Jain Irrigation's fund raising to help, but not in near future

MUMBAI: Jain Irrigation's $200 million fund raising plan will give an important breather to the company for its financial woes. It will also enable it to shift to a NBFC or bank financed business model that will make sure it will not put on the debt weight again. However, the full benefits of this will be seen FY14 onwards.

The fund raising entails issuing fresh equity, FCCBs to overseas investors apart from raising external commercial borrowings and warrants to promoters totalling Rs 1150 crore. Nearly Rs 800-900 crore of this will be used to repay its existing borrowings, with average cost around 13%-14%. The company expects the average cost of fresh funds around 3%-4% being a combination of equity and cheap debt. Thus, an annual saving of Rs 80 - 100 crore is envisaged.

The company, which hitherto was dependent on government subsidies for funding the micro-irrigation projects, will gradually shift to a model where financial institutions including its newly floated NBFC would finance the farmers. This will reduce the company's receivables from various state governments.

"Pending subsidies which stood around Rs 1200 crore at end FY12, have now come down to Rs 950 crore and is expected to go down to Rs 550 crore by end FY13. Thus, the future growth is expected to come without increase in working capital," said Anil Jain, managing director of the company, while speaking to ET.

The fresh infusion of funds should enable the promoters to free their pledged shares, which are nearly half of their current 31% stake.

The funding scheme also envisages 7.5 lakh warrants issued to promoters at around Rs 86 each to raise Rs 64.7 crore on conversion. In spite of this, post the equity dilution the promoter stake is set to fall to 27.5% from 31% at June '12 end without considering FCCB conversion.

The scrip has taken a battering over last year and at Rs 61.85 is trading almost at its 52-week low. The investors' woes are unlikely to get over till the company's results actually start showing positive results of the restructuring, and that may not be before FY13 ends.