Mumbai: Jain Irrigation Systems Ltd, Asia’s largest irrigation equipment maker, is adopting a series of measures to pare its huge debt and get back on the growth track.

These include reducing dependence on government subsidy on irrigation equipment, identifying avenues to increase dollar revenues as the rupee loses strength, selling non-core assets, consolidating its Africa business, and even floating a non-banking finance company to fund farmers, the company’s managing director Anil B. Jain said in an interview on Friday.

The company no longer waits for disbursal of government subsidy for drip irrigation while selling its products to farmers. “Instead, we either ask the farmers to pay the entire amount, or our dealers take the exposure for the micro-irrigation products that we sell," said, Jain who hopes the move will reduce the working capital burden that the firm has been facing due to late disbursals of the subsidy.

The company, thus, was able to reduce receivables to 1,599 crore as on 31 March from 2,029 crore a year ago.

Jain Irrigation, also the second largest manufacturer of micro irrigation systems in the world, offers a range of products including drip irrigation systems, sprinkler irrigation systems, valves, water filters and greenhouses. It also processes vegetables and fruits in India.

Jain Irrigation’s net loss widened to 60.33 crore in the June quarter, from 48.74 crore a year ago. Total income increased to 1,409.44 crore in the April-June period from 1,263.74 crore last year. Consolidated debt was 3,500 crore as on 31 March.

The company currently earns 30% of its revenues from overseas. About 50% of the company’s shares are held by foreign institutional investors.

“We will increase the share of overseas business to 40% in the current fiscal. About 50% is what we are targeting in the coming years," said Jain.

Since January, the rupee has depreciated by 9.64%, closing at 60.86 to the US dollar on Friday. Jain Irrigation is looking at expanding its business in Africa, which accounts for 4.5-5% of its revenue. “We plan to increase share of revenues from Africa to 10% by fiscal 2015," Jain said.

The company signed a $23 million (around 138 crore) deal on 25 February with the government of Nigeria to provide consultancy services, farming kits, greenhouses to young farmers in Borno state of Nigeria. Consumer goods companies such as Godrej Consumer Products Ltd, Emami Ltd, Dabur India Ltd and Marico Ltd entered the African market a decade ago by acquiring brands and businesses. Conglomerates such as Essar group, Adani group, Reliance Industries Ltd and JSW group have been looking to tap natural resources and business opportunities in Africa.

Jain Irrigation is not showing haste. “We will first build a large clientele and then set up a manufacturing facility in Africa. The idea is to take a disciplined approach," Jain said.

In another move to pare debt, the firm is selling its non-core assets. It is in advanced stages of selling its wind-power assets to a Coimbatore-based firm for about 70 crore, said Jain.

The firm has also floated a non-banking finance company (NBFC) called Safal to fund farmers. The finance firm got the Reserve Bank of India’s approval in July 2012. Started with an initial corpus of 60 crore, the amount will be increased to 200 crore by Jain Irrigation and International Finance Corporation.

While some analysts are optimistic about the new working model, others remain sceptical. In an 8 July report, domestic brokerage Kisan Ratilal Choksey Shares and Securities Pvt. Ltd said a slew of things including change in revenue mix, anticipation of better performance of micro-irrigation system and further rating upgradation due to increased cashflow generation and easing working capital concerns will bring the firm, which has taken a beating for consecutive quarters, back on track.

“After a continuous poor performance in the past few quarters, the micro-irrigation system segment will be back on track with the successful rollout of the NBFC model, acceptance of farmer community, better capacity utilization (currently 50%)," the report said. But JP Morgan Securities Singapore Pvt. Ltd, in a 29 May report, said while the company’s receivables in the March quarter declined by 430 crore to 1,600 crore, absolute receivables remain elevated. It also noted that the firm’s March-quarter earnings before interest, tax, depreciation and amortization (Ebitda) margins declined by 440 basis points (bps) year-on-year to 15.8%, its lowest in last four years. One bps in one-hundredth of a percentage point. “It (management) is guided to further receivables improvement in financial year 2014. We expect margins to remain under pressure as Jain Irrigation moves away from subsidy model, entailing higher discounts. We note inventory levels have risen considerably, we are not sure whether this is a function of the new business model, but for now, it seems to be mitigating the benefits of lower receivables," the report said.

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