Mumbai: It claims to be the world’s second biggest drip irrigation company, but Jain Irrigation Systems Ltd started as a manufacturer of pipes before diversifying into drip irrigation.
“When we were supplying pipes to the farmers (in Maharashtra) we found that they were low on productivity and also that the groundwater table was depleting,” managing director Anil Jain recalls about what led the company into drip irrigation.
In 1985, after attending a drip irrigation conference in the US and seeing the benefits of the technology, the Jains brought the concept to India, where farmers depend on the monsoon to water most of their crops.
Drip or micro-irrigation, a method of irrigation that allows water and fertilizer to drip slowly and directly to the roots of plants, averting wastage, could offer a solution to India’s water woes.
Subsidy effect: Jain Irrigation Systems managing director Anil Jain. One factor that works in the company’s favour are schemes initiated by state governments promoting micro-irrigation through subsidies. Ashesh Shah/Mint
While Israel, a pioneer in drip irrigation technology, is already facing the worst water crisis in 80 years, 604 districts in India were gripped by drought because of scanty rainfall this year.
According to a report by the Geological Survey of Israel, the water crisis in Israel is a result of 30 years of overpumping and the lack of a clear, sustainable policy to manage water resources.
In India, around 450 million people live off rain-fed agriculture and are vulnerable to the vagaries of the monsoon.
Converting farmers to drip irrigation wasn’t easy. Till the early 1980s, Indian farmers engaged in flood irrigation, which was basically flooding the entire field with water. This led to a wastage of both water and fertilizer.
“While flood irrigation did not cost money, it cost the farmers Rs40,000-45,000 per ha when they used drip irrigation,” says Jain.
So, in 1988-89, the Maharashtra government encouraged the use of drip irrigation by giving 50% cash back to all the farmers who adopted drip irrigation.
The spread of drip irrigation, in turn, helped reduce government spending on water, fertilizer and energy, said Jain.
His father, Bhavarlal H. Jain, went into business in 1963 with Rs7,000 in hand, selling kerosene lamps door-to-door.
Today the Bombay Stock Exchange-listed Jain Irrigation has a market capitalization of Rs5,821 crore.
After 2003 the company has grown at a 40% compounded annual growth rate, with revenue expanding 10 times from Rs300 crore in 2003 to Rs3,000 crore in 2009.
Analysts say the company has room for further growth.
“About 69 million ha of area in India is under irrigation, 3.5 million ha is under micro-irrigation and the potential to get more area under micro-irrigation is 65 million (ha) or so,” says Manish Mahawar, analyst at brokerage firm Prabhudas Lilladher Pvt. Ltd.
In 2001-02, US-based private equity firm Aqua International Partners, LP, a member of the Texas Pacific Group that makes investments in companies providing water and water-related products or services to emerging market communities, bought a 49% stake in the company.
One factor that works in the company’s favour are schemes initiated by state governments promoting micro-irrigation through subsidies.
In July, the Haryana government announced that it would subsidise 90% of the cost of micro-irrigation systems, from 50% earlier.
In May, the Himachal Pradesh government, awarded a Rs65.11 crore micro-irrigation project to the company; in May 2008, Jain Irrigation signed an agreement with the government of Maharashtra for two projects in Jalgaon worth Rs550 crore.
The company has got the latest micro-irrigation technology through acquisitions in the US and Israel and so far has purchased six foreign companies and six domestic companies. Prize catches include Switzerland-based Thomas Machines SA, and US-based Chapin Watermatics Inc. and Cascade Specialties Inc.
According to Jain, the key to success of acquisitions of international companies is not to try and change them. “If you try and change their DNA it will be a recipe for disaster,” he says.
Jain Irrigation has diversified into other businesses. While its drip irrigation systems helped improve farm productivity, it found that some farmers were unable to sell their produce.
So the company decided to buy back farmers’ produce, process and market it. That is how the company started contract farming for vegetables, bananas, mango, papaya and tomato.
It is one of the largest manufacturers of dehydrated onions and mango pulp and puree.
The company went through some rough times between 1997 and 2001 because it had diversified too much.
“We had a turnover of Rs250 crore, debt of Rs750 crore and interest (burden) of Rs90 crore. People had written us off,” recalls Jain. The stock price, which was Rs460 in 1996, fell to Rs9.
In March 1998, the company needed Rs1 crore to repay a loan it had taken from State Bank of India and avoid default. When it was unable to raise the money from banks, the Jains pledged family gold.
The company shut down several peripheral businesses including granite quarrying, financial services and a multimedia venture. “I learnt that growth for the sake of growth will not be sustainable,” says Jain.