MAHEPCNSEMay 05, 2022

Mahindra EPC Irrigation Limited

7,510words
47turns
6analyst exchanges
0executives
Key numbers — 40 extracted
60%
by simple means, building a whole new generation of water-conscious citizens. A country with over 60% desert and less than 20% naturally arable landmass, today Israel has become a world leader in wat
20%
a whole new generation of water-conscious citizens. A country with over 60% desert and less than 20% naturally arable landmass, today Israel has become a world leader in water management and water
90%
le landmass, today Israel has become a world leader in water management and water recycling. Over 90% of Israel's water is recycled and nearly 80% of drinking water consumed is either desalinated or
80%
leader in water management and water recycling. Over 90% of Israel's water is recycled and nearly 80% of drinking water consumed is either desalinated or recycled. Israel has reduced the amount of wa
30%
esalinated or recycled. Israel has reduced the amount of water needed for irrigation by more than 30% by using micro-irrigation largely and also increased the groundwater level through efficient mana
rs,
r the micro-irrigation industry? It means a lot because as time progresses all the citizens, farmers, and government have to get more and more water conscious. Today only 12% to 13% of the available l
12%
all the citizens, farmers, and government have to get more and more water conscious. Today only 12% to 13% of the available land is having micro-irrigation facilities available and the overall area
13%
citizens, farmers, and government have to get more and more water conscious. Today only 12% to 13% of the available land is having micro-irrigation facilities available and the overall area availa
70 million
gation facilities available and the overall area available for using micro-irrigation is close to 70 million hectares. Out of that only, 10 million are covered under micro-irrigation, so clearly there are a
10 million
rall area available for using micro-irrigation is close to 70 million hectares. Out of that only, 10 million are covered under micro-irrigation, so clearly there are a lot of positives in terms of the need
11.7 lakh
r on year. Just to share some statistics, which are based on the published data. In FY2020 almost 11.7 lakh hectares were covered through micro-irrigation. In FY2021, there was a degrowth of 20% and furt
25%
covered through micro-irrigation. In FY2021, there was a degrowth of 20% and further degrowth of 25% in FY2022. In FY2022, we are estimating that around 7 lakh hectares were covered under micro-irri
Guidance — 20 items
Ashok Sharma
opening
“Today I will be sharing with you the key developments in the micro irrigation industry, the company’s performance, and a broad industry outlook for FY¥2023.”
Ashok Sharma
opening
“Now let me talk about very specific things, which you will be very keen to know about how the industry is doing now and what is the future like.”
Ashok Sharma
opening
“Up till now the Telangana Government has already increased the price and other state governments are in the process and we expect some more price increase coming from different state governments starting this quarter.”
Ashok Sharma
opening
“Increase of prices by the state government, the focus on stable states continues, dormant and large states like AP and Telangana getting reactivated and we expect this should drive the industry well for the coming years.”
Ashok Sharma
opening
“They have been increasing in the last few months and we expect that we may remain on similar or marginally higher levels in the next few months.”
Ashok Sharma
opening
“As the geopolitical situation and uncertainty reduce across the globe, some new capacities come in and the port congestions which are creating a lot of issues in terms of movement of goods ease out during the next few months, we could perhaps expect some stabilization / softening of raw material prices.”
Ashok Sharma
opening
“We have been able to sign MOU for providing net houses for rural livelihood increase of small farmers and there is a good pipeline of orders for the year, which we expect we will be able to fulfil during the coming time.”
Ashok Sharma
opening
“With this we are quite hopeful that going forward our performance will continue to be better than the industry and ensure that our farmers sustain their trust in Mahindra EPC for its quality and good service.”
Ashok Sharma
qa
“This is the model we are recommending to the government where there is direct benefit transfer, so our receivables will be very less.”
Ashok Sharma
qa
“Coming to Telangana, the price increase they have Mahindracrec offered is in line with the increase in input cost of last year, but the question is what will be the increase of the other states, I have no idea.”
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Risks & concerns — 15 flagged
Looking at these two years a bit closely what one can see is that in the last two years largely due to the impact of COVID, the state governments have given less focus in terms of allocating funds for micro-irrigation as perhaps there was an urgent need in public health.
— Ashok Sharma
The second challenge we saw was the overall impact of climate change.
— Ashok Sharma
The raw material cost has gone up by almost 30% over FY2021, which means an impact of almost 14-15% on the total material cost.
— Ashok Sharma
Mahindra EPC could reduce the impact by certain innovative design improvements, process improvement, and efficiency improvements, these saved around 2% to 3%, but still, we had an adverse impact of the material cost increase of around 11-12%.
— Ashok Sharma
This has put a lot of pressure on the industry in terms of reduced revenues, reduced margins and hence it has become unviable to sell the products profitably in certain markets.
— Ashok Sharma
Today it is very difficult to take that view.
— Ashok Sharma
Once we realized that the raw material costs are going up and the revenues may be under pressure because of state government funding, a lot of efforts had been put to move Mahindracrec toward a business model which is having less dependence on subsidies.
— Ashok Sharma
I have no idea, but what I can tell you out of experience is that once big states like Telangana or Andhra give price increases, it becomes something of a benchmark for other states to think, but frankly it is very difficult to say because each state has their way of thinking, but we are happy that at least Telangana has taken a night position to give a reasonable increase so that the industry can have the interest to promote micro-irngation in that state.
— Ashok Sharma
We need to be cautious in certain markets.
— Ashok Sharma
We have been very cautious in the new states given the overall environment of the industry, but we have some good strategies.
— Ashok Sharma
It is a tough one because the industry is going through quite a difficult time in the last two years, but when I look at the positives 1.e., the dormant states wanting to get active, price increases will make the industry attractive but also there is the downside of the raw material cost, which the industry has to deal with in the short term.
— Ashok Sharma
Su, from 2011 to 2015 just going a bit back if] look earlier the raw material cost had been for the four years when just when Mahindra acquired EPC between 60% and 65% and even after that the operating margin was positive between 5% and 9%; I believe the change in the business model by paying higher sales commission is creating a bigger drag on the net profits because today with 63% raw material cost our operating margin is negative 3% versus a positive 5% to 9% in 2011 to 2014 or 2015.
— Aditya Shah
The last two years were very stressful for many companies, so is the industry seeing reduced players nght now at this point because of the stress?
— Rajan Shah
For the last two years many of the smaller players may have got wiped out, so is the scenario such that smaller players are facing stress and may wind up their businesses or something like that.
— Rajan Shah
The second point which you said is true, that is the industry has gone down by almost 40% in the last two years and it is a matter of concern for the country.
— Ashok Sharma
Q&A — 6 exchanges
Q
Sir thanks for the opening remarks. I wanted to check with you if could you speak a little bit about the receivable position, if I remember correctly Rs.40 Crores is the pending receivable from the AP government so could you speak a little bit about that situation?
Ashok Sharma
Any other question Lakhani. I will follow it up with another one Sir. Go ahead, I can answer together, this is a simple one. Yes, also going ahead now Sir, the pain that you have seen with the AP government if you could just highlight that with the better-governed states what kind of a receivable you have Mahindracrec from them and what kind of ability do you have to further increase the sales in those regions versus where you have been currently selling. I presume you are predominantly selling just in six to seven states right, actually five to six states if ] understand so that also? Sure. Y
Q
Sir I have two to three questions as of now. One is regarding our market share currently and the second one is the growth expected for the industry and us since the last two years were degrowth. The third question is about the 8% to 9% revenue, which came in HI from the non-government business, what was that in H2 and for the full year and what is your plan to increase up to what percentage in the next year, FY2023?
Ashok Sharma
Increase what. Increase the percentage of non-government business in FY2023? Thanks Aditya for coming on this call and asking these questions. Now if you look at EPC every year consistently, we have been growing by 0.4% to 0.5% on our market share most of the years and if I look at the last three years’ data, we have grown by an average of 0.4% year-on-year. Today our market share is between 6% and 6.5%. I must also caution that these are estimates. There is no reliable data available through independent sources. This is based on our estimates of other players at the all-India level and the st
Q
Good afternoon, Sir. First of all, thank you for the opening remarks. They were very informative. I had certain questions. One was this last quarter Rs.66 Crores of topline which we did does it include any price hikes or all the price hikes have happened post-March 31, 2022?
Ashok Sharma
Next question. The next question was in your opening remarks you mentioned that in 2021 we saw a degrowth of 20% and in 2021-2022 we saw a degrowth of 25%? Does that mean there was a net drop of 40% in the industry in these two years? Are we still looking at this 12% growth Sir? If there is a 40% drop if we want to regain these two years of losses in the current year and assuming that the industry grows back to 2019-2020 levels, are we not looking at a higher growth because 5% to 12% seems to be very, very low Sir? I would also like to know, as you mentioned in your opening remarks that Telang
Q
Good evening. It has been a good performance despite a lot of macro issues that are plaguing us, I think most of the questions are covered by my colleagues or friends, I have one or two more. One is that knowing this business, more of government subsidy lead 80% to 90%, are we looking at adjacencies like precision agriculture or any other space like we have got into agri or any other thing that we are looking at to grow faster because there will always be challenges in micro-irrnigation. It looks very lucrative, but I know it is a very tough business, to begin with, so is there any opportunity
Ashok Sharma
Anything else Vay. Sometime back the group was also talking about consolidation within Mahindra Agn pockets, so anything on the near horizon? I know it is at the board level or M&M entity level, but is anything possible in the next medium-term to longer-term? Viay, coming to your first question. You are nght, we need to have lesser dependence on the state government and that is the path we are taking. As 1 mentioned that from 1% we are at 15% and we are to further progress. That is with the products which I discussed in the past. The second thing we are now working on is the greenhouse project
Q
Sir as a follow-up, I wanted to ask what is the sales data from Samriddhi centres owned by Mahindra and what is the percentage of sales which are direct sales? Also, the person before me asked about the consolidation within the group, so I believe from the public data I have is that there are Mahindra Agn and Mahindra Summit and all of those companies together probably have around Rs.500 Crores to Rs.600 Crores of turnover, so together do Mahindra at a group level plan to having a large entity which can have Rs.1000 Crores of turnover and which can have better cash flows?
Ashok Sharma
Aditya let me just first confirm your point which you discussed about material cost. So your observations were night and the answer which I gave was also right in terms of the commissions and in terms of the mix. Also, in 2011 — 2012, when Mahindra acquired the company, we also had to make some investments in people, organization, IT etc. That was the kind of journey we had then. Now coming to the question of synergy with Samnddhi. Roughly we do around 8% to 10% of business through Samriddhi centres and it is done at arm's length. We also use their tractors dealers, their reach and presence. W
Q
I just would like to thank each one of the participants for their wonderful support and interest in Mahindra EPC and your valuable questions. I hope everyone was satisfied with the answers. I look forward to connecting again in our next call after the H1 results. Let us see how the industry goes. If the industry goes well, I am sure we will have some good news to talk about. Thank you very much.
Management
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Speaking time
Ashok Sharma
20
Moderator
8
Aejas Lakhani
6
Aditya Shah
6
Rajan Shah
4
Vijay Kumar
3
Opening remarks
Ashok Sharma
Thank you very much. A very good evening, ladies and gentlemen and a very warm welcome to all of you in the seventh investor call for Mahindra EPC Imgation Limited. On behalf of Mahindra EPC, I would like to sincerely thank each one of you for joining this call. Today I will be sharing with you the key developments in the micro irrigation industry, the company’s performance, and a broad industry outlook for FY¥2023. Today I thought let me first talk a little bit about Israel. Many of you know about the technologies being developed in Israel with micro-imgation being one such technology which has come from the country. As you are aware that Israel has a very small land region, does not have natural resources, and very less rainfall but Israel has always overcome these challenges through innovation, and I will talk about innovation in the area of water management. In the early years of Israel’s existence, the population grew rapidly and as the tiny country struggled with the significant
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