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August 01, 2012

Jain Irrigation's stumble and recovery

Bhavarlal H. Jain, Founder-Chairman of publicly listed Jain Irrigation provide an interesting first person account in Business Today.

Between 1992 and 1994 we acquired an IT company, took a granite quarry on lease, ventured into merchant banking and even bought an advertising agency. These diversifications happened along with forward/backward integration projects for our existing operations. By March 1997, we were trying to manage 11 different projects involving an investment of Rs 400 crore - almost equal to the company's size then. About Rs 250 crore was raised by way of debt.

...In early 2001, Aqua International Partners, a water-specific boutique fund, offered to invest in the company. There was a catch: we had to give the fund a controlling stake. We grappled with the unenviable question: who should survive, the promoter or the company? We decided to cede control, and in August 2002, the fund invested Rs 183 crore and took a 49.4 per cent stake in the company. The promoters' stake dropped from 73 per cent to less than 37 per cent and two family members had to vacate the Board.

We used the money to retire debt and bolster our working capital needs. We exited non-core businesses. By 2005, the company had revived and its share price was at Rs 160. The fund chose to exit. Today we are a Rs 3,800 crore company, the largest globally in mango processing and tissue culture, and second largest in drip irrigation. The share price is hovering around Rs 80 (on a face value of Rs 2 per share). Diversifying into unknown areas without required management bandwidth and eyeing disproportionate growth using debt is not sustainable. That was the lesson of a lifetime for me.

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