MAHEPCNSENovember 3, 2022

Mahindra EPC Irrigation Limited

5,576words
32turns
6analyst exchanges
1executives
Management on call
Ashok Sharma
MANAGING DIRECTOR
Key numbers — 40 extracted
1.6 billion
nd it's only going to get more challenging as the country's population is expected to increase to 1.6 billion and very soon will be the most populous country in the world. Now agriculture consumes almost 8
80%
n and very soon will be the most populous country in the world. Now agriculture consumes almost 80% of the freshwater available in our country. So, there is no option for a country like ours but to
75%
h higher productivity and improved cost efficiency for the farmers. We have seen water savings of 75% to 80% and a 25% to 30% increase in yield by using micro-irrigation. So, that was briefly about
25%
vity and improved cost efficiency for the farmers. We have seen water savings of 75% to 80% and a 25% to 30% increase in yield by using micro-irrigation. So, that was briefly about the industry. No
30%
d improved cost efficiency for the farmers. We have seen water savings of 75% to 80% and a 25% to 30% increase in yield by using micro-irrigation. So, that was briefly about the industry. Now, let
rs,
benefits to the farmer has been our broad strategy, which remains unchanged. In the last few years, I have mentioned that we are now focusing on a very precise strategy of focusing on a few critical
300 crore
drop coming from Tamil Nadu. Last year in H1, Tamil Nadu had an overall industry of approximately 300 crores, and our company has a dominant position there with around 10 % to 12% market share. This indust
10 %
l industry of approximately 300 crores, and our company has a dominant position there with around 10 % to 12% market share. This industry has dropped by around 90%. So, there was virtually no business
12%
ry of approximately 300 crores, and our company has a dominant position there with around 10 % to 12% market share. This industry has dropped by around 90%. So, there was virtually no business in the
90%
dominant position there with around 10 % to 12% market share. This industry has dropped by around 90%. So, there was virtually no business in the first few months. Some business has recently started.
24%
Having said that, the raw material cost remain a challenge. In Q2, there was an increase of 24% in raw material prices. However, in the last 8 to 10 weeks, we are seeing some stability in the
350 crore
st two or three years, has now resumed operation. We expect Andhra should contribute almost 300 - 350 crores in H2 as an improvement over last year. And the same with Tamil Nadu which has now started opera
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Guidance — 20 items
Ashok Sharma
opening
“As all of you are aware that India is facing huge challenges of water scarcity and population explosion, and we are moving from a water-stressed to a water-scarce economy, and it's only going to get more challenging as the country's population is expected to increase to 1.6 billion and very soon will be the most populous country in the world.”
Now let us talk about the industry for this year
opening
“Perhaps it will be stable or might have some minor corrections.”
Now let us talk about the industry for this year
opening
“When I look beyond with a 2-3 years perspective, I can see that this industry should go back to levels of F20, and F21, and there will be a good surge in the demand for micro irrigation from various states.”
Now let us talk about the industry for this year
opening
“We expect Andhra should contribute almost 300 - 350 crores in H2 as an improvement over last year.”
Now let us talk about the industry for this year
opening
“We expect some delay in Gujarat with elections being announced.”
Now let us talk about the industry for this year
opening
“From mid-December onwards, we expect Gujarat to again come back on the growth path.”
Now let us talk about the industry for this year
opening
“So, as a result, we expect that the industry in H2 should be favourable, and we should make up for the drop which we have seen in H1 of 25%.”
Now let us talk about the industry for this year
opening
“If that happens, then we can expect 8% to 10% growth or otherwise, between 5% to 10%.”
Now let us talk about the industry for this year
opening
“I would like to thank each of you for your patient hearing, and I will be very happy to hear your comments, suggestions, and questions and share our perspectives.”
Shriman Dudhodia
qa
“Firstly, on the industry growth guidance which you have given now 8 to 10% industry growth for the full year, and given that we have seen a sharp degrowth in the first half, just on the back of the annual calculation, should H2 see as high as 35% to 40% kind of a year-on-year growth?”
Risks & concerns — 15 flagged
And in H1 of F23, the challenge continues.
— Now let us talk about the industry for this year
The industry has declined in H1, we estimate a decline of around 25%, largely in Q2.
— Now let us talk about the industry for this year
In June of this year, Gujarat, which is an important market for the industry, increased the prices, Telangana and Chhattisgarh too increased the prices, towards the fag end of June, the impact of which came in Q2 for us and the industry.
— Now let us talk about the industry for this year
Having said that, the raw material cost remain a challenge.
— Now let us talk about the industry for this year
Given the environment and the industry, this seems to be a good balancing of our balance sheet in terms of managing working capital efficiently and good cost control so that the impact of the raw material cost was minimal for us.
— Now let us talk about the industry for this year
Again, the challenge was the Tamil Nadu market.
— Now let us talk about the industry for this year
You said that you know, the Q2 was quite weak for Tamil Nadu, and now it is picking up.
— Shriman Dudhodia
So, was there any specific reason why Tamil Nadu was weak?
— Shriman Dudhodia
The third question is, so while you mention that, you know, the raw material prices look stable, but if you look at say the PVC prices, you know, that are being published by the manufacturers, there is a steep decrease in the prices that we are seeing, and from the peak, I think it is what the data that we see is about 35% to 40% kind of a decline in the PVC prices.
— Shriman Dudhodia
Second is, you know, in a situation where the raw material prices decline, would states roll back the price increases, you know, that they have recently announced?
— Shriman Dudhodia
So, we are a little bit cautious in terms of raw material cost, but on the positive side, global prices are lower than Indian prices.
— Ashok Sharma
I fully understand the concern around that, as you are aware this is largely due to the industry situation of the last 2.5 years.
— Ashok Sharma
Beyond that, it is quite difficult to give a specific answer, Premji, because, here it is subject to state governments' involvement which drives the whole industry.
— Ashok Sharma
Because we see working capital as a big risk.
— Ashok Sharma
We have a very interesting model, which guides us on the exposure limit for states from a risk management perspective.
— Ashok Sharma
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Q&A — 6 exchanges
Q
Thank you for the details, and the opening remarks. A few follow-up questions, you know, based on the opening remarks. Firstly, on the industry growth guidance which you have given now 8 to 10% industry growth for the full year, and given that we have seen a sharp degrowth in the first half, just on the back of the annual calculation, should H2 see as high as 35% to 40% kind of a year-on-year growth? Is the assumption correct? So, the second question was about the situation in Tamil Nadu. You said that you know, the Q2 was quite weak for Tamil Nadu, and now it is picking up. So, was there any
Ashok Sharma
So, thanks for those questions. Let me go one by one. You are right. So, when there is a 25% drop in H1, there has to be a 25% to 30% increase in H2. We need to keep in mind that H2 normally is a bigger half compared to H1 historically. So, we do expect that growth. And as I mentioned, see if you look at the numbers, last year's H1 market was around 1,300 crores, and this year's H1 is around 1,000 crores. And last year H2 market was around 1,900 crores. Now when I am saying these numbers, please pardon me. These are not published numbers. They are our estimates. I could be wrong by 5 % - 10%.
Q
Sir, I have a follow-up question from the previous person. I just wanted some clarity on whether I understood it right or not that last year FY22 had a total turnover of around 212 crores. So, first two quarters if we calculate, it is around 73 crores. So, the remaining 139 crores for the full year is left to come in these two quarters, and we are expecting 10% or between 5 % to 10% growth over this number or probably something else.
Ashok Sharma
So, Aditya, first of all, thank you, you have always been coming for the calls. What I am talking about is not Mahindra EPC. As you know, we never give our guidance in terms of our numbers. What I was talking about was the industry, where I said the industry in H2 for F23 will be approx. 2,500 crores which last year was around 1900 crores. So, our outlook is 5% to 10% growth for the industry. Now if you were to ask me the follow-up question on what kind of growth would EPC expect? Our whole strategy and track record are that we always try to work hard and grow faster than the market. So, we ha
Q
Sir, I already had one observation to make. Sir, when we took over this company in 2012-13, sir, our turnover was anywhere between 125 crores to 161 crores, and we were showing a profit of about 7 crores to 8 crores at that point in time. Sir, now fast forward to maybe 2021 - 2022, what is your estimate as to the investor community, what is the expectation they should have from EPC, sir, after 10 years have gone by?
Ashok Sharma
So, Prem, I think last year also you asked this question. Just to give you some numbers, in F17 we had around 200 crores in revenue with around 9 crores in profit. Before that, we used to make 2 crores to 3 crores profit on lower revenue of 130 crores - 150 crores. But the big change which has happened in our business model is that the industry has grown. In those days, our maximum business was from Maharashtra, followed by Gujarat and AP in that order. And in the last four or five years, Project markets have become much more prominent. There our cost of sale is higher. So, our margins are low
Q
Sir you mentioned in your opening remarks that the industry will grow at 5% to 10% approximately this year, and we normally do, Mahindra EPC normally does a little bit better than the industry growth.
Ashok Sharma
Correct. And last year we reported about 212 crores of top line and a loss of about 9 crores. So, can we expect even assuming the industry grows at 5%, can we expect our turnover to be about 225 to 230 crores? I mean, what I want to ask is will the current year's turnover be a little bit more than last year's turnover? So, that was my first question. And the raw material prices where they are right now, and the price hike which we have got about between 12% to 18% from various states, do we expect margins to be better than last year on a full-year basis? And sir, I have a lot of questions. I w
Q
I think the questions asked by the previous friends were so detailed and sharp, nothing is left to ask or answer. Whatever has to be answered perhaps has been answered.
Management
Q
I am happy to conclude this call, and once again thank every one of you and wish you a very happy New Year ahead. And thanks for all your interest in the company, and I am sure when we meet going forward, we will be able to discuss the growth of the industry and see how the industry positively moves in the future. So, thank you everybody and bye-bye.
Management
Speaking time
Ashok Sharma
13
Moderator
8
Aditya Shah
4
Shriman Dudhodia
3
Rajan Shah
2
Now let us talk about the industry for this year
1
Prem Raheja
1
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Opening remarks
Ashok Sharma
Thank you very much. A very good evening, ladies and gentlemen, and a very, very warm welcome to all of you at the eighth investor call for Mahindra EPC Irrigation Limited. On behalf of Mahindra EPC, I would like to thank each one of you for joining this call, and I am sure all of you had a wonderful Diwali and a very nice start to the New Year. Today, I will briefly talk about the industry in terms of how the micro irrigation industry is impacting Indian agriculture and the impending water crisis, then will talk in more detail about how the industry is performing in H1 and outlook of the industry, and how we see Mahindra EPC's performance, and going ahead, how does it look for our company? I normally start my talk on how this business impacts the environment and how crucial it is in terms of creating enough water in the system. As all of you are aware that India is facing huge challenges of water scarcity and population explosion, and we are moving from a water-stressed to a water-sca
Now let us talk about the industry for this year
All of you who are following our company, know for a fact that the last two years F21 and F22 have been very challenging years for the industry in terms of growth and margins. And in H1 of F23, the challenge continues. The industry has declined in H1, we estimate a decline of around 25%, largely in Q2. The main reason as per our analysis is the drop coming from Tamil Nadu. Last year in H1, Tamil Nadu had an overall industry of approximately 300 crores, and our company has a dominant position there with around 10 % to 12% market share. This industry has dropped by around 90%. So, there was virtually no business in the first few months. Some business has recently started. So, that has been one big contributor to the drop in the industry in H1 and largely Q2. The second reason has been Maharashtra. Maharashtra has been impacted due to some delays in subsidies released to the farmers. So, new farmers are not easily joining in. Though we have a strong brand in Maharashtra but in Q2, because
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