‘Despite having a patchy monsoon, we’ll do better’

Jain Irrigation Systems has a stirring, and rather appropriate, credo for a company that is engaged in facilitating agriculture — ‘Serve and strive through strain and stress; do our noblest, that’s success.’

Anil Jain, Managing Director, explains matter-of-factly that the path to success in agri-business is not rosy. The company has recently been recognised by Fortune magazine as being among the 51 companies that are changing the world. It was the only Indian company to make to that list, another feather in its much-decorated cap.

Stories of the difference that its drip irrigation has made to the productivity of farmers and their crops are legion. With only 5 million of the over 100 million farmers in the country reached through drip irrigation, Anil is conscious there is much that remains to be done. Edited excerpts from an interview:

How is the monsoon affecting your company fortunes?

According to some reports, about half the districts have had good rainfall while it is negative in the other half. The farmers who go in for drip irrigation are not usually those who grow just the Kharif crop. Our customers are mostly those who have access to water beyond the rainy season — either through a well, reservoir, canal or farm pond. Our sales really come from October onwards when the Rabi and summer crop starts. We have export markets also. So, as of now, I am optimistic that despite having a patchy monsoon here, we’ll do better.

Your profits dropped despite sales nearly doubling in the past five years. Why?

Between 2004 and 2011, we grew very rapidly — at almost 30 per cent annually. Now, for drip irrigation, farmers get a subsidy from the government. But the farmer doesn’t have the money. So we used to wait for our dues. Now, governments, even though they are well-intentioned, there are delays in distribution, since they have to do inspections, go to the field, etc.

Suddenly our receivables became very high — almost ₹1,200 crore which got blocked and didn’t get cleared. That increased interest costs and low profits.

Therefore, in 2011-12, we changed our business model — we withdrew from certain States where the receivables were high. Then revenues got impacted. We told the farmers our problem, told them to pay us cash, and created a finance company, which could give them a loan.

The net result is that the ₹1,200 crore outstanding has come down to ₹250 crore.

The earlier model was seen as farmer-friendly. How difficult was it to change the model?

When we changed a model that had worked for the previous 25 years, it was difficult for the farmer and for our dealers.

They protested as they felt that without the subsidy the farmer would not be able to buy. And in the first year — in 2012-13, our business was down by one-third.

When we bring structural changes, it does affect revenue. We had told the market that it would take six to eight quarters, but it took a bit more because of a drought in 2012.

Now, we are in a better position and our dealers and our system have adjusted.

What is the growth outlook for the various business verticals in your company?

Our micro-irrigation business and food processing businesses, which constitute about 45 per cent and 25 per cent, respectively, will grow faster even though they are larger businesses. I expect that scenario to continue for the next three years.

The piping business, which constitutes about 20 per cent, will also continue to grow while others such as tissue culture and renewable energy, which together account for nearly 10 per cent — have great potential.

In 10 years time, the proportion could change. The world has become more volatile and cycles are changing faster.

Economic trends today look very much like oscillations on a heart monitor. So, we need to de-risk by being present in different market segments and different geographies. We have designed the business model such that even with volatility we can sustain and grow in the right way.

Farmer distress has existed for centuries. But we’re hearing more about farmer suicides now. What has changed?

Yes. The distress is not new. This is an issue for every sane Indian to think about. Today, there is an overall societal pressure to conform, to fulfil — and these things have taken a different meaning.

A farmer does not have a regular source of income — but he has more outlets for expenses — whether for agricultural or societal reasons.

This leads to a situation where he is in perpetual debt. Now, if they fail — are unable to honour their obligations — to family, to the bank etc they equate it with personal failure. Earlier, there were others to share the misery.

Today, with more individualistic growth, they feel they do not have that support. They get desperate.

COMMENT NOW