The Hindu Business Line : Jain Irrigation on acquisition mode

Jain Irrigation Systems’ acquisition of a controlling stake in specialist equipment maker Thomas Machines S.A (THE) of Switzerland is likely to strengthen its micro-irrigation segment through better technology and improved market reach.

This is the company’s fifth acquisition since 2006, when the company started its pursuit of growing inorganically in its micro-irrigation segment.

Jain Irrigation has acquired 69.75 per cent in Thomas Machines through a subsidiary, thus gaining management and operational control. The company also has an agreement to call for the remaining 30.25 per cent stake over the next three years. Thomas Machines manufactures specialist machines that include drip irrigation lines and automation products. Jain Irrigation hope to build its capabilities in new generation drip lines such as ‘precision irrigation’ products.

Superior product range

Such products are considered superior to the traditional forms of irrigation such as canal irrigation as the wastage is lesser. With the Government’s thrust on increasing agricultural productivity, the outlay for irrigation in general and micro-irrigation in particular have been on the rise.

The recent budget has proposed to bring an additional four-lakh hectares of land under the Government’s micro-irrigation plans with an outlay of Rs 500 crore. This is apart from the Budget’s allocation of Rs 20,000 crore to irrigation.

As research and development is a key to develop higher-end products in micro-irrigation, Jain irrigation has been acquiring companies in Greece, the US and Israel with the primary objective of immediate access to developed technologies in those markets. The current acquisition in Switzerland appears to be one more move in this direction.

Jain Irrigation is yet to announce the value of the deal and the means of financing. The company has recently issued equity warrants to promoters amounting to about Rs 411 crore. It is uncertain whether the proceeds of these issues will be used to fund this acquisition or repay its high debt burden.

The current acquisition, if funded through debt, may mount the burden over the medium-term, until the warrants are converted and there is equity infusion.

Full conversion of warrants and convertible bonds issued could expand equity by 20 per cent. Any further equity infusion for the present acquisition would risk earnings dilution in the near-term.

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