Mahindra EPC Irrigation Limited (523754) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Mahindra EPC Irrigation Limited investor conference call for the annual financial results of the company. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ashok Sharma, Managing Director of the company. Thank you, and over to you, sir.

Thank you very much. Thanks a lot. Good evening, ladies and gentlemen, and a very, very warm welcome to all of you for the ninth 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. Today, I'll be sharing with you the key developments in the agri environment, micro irrigation industry and in details, specific performance of your company and the industry outlook for the year. Let me just, once again, a recap on the water crisis, which our country and the planet is facing, and the role of micro irrigation and elevating the same. We are all aware that India's population is now more than China's population. Now what does it mean for water? It means a lot. To feed so many people, the increasing population, and to ensure that water availability is there, it becomes very important for our country to improve the water usage efficiency. And all of you know that almost 90% of the water is used in agriculture. So again, this makes a very strong case for fast adoption of micro irrigation across the country as we go forward. Today, around 13% to 14% of the land which needs to be micro irrigated is micro irrigated through to micro irrigation. That means there is still a potential of almost 85% to 87% available for micro irrigation. So one is, of course, savings of water, another is increased productivity. Both are actually beneficial to the farmers using this technology. And over the last few decades, there has been adoption of micro irrigation across the country, especially in a few states, like Gujarat, Maharashtra, Andhra Pradesh and, in recent times, Tamil Nadu. These states have been the pioneers on accepting this technology. And now we are seeing a trend where other states, like MP last year, like UP, Rajasthan, are slowly getting into micro irrigation. And as the last states, like MP, Rajasthan, UP, adopt this technology, clearly, there is a big opportunity for this industry. Coming to Mahindra EPC. Again, most of you are aware that we are the pioneers of micro irrigation in India since 1986. And for us, helping the farmers through sustainable precision farming solution is a space in which micro irrigation operates for us. And clearly, we see this business very much in line with our philosophy of RISE, a philosophy of working towards driving positive change in the lives of the communities where we operate and our philosophy of doing business only if you are able to enable others to RISE -- will be RISE. And that's the reason why Mahindra feels that being in the micro irrigation space is a contribution to the farmers, contribution to the planet and truly a sustainable business for us. You do understand that the adoption of micro irrigation has its challenges. It is slower than what we would like it to be. But we are committed to the long-term opportunity of this business, the long-term need of this business in terms of impacting the planet Earth, farmers and our own sustainability. And towards this, over the years, we have been focusing on a lot of activities for educating farmers, for giving them good advisory, supporting them with good, quality products and service, so they're able to benefit the most from this technology. And our focus has always been on customer satisfaction, and all our research reveals that we are amongst the best in customer satisfaction in this industry. And this is something which we would like to continue because with this, we are able to fulfill our vision of delivering farmer prosperity and contribute to the nation's priority of doubling the farmer income. In the previous calls, those of you who have been there, I've been talking about our strategy, and there are 4 key elements of our strategy. One is focus, focusing on distinct key markets where we believe the payment cycles are better, the social situation is better than other locations and they are profitable markets. Focusing on higher-margin products like drip over the years has helped the company to keep increasing our margins despite various ups and downs. Focusing on managing our working capital, which we think is a very important industry given the high dependence on states for distributing the subsidy. In the last 3 years, we have focused a lot on reducing costs. And that is really helping us now, when the raw material costs have gone up, to maintain the company's performance. Over the last 3 years, especially, after the COVID started, we have been focusing on non-subsidy businesses. And from almost 1% contribution in F '20, last year we were close to 20% of our business coming from non-subsidy. So we are trying to move away from the subsidy business gradually. So that business becomes more predictable and cash flows are more even. Let us now talk about the micro irrigation industry. And after that, I'll talk about our financial results. So if you look at the last 2 or 3 years, [ things were ] kind of not very exciting for this industry. There have been challenges in terms of industry down trend. There have been raw material cost increases. And as a result, the industry has gone through pressures on margins and the price increase is controlled by the state governments. There were also some delays by the state governments in announcing the price increase. So as a result, up to H1 of F '23, the trend was not very encouraging. But I'm happy to inform you that from H2 F '23, things have changed and things are changing for the better. One of the major changes that happened, which I mentioned in our previous call in the month of October, is the increase in price by the state governments. So as expected, all the major state governments have increased their price, of course, not in line with the raw material cost increase, but nevertheless, there is an increase of at least 7% to 10%, depending on the state. So that has been one positive. Also, the raw material prices have stabilized and slightly softened in H2. So that also has helped the industry in terms of we are procuring at lower cost. While the crude price has come down in the last few months compared to the first part of the year, but still, the crude oil prices are still higher than the prices which we have seen in F '20 and F '21 when we had weak performance in the industry. Another positive has been the revival of Andhra Pradesh. I mentioned in the call last time that we expect in H2 the revival of industry, largely on the back of Andhra Pradesh, and they would be driving the industry. And that's what really happened. So the industry has done well, largely because of AP getting active. Another positive is that AP has been holding on to the subsidy payments for many years. In the last financial year, they have cleared a lot of dues, pending dues of the industry, which has also given the industry confidence to focus more on the AP market. There are other programs which is Atal Bhujal Yojana where there is incentive for certain districts to go for micro irrigation where the groundwater is lesser and they get higher incentives. And that is also driving business, especially in areas like Gujarat. Tamil Nadu, our expectation was it should grow at a faster pace. That didn't happen in H2. It was a bit slower than expected. Also, Karnataka, while we're not expecting Karnataka to be operational, but we don't see any movement in Karnataka. It used to be a good market a few quarters ago. So with this background, I will talk about the performance of Mahindra EPC and F'23. So let me start with an overall annual perspective, then quickly on the half year, then the quarterly results. Quarterly results, you have seen. So I'll just give you context in terms of how the year has been for us. So when we started '23, we were quite clear what are the challenges and opportunities ahead of us in '23. And based on that, we focused on certain markets. We focused a lot on cash collection, ensuring the cash flow of the company and cost. As a result of this, we could see an increase in market share in a few of our focus markets where we wanted to grow further and also we could have healthy cash flows during the year. If you look at the overall growth of the industry, we expected the year to end at a positive of around 5% to 7%. But as per the current data available, it seems that the industry would be almost same as last year or maybe 1% or 2%, plus or minus. Still the data is coming in and, as you know, there is no single reliable source of data in this industry. But our estimate still is that the industry would have been same as F '22, marginally grow over F'22. As far as EPC is concerned, our continued focus on improving non-subsidy business, cost optimization and focusing on product mix has paid dividends. As a result, we could see some improvement in our margins during H2. Certain calls were taken to discontinue or not sell certain nonprofitable products to ensure that our margins are protected. Moving ahead. I will just talk about the commitment to sustainability for us at an Mahindra EPC: focusing on our social responsibility, ensuring that we are able to contribute to water conservation, ensuring education and upliftment of farmers in terms of using this technology. I am continuously working towards helping the farmers to improve their farm productivity. That continues. While the internal measures we have in our group, it's called the Mahindra Way, which is an internal assessment done across group companies to check and validate the processes, the robustness of the processes in the organization. I'm happy to say that Mahindra EPC was assessed, and it was given a scale of 5 rating, which is considered to be amongst the better ratings on a scale of 10. And this just shows that the company's processes are in place. We also have a system of measuring customer satisfaction by having a metric called customer's promoter score. And this year, we ended the year with a high score of 70 plus, which is amongst the higher end in the industry in terms of customer satisfaction. So if you look at the overall year in terms of cost efficiency, focus, markets, product mix, sustainability, farmer, quality, customer satisfaction, processes, we have seen some good improvements. Yes, where we have missed is the revenue and the bottom line. And the reason for the same have been discussed. Now let me give you specific numbers around that. And for that, I would like to contrast first half 2 of F '23, which we believe is the new normal, and we expect the industry to grow now on similar guidelines as H2 of F '23, and compare that with H1. Typically, the half 2 is always a better half in terms of the volume and the revenue compared to H1. And 30% to 40% higher business we have seen in half 2 compared to H1. But this year, because of the abnormal situation in H1 and the favorable situation in H2, our growth in H2 was 86% over H1 of F '23 and 16% of H2 in the previous year, in the corresponding period in F '22. So 86% growth over H1 is pretty heartening for us because that shows that the industry is now coming back towards growth trajectory. In terms of profit, compared to H1 of F '23, we saw percentage contribution going up by almost 7%, largely because of cost savings, product mix and also, we saw our variable margins improving, which has led to a profitable tax of INR 2 crores for H2 F '23. And as a result of [ material ] efficiency, we could also have positive cash flow for this period and again, a similar improvement over the previous year. And this has been helped by the price increases in various states and stabilizing raw material costs. Now coming to Q4 of F '23. The numbers are in front of you. We have grown by 6.7% over the previous year in terms of revenue growth. And largely, for us, it has been revival of Andhra Pradesh and our continued increase in the projects business. Project business, for those of you who are following us, will remember that this is an area we have been trying to develop. And just to give you numbers, in F '22, we had hardly INR 6 crores business on projects. Last year, we could do INR 20 crores business in projects. And now that we have Class A contractors, we see a good opportunity in this segment going forward. In terms of profit versus Q4 of F '22, the previous year, we saw a 5.3% reduction in raw material prices, resulting in material cost reduction of around 3%. And also, we had certain price increase benefits. So as a result, our margins were, as you can see, much better than the previous year. And our PAT increased to INR 2.74 crores versus INR 0.14 crores in Q4 F '22. Moving ahead. So for the year, F '23, if you look at the numbers in front of you, our top line has been kind of flat. And in terms of profit, our loss trends at INR 12 crores versus INR 7.98 crores. This is despite a very high raw material cost increase in H1 and no price increase by the government in H1. Because of H2 recovery, because of internal efficiencies, product mix and price increase, we could contain this. And Q4 was a quarter where we could see the effect of the various favorable parameters playing out for us. There has been some reduction in debtors and the free cash flow also has improved, thanks to the payment made by the Andhra Pradesh government, and other state governments seem more efficient. So friends, that was F '23. I'll just take another 3 or 4 minutes max to talk about F '24 and then I'll be very happy to answer your questions or suggestions as the case may be. So let's now look at how we see F '24, and this is based on our feedback with other industry players. Clearly, last 3 years since COVID, this industry went through a turmoil: one, on costs; second, on funding, government priority changed; prices came under pressure. But now things are changing. Clearly, we are seeing F '24 on a much more favorable and positive note for the industry compared to the last 2, 3 years. So one of the biggest positives we see for F '24 is smooth operations of Andhra Pradesh and Tamil Nadu. As I mentioned many times, the 4 states, Andhra Pradesh, Tamil Nadu, Gujarat and Maharashtra, they contribute more than 50% in a normal year for the industry. So these 2 states, which were muted, now they're getting back. And Maharashtra will continue to perform consistently. So we are quite happy that this time, all these 4 states will be performing as per the normal potential. And let me remind you that the industry, we estimate, is around INR 3,200 crores for micro irrigation. And in good periods before COVID, we [ have touched ] almost INR 5,000 crores industry. So from INR 5,000 crores, we came down, and now we are at around INR 3,200 crores. And now we believe that we again move the trajectory up towards our previous highs for the industry. A market like Telangana, which was not very active also has become very active. And then also we have states like MP, Chhattisgarh, Rajasthan and UP who, though slow, [ slowly still ], are showing traction of increasing their business of micro irrigation. And these states also will offer a lot of opportunities for the industry in the years to come. And they are large states. So as they get into this business, there is enough acreage to be covered in these states. Now looking at risk going ahead. What are the risks we see? One is, clearly, markets like Karnataka, which are expected to start, they're not moving ahead. So that's one concern we see in this from the state's point of view. Also, some state elections are due. They tend to create some disturbance in the business. That's another risk we see. Raw material costs, at least for the next 3 to 6 months, we don't see any major disruption, but we don't see very drastic softening of raw material coming to the previous year's levels. Another area which we need to see is the monsoon. There's a lot of talk about the likelihood of El Niño. Now El Niño forecast, if you look at the last so many years, it's not true that always, when the forecast is made, it happens. So the possibility of it happening also, [ we shall see ]. And if it happens, there is a chance that in the second half of the monsoon phase, there could be lesser rains which, in a way, may be good for the micro irrigation industry in the short term, but also it dampens the spirits of the farmers in terms of income. So in the short term, we may [ read ] some immediate demand, but in the long term, definitely, it will affect farmers' income, which is not good for the industry. So in terms of the industry growth rate, I know that the question is always asked, so we just preempted a bit. Now looking at states like Andhra, Tamil Nadu getting back, Telangana also improving, and the news is improving, it's an estimate. We estimate that the industry can grow in the range from 7% to 8% to around 13% to 14%, the factors being how fast Tamil Nadu ramps up, how well Andhra also scales up. And these are the 2 main drivers for this growth. And of course, assumption is Gujarat and Maharashtra continue. And we expect Gujarat to be more active this year because they were a little slowed down last year compared to their previous track record. And they have now given us indications to believe that they're going to grow in this year. So with this situation, and today when I speak to you, I'm more optimistic than before, the last few quarters, for sure, in terms of the industry opportunity, stability in price and raw material. And our company has always focused on quality, farmer satisfaction, which actually is helping us to increase our market share year-on-year. A reason to add that last year, in F '23, we did not increase market share. Market share was flat. One of the key reasons for that is we decided to go a bit slow in Tamil Nadu where we wanted to ensure that our pending receivables and our pending payments are received. And because of the high growth, we wanted to ensure that our procedures and processes are stabilized. So with this, I would like to end my opening address. I would like to once again thank you for joining this call, for your patient listening, and. I'll be very happy to share my views on your questions. So over to you, Lizen. We're taking it ahead. Thank you, everyone.

[Operator Instructions] The first question is from the line of Aditya Shah from Vikram Advisory Services.

Congratulations, sir, on achieving a similar turnover as last year and improvement over the H1 on most parameters. I have 3, 4 questions, so I'll join all of them. So the first question is the other costs for the full year have increased by INR 14 crores, which is apart from the material and employee costs. So where has it increased? That is the first question. Second question is when I have observed that when our material cost remains between 52% and 54%, our operating margins would generally be in the range of 8% to 10%. But this quarter, we have an operating margin of 4%. So what has led to that reduction? My third question is that the trade receivables have been good. In terms of collection, it reduced from INR 175 crores to INR 127 crores. That is amazing. What is the provisions that we carry on those INR 127 crores, which is remaining? And were there any write-offs that we did during the year and this particular quarter? My fourth question is regarding what percentage of non-subsidy business do we hold today? And what are the margins and payment terms in project businesses? And where do we do that project business? And my last question is any update on diversification into agri products and other products to boost our own subsidy business?

You said 3, 4 questions, you have given me 6 questions. You are a regular one on the call, so you know the whole history. So let me start with the first question. See, the other costs, frankly, what is happening is, as our project business is increasing, a lot of expenses on the project we are booking in other expenses, which are called site expenses. So out of this INR 14-odd crores, almost 50%, I think, would be on the project cost expenses, which are coming there. So that is one. Second is also, in this year, in F '23, see, what happened in '21, '22 because of COVID, a lot of our payments were getting delayed in a few states because of various reasons: people were not there, staff was changing, governments were also not very efficient. In F '23, we realized that there is delay in payments in certain markets, certain districts. So we have taken a very conservative call in terms of providing for more than normal. So typically, we would provide around 1% to 1.5% of our revenue for really provisions for doubtful debt. But this year, almost 3.5% we have provided, which you see in the annual report, in the details. So that's one other reason which has increased our -- of course, efforts are on -- [ as these provisions start to return now ], efforts are on, and I'm sure there'll be recovery over time. But as you know, our policies on provisions are very conservative, and we don't like to carry such in this area, which is another area. And if you look at other areas where our expenses have gone up, I would say, they are the smaller ones on routine activities, but we've also done some savings on freight and other areas. So these are, I would say, the 2 big blocks, to be honest. And that also, Aditya, has impacted our operating margin to that extent because, in quarter 4, that's there. But I mean if you're going to [ conclude ], these are not normal Expenses. Asset project would be normal, but these provisions are not normal.

Right. So if we do 52% to 54% in material costs, during this whole year, our operating margins will come back to 8% to 10% normal, right? Is it safe to assume that?

Aditya, you people are analysts. You well know it better than me. So you can do your math better than me, so whatever the number becomes count. But the point is, yes, you're right, that still moved it. And what actually moved it quarter 4 is the reduction in material cost and the enhancement in the gross margins. Now coming on non-subsidy. I think I mentioned in my speech also that this has been an important area for us that non-subsidy will be a focus. So 21% is the right answer of our overall revenues coming from non-subsidy. And we've grown to almost 17% over the previous year. And projects are part of it. So that's quite interesting, for 1% of non-subsidy in F '20, we moved to 10% in F '21, then 17% in F '22 and 20%, F '23. You asked about projects. Projects is a little bit less so, in a sense, in the past. We've not been very aggressive on large projects because we used to feel that large projects will also mean large money and getting stuck to the state governments, which could have uncertainty in terms of payments. So we have been very conscious of taking small to medium-sized projects where the payment path is very clear. And that actually worked well for us. So in areas like MP, Karnataka, Kerala, these are some states where we have taken very specific projects. And we choose the projects where we think margins are good and payments are protected. And margins, though they're not in line with our margins, which we get in good times in micro irrigation, they're a bit lower, but to give you a number, the variable margins after variable expenses would be around 15% to 18%. And for quarter 4, our variable margin for our renewal business is around 25%. That's to give you the context. Payment is good. We see that those markets where the payments is clear, collection is faster.

None of these project business are private project businesses? Or are these all government projects?

All government. See, whatever management irrigation, they're all government-driven projects where they want to provide special extension from the main canals into the various areas. So they do a lot of mini projects, check dam, et cetera, they're all state government projects.

And the last point, is there not any scope of contract farming? When private players come into contract farming, and they require the micro irrigation products, is there any scope in that business?

So there is. Obviously, whenever there is contract farming or large farms, we do offer our solution. So that will take us more of a micro irrigation business and also our greenhouses will provide that. But when you say projects, we are talking about INR 5 crores to INR 10 crores minimum kind of ticket size and largely by state government. And your last point, Aditya is on the extension of pipe business and others, well, we are starting them. And whenever there is something to share in terms of our [ form ] intention, definitely, we will share on the call. We are very transparent, as you know. As of now, there is no clear yes or no, we are definitely evaluating them and see what is the most effective for us going forward.

[Operator Instructions] The next question is from the line of [ Prem Raheja ], an individual investor.

I have 2 questions, sir. From '19, '20 to date, what has been the volume degrowth actually? Because what has happened is that the price increase has taken place, so we're not able to basically assess what has been the volume degrowth in the industry. That's the first question. And sir, in your fair estimate, when do you think that Mahindra EPC will be able to post good numbers like '19, '20, another 1.5 years, 2 years? Or what is the trajectory, sir? These are just the 2 questions.

So let me start with the easier one, which is the second one. [ Prem ], every quarter, every half year, we share what is happening. Now if you look at the next 2 years, I mentioned even in F '20 and '21, that the industry is going to be dull and I believe it will happen. Now we are expecting clearly industry to move. And I had mentioned before, 7% to 13%, 14% we are seeing. So really I think a growth of 12%, let's say. If you look at our track record, we maintain industry growth a bit more than that, and that's how we have grown in the last 4, 5 years, 6 years. So clearly, you can expect a similar or slightly higher growth than the industry. If you look at our financials, look at quarter 4. And as I also mentioned in the opening that this seems to be now the steady state for some time in terms of price and raw material. These 2 parameters, which are out of our control, they seem to be now stabilizing at these levels. Other parameters are available to you. And I also mentioned to Aditya there have been some additional provisions we made this year. So that also is the reality. Obviously, I cannot use the exact figure of '19, '20, not that I can tell you, but you can visualize that if you grow to [ 12% to ] 15%, and the margins are there where they are -- and our fixed cost, I think, is something which you all must have seen very closely, and that's really a credit to our entire management team. There are fixed costs, which were, in F '20, we could manage almost that cost to F '23 through a lot of restructuring, efficiency improvement, and various things we have done. So our cost structure was very tight. So whatever growth we have now actually will flow through the bottom line. So I'm quite positive in the next 2, 3 years, we will see -- during last 2 years, what has happened, obviously, we were not expecting this kind of bottom line performance. But clearly, those things seem to be now in the past. So next 2, 3 years, we see a big opportunity for growth for the industry and for the company. Now coming to your question on volume growth. So it's a bit difficult to kind of answer straight because there are different products and different mix we use for drips and sprinklers. But if I can give you an estimate, see, the industry, we are saying, is around, in F '23, equals INR 5,000 crores. Now the industry has come down to INR 3,200 crores, INR 3,000 crores. So there is a drop of almost 30% in the industry. Now if you look at the price increase, price increase has not happened. Price increase happened now only in the last 5, 6 months. So the entire drop, which has happened in the first 2.5 years, is volume growth. So to that extent, you can imagine that almost 20% to 25% volume degrowth has happened for sure, after even considering the price increase in the last 6 months. This is an estimate I'm giving you. That's how it looks. And that actually is the opportunity going forward. All those states who are inactive in the last 2 years, now they're getting active. And that's where the real growth is going to come. [ Prem ], I hope I answered your question.

Yes, sir. all the best.

Thank you. Thank you for your continued support, sir.

The next question is from the line of [ Shrimand Adoria ] from Sri Capital.

Yes. Am I audible?

Yes, you are. Your name, please?

[ Shrimand Adoria ], I have 2 questions. Firstly, on the greenhouse JV, I think 5 years back, when we invested around, I think roughly about [ INR 1.8 crores ] in the JV. We had, I think, high hopes on the JV. So after 5 years, I want to understand what has not gone right in the JV? I feel that we continually take provisions in this JV. And now we are left with, I think, 48 lakhs of investments in the JV. Do we have to take a complete write-down of our investment in the JV? That's the first question. The second question is, in the last conference call, you had highlighted about a major part of our receivables is from the Tamil Nadu state government. And if I recall the numbers, it's about, I think, INR 70 crores, INR 75 crores of receivables that are pending from the Tamil Nadu government. So out of the current receivables of about, say, INR 128 crores as on March end, how much of that is from the Tamil Nadu government? So what is the status on that INR 70 crores, INR 75 crores of payment expected from Tamil Nadu government? That's the second question. The third question is I wanted to understand, while the PVC prices that we see from multiple players in the industry have fallen drastically, that has fallen, say, in the December quarter and has also fallen in the March quarter. So how much of the fall in the PVC prices is now already reflecting in your gross margin numbers that you have reported in the March quarter? And should one expect further increase in the gross margin in the coming quarters? Because the fall in the PVC prices from the reported numbers that has been tracked has been substantial, hence, this question. That's the third question. The fourth question is, you mentioned in your opening remarks about 2, 3 initiatives -- about the major initiatives being taken to reduce cost drastically in the last 3 years, which is helping you. So if you could brief about, let's say, the top 2, 3 initiatives that were taken in the last few years. And if you could quantify the permanent savings that have come from these cost-reduction initiatives that were taken. The fifth question is, the 3 states, as you mentioned, Gujarat, Maharashtra and Andhra have been leading the micro irrigation penetration. So I was curious to understand what has been the penetration level in these specific states. Because Gujarat has been the primary in the micro irrigation. So whilst we know that all in India, the micro irrigation penetration is quite low, but in these, say, major states, 4, 5 states, what is the penetration of the micro irrigation? Because that could also help us to understand the kind of opportunity that is left in these states. A few more on the raw material side, I wanted to understand a bit on how many days of raw materials we generally keep. So that would also give us an understanding about your gross margin. And of the INR 8 crores of provision that you have taken in the last financial year towards [ setting this as an output ] receivable, how much of that was specifically taken in the quarter 4, if you could quantify that? And lastly, as you mentioned, in a response to Aditya's question, that the expenses are a bit higher in the project business, so how do you get compensated for the higher expenses in the project business? Is the margin significantly higher in the project business, and hence, it's okay to have the higher expenses in the project? Is it dampening our overall margins in the project business? These are some of my questions.

Thank you so much. That's quite a list. I thought Aditya had done it all, but you have one-upped Aditya. So let me start one by one. Greenhouse business actually has not gone as per our expectations, clearly. And our strategy didn't work for greenhouse. Our strategy for greenhouse, our assumption was that -- this is a segment where there's a lot of interest from large farmers to get into this greenhouse. And also, there are a lot of private companies who are doing exports and other work. Actually, this whole segment has [ not taken off ] the last 4 or 5 years. And one of the key reasons for that is there is to be a National Horticulture Board, some incentives or subsidiaries to give for the greenhouse. And that whole system is not functioning. They're not coming very easily to the farmers or to the private companies. And as a result, the new buying is not happening. And even for large farmers, they're not able to see the financial viability of greenhouse for 2 key reasons. One is, during this COVID time, the whole farm economics and the way of thinking for farmers changed and their ability to justify that large expense has not really clicked. So despite a good technology partner from Israel who's been able to give us very good technology at a low cost, we don't succeed in it. But we still believe that climate change and there is a need for horticulture cultivation in our country, which is prevalent in most other countries, so now we have developed some low-cost greenhouses for smaller farmers with INR 1 lakh, INR 1.5 lakh price to the farmer. We're doing some experiment. We have enough knowledge and learning which we have accumulated in the company. So as of now, I don't see some big action happening there. Now the [ investor number ] remains at INR 40 lakhs, INR 45 lakhs. So that itself, maybe next 1 to 3 years, you will see some marginal impairment or some improvement there. But it is [ healthy ], I can say we did our work given these realities. But have we given up on it? No. Do we think this industry will grow eventually? Yes. Will that happen in the next 2, 3 years? Perhaps no. [ But rest assured ], we are on this. Now going to the Tamil Nadu, so the good news on Tamil Nadu is that we have collected INR 50 crores from Tamil Nadu last year. And that actually has really reduced the debt of Tamil Nadu to less than INR 60 crores. So that's a big improvement. And one of the reasons for our lesser growth, same goes in the industry who are not going very aggressively in Tamil Nadu, was this: we want to get our payments right, our processes right and with the right kind of provisioning, so that there is no problem moving forward. So that's on Tamil Nadu. PVC price fall is there. It is helping us. But the reality is that hardly 6% to 7% of our material cost depend on PVC procurement. We are largely dependent on LDPE procurement. PVC is a small part of our procurement. It doesn't impact much, but yes, to the extent, it barely helped us. Now we talked about cost reduction initiatives. So there's been quite a few. But to name the big ones, one is our distribution manufacturing strategies helped us in terms of reducing our freight cost. Second is our design. We have done a lot of work on the design of the product in terms of reducing the wastage, making the drips more tightly designed to save -- we consume millions of drips. Even if you save INR 0.02 or INR 0.05, it's a lot. That's one other area. On the organization, manpower costs also, we have restructured our organization in the roles and responsibilities. As a result, we could reduce our manpower cost in absolute terms. That's another big one. And in addition to distribution manufacturing, also freight, we have reduced because we are now trying to dispatch directly to the farmers and making it more and more cost-effective across various areas. That also helped us a lot. So these are the big ones in terms of cost reduction. Coming to [ the question on ] penetration. Now this data is not very liberally published. So I can just share some estimates, which are just directional. So for example, Maharashtra is one of the most -- the highest penetration state in India because this state has been at maturation for the longest, Maharashtra and then AP. They've been at it the longest. Gujarat then came in a more professional, organized way. If I were to hazard a guess I think these states should be in the range of 20% to 30% between Maharashtra, Gujarat and AP. These would be the higher penetration states. Tamil Nadu is a lower penetration state. It was just active from 2018, '19. So that would be on the lower side, maybe at national average, a bit below. Andhra has been very active for many, many years in micro irrigation. So these states are probably the big ones in terms of penetration, Gujarat, Maharashtra, Andhra. And in terms of size and future growth, Tamil Nadu is coming up well with lesser penetration. And if you look at states like MP, Rajasthan, they would be not even 2%, 3%, 4%. And they are large states. And as water problem becomes bigger and bigger, they have to go for this technology. So I hope that answers your question partly. Moving to -- yes, let me finish and you can ask if there's any follow-up questions. So the next one was on inventory. So number of days you're asking -- what's the question you're asking?

Yes. How many days of raw material inventory do you keep?

So it varies from season to season, timing-wise, but it could vary from 15 days to 40 days, depending on the seasonality of the business. So we don't like to carry too much stock because of the price volatility, and we have a tight supply chain. So that would be the broad range for it. Now you talked about the INR 8 crores provisioning. The provisioning for quarter 4 was around INR 1 crore, INR 1.5 crores. Maybe I can just ask my finance team to confirm to me for quarter 4. So Sonetra, Abhijit, just confirm that, that number. Now coming to project market. See, the project market, while the expenses -- the way they are shown in other expenses, frankly, the raw material cost is lower. Just to give you an idea, around 40% is the material cost and around 40% is the site expense cost compared to normal businesses where we say 55% or 60% is the material cost because here, the material cost, the way it's accounted, is more in the other fees expense. That's not an issue. But yes, as I mentioned before, the margins are 2/3 of the margins of the regular business. So that is the reality. But they are still profitable, and it is additional business. So it is not helping our -- taking the profit away from the system. And the payments are also faster than the regular Andhra and Tamil Nadu [ level ] market. So that actually is the situation on the questions that you asked. Abhijit, there is concern in this quarter 4, what is the [ posting ]? Yes, please go ahead. Is there any follow-up question here?

Yes. So one was on the raw material price. How much of the raw material benefit is already in the quarter 4 number? And what does one expect in H1?

So as I mentioned, since we are not planning on the inventory part, point is that there is a price increase which has happened of around 7% to 8% in quarter 4 compared to the previous quarters. And annualized price increase is around 3% to 4%. So the annualized price increase of 3% to 4% will continue next year.

Okay. Okay. Got it. So also you mentioned PVC is not major for your raw material. Could you please share what are your top, say, 3, 4 raw materials and then, percentage-wise, how much they contribute in the overall raw material, say, cost?

So our main raw material is LDPE, LLDPE. These would be almost 85%, 90% of our raw material that we procure. And then we have other materials coming in. So we are more impacted by these polymer prices. So we look at polymer prices, and that's more relevant for us.

Right. Okay. And the cost saving initiatives that you mentioned, could you please quantify in numbers how much savings has come because of this, how many crores of savings that is permanent in nature because of these initiatives?

See, if you look at -- the exact number is difficult because it happens year-on-year. But if you look at this year's financials, this year's numbers, annualize these numbers, so this becomes the base. And if you look at the last 2, 3 years, you can see for the last 3 years how they have dropped. Now going forward, we don't anticipate that kind of drop in terms of [ reduction in expenditures ]. So we will see the benefits of this expenditures what will be sustained, and there will be some impact of inflation, which we have to factor going forward. So I don't expect now the same kind of velocity of fixed cost reduction of last 3 years for the next 2 years. Now it will be kind of stable, plus some inflation.

So while I was -- sorry, I'm asking more on this number. But the reason why I'm checking on this is because, if I just look at, say, your fixed expenses and I'm majorly looking at the other expenses part, as a percentage of your sales, and if I look at even the last 7, 8 years of data, so this number in, say, '15 or '16, was roughly around, say, 22% or 25% of your overall top line. And even if I look at in the last, say, 3, 4 years, it has been in the range of, say, 29% to 30%. So hence, I was trying to understand better how these cost saving initiatives are helping us in better margins.

Yes. So it's a mix. The way we classify our other fixed expenses, other expenses, sometimes they get mixed with things like provisioning. They also have things like project expenses. Now projects have increased, so a lot of expenses are sitting over there, while this should be in the material cost. So it's a bit complex one. Maybe what we could do, [ Shrimand ], is that we could have an off-line, more detailed discussion with [ exact ] numbers because these are [ totally ] numbers we are talking about. And we could kind of share with you in a more detailed manner. Thanks a lot for your continued interest in our company. thanks a lot.

The next question is from the line of [ Rajan Shah ], an individual investor.

I think it's a long time, you have been talking almost an hour, so I have a very short and crips questions.

Thank you, sir.

Sir, this raw material cost in the last quarter is about 50% of sales, approximately INR 35 crores vis-a-vis sales of INR 70 crores. So can we expect this trend to continue for '23, '24? Raw material cost will be 50% of sales? That is first question. Second is, sir, you said that the 2019-'20 industry size was INR 5,000 crores, and now it is INR 3,200 crores. So basically, if you want to get back to 2019-'20 figure of INR 5,000 crores, the industry has to grow in absolute terms by about 50%. And I'm talking about a growth of 13%, 14%. So am I to understand that it will take 3 years for us to go back to that '19-'20 level? That was the second question. Third was, sir, how big is this project business market, I mean? And will it increase our debt? And yes, that's it. I just wanted to know how big is this project business and how big are our plans in this project business.

Okay. Thank you. So as far as the material cost is concerned, I think Q4 is a good representation because it's a very balanced quarter in terms of mix. So I would imagine that this percentage should continue, by and large. As I mentioned before also, we don't see a major raw material cost increase now for the next 3 to 6 months. So if that happens, then this 50% should continue. So that is one around that. Now you're right. We would not be too aggressive to think that the industry would grow more than 12%, 13% because we have seen with experience that, always, some things will happen. There will be some states which will be slow. There will be some elections. There will be some issues. So beyond that, I don't foresee, and we have not in the last 10 years also, that fast growth beyond 12%, 13%. So yes, it will take maybe 2.5 to 3.5 years for us to reach to that level. So I would agree with that calculation also. Coming to project market, project markets are huge. They're huge markets and all kinds of projects. So it's a big market. It's a big segment. And we are new. We are very small. And to an extent, it's a big opportunity for us. So the [ INR 120 crores odd ] we have done this year, of course, on the back of [ the fiscal ] number. But the growth in this segment is a priority for us. And we would like to grow much faster. We are putting in more resources. We are going for bigger projects now. So it's big opportunity here. Also, I cannot give the right number because it varies year-on-year depending on the government's allocation for that year. But it is definitely in the region of INR 1,000-plus crores. So that's a big opportunity for us. It's only 5 o'clock, Lizen, so how do you want to do now?

Sir, we have the last 2 questions. Should we go ahead with it?

Yes, my question is than can we have the short question because everybody's time is important. So we can have a short question, no problem.

The next question is from the line of Jigar Shroff from Financial Research Technologies.

Just 2 questions. One is, could you please explain a bit about the nature of this project business? That is one. And second, sir, with the last 3 years of turmoil in the industry due to COVID, could there be any inorganic opportunities like weak players getting weeded out and so we could capitalize and increase our market share and penetration all over the country, sir?

So typically, what happens on projects, see, what happens, there are micro irrigation projects which are happening, which are big canals and big dams for water flow across the country. Now that is done by the government. And there are thousands of crores, lakhs and crores have gone into that. So what happens is from the big, mega canals and mega dams, they want water to now move into the villages and they want movement of water in a smooth way into interiors. And that is the time they require companies to come and make project. That is one kind of big segment. Another segment is where they want to lift the water from ground level to higher levels, and that's where they engage and the government spends money to move water to areas which are not having access to water through ground. That's the kind of projects we do. It's also a big segment.

Sorry to interrupt, sir, what is our scope of work in this?

So we are focusing more on the last mile. That means where we help the micro projects to move towards the farmers in the last mile. So we would be typically working to take from the canals into the farm, so we have expertise there, and which are the midsized kind of projects. We don't know too much of lift projects and others because they are having different kind of skill sets, which we are not very strong at. So we focus on these kind of projects which are helping the farmers to get the water from the major canals which are moving in their nearby locations. So for that, what kind of [ arrangements ] required, how the water should flow, what kind of piping, pumps, filtration, all that we take care of. Now coming to inorganic, the last 2, 3 years, the market was so tough and bad, frankly, even the companies were very careful, like how do we ensure our own situation and not get into a situation where we are saddled with challenges of other companies. That's the trend I could see in the industry. So that has not happened. But now as the industry is again looking up, and looking at the future, there would be possibilities and opportunities for companies coming together to kind of consolidate and move ahead. So that trend might happen now that COVID is out and people are back to normal way of thinking.

Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Ashok Sharma for his closing comments.

So thanks, everyone, and I really appreciate your very straightforward, very clear questions and your interest in the company. I hope we've been able to answer that to the best of our ability. However, if there is something which is unanswered or something where you want more information, Mr. Page is always available for all investors, please feel free to contact him. And definitely, we are very, very clear that we should give all the information as transparent as possible. I've tried my best today. If something is fully not well understood or more questions are there, please feel free to contact Mr. Page. He will definitely answer them. And once again, thank you, everyone, for your interest in our company, and I wish you all the very best to you and your family. So thank you very much.

Thank you. Ladies and gentlemen, on behalf of Mahindra EPC Irrigation Limited, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.

Thank you.