Debt: Anil Jain on Jain Irrigation foreign business merger, debt reduction and future plans
Through the merger with Rivulis, our international irrigation business will be able to gain a significant value creation opportunity and we will be able to repay all foreign debt. The parent company would be able to reduce its debt by nearly Rs 2,700 crore,” says Anil Jain, Country Leader,
Your international business will merge with Rivulis backed by Temasek. Tell us about the key details of this merger and what are the synergies for the Indian parent company?
This merger is one of the unique and significant events in the international irrigation market. Rivulis, which is owned by Temasek, is a roughly $400 million entity operating worldwide. Our own international irrigation company, headquartered partly in Israel and partly in the United States, also has a turnover of $360 million, operating in more than 100 countries worldwide.
Now these two companies are coming together and merging and through this merger our international irrigation business will be able to get a significant value creation opportunity where we can repay all of our overseas debt which is in the operating companies as well as the bonds we have and through this, the parent company, Jain Irrigation, would be able to reduce its debt by almost Rs 2,700 crore. This is therefore a significant advantage for the parent.
But apart from that, we as Jain Irrigation India through our overseas subsidiary will continue to own 22% of this merged company. So our own business was $350 million and now with the extra $400 million it’s a $750 million business and it’s much bigger and more than double our current size.
The company is therefore more than doubling in size and this would allow us to continue to create value in the future thanks to these equity funds because the company will continue to grow. That’s the mechanics of the transactions and the numbers. Also, what is essential is that these two companies together are one of the major players in the world and provide climate-related solutions, because we basically provide cultivation solutions to farmers and will help them save water and improve productivity. Whether the farm is one acre or 100,000 acres, it doesn’t matter. We have technologies and a horizontal product base that can cover all types of farmers. These are the main advantages of this transaction.
Your consolidated debt is expected to drop by 46% to Rs 3,300 crore. How will the entity service the remaining debt and what free cash flow do you expect to generate? Is there also an internal target for net debt?
For the remaining part of the overseas business, we will continue to export to the combined company, which would continue to add value to Jain Irrigation’s independent balance sheet in India. It is always profitable. Apart from this, the remaining debt is close to Rs 3,300 crore and is believed to be on India’s independent balance sheet which comprises two tiers. One is our core business in India, consisting of drip irrigation, piping and tissue culture, as well as our global food business which is in India and outside India.
If we leave aside the food sector because it has its own dynamics and thanks to the process of monetization of value, this debt will decrease over the next two years. We see a huge growth opportunity for Jain Autonomous Irrigation in India. Through growth and internal accruals, the rest of the debt will be covered by Indian cash flow.
As could have been seen from the March 22 results, for the full year, we had nearly Rs 700 crore of overall cash flow generation after changes in working capital from operations. This was already a great advantage and thanks to the change in our business model and direct sale to farmers, which allowed us to complete all government projects, because it always generates deferred receivables on which we do not want us focus.
We are focusing on selling directly to farmers through our reseller base, increasing our reseller base in the northern and eastern regions of India, as we are already quite strong in the western and southern regions. southern India. In this way, we believe that in a very comfortable and sustainable way, the Indian autonomous entity will be able to service the rest of the debt.
So is this a 2.0 turning point for Jain Irrigation? How do you see the company in the next two to five years?
That’s a good question. On March 25, 2022, when we signed the restructuring resolution plan with all Indian and foreign lenders, we had a great moment where all saw a bright future with this company. On that day, we paid a total of Rs 700 crore in terms of repayment of part of the long-term debt, repayment of interest, etc.
The company account is now standard and current in a sense, but due to the RBI rule, it will only become standard 12 months from the date of implementation. So it’s going pretty well now. This was the first phase to restructure with Indian lenders and put the Indian business on the path to growth. March 22 results were already profitable.
Second, in the June quarter, we reorganized the overseas operations and merged with a much larger company and have a good amount of cash to pay off a large debt.
As for the next two to five years, I would say three things; one, India’s debt would continually decline; long-term debt through our internal accruals and further monetization of value, would decrease significantly. We might retain some debt which is necessary for the working capital of stocks and receivables, but even India’s debt will be significantly lower over the next two to three years, that is our target before 2025.