Jain Irrigation System Limited (JISL)

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Analysis of JISL and its possible future strategy

Text of Jain Irrigation System Limited (JISL)

Jain Irrigation Systems LimitedGrowth Strategy

A report submitted in partial fulfillment of the requirements of the course

Written Analysis and Communication II (2012-13)

To Instructor: Prof. M.M. Monippally Academic Associate: Ms. Pakhi Atre Sharma

Submitted byShrey Rathi (Roll no. 12302) and Sushil Kumar Meena (Roll No. 12339)

Section: B

On Date: 3rd February 2013

INDIAN INSTITUTE OF MANAGEMENT, AHMEDABAD

Dr. Bhavarlal H. Jain, Chairman, Jain Irrigation Systems Limited (JISL) Jalgaon, Maharashtra From, Shrey Rathi Sushil K. Meena Executive Assistants Date: 3rd February 2013 Subject: Strategy proposal for growth of JISL and subsidiaries during 2013-2020. Dear Sir, With regard to the discussion we had about the strategy to be followed during the next phase of growth for Jain Irrigation Systems Limited from 2011-2020, please find attached the analysis of performance of current business divisions of JISL, an overview of the market dynamics and proposed action plan to achieve the goal of 450 billion INR revenues by 2020. We have analyzed various scenarios, possibilities and courses of action and recommend focusing upon our core competencies in Micro Irrigation Systems and Agri-businesses as the prime growth drivers for the next decade. For a more detailed analysis please refer the report attached.

Regards, Shrey Rathi Sushil K. Meena Executive Assistants

Encl: Report

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ContentsExecutive Summary................................................................................................................................ iii Business Model ....................................................................................................................................... 1 JISL Aspirations........................................................................................................................................ 1 JISL in Micro Irrigation Systems (MIS) ..................................................................................................... 1 JISL in Agro Processed Products .............................................................................................................. 3 Sustainable Agro-Commercial Finance Limited (SAFL) ........................................................................... 3 Energy, bio technology, research............................................................................................................ 4 Pipes and Plastics Division ...................................................................................................................... 5 HR Issues ................................................................................................................................................. 5 Focus in the future .................................................................................................................................. 6 Action Plan .............................................................................................................................................. 6 Micro-Irrigation Systems (MIS) Division ............................................................................................. 6 Energy Vertical .................................................................................................................................... 7 Agri-Business Division ......................................................................................................................... 7 SAFL ..................................................................................................................................................... 8 HR Policy ............................................................................................................................................. 9 Conclusion ............................................................................................................................................... 9

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Executive SummaryJain Irrigation Systems Limited (JISL) has consistently exhibited excellent performance across years. It had an overall growth of 21% CAGR over last five years. It aspires to become a 456 billion INR company by end of 2020. There are a number of challenges that hinders its growth path. Irregular rainfall patterns, threats to new entrants, difficulty in finding quality employees, capacity constraints, and over-dependence on government subsidy are a few challenges that JISL needs to consider. It has come up with a strategy that will help it to achieve its target, while maintaining its values. In MIS business, JISL will expand both nationally and internationally. It will move to southern states, northern states, Africa and America. In energy sector, it will develop low cost solar energy devices and provide support for bio-gas plants. It will expand the portfolio in Agri-Business division by including more fruits, vegetables and cash crops. It will also improve quality control. It has taken an initiative of SAFL, to meet the credit requirement needs of farmers. In order to facilitate the expansion of MIS, it will install new plants. It has decided to follow a different HR policy. JISLs HR recruiting policy will be attitude driven. More effort will be given on training. [207 words]

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Business ModelAgriculture has been the mainstay of Indian economy. Jain Irrigation Systems Limited (JISLs) business model encompasses a full circle of the agriculture value chain. JISL provides seeds (biotech), micro-irrigation systems (MIS) and training to farmers to obtain high yield, which is then purchased by its agro-business division (ABD). The ABD then processes them and sells in both domestic and export market. Thus, JISL reaches out to the farmers as both seller and buyer. Over the years, JISL has achieved tremendous growth while remaining true to its mission leave this world better than you found it. However, multiple challenges abound it in future. Growing population is increasing the demand for food while the land under cultivations is decreasing. Poor monsoons and climate change add to the variability of agricultural output. Despite the great opportunity to expand, JISL is constrained by high cost of capital due to high interest rates. To further complicate matters, Indian economy is opening up to allow more investments from foreign players which increase the threat from competitors. These external factors are both a threat and opportunity to JISL.

JISL AspirationsJISL, a 34.2 billion INR company, aspires to become the largest agricultural firm in the world with revenue of 456 billion INR by end of 2020. In the process, it is committed to ensure a positive impact on the triple bottom line (TBL) people, planet and profit. Its endeavors are targeted to add value to people (farmers and employees), should be eco-friendly and economically feasible.

JISL in Micro Irrigation Systems (MIS)MIS is the main revenue driver for JISL accounting for over 50% of its revenues. JISL focuses on researching, developing and installing low cost MIS for small scale farmers.1

However, farmers are highly price sensitive and skeptic of benefits of MIS. JISL, due to its farmer friendly business policies and highly motivated employees, has been able to gain the faith of farmers. Sales of MIS can be to new customers and existing customers (replacement sales). As the life of a MIS system is only 3-7 years, capturing replacement market is essential for long term sustainability. Though JISL holds over 60% market share, its replacement sales as percent of total sales have been decreasing (refer exhibit 2). A potential cause can be farmers shifting to local manufacturers after their first purchase. Geographically, JISL operations have been concentrated, with Maharashtra owning more than 50% of domestic revenues. In India, 57 million hectares of irrigated land is not under MIS. There is a huge potential of growth in Africa, Americas and Middle East. Around 27 million hectares of irrigated land in North and South America is not under MIS. Furthermore, cultivation of only a few vegetables, fruits and cotton is under MIS currently. There is an opportunity to build MIS facilities for other crops as well. Due to cost barriers in reaching out to small farmers, current competition is low, but due to industrys huge potential threat of new entrants is high. There is a significant first mover advantage in gaining farmers trust. JISL needs to scale up and diversify into new regions both domestically and internationally, before new players enter the market. Key to JISLs success has been its employees and their ability to understand farmers needs. Expansion in other states and countries will require JISL to start from scratch. This can be done only by hiring local candidates and imbibing in them the JISL values. JISLs field work makes it unattractive to talented individuals. Further to support global expansion highly qualified middle managers will be required. Selecting, recruiting, training and motivating employees, at a large scale, is another big challenge.2

JISL in Agro Processed ProductsAs a part of JISLs strategy of providing complete value to farmers, it contracts with them before cultivation for buying the agricultural produce with a floor price. If the market price is higher, then JISL buys at the market value. If the market price is low then the difference is shared by the B2B customers of JISL. JISL sells the farm products to big agri-business companies like Coca Cola after processing under the brand name Farmfresh. This business contributes 16.9% to the revenue and is growing at a staggering 29%. Currently JISL buys only 8-10 varieties of fruits and vegetables. There is a great opportunity of expanding to other vegetables, fruits and cash crops. The customers are committed to quality and want traceability of the p