Electrosteel Castings Limited (500128) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q2 and H1 FY '25 Earnings Conference Call of Electrosteel Castings Limited. [Operator Instructions] I now hand the conference over to Mr. Vikash Verma from EY LLP. Thank you, and over to you.

Thank you, Mike. Good evening, everyone. On behalf of Electrosteel Castings Limited, I welcome you all to the company's quarter 2 FY '25 earnings call. To discuss the performance of the company and to answer the questions, we have with us from the management team, Mr. Madhav Kejriwal, Whole Time Director; Mr. Sunil Katial, Whole Time Director and CEO; Mr. Ashutosh Agarwal, Whole Time Director and Chief Financial Officer; and Mr. Gaurav Somani, General Manager, Finance. Before we proceed with this call, I would like to draw your attention to the fact that today's discussion may contain forward-looking statements that are subject to various risks, uncertainties and other factors, which will be beyond management control. We kindly request that you bear in mind, there may be uncertainties when interpreting such statements. Please note that this conference is being recorded. We will now start the session with opening remarks from the management team. Afterwards, we will open the for an interactive Q&A session. I will now hand over the conference over to Mr. Madhav Kejriwal for his opening remarks. Thank you, and over to you, Madhav.

Thank you, Mr. Vikash. A very good afternoon and a warm welcome to all. I would like to start by wishing everybody a very happy Diwali. Let me run through the company's financial results for Q2 and H1 FY '25. The company's total income stood at INR 1,849 crores during the second quarter of FY '25, down 4.6% compared to Q2 of the last financial year. This was mainly on account of the shutdown taken of the MBF at the Srikalahasthi unit. Our H1 total income stood at INR 3,885 crores, which is up 6.5% compared to the previous H1. Our production is now stabilizing, and we expect improvement in volumes and overall profitability going ahead. Highlighting our balance sheet strength, our net debt equity has further improved to 0.27x as on 30th September 2024. We are very pleased to inform you that all our long-term credit rating has been upgraded by India ratings from AA- to AA during the quarter. The company's DI Pipes sales volume stood at 1.76 lakh tonnes in Q2 FY '25 and 3.68 lakh tonnes in H1 FY '25. Export contributed to 13% of the total DI volumes for the first half. We at Electrosteel are amongst the few companies in the globe with a pure play focus on ductile iron pipes and fittings, and we are the pioneers of ductile iron pipe products in India and have maintained our leadership stance in the industry by building capacity at regular intervals to drive growth. The company's ongoing CapEx is progressing as the plan is on track. We aim to enhance production capacity to 1 million tonnes by the end of FY '26. The government of India has Viksit Bharat vision, which includes Jal Jeevan mission and AMRUT 2.0 provide robust demand visibility for DI pipes and fittings. Additionally, the governments across the globe are looking forward to modernizing their water infrastructure. We are one of the most preferred suppliers of ductile iron pipes, thanks to a strong brand recall. ECL is well-placed to ride on growing water infrastructure globally spending both and -- I'm sorry, spending. Our team across functions of customized solutions to our esteemed customers, resulting in customer satisfaction. I would like -- I would now like to hand over the floor to my colleague, Mr. Ashutosh Agarwal, Whole Time and CFO for taking you through the financial highlights.

Thank you, Madhav ji. Good afternoon to everybody, and we wish you a very, very happy Diwali report to all of you. Today, we are in discussion with the earnings call for Q2 and H1 of 2024-'25. First of all, we would like to discuss about consolidated results of Q2 2024-2025. Total income stood to INR 1,849 crores impacted by plant shutdown as mentioned by Mr. Madhav Kejriwal of our blast furnace in Kalahasthi unit during this quarter. EBITDA at INR 289 crore. EBITDA margin declined by 82 bps year-on-year, this is to 15.6%, impacted by lower volumes as stated by us. PAT reported at INR 155 crores. PAT margin was 8.4%. Now on the consolidated H1 results, total income grew by 6.5% year-on-year, this is of INR 3,885 crores. EBITDA surged by [31.8%] year-on-year, this is to INR 666 crore. EBITDA margin expanded by 329 bps year-on-year, this is to 17.2%. PAT grew by 52.8% year-on-year, this is to INR 381 in H1. PAT margin expanded by 297 bps year-on-year, this to 9.8%. Now we are talking stand-alone results of Q2 2024, '25. Total income stood to INR 1,712 crores, impacted by plant shutdown as stated by us. EBITDA stood to INR 270 crores. EBITDA margin was 15.7%. PAT stood to INR 152 crores. PAT margin stood to 8.9%. Now I'm talking about stand-alone results of H1. For the year 2024-25. Total income grew to 4.3% year-on-year to INR 3,654 crores. EBITDA surged by 21% year-on-year to INR 623 crores. EBITDA margin expanded by 242 bps year-on-year to 17.5%. PAT grew by 37.2% year-on-year to INR 364 crores. PAT margin expanded by 245 bps year-on-year to 10.2%. Now I'm talking about CapEx plan. We have spent nearly INR 440 crores till September 2024 and the progress of the balance portion is in -- as per the scheduled. We target to enhance that our DI Pipe manufacturing capacity to 1 million tonnes, maybe by 2026. Now I open the floor for question-and-answer session. Thank you very much.

[Operator Instructions] We have the first question on the line of Vikash Singh from PhillipCapital.

Sir, my first question pertains to our gross margin, which though improved on sequential basis, the improvement is slightly lower than what we would have anticipated. So what kind of coking coal and iron ore benefits we have got in 2Q? And what it is going to be in 3Q?

So Vikash, in Q2, our gross margins, what we reported was around 50.7% compared to last year, it was 49.4%. So we have done around 130 basis points improvement. So on the gross margin side, there's improvement you see year-on-year or maybe quarter-on-quarter. The coking coal prices have come down during the quarter. And as we speak, it is further down. So obviously, the benefit of the coking coal price will be there. Iron ore prices have been kind of stable. It was a little volatile in Q1 to Q2, between Q1 to Q2, it was on the upper side. Now it's more or less stable. So we expect the prices -- normative prices to support going forward.

So just wanted the quantification, what kind of benefits we can get in 3Q. So have we got the majority of the benefit already in 2Q or majority will come in 3Q? If you just could clarify on that point?

Vikash, we have booked a good amount of coking coal, and we have inventory. And in Q3, going forward, we feel that there will be -- some more benefit coming from coking coal side.

Understood. Sir, second question pertains to the shutdown thing. So how did -- how much on the EBITDA per tonne basis impacted our EBITDA per tone? And so -- and going forward, what should we take as a steady-state EBITDA per tonne for the second half?

Well, I think in terms of EBITDA per tonne, maybe you can say 0.5% or percentage of the impact has come from the shutdown. And going forward stability on the EBITDA for the short to midterm is envisaged.

Understood. Sir, second question pertains to the general market. A couple of the people in the same space have commented the softness -- the order inflows have been a little bit slow from the government side. Just wanted to know your comment on how we should look the order book for yourself as well as if the inflow is really slowing down or are you seeing the market being buoyant as usual?

So the reason for the slowdown is essentially that now that the new term has started, they are kind of collating and recalibrating the progress made so far and what the way forward is. I'm not very concerned about this on a long-term perspective, and I'm very hopeful that things will -- the outlook for demand remains the same. It's a temporary pause.

Understood. Sir, what is your current order book in terms of month or tonnage, whatever you can give us? And also the next 1 to 2 years kind of the order market of the DI pipe total tonnage, which is pending to be awarded, if you would have that number?

So the total -- today, we stand at around a 9-month order book. And going forward, I think at the moment, around 6.5 million tonne worth of order book is pending to be finalized. And I don't think that this will change anytime soon. Whatever order booking will be done will be constantly refilled with new demand. So maybe 6 million to 6.5 million tonnes of requirement will constantly be there in the pipeline.

From 18 to 24 months perspective, right?

Yes, please.

Yes. And just one last question.

Ask you to kindly come into the queue for follow-up questions. We have the next question from the line of Radha from B&K Securities.

Sir, just continuing with the question that the previous participant has asked. So you mentioned that we will see the benefit of coking coal prices in the coming quarters, 3Q or 4Q, if we assume. So the EBITDA per tonne of second half seems to be -- it would look much higher than the first half. So on a blended basis, if we take INR 18 or INR 19 or INR 20 per kg for FY '25, assuming we have targeted to do 8.5 lakh tonnes of volume in FY '25. So our DI EBITDA comes to INR 160 crores. But when this benefit of coking coal subsides, maybe after 2 to 3 quarters, when the prices stabilize, so next year, we are targeting to achieve around 9.3 lakh tonnes of volume. So 10% to 11% volume growth. But on the other hand, the EBITDA per tonne could come down because of the stability in coking coal prices. The 10% volume growth may not be enough to offset the stabilization in coking coal prices. So just wanted to know that is it a fair assumption that the FY '25 EBITDA on DI because of these dynamics will remain stable in FY '26 and on an overall DI EBITDA, there may not be a growth in FY '26?

I think -- I mean, I agree with you on the fact that the stability of EBITDA going forward will be there. Growth beyond this point will not be -- I don't know. I mean, if luck favors then yes, of course. But barring that from what we can envisage further growth from here is not something that we are looking at in terms of percentages, not in terms of absolute numbers, of course.

Madam, one thing. When the volume will go up, there will be a decisive advantage, also on the variable cost and major on the fixed costs. So that also should take care of the part of the negative impact of what you talked about coking coal and all that.

So sir, assuming that in FY '25, if we close the year with INR 19 per kg EBITDA on DI. So assuming all those benefits come through, do you expect the EBITDA per kg to be slightly lower than FY '25 and FY '26?

It will be very difficult to give you an answer in absolute numbers, ma'am. Again, as I mentioned, percentages is a better way of looking at it because, of course, the -- if there's an eventual impact on selling price of the reduction in the raw material prices. It does not reflect immediately, but if both coking coal and iron ore prices reduce, from a midterm perspective, we will see an impact on the per tonne selling price. So we would -- we like to stick to the percentages, and I'm highly confident that we will be able to maintain these percentage points.

All right, sir. The second question is on the bidding front. Just wanted to understand that when we started the year in FY '25, so what were the realizations that we were getting while bidding for the project on a per tonne basis? And considering that there is correction in raw material prices. So just wanted to understand that for the current bidding that we are doing currently, so how has the realizations fared out now compared to what it was 6 months back?

There's a very minor downward correction, ma'am.

How do you see it going forward, sir, considering that coking coal price -- raw material prices are coming down?

Raw material prices are coming down, demand is still robust. So I don't feel that there will be any major correction in the selling price as of now. Maybe a slight dip, a slight increase from quarter-to-quarter depending on the demand pool as we were discussing earlier in the call because there was a minor slowdown due to the range, plus the government kind of wanting to recalibrate what the ground situation is like. There's a couple of percentage points drop maybe in the selling price. Similarly, come Q4 when you see demand picks up again, we might see the opposite side of this happening. So it is going to be a minor correction upward and downward with the raw material prices as compared to the raw material prices.

Yes. Sir, continuing with this bid book question. So just wanted to know what is the bid book size currently for AMRUT and other irrigation projects?

So ma'am, I will have to get back to you on the exact number for our current order book on that front on how much is coming out of AMRUT and how much is from irrigation. But on the demand front, overall for the industry, we can say that the AMRUT demand is around 20%, 25% and the same for irrigation.

We have the next question from the line of Prathamesh Dhiwar from Tiger Assets.

So just wanted to know on the industry front, like we said earlier, currently, the orders are muted from the Jal Jeevan. So from when we are seeing the pickup in the order inflow by the government?

Sorry Prathamesh, your audio is not extremely clear. There's some background -- if you could switch to the handset mode.

Yes, sure. Am I audible now?

I was able to get your question, though. So I think by the end of this quarter, beginning of next quarter, we should start seeing the JJM order book pick up again.

Okay. Okay. From Q3. And sir, what are the average order sizes of these projects?

So that varies by such a huge margin, it would be incorrect for me to give you a particular answer on that.

[Operator Instructions] We have the next line of Rakesh Roy from Omkara Capital.

My first question regarding your volume number compared to...

Rakesh, can you kindly come closer to the microphone?

Sir, my first question is related to volume number. If you compare your volume number from a sequential basis on a yearly basis, it's coming down due to the plant shutdown. But when it comes to realization [indiscernible] improved, sir. So any reason for realization to improve or you have taken any price increase in Q2 or Q1 or the first half?

There is no price increase per se. Pricing is stable, sir. Am I audible to you, sir?

Yes, sir.

There is no real major improvement in the realization per tonne. It's similar.

Okay [indiscernible] if you take the same [indiscernible] like this now iron ore price is down compared to H1, if you take. So next bidding realization will be same or will come down?

Like I mentioned, sir, recently, there has been a very minor reduction in the realizations on the order book front. That's also reflecting a temporary slowdown from Jal Jeevan Mission. And as I mentioned that these kind of things, they move a few percentage points up and down depending on the time of the quarter. So maybe come Q4, once JJM picks up again, we'll go back to better realization. But again, that is a slight difference. This I'm talking about in the range of maybe 2%, 3%, 4% like that.

Same thing [indiscernible] less project in Jal Jeevan mission. But many projects come from state government. Are we supplying to state government also, sir? State project?

Yes, sir. Absolutely. We are supplying to state-funded projects. We're supplying to foreign funded projects.

Okay. And how much percentage of total -- if you say how much is Jal Jeevan and how much is state-funded today?

So sir, Jal Jeevan is a part of state funded. It's not that Jal Jeevan is completely central funded. Independently, state-funded projects, most of the irrigation projects are independently state funded and you have a few other foreign-funded projects, which are direct loans to the state. So I would say around 30%, 35% are independent of any central schemes. 30%, yes. You can say around 30%.

[indiscernible]

I'm sorry, I couldn't quite get your question. Your voice is a bit...

Yes. I'm saying in Q2, our export will be at 12%?

13%.

13%, sir. Is there any impact due to this [indiscernible] any increase in shipping cost?

Yes, sir, there are 2 aspects as to why export is a little lesser than what it usually is. One is the impact of the ocean freight. And the other part is that because the demand in domestic is so robust, we are finding the domestic markets a little more interesting in terms of margins for some markets. So we are concentrating on the higher margin markets in total. And part of the reason is because the ocean freight, of course, if that gets a little better, we can -- we will be back to decent realizations again in the export markets. The ones which we are not concentrating right now as well.

Hopefully for Q3, the number is the same for export market, 12% to 13%?

I think it might be a little better off, but it won't be substantial. It's difficult to comment on what will happen later because it really is very much dependent on the movement of the ocean freights. And unfortunately, the ocean freights are dependent on the geopolitical scenario of that region. And I don't think any of us could answer that particular question.

Last question, sir, for your Srikalahasthi plant is shut down, how many days it shut down, sir?

How many days?

Yes sir.

Shutdown of approximately 7 days.

Only 7 days, sir?

Yes, 7. I think 7, 7.5 days, something like that.

Is this annual maintenance -- is it in 1 or 2, 3 years?

This is part of the annual maintenance shutdown. We had extended it a bit longer than we usually do because we want to try a few more things.

So this is the reason our volume is down?

This is the major reason why our volumes are down, stability post the shutdown is not -- did not come in as quickly as we thought it would. Now we are seeing better stability at the blast furnace.

We have the next question on the line of Dhiraj from Ashika.

So the first question is on -- could you share any update on the greenfield project for the region?

Sir, we're still, as I mentioned, at this point I can -- I can't share too much information because it's not been -- we are not at that stage yet. Things are going on as we planned, though. We are getting closer and closer to finalizing the end results and then disclosing it.

Okay. No problem. And how are we planning to fund this project?

It will largely be through internal accruals. And if required, there might be a minor leveraging. But we don't see our overall leverage going up as we'll be repaying loans as well.

Got it. Okay. Okay. And one last question, sir. How do you see the opportunities from river interlink. As there are some 3 to 5 river interlinks were identified? And how do you see the orders coming in from this?

So from the order coming in perspective, we are at a bit more of a nascent stage than that level of maturity of the river linking. Ken-Betwa is one which is progressing with good speed. So river-linking is interestingly a part of irrigation, is going to end up being a part of Jal Jeevan as well because that will give sustainable source of raw water supply. So I am relatively excited about it to tell you the truth, not only from the perspective of demand to our -- for our pipes, but also as a showcase of infrastructure progress of the country. So very, very hopeful that we implement exactly as we are planning. I'm glad that the government has taken this initiative up this time with more aggression than it had last time as well.

Got it, sir. Can we expect in FY '26 or more and more incremental order book to be generated from river interlink sorts? Anything new? Can we expect this?

It seems so, yes, it seems so.

We have the next question from the line of Rajesh Agarwal from Moneyore.

Sir, my question is on the shut down for -- is this the shutdown over or we'll take more shutdown in the next half, second half?

As I was mentioning, the stability of the SW blast furnace was not as quickly as we thought, and it still not reached the exact level. So we will do whatever is required to bring it to the point that we need to, for it to be running optimally. And it's difficult to say whether we will need another shutdown for that or we can manage operationally. So if anything comes up, as we did last time, we will be communicating to everybody.

And can you quantify how much production was lost or how much of sales or what EBITDA was lost because of the shutdown?

You can -- approximately 12,000 tonnes.

12,000 tonnes. Okay. And sir, do you feel this Jal Jeevan mission outlook a little bit slow is slow because of the elections or it will improve from here?

It's because of the election, the new government just wants to kind of recalibrate what has happened so far since it was appointed -- it was an exercise which was supposed to end. The first phase of it was supposed to end with the term. So now they're just kind of collating everything, seeing what the progress is like and then they will spend going forward depending on the results of that. Even as per the dashboard, if you see that we are still at around 78%, 79%. And 20% is required as per the dashboard. We feel that more will be required also since some work within the 78% is pending plus new households are also getting added up.

Are there possibilities of -- because of the efficiency or scale and the margins improving further from here apart from the realization?

I think going by a stable margin at this level would be a better way to look at it.

[Operator Instructions] We have the next question from the line of Muskan from B&K Group.

My question is, you have guided 8.5 lakh tonnes for the full year. And in the first half, we have done 3.69 tonnes of volume. So in 3Q, we can produce maximum 2 lakh tonnes. So balance is 2.8 lakh tonnes entirely. Can we do it in 4Q alone?

So due to the slower pace of stabilization of the blast furnace, we are feeling that there might be a reduction in the total outlook. There's also been a minor setback in terms of the equipment supply coming in from China by a month, not longer. So these 2 factors, I think we were talking about a range of 8 to 8.5 -- we were hopeful to hit the upper end of that spectrum. I think we might be at the lower range of that number.

Okay, sir. Sir, in first quarter, you mentioned that the contribution in the Fitting is currently 4%, and we aim to reach around 5% to 10% in 2 years. So for this, are we planning to do any capacity expansion for the Fitting segment?

So this is all a part of what will come in, in the greenfield project, ma'am. Exact tonnages are not clear. But definitely, it's something that is being considered.

Okay. Okay, sir. Sir, one last question. Like out of INR 700 crores, we have spent INR 440 crores for the CapEx, right? So what would be the CapEx for this year and for the next year, sir?

We are yet to spend around INR 250 crores for completing the learning projects and the project is on schedule.

Okay. And for the next year, sir?

Come again?

So for next year -- the balance would be for the next year?

This INR 260 crores will be required for completing the entire balance project. And the second half would be somewhere around INR 150 crores, INR 160 crores. Balance INR 100 crores will be in subsequent financial year.

We have the next question from the line of Ankit Puri, an investor.

Congrats on a stable set of numbers. I've got 2 questions. Can you please share the company's vision with regards to the acquisition of Singardo International? What exactly does the company plan to achieve with this acquisition? And the second question is, any updates on the case with regards to the court block settlement?

Okay. So in regard to the Singardo acquisition, the thought behind that was that Singardo was a company which was the authorized distributor for Electrosteel Pipes and Fittings in the Southeast market. We wanted to further aggressively expand into that area. We look at markets like Vietnam, et cetera, as a good opportunity as we expand our total production. And also in regard to using the traded products of -- other traded products Singardo , we are hopeful we will be able to capitalize on that a little more as well. We are hopeful that we will be able to use the network of Singardo for other products, which we don't manufacture to increase trade within the Water industry. In regard to the dates for the coal block -- What is the revised date that has come out now? It is sometime in November. I'm very sorry, I don't remember the exact date, but it's in the Delhi High Court right now, the case. And that unfortunately, during the last hearing, the judge was not available. So it's been -- the matter has been now pushed to a date in November.

All right. So I think we hope to get some updates, hopefully, in the next con call, I guess. And with regards to the first question, again, so basically, when do we start to see addition from Singardo acquisition coming up in the numbers in subsequent quarters? Or -- and what kind of numbers are we looking at? Any idea on that?

Numbers in terms of the turnover and the margins?

That's correct.

In terms of the turnover and margins being worked out from the traded products, we are not -- we've not finalized on specific numbers yet. We do see a lot of opportunity over there. So it will be a little difficult for me to answer that question. We are seeing that our total tonnages in the Southeast Asian market might improve by 5% to 7%.

We have the next question from the line of Saket Kapoor from Kapoor & Company.

Sir, just continuing the discussion on our Singardo acquisition. Sir, if you could provide us some more details on the financials of the company for the last 3 years. What was the average turnover and the profitability? And how did we value it at, say, the INR 49 crores when we came to the price? If you could dwell a bit more on the same?

Saketji, revenue of Singardo, it has been around SGD 13 million for '23, '24 and same around for '22, '23 as well. And EBITDA margins has been around between 10% to 13%. As far as our cost of acquisition is about, it's based on the book value of Singardo.

Okay. Sir, when you were mentioning about stable EBITDA margin, we had -- I think closer to 18% for quarter 1 and lower of 16% for quarter 2. So what should be the EBITDA margin range for H2 now?

I think as you rightfully mentioned, sir, it will be the 16% to 18% range is what we are looking at. In fact, I will be looking at that range for a midterm perspective.

Okay. And for the tonnage part, sir, you outlined that we will be doing closer to 8 lakh, and we did 3.69 lakh for first half. So something around 4 to 4.3 is what can be envisaged for H2?

Yes, please.

Okay. Sir, as we have gone through this shutdown, have we incurred any one-off expenses for this quarter? And sir, what was the period for which the shutdown happened in which month?

Shutdown happened sometime in the month of August. And we have incurred around INR 13 crores, INR 14 crores, and that is for the long-term benefit. And the shutdown was 7 days plus a few hours.

Sir, as Madhav ji was mentioning that [Foreign Language] blast furnaces. So we will be spending more for this quarter also on top of the [Foreign Language]?

Yes. We -- actually, we are going to decide in maybe another 10 to 15 days' time what to do to bring it to an optimal production level. So it may also involve another shutdown. There is a possibility. But nevertheless, it will not be very cost intensive.

Last point, sir, it will not be cost intensive?

It will not be very cost intensive.

It will not be very capital intense please.

Yes, sir. Sir, our capacity for year ending FY '24, '25 would be 9 lakh or 8 lakhs, sir. In the presentation, it was mentioned 9 lakh for the next year?

We are still hopeful for that. That number still holds for FY '26, you said, right?

FY '25, it is 9 lakh -- and 1 million.

No. So post the capital expenditure that we will have for the expansion that was planned in the mid of this quarter, which has been shifted to the end of this quarter, our installed capacity will become 9 lakh tonnes, which you will see us manufacturing for FY '26. Our rated capacity will become such.

I'll join the queue. And it was mentioned that the long-term borrowing -- we have repaid all our long-term borrowing? I missed the commentary on that sir.

As on 30th September, it is around INR 450 crores of long-term borrowing in our books, and we are sitting that much of cash in our system.

Okay. And do we have any current -- any maturity? What should we end this year, sir, in terms of the net debt level, sir, absolute number?

Net debt level, including working capital? It will be around INR 1,300 crores, including working capital.

Okay. And sir, with this ratings being getting up, we have been upgraded, [Foreign Language] blended cost of funds?

Included term loan and working capital both or...

[Foreign Language]

Term loans around 8% and working capital is 7.5% approximately. It is very, very fluctuative nowadays.

[Operator Instructions] We have the next question from the line of Radha from B&K Securities.

Sir, just wanted to know this shutdown expense of INR 14 crores you mentioned, that has already been accounted for in this quarter?

Yes.

Okay. The second question was on the Ken-Betwa project that you spoke about, and you said that now the government trust on the river linking project has increased. So I think the project cost is around INR 54,000 crores. So in this, there would be other requirement of pipes as well. So how much of this INR 54,000 crores could -- how much of this could create DI demand?

It's a little too early to be able to answer that question. They have not finalized on their DPRs and other aspects which are required to be able to -- for me to answer that question.

Sir, normally if you can...

Please, go ahead.

If we take per kilometer, what would be the metric ton of DI pipe requirement?

As you would know that in a pipeline, it's not only ductile iron that is used, we use steel, ductile iron and plastics. So it really depends. The entire project is across 2 states and it will have multiple distributories. Now depending on the requirement and the functioning of each distributory, the demand outlay for ductile iron separately and plastic and steel will come out. It's a bit nascent for me to be commenting on what the exact demand outlay from this project will be.

Historically, there has been quite some delays in these projects, is it a fair understanding that across -- not only in Ken-Betwa, but across other projects also that have been announced, there would be or we can expect some higher trust in these projects maybe in the ensuing quarters or from FY '26?

I'm relatively certain that at least river linking projects, which are interstate or intrastate between 2 states which have similar -- which have the same government that will see good trust.

We have the next question from the line of Saket Kapoor from Kapoor & Company.

So on the depreciation part, we find depreciation line item being at INR 36 crores, which is also up around 20% year-on-year. So what have we capitalized in terms of value terms and also in terms of assets for the first half -- for this quarter, in particular and for the first half? And also, sir, we were doing some minor CapEx in terms of fittings and some gaskets, I'm forgetting the right term, which we used to outsource earlier. So what is the update on the same?

The depreciation change is due to capitalization of some projects in Kalahasthi, which the project is on the pipeline. Some of the projects completed and we have capitalized and we are getting the benefit out of that. Second question about the gasket, we are setting up a plant in Punganur, near Kalahasti, only -- maybe around 125 kilometers away from Kalahasti. And we will be using mostly the output for our captive purpose. Anything surplus will be sold in the market.

Okay. And on the fittings front, sir, any kind of CapEx or debottlenecking advise we are doing?

Not exactly now at the moment.

Okay. Sir, historically, correct me, Ashutosh-ji, whenever we have done this maintenance work for the southern unit, we have faced challenges. If I correctly remember in '18, '19 also, we faced similar type of issues with the blast furnace. So where is this disconnect that our technical teams or people in the southern unit or because of -- what are the key reasons why we do face these issues? Correct me if my memory is not serving me.

No, no, you are absolutely right. Earlier also, we had an issue. And see, first of all, the problem in South plant has been the raw material quality is varying very, very extensively, and particularly the impurities in the iron ore, namely the silica and alumina, these components are going very high, which are creating a change in the behavior of the -- I mean, blast furnace flows. So we did talk to the designers. We did talk to the suppliers, and we also got some experts. But in fact, with all that, I mean, we could get that -- it has a lot of linkage with the raw material. Now we are trying to actually improve our charge mixes accordingly and do some small corrections in the blast furnace so that these type of problems can be checked for long.

Right, sir. And sir, as there is some carbon footprint issue also with this type of our manufacturing unit, so our investment in the renewable segment and any other that we have outlined going ahead that may reduce also our carbon footprint?

So in fact, in our greenfield project, so we are taking it in a big way. And in our existing operations also, we are taking up projects of -- taking up green power, plus we are now interacting to have a green power tie-up.

Yes, sir, I was coming to that.

Yes. So these are the 3, 4 directions in which we are working on.

Last point if I may, sir. You mentioned we are looking for a tie-up?

Yes.

Okay. Buying the scheme -- that open source scheme that the government has envisaged?

Yes.

Okay. And lastly, sir, when we look at the cash flow part, there are this direct taxes paid line item. So that is inclusive of the TDS also that has been paid on our account, how to get this number correct of INR 130 crores has been paid as direct taxes for the first half?

Yes, this is inclusive of TDS deducted by us.

That was the last question. I now hand the conference over to the management for closing comments.

Thank you, everybody, for taking out your valuable time and for listening to us patiently. I would like to reinstate that the company continues to grow along with maintaining its balance sheet strength and further is well positioned to benefit from the growing water infrastructure spending globally. I would also like to wish everybody a very, very happy Diwali once again. And in case of any query, please feel free to connect with EY, our IR consultants. Thank you.

Thank you. On behalf of Electrosteel Castings Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.