November 8, 2015

Mumbai-based Jain Irrigation Systems Ltd., the largest irrigation equipment maker in Asia, announced it is raising Rs792 cr (US$120.36 million) through an equity sale in the company and its newly formed food business unit, Jain Farm Fresh Foods Ltd.

London-based investment fund, Mandala Capital, which focuses exclusively on investments in the Indian agribusiness sector, will invest Rs396 cr (US$60.2 million) in Jain Farm Fresh Foods, which will carry with it a pre-money enterprise valuation of between Rs 2,500 cr (US$$380 million) and Rs 3,000 cr (US$456 million). Through this transaction, Mandala will likely gain a stake in Jain Farm Fresh Foods of between 14.08% and 17.13%, subject to its performance.

Mandala will also commit an investment of Rs 285 cr (US$43.3 million) to the parent company, Jain Irrigation Systems, through compulsory convertible debentures (CCDs) giving the firm a 6.5% stake within 18 months when the CCDs convert to equity shares.

"It's a pleasure to be working on this transaction with Jain Irrigation Systems and its newly formed subsidiary, Jain Fresh Farm Foods Ltd. During our earlier investment in Jain's NBFC affiliate, the Sustainable Agro-commercial Finance Company Limited, we saw that the management team had  successfully repositioned JISL's core business lines for a strong return to growth, and so we decided to increase our investment in the group, in one of the largest foreign direct investments to date in Indian agribusinesses," says Dominic Redfern and Uday Garg, the Managing Directors of Mandala in a recent statement. 

Jain announced it will also make a Rs 111 cr (US$16.9 million) preferential issue of equity warrants to the promoters representing a 21.67% premium to the current price. Once the deal is complete, the promoter’s stake would equal approximately 27%.

Through this transaction, Mandala’s valuation of Jain Farm Fresh Foods of between US$380 million and US$456 million – which nears the total current market valuation of its parent company, Jain Irrigation Systems – indicates the vast growth potential and intrinsic value inherent in the vertically integrated global food space.

“It’s a positive and huge valuation for food business compared to the parent company. Jain Farm Fresh Foods has plans to enter into business to consumer (B2C) space with its products, including frozen mango pulp and fruit pulp, a shift from traditional business to business (B2B) space,” said Anil B. Jain, managing director, Jain Irrigation Systems.

The funds being raised will be allocated to strengthening Jain Irrigation Systems’ balance sheet reducing the company’s debt-to-equity ratio from 1.75:1 to 1:1, and to provide capital to fund the growth of Jain Farm Fresh Foods.

“Jain Irrigation always wanted to better its debt-to-equity ratio by deleveraging the balance sheet. At least Rs.500-600 crore will be allocated for debt reduction, resulting in huge savings on interest cost,” a Jain Irrigation executive said, who requested anonymity.

Jain Irrigation’s businesses include micro-irrigation systems, pipes, plastic sheeting, agro-processed products, tissue culture plants, financial services, and renewable energies, while its food business includes manufacturing plants in Maharashtra, Gujarat, and Andhra Pradesh, and indirect subsidies – Cascade Specialties Inc. in the U.S. and SQF2009 Ltd in the UK.