our experience on the remainder of projects over the last, I think, 7, 8 years, the total spend on O&M is quite light. So it's not going to impact either my working capital or cash flows materially.

Understood, sir. And one last question with regards to -- so over the last few years, I think we had a few additions because of increasing cost of completing the project. Were these clauses actually built into the initial contract? Or were these afterwards negotiated?

So when you start the project, right, it's a tender bidding process. So you do based on the scope of the work. And then what happens when you actually go and do the project because in one project, we are doing 100,000 acres. So you always find certain things which were different than what were presented in the tender document. In that cases, then you go and seek cost plus from the tender authority or your customer saying that there are changes than the original scope, and therefore, we need to do more billing. And then they do give the additional escalation as it is called. So some places, there is a cost escalation, some places, there is a change of the scope. But in -- I think if I go back in terms of totality of your question, by and large, what we originally anticipated and billed, we have been able to get and whatever extra we needed to spend because change of scope or delays for that we received escalation or cost increases. So that has worked out fairly, I think, even in terms of the profitability coming from these projects. What has really hurt or impacted company is the delayed cash flow and delayed cost of interest on -- if you have not received [indiscernible] time. But scope, the total billing, which we did is in line with or with the changes have been paid for by the customers.

Understood, sir, what....

Sorry to interrupt, Ramesh, we request you to rejoin the queue. [Operator Instructions] We take our next question coming from the line of Sumit Kumar with [indiscernible] Securities.

Am I audible?

Yes, yes,

The company still has to repay INR 74 crores in 9 months of this financial year. By seeing the present state of affairs, it seems very difficult to repay or fulfill these debt obligations. So what are the options available with the company? Is the company thinking for some asset monetization or taking new loan to repay this debt obligation?

So in fact, if you see, over the last 3.5, 4 years -- 3.5 years rather, company has repaid to the banking system approximately INR 1,300 crores. And with now the -- having completed the project this year, to pay whatever is due, the NCDs which are falling due, we feel fairly confident of doing so. In terms of options available to the company, one, the first and most important option is internal accruals. Second option is collection of the older legacy receivables. Third option is the part amount can be some level of asset monetization such as surplus land. The fourth option would be refinancing. So there are multiple options available to the company. And as prudent policy in consultation with the lenders, we are working on all of these options at the same time. And we feel very confident that there won't be an issue.

Sir, the second question is regarding the old leasing receivables. These were something around INR 800 crores to INR 900 crores. So out of those old receivables, how much the company is expecting in this financial year, that is financial year 2026, '27. So how much out of this INR 800 crores to INR 900 crores would be recovered?

I think our target this year was about INR 422 crores to be received. INR 60 crores we already received in the first quarter. And so remainder of 9 months -- minimum, and this I'm talking minimum target is INR 380 crores will come from that in total.

Your next question comes from the line of Ravi Kumar with Vardaga Investment.

My question is relating to slightly more strategic. While we've done an excellent job in terms of reducing the DSOs and working on like a tight shift, why are we -- Jain Irrigation looks like a very asset-heavy, but cash-light company, and for historical reasons. I've been an investor right from the time it was INR 1.25 a share price and went through INR 3 and now whatever it is, right, today. So I've gone through the whole cycle. Why are we not being the same kind of a campaign what we did for the pivoting our business model from a project business to a retail model and also from running a very tight shift in terms of the way working capital is. Why are we not doing identifying noncore assets, which doesn't impact revenue, which does not impact profitability and go on a little aggressive monetization model, given the Tamil Nadu land, which we thought will be over by May, we haven't heard anything from it. That's my first question.

And second, so I can answer both.

Okay. The second question is with respect to the food business side, the Agro Processing, if we remove the -- what is the beverage? Because this is a new business, which was not there in the last quarter. So if you remove that line or if you can just give us the revenue, what was the revenue, that would be great. And just a third follow-up slide 1. What is our 180 days plus receivables or maybe 180 or 240 days, whatever the way is, if we can get the receivables which are old due, that will also give us some kind of a figure how it is moving.

So yes. So thank you, Ravi. I think there are 3 questions there. So in terms of monetization, I think, as I said, with whatever we have done, we have repaid to banking system INR 1,300 crores through changing of the business, pivoting business. And we did generate significant amount of free cash flow during this period of time to be able to take care of the debt, and that process continues in the current year. And I think from next year, you'll start seeing the dividends, which will come from positive cash flow, which go into the growth of the company. In terms of the monetization, right, we've gone through 2 cycles of monetization. I think first monetization we did in '22, '23 period. At that time, the debt was INR 7,000 crores. Today, it is a little bit less than INR 4,000 crores. And we did do monetization of significant amount of our overseas business, et cetera. Right now, because of the restructuring, which was done along with the banking system, there were limitations of what you can do and you cannot do because of the framework of the restructuring which existed. And I think from next year, value-based monetization, which can create growth for the company will happen. In terms of the Tamil Nadu land, it got delayed somewhat. I think maybe I referred to it, it was also elections there in April, May, which took place, but it is certainly happening. Again, we are working with lenders, and I think that should get hopefully delivered in the current quarter. So we are on to it, right? The whole idea is that once we pay off these NCDs, from next year, stand-alone India business basis, there is no debt to pay, except the normal continued working capital, which is renewed every year. And then the debt is still left in the food business and as you know, over the last, I think, 1 year, we have taken decisions to take food business to the next level by introducing the new beverage business and so on. The beverage, your question was that we did approximately INR 60 crores into the food business in April to June quarter into that business. In terms of the receivables, which are above a certain period of time, mostly the government-related receivables are above 180 days. They are either linked to this, what you call, the project EPC business and/or linked to what we call where state governments place order on the company on behalf of the farmers, governments of Andhra, Telangana, Gujarat or Tamil Nadu. And sometimes their receivables take time to come through. And this is industry-wide. It is not just a Jain Irrigation. That's the way business is conducted for all the irrigation companies in those particular states. So that amount is approximately, I would say, total outstanding related to the farmers being placed order on us on behalf of the government is approximately INR 500 crores. Out of that, I would say about INR 300 crores would be about above 180 days. And there is INR 800 crores to INR 900 crores we talked about of the government receivables, which is also about 180 days. So about INR 1,100 crores is above 180 days. So if you look at overall net receivables for June were INR 1,975. So out of that, almost 55% are linked to these issues and the remainder would be the normal domestic receivables or export receivables.

Just a small follow-up, sir, on the last...