Mumbai: The world’s second biggest maker of irrigation equipment, Jain Irrigation Systems Ltd, expects profit to double this year as a drought-struck India increases spending on projects aimed at raising farm output.
Gains will be driven by a 30-50% jump in sales of drip irrigation products, managing director Anil Jain said in an interview on Thursday. Profit was Rs123 crore in the year ended 31 March, on sales of Rs2,190 crore.
Prime Minister Manmohan Singh last week pledged assistance to farmers struck by a drought that’s affected 40% of the nation’s 626 districts. Smaller harvests in the world’s second biggest producer of rice, wheat and sugar may undermine efforts by Singh to push back growth to a 9% pace, dampen plans to assure food security for the poor, and fan inflation.
Jain Irrigation’s micro-irrigation systems business can benefit from the current drought as state governments across the country will incentivise farmers to implement irrigation system and save water, Nomura Financial Advisory and Securities (India), said in a note to clients on Friday.
“We are seeing demand for micro irrigation coming because of concern about food security, and the need to ensure incomes for small-farm holders,” said Jain.
Jain Irrigation’s shares have doubled this year to Rs715.6 in Mumbai, valuing the company at $1.1 billion. Eight of 12 analysts tracking the stock have a ?buy’ recommendation and overseas investors, including Goldman Sachs own 42% of the company.
Jain Irrigation, which has spent $65 million in acquiring rivals worldwide since 2000, will invest Rs200 crore this year in growing production capacity, Jain said. Micro irrigation business may bring 75% of sales in the next two-three years from 50%. Group sales may reach Rs3,800-4,000 crore, compared with estimated Rs2,950 crore this year, he said. “With penetration of just 6%, we see an opportunity for the next two to three decades,” Jain said.
Farmers buying irrigation systems get a 50% subsidy from the government and the products can boost farm output by 40%, he said.
The company, which supplies mango pulp to Coca-Cola Co., expects processed-food business to grow 15% this year, Jain said. The division, which also sells dehydrated onions and fruit extracts, supplies to Coca-Cola units in eight nations.
Earlier, mango was always mixed with other drinks, now it is a stand-alone drink, Jain said. The company processed about 125,000 tonnes of mangoes last year. The division accounts for 15% of total sales.
Pratik Parija in New Delhi contributed to this story.