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EPC Industrie (EPC), a Mahindra & Mahindra (M&M) subsidiary, is a
micro-irrigation system (MIS) and component manufacturer based out
of Nashik, Maharashtra. The company was acquired by M&M in
February 2011 and has been well capitalised over the years by M&M
(net cash of ~| 8 crore in FY14 vis-à-vis net debt of ~| 30 crore in
FY10). With savings arising from MIS & the government’s thrust to
augment its farmer reach, EPC is well poised for robust growth ahead.
Highlights
• Micro-irrigation (MIS) - way forward for Indian agriculture: MIS is
essentially an irrigation technique wherein regulated quantum of
water is applied to the most critical part of the plant i.e. roots. It is
implemented through the drip & sprinkler irrigation techniques.
The benefits of MIS vis-à-vis traditional method of irrigation
include: increase in crop yield (~20-30%) and savings of labour
(~30-50%), water (~30-40%) & power (~20-40%). Therefore, with
increase in yields & associated savings, MIS is one of the most
environment friendly way of increasing farm productivity
• Under penetrated; niche segment; established players to gain:
The current domestic industry size of MIS is pegged at ~| 4000
crore with penetration merely at ~9% [6 million hectares (MH) out
of the net irrigated area of ~70 MH]. The medium term potential
of MIS is pegged at ~17 MH. It is essentially a niche segment with
oligopolistic industry structure, the main players being Jain
Irrigation, Netafim India & EPC Industrie
• Strong parentage; balance sheet strength to lead growth: The
company was acquired by M&M in FY11 and has been well
capitalised over the years. On the back of the government’s thrust
on augmenting MIS reach & strong parentage (M&M), we have
built in sales, PAT CAGR of 14.8%, 34.5%, respectively, in FY14-
17E, albeit on a low base. We expect EPC to clock sales of
| 264 crore in FY17E (| 175 crore in FY14) while PAT is expected
at | 19 crore in FY17E (| 8 crore in FY14). We value EPC at | 215-
240, i.e. 2.3-2.5x MCap/sales on FY17E sales of | 264 crore. There
also exists a possibility wherein the promoter group (M&M) may
consolidate all its agri service businesses (crop care, seeds, fresh
fruits exports) into EPC albeit in the long term. Per se, the stock is
a rare play on the MIS theme that can create wealth from a three
to five year perspective, given trajectory of farmer awareness on
MIS & subsequent capitalisation of opportunity by EPC

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