Electrosteel Castings Limited (500128) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Electrosteel Castings Limited Q4 FY '25 Earnings Conference Call. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Vikash Verma from EY LLP. Thank you, and over to you, sir.

Thank you. Good evening, everyone. On behalf of Electrosteel Castings Limited, I welcome you all to the company's quarter 4 and FY '25 earnings call. To discuss the performance of the company, we have with us from the management team, Ms. Radha Kejriwal Agarwal, Whole-Time Director; 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. We will now start the session with the opening remarks for the management team. Afterwards, we'll open the floor for 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, Mr. Madhav.

A very good evening to all. I'm pleased to highlight the company's performance and the promising industry demand outlook going forward. I'd like to walk you through some of the major developments and challenges we faced this year. The first half of the financial year demonstrated growth over the previous half year, while the second half witnessed some slowdown, this was primarily due to 2 key factors: reduced spending by the central government on its flagship scheme, the Jal Jeevan Mission. The initial budget for FY '24-'25 was INR 70,000 crores, which was subsequently revised down to INR 22,000 crores. However, recognizing the critical importance of the scheme, the government has extended it to 2028 and allocated a significantly higher budget of INR 67,000 crores for FY '25, '26. In parallel, work has commenced on long-pending river linking projects. A notable milestone was the inauguration of the Ken-Betwa river linking project by PM Narendra Modi Ji on December 25, 2024, an important step forward in India's water resource management strategy. This, I will cover in detail after taking you through the performance of the company. We undertook 2 shutdowns of the blast furnace at our South units, 1 during Q2 and another towards the end of Q3, which extended into the early days of Q4. These maintenance activities while essential, temporarily impacted production volumes in the latter half of the year. The company's consolidated total income stood at INR 7,443 crores during FY '25, reflecting a temporary dip due to 2 shutdowns, as I mentioned, and a slight slowdown in the market demand. The plant has regained stability since. Our phase wise expansion to take the capacity from 6.8 lakh tonnes to 1 million is in progress as per schedule, and I'm delighted to share that our installed capacity has now been enhanced to 9 lakh tonnes by the year-end. This added capacity is expected to yield higher volumes as we gradually ramp up production in the coming quarters, positioning us for robust growth. We have already incurred approximately INR 500 crores of the CapEx for this expansion up to FY '25 out of the planned CapEx of approximately INR 700 crores. The DI sales volume for the quarter was approximately 1.71 lakh tonnes and 7.17 lakh tonnes in FY '25 with exports contributing 15% of the total DI volumes. I would like to highlight the demand of DI pipes going forward. The government has prioritized revenue growth over expenditure expansion to achieve the reduced fiscal deficit targets so as to keep inflation down. Going forward, the Jal Jeevan Mission has received a budget allocation of INR 67,000 crores for FY '26 and has been extended to the year FY '28. This is a reflection of the government's commitment to provide safe and adequate drinking water through household tap connections in rural areas. Respectively, matching funds will be borne by the states. Disbursement of central funds is in process and will revive pipe demand in due course of the year. As of the latest reports, approximately 12.38 crore rural households have been provided with tap water connections with many schemes needing source sustainability and operation and maintenance fixes. In many cases, the projects are still partially complete and the water source sustainability is not fully established. The work left to be executed is more than 4-crore households, and JJM, as previously mentioned, has already been extended up to December 2028. I will move on to the progress and allocation under the AMRUT scheme. The Atal Mission for Rejuvenation and Urban Transformation launched on October 1, 2021, is a 5-year initiated by the government of India aimed at enhancing urban infrastructure, ensuring water security and promoting sustainable urban development across the country. The total indicative outlay was INR 2.99 lakh crores over 5 years, out of which the central assistance is INR 76,760 crores. As of November 2024, 8,998 projects worth INR 189,000 crores have been approved. We expect substantial expenditure on pipe procurement via AMRUT 2.0. Some updates on the river linking project, which is managed by the National Water Development Agency under the Ministry of Jal Shakti. This project envisages the interlinking of rivers to enhance irrigation, mitigate floods and ensure water availability across the nation. The main project that is taken up at present for implementation is the Ken-Betwa link project. It is a INR 44,000 crore scheme to irrigate 10.6 lakh hectare in Bundelkhand. A number of other projects are also in the pipeline. National River Linking Project has the potential to generate considerable demand for both pipes and fittings in the future. Irrigation is another major demand driver for our pipes. India's irrigation sector has seen significant advancements. The government has prioritized irrigation development. There has been a shift to pipe irrigation to lower losses and ease land acquisition problems. There's an estimated growth in the irrigation and flood control at the state level of 23% year-on-year. Moving on to exports. The Middle East and Africa pipe markets are valued at [ $8.13 billion ] in 2023 and is projected to reach [ $11.56 billion ] by 2031, growing at a CAGR of 4.5%. This growth is driven by infrastructure development and urbanization in the region. Similarly, the Middle East's iron and steel pipe market is expected to see steady demand growth over the next decade. Demand is driven by the good growth prospects in many Middle East countries, mainly Saudi Arabia. In Europe, we are the second biggest supplier of ductile iron pipes and in the Middle East, we are the largest exporter. The recent U.S. tariffs on iron and steel product imports have introduced volatility in the global steel prices affecting the pipe industry. These tariffs can lead to increased cost impacting manufacturers' margins and pricing strategies. However, the tariff on Indian DI exports to the U.S. remains limited up to 10%, which will be reviewed again in July. I would now like to hand over the floor to Mr. Ashutosh Agarwal, Whole-time Director and CFO, for taking you through the financial highlights.

Thank you, Madhavji. Good afternoon to all the investors present in this call. I would like to brief you about the financial results consolidated for Q4 2025. Total income stood at INR 1,739 crores, partially impacted by the plant shut down as explained by Madhavji. EBITDA at INR 198 crores. EBITDA margin stood at 11.4%. PAT reported to INR 168 crores, which includes INR 81 crores on account of onetime adjustment of deferred tax. Here, I would like to mention to the investors that in 2017, as per the accounting standard, Ind AS, there was a window given to us, and we have revalued the land of the company. And now in 2024, the Government of India has changed the long-term capital gain tax rate from 20% to 12.5%. On account of that, there is a reversal of deferred tax liability of INR 81 crores, but nothing to do with the cash flow of the company. It is just an accounting entry for general information, please. Highlighting our consolidated financing year 2025 company as a whole. Total income was INR 7,443 crores, EBITDA stood to INR 1,159 crores, EBITDA margin 15.6%. PAT is to INR 710 crores, which includes INR 81 crores as I explained to you earlier. Now I'm talking about standalone results Q4 of 2025. Total income stood to INR 1,601 crores impacted the plant shutdown, as mentioned by me and Ms. Madhavji. EBITDA stood to INR 213 crores. EBITDA margin 13.3%. PAT stood at INR 191 crores, which again included INR 81 crores as explained by me in my earlier note. For the year, stand-alone results are: total income was INR 6,840 crores, EBITDA INR 1,116 crores, EBITDA margin 16.3%. PAT, INR 712 crores, which included INR 81 crores as mentioned to you. Board recommended 1.4% of equity per share. It means 140% dividend. We are maintaining the dividend from last year. On an [ annual ], the CapEx as mentioned by Madhavji, we had a plan of INR 500 crores (sic) [ INR 700 crores ], and we have spent around INR 500 crores till March 2025 and balance INR 200 crores will be spent later on. The DI pipe capacity will be around 1 million tonnes in 2026-'27. Now I'm opening the floor for the question-answers. Thank you very much.

[Operator Instructions] The first question comes from the line of Rajat Setiya from ithought PMS.

Just a couple of questions. The capacity that we have, can the same plant or the same line make different sizes, different diameters pipes or we need to have dedicated capacity for different sizes of the pipes?

Sir, because of the machine mix that we have taken up as we've expanded our capacity, we do have a flexibility of 10%, 15% between different size mixes. So we can play with the capacity basis, the requirements in the market.

Okay. So you're saying a particular line can make a pipe which can vary in diameter by 10% to 15% of its production sizes, right?

Yes, please.

Okay. And sir, one question regarding the -- a lot of talks are there about the OPVC pipes. So how do you see the development of OPVC pipes affecting DI pipes and what sizes in it.

Sir, I can answer this question in 2 parts, one from the short to midterm and then from the long-term perspective. For the short to midterm, most of the projects that I have spoken about, which are under Jal Jeevan, et cetera, for them, their detailed project report, et cetera, have already been made and the chances of any upcoming recent demand being converted to OPVC is negligible. From the medium- to long-term perspective, sir, if you look at the percolation of OPVC in markets where they are being used like America and South America -- North America and South America, yet there is a decent amount of demand for smaller dia pipes in those markets. Coming to Europe, we are finding that OPVC is practically not there. The other aspect also is sir, that because of many characteristics of a plastic pipe versus a metal pipe, the use cases are not overlapping in its entirety. There is an overlap, but it's not that you can use a metal pipe wherever a plastic pipe is used and you cannot use a plastic pipe in a lot of use cases where only a metal pipe can be used. So I don't I don't find OPVC to be a real threat. This sort of mindset or rather concern had also come up when HDPE was introduced in the domestic market. But we find that smaller diameter pipe still run the demand for ductile iron pipe. So that in itself gives an answer of whether OPVC really would become a threat going forward as it was felt HDPE would.

So you are seeing it is kind of -- I mean it's kind of replacement, but it's not really effectively the larger application or use cases of DI pipes, right?

Yes, please. There might be a small percentage of the demand that can get converted at a local level, but that's not going to have a material impact on the demand of ductile iron pipes.

And up to what diameter sir, is it going to present as an alternative to what you have?

Sir, if any replacement, then it would probably be up to diameter 150 or 200, not beyond that. There is -- they do operate till dia 400, but above dia 200, there's practically no chance of replacement.

And our total capacity for the sales, what is the sales mix for us, [indiscernible] up to 200 or 300 or more than that?

Sir our demand scenario is that we will have approximately 40%, 50% up to dia 400 and another 50% to 60% up to dia 1,200. So it's a 40-60 sort of mix, you can say, going forward.

Okay. And for our increased capacity also, the mix will be [indiscernible]

I'm sorry, your voice is a little...

Sorry, is it any better now?

Yes, much better, please.

Okay. I was saying for the increased capacity when our capacity goes to 1 million tonnes, the mix will remain in the same way, right?

Yes, please. Our mix is to make between 40% to 50% up to 400 and approximately 50% above 400. So it's in line with the market demand.

The next question comes from the line of Akshay Deshpande from Ashika Institutional Equity.

Am I audible?

Yes, please.

Sir, I just wanted to know, have you received any cash from JJM projects in the previous 3 months?

Have we received any cash from the?

JJM projects, Jal Jeevan Mission.

No. There has been an ongoing movement in JJM. It's not that because the center has temporarily halted CapEx that the projects have stopped, as you must be aware that the state takes care of 50% of the expenditure. So the states which have reasonable resources like Odisha, MP over there, we are seeing movement. It's not at the same as it was, say, 6 months back, but not that there's a complete switch off on the JJM front.

Understood, sir. Would you be able to quantify it?

It will be a little difficult for me to exactly quantify what has been the state-wise expenditure over the last 6 months. I would not have that -- it is something I can gather and get back to you, if you like.

Understood, sir. So my second question how was the price volatility in the previous 3 months for coking coal and iron ore?

On the coking coal in the last 3 months, the prices have been actually varying to the tune of, say, $20 or so. So more or less, we can say that the coking coals have been more or less steady for the last 3 months. As far as iron ore is concerned, iron ore, there is a small upward trend, not really much to the tune of, say, INR 200 to INR 300 a tonne or so. So broadly speaking, I mean, both of these are remaining steady.

The next question comes from the line of Aashav Patel from Molecule Ventures.

So my first question is that we have been hearing on the JJM outlook from the center side is expected to be significantly cut down from INR 2.8 lakh crores to INR 1.5 lakh crores, almost a cutdown of INR 1.25 crores, which would largely has to be borne by the states, which we also know is quite difficult to get funds out of the state governments. So what's your view on this ongoing shrinkage of the JJM allocation?

Sir, as I had mentioned, and I've been mentioning for many investor calls, the initial outlay for Jal Jeevan was INR 8 lakh crores. That was during 2019. Post that, there has been a shift in prices of all materials and even manpower. So to finish the project, they will require the estimated INR 9.10 lakh crores. There's no 2 ways about it. Your apprehension is well placed when it comes to certain states where they are running into financial troubles. But there are specific states where they will continue to remain central support such as Bihar and Andhra Pradesh and Madhya Pradesh. And also, there are certain states which are reasonably well to do from their cash flow perspective, such as Odisha. So your concern is limited to specific states, sir, for me. I think Karnataka probably is one state where there might be some work, which will take longer than what it should to finish. But again, most states which are struggling financially, fortunately have a double engine sir. So they have the support from the center. So in some -- or the other, I'm very certain that this government would like to finish the work to completion, have it completed.

Got it. And sir, as per the JJM progress, which is mentioned on the website, the website, they are claiming to have 80% of the penetration. But ground level cut from our side suggests that the actual penetration is much lower, closer to a 60% level. So what is your view on the same? Have we penetrated 80% of the targeted JJM market.

[Foreign Language] What I was saying, I find that, that has now come out in public, but this is the reality that I'm noticing on the ground because of our network. We are well aware of the ground reality. We have probably the strongest sales and marketing network in the country for ductile iron pipes. And that helps us get a better understanding of what's happening on the ground. And that's the reason why the past few quarters, I've been mentioning that the real work on the ground is far lower than what it is stated. Yes, the tap connections are there. And yes, we've made commendable progress, there's no 2 ways about it. But we are a very big country with a huge landmass and a huge population. So it takes time. I mean, I draw parallels to countries like the U.S.A. and China, since they have similar -- they face similar population growth recently. And you'll find that even today, they have a substantial demand.

Okay. Do we expect by FY '28, we would be largely be able to achieve the JJM target? Or it could even then further fall off even after '28?

So sir, if the situation happens so that the burden of the INR 1.5 lakh crores goes on to the states, then in my opinion, this might get pushed to maybe FY '30 for those specific states, which are going to be struggling financially. Apart from that, I think the '28, 90%, 95% of the work should have been done. Again, there is a population growth that is also constantly happening. So that's why I say 90%, 95%. To reach 100% will take some time, sir, for our country.

Makes sense. And sir, we have also been hearing in terms of fund flow slowdown specifically across, and that is something which is across the B2G companies. But specifically to the Jal Jeevan Mission and water infrastructure, it has been the most impacted industry. So what is your view on that? Are you seeing challenges in terms of working capital over the last couple of quarters? And do you see it easing out anytime soon?

Sir there has been a marginal increase in the debtor cycle for the company. But we adhere to a very strict policy when it comes to our supply chain outward supply chain especially wherein we don't look forward to -- we don't allow for open credits beyond a certain number of days and beyond specific customers. So because of that, we've not seen a major impact. And if anything, going forward, things are to only improve. I think from the cash flow perspective, although not much impacted with -- I think we're at rock bottom.

Okay. But you have visibly seen the slow down over the last couple of quarters?

Very marginal sir. As I was mentioning, there are also other demand drivers today in the market. So it's not that there's ever a time that suddenly because Jal Jeevan has slowed down or stopped, there is a 0 cash income inflow cycle.

Absolutely agreed. And sir, last question on my side, as per Coal India website, almost 70% of the pending compensation regarding the suspended coal mines have already been settled. What is the update on our expected compensation? Are we seeing any positive development there?

Sir, there are definitely some positive developments. So far, I've been mentioning that I don't want to comment on time lines because I've been proved wrong. But I'm -- with recent developments, I'm hopeful that this financial year, we should see this matter settled to a very large degree.

[Operator Instructions] The next question comes from the line of Abhishek Yogesh Shah from Valcore Capital Advisors.

So I just wanted -- I was looking at the numbers, I mean, we've seen a sharp fall in your margins and realizations also. So just wanted to get some understanding on how are you seeing the realization shape up, say, in the coming quarter? And also on what sort of bottom line could we be looking at? Because EBITDA per tonne last year, we were looking at upwards of, say, INR 16, INR 17, INR 18 per kg. We've seen a fall. So I'm just trying to understand where do you see it for the year as well?

So I would prefer answering margin-related questions in percentages because I think that's a better metric. Our product is 60% to 70% iron and coal cost dependent. So the absolute value per unit is moving because of that. So it's better to talk on percentages in my opinion. As this particular financial year, we've hit an EBITDA margin of approximately 16%. I've been mentioning that 15% to 18% is the range that we are looking at in the mid- to long term. In good years, we see ourselves operating sometimes even above that. Historically, ductile iron pipes as an independent operating business has never gone below 15%. Moving forward for this particular quarter, things have started moving now in the center because of the revamped estimates. There's a lot of paperwork and administrative approvals that are going to take maybe another 2, 3 months to come into place since it's a big mechanism. It takes some time to move. But things are moving forward as you must be seeing articles coming out every week or so about what the update is on Jal Jeevan spending. So things are moving forward at the central level and very soon, the money will start coming in. I think starting quarter 2, there will be an up cycle again. So I'm very hopeful that we will be able to stay on the upper side of this bandwidth for the medium term.

Got it. Sir, and how are you seeing capacity additions. We are adding substantial capacity, which is due to come soon. At industry level, also, we've seen significant capacity additions. So maybe if you can maybe throw some numbers on that and give us some idea of how do you see the demand and supply shaping up for the next, say, year or 2?

Sir, the demand scenario at the moment with the river linking projects in irrigation business and the reinstated budget of Jal Jeevan, I think demand will -- which was earlier beyond supply by 25% will remain to be ahead of supplier by approximately 10%, 12% for the next 2 years. Coming to '28, '29, I think that's when the demand and supply cycle will meet.

The next question comes from the line of Subhash from Value Investments.

Am I audible?

Yes, please.

Okay. I just had a question on your revenue. Sir, I understand that you -- from the last 2 quarters, you had some maintenance in your manufacturing units, right? I think maybe 1 or 2 quarters ago, you even said that the maintenance was almost complete, but the output was not as per the expectations. But I see in your investor presentation that you have mentioned that -- I mean, the production will be stabilized going forward. So if the revenue down because of that? Or is it because of the state is not spending much money, as you mentioned Jal Jeevan Mission, is it because of that you are seeing less income.

Sir, I would say the bigger part of the reduction in revenue is going to the maintenance shutdowns that we had. Definitely, the slowdown in expenditure has played a part in the reduced revenue for the second half of the year. First half remains strong. So one of the reasons why also the decision for taking a shutdown was taken, although we had taken one in Q2 was because of this the slowed demand situation. We are very certain of the fact that going forward, the demand will pick up. So it was an opportune time for us to take the shutdown right now rather than having to do it at the time when the markets are high.

Got it. And also, how do you account the revenue? I mean is it as soon as you supply the materials from your manufacturing units to the sellers? Or I mean, do you record the revenues after you receive actual cash?

The moment material reaching to the customer side, we are recognizing in the income.

Okay. Got it. Okay. So for this quarter, you were around EBITDA margin of 11.4%, and I understand it's because of the maintenance. But so going forward, as you said, it would be around 15% to 18%, right?

Sir, I'm very hopeful that for the medium term, after '27, '28, we will be on the upper end of this band.

Upper end. That's great. And do you have any update about the latest land acquisition that you did around Odisha, I guess, right, which you announced maybe 3 quarters ago?

Yes, please. We are in -- we are very closely in touch with the government to get our approvals and other auxiliary requirements in place, I think there was a bit of a slowdown due to the government change in Odisha as well. It was taking a little longer. They took a couple of quarters to really get everything back in order. But plans are still on and I'm very -- I think I'm very excited to bring about some good news very soon for the investors.

Yes, that's great to hear. Because the next question I had about was in your presentation, you have mentioned that by '26 and -- by FY '26, you will have 10 million tonnes of production capacity. So I mean this is without considering the latest land acquisition, right? So this could go up.

1 lakh tonnes.

Sorry, yes, 1 lakh tonnes, right.

So 1 million in our existing facilities, approximately 1 million will be our capacity in the existing facilities that I'm still -- we are still in progress for that, sir, because that has no nexus with the expansion in Odisha.

This plan does not include the Odisha land acquisition plans, like whatever you have it for future, right, for that land?

Yes, please.

The next question comes from the line of Rajesh Agarwal from Moneyore.

Sir, this quarter, we have taken a maintenance shutdown. So can you quantify the production loss or any one-off for the shutdown.

Sir, owing to the maintenance shutdown, we have had a reduction in the output by approximately 50,000 tonnes, for the one that was there in quarter 3, quarter 4.

Okay. And any other expenses also for the...

Any other expenses?

Expenses for the shutdown on this one, maintaining the plant or whatever, onetime expenses.

We have incurred around INR 13 crores for that.

INR 13 crores. Okay. Sir, second, you say tariff will the 10% tariff will affect our export, no?

Not really, sir. Not really. I don't see that -- just to give some further clarity on this piece. Our total export to the U.S. that amounts to around 1.5% to 2% of our exports. So we are not very dependent on it to begin with. And to add to that, a 10% tariff will not make our competitiveness in the U.S. market any lesser. So I don't see it impacting the 1.5% to 2% either.

Okay. Okay. So other countries won't have an advantage to us, either in Saudi and all Middle East also, no?

No, sir. So apart from Electrosteel, there's no other company who exports into the U.S. market.

Understood. Understood. Sir, why the working capital days have gone up? If you see the [indiscernible] working capital days have gone up.

No, it is reduced. It was INR 1,800 crores earlier working capital debt now it's INR 1,400 crores.

Not the debt, number of days.

Number of days, yes. Number of days, it is...

Sir, that is in 2 parts. As mentioned earlier, we've seen a slight slowdown in the customer payment cycle. We had pushed some of our material to our subsidiaries across the globe because we were expecting sales pickup, which we will see in due course reflecting in our figures. So there's some extension in the overall…

Going forward, it will improve, the days will improve?

Absolutely.

And sir, now I heard the state government is trying to do a water project in HAM model. So for tying up the funds with the investors. So will that affect our business? Will the business go up?

I'm hopeful that it will sir, on this regard because earlier whenever HAM has been tried, it's not been very successful. So I cannot be very confident about it, but the mindset of the investors towards public private partnerships have considerably changed over the last 5, 6 years. So I am positive about it, yes.

So after April, the allocation of JM (sic) [ JJM ] has increased. So you're seeing a movement in the tender movement, inquiry.

Sorry, you mean JJM?

JJM.

Sir there has been a lot of positive movement at the central level when it comes to approval of funding, et cetera, which has seen a bit of a stalemate for 6 months. I think impact on the ground will start coming in from quarter 2.

Quarter 2. Okay. And sir, you said Ken-Betwa, the project cost is INR 45,000 crores. So can that into huge DI pipe orders? Or what percentage can be DI pipes contribution in that?

So that is going to be a mixed bag of canal, dam and pipe irrigation and we will see demand come up with mainly in DI and HDP. So I would say approximately 15-odd percent...

15-odd percent.

Yes, please. 15% to 20%.

Can you start by when the demand for DI pipes.

Sir, I think second half of this financial year, we should start seeing some demand from Ken-Betwa come into DI pipes.

Okay. And sir, the last question on this Indus Waters Treaty, whatever has been activity happened, the government starts activity of their building and dam and other water infrastructure that can also result into orders for DI pipes?

Absolutely, sir. It's not something we want to highlight much right now because it's very nascent, but this is something that we have at the back of our mind.

I was feeling at the moment that will be very fast. That is what my guess.

I'm very certain of it, sir, but as there is nothing concrete.

Understood. I understood. But the DI pipes will be required there.

Absolutely.

And sir, the last question, what will be the CapEx for '25-'26 -- CapEx only, I'm asking the CapEx for '25, '26 and maintenance CapEx?

'25-'26 the CapEx would be somewhere around INR 200 crores.

Okay. And maintenance CapEx?

Additional CapEx, including maintenance CapEx.

Okay. The CapEx and maintenance. So maintenance will be how much and CapEx will be how much?

Maintenance CapEx altogether will be INR 35 crores or INR 160 crores would be some from new CapEx.

[Operator Instructions] The next question comes from the line of Ankit Puri, an investor.

I wanted to check up -- can you please comment on the reason for the increase in the inventory levels? And how do you see it panning out going ahead? Also, if you can provide insight into the current and future capacity utilization?

So sir, the increase in inventory level is owing to a slight slowdown in the market demand. In regard to the capacity utilizations, I am expecting that over the next 2 to 3 years for the industry, the capacity utilization should be somewhere between 85% to 90%. We will probably be operating at a slightly higher level than that.

All right. And what has been for this particular quarter and for FY '25?

So for this particular quarter, our capacity utilization has been probably 60% or so, but that is going to the shutdown. Subsequently, I think going forward from quarter 1 to quarter 2 to quarter 3, we should see a ramp-up of 10% to 15% each quarter as they are coming out of the maintenance shutdown and ramping up and also support from the markets for demand.

All right. Lastly, what updates can you provide on the credit products through the Singardo acquisition panning out?

So 1 very good movement that we've seen that we've managed to do due to the acquisition is to enter the Vietnam market. Although we started with very small orders, but because we've improved our presence in the area, we have now started discussing reasonable size orders with the local contractors and business houses. So that's 1 big benefit. We are also being able to procure a small quantity of products via Singapore from countries around like Vietnam and China, et cetera, for products in the basket, which we are adding like coupling adapters, et cetera, for our subsidiaries in the Western Hemisphere. This is just a beginning sir. With time, we will see this grow substantially.

The next question comes from the line of Rajesh Bhandari from Nakoda Engineers.

[Foreign Language] how much amount are we expecting?

[Foreign Language] there is no exact indicative amount...

[Foreign Language] Approximately, INR 100 crores, INR 200 crores, INR 500 crores, INR 1,000 crores like that?

[Foreign Language]

[Foreign Language]

INR 1,200 crores.

[Foreign Language]

[Foreign Language]

[Foreign Language] So naturally you can have a good chunk of order.

We have started establishing presence over there, sir.

[Foreign Language].

[Foreign Language] That was just to further enhance what we could not achieve from the first shut down and because the market was slow, we thought that it's a good time to exercise this option.

[Foreign Language]

[Foreign Language]

And we expect it to be better in future.

Yes, please.

[Operator Instructions] The next question comes from the line of Saket Kapoor from Kapoor and Company.

Madhavji, only residual questions and some clarification. Firstly, sir, you mentioned that this would be the financial year where we would be expecting some conclusion on the coal compensation part. So if you could just elaborate on what factors have [Foreign Language].

[Foreign language] there were few steps, I think, that were not cleared up by the government for JSW to start operating. [Foreign Language] as and when JSW is also getting those mines -- those clearances and those steps are clearing out, I think both the parties and even the mining ministry wants to now see the conclusion happens so that the asset can be revised. So that is my reason for showing some positivity on that front.

So sir, JSW has already paid to the ministry for existing orders which they have received?

[Foreign Language]

[Foreign Language] for this financial year, we have lost tonnage closer to 50,000 tonnes because had these 2 shutdowns not being planned, our tonnages we would have -- the sales would have been higher by 50,000 tonnes. This is what the understanding is?

Sir, if both the shutdowns are considered, then probably we would have seen a slightly -- even higher than 50,000 tonne production number. [Foreign Language]

[Foreign Language] I'm only concluding the reply from Madhav sir, kindly allow me to complete.

Please, sir.

But what I was mentioning is that is on top of 7,17,000, definitely, we will be adding this 60,000 tonnes for this financial year. This should be the base minimum that we should be doing because now the capacity is also moved up to 9 lakh.

[Foreign Language] since it takes a little time to ramp up, we are expecting to hit something between 830,000 to 850,000 this financial year.

The next question comes from the line of Muskan Rastogi from B&K Securities.

So for the last few quarters, the company has been guiding that there has been no weakness in the realization. However, the realizations are still on a downward trend, you also interacted with L&T team, and we've got a feedback that the realization of DI is at INR 58 to INR 60 per kg range and demand is also subdued. So can you please give color on this? And also what would be your volume guidance for FY '26 and '27?

Well, ma'am, as I was mentioning previously in this call, we realized -- the absolute realization numbers is a result of both demand and the movement of the iron ore and coal pricing. Part of the reason for the sorting on the realization is also that the input material costs have come down. Going forward, the movement of the realization is going to be a consequence of the demand moving up, which will create an upward pressure. And we are hoping that the pricing for the raw materials remains stable, seeing that possibly no major geopolitical issue arises. There might be some upward movement in the iron ore, if and when the government starts picking up on many of its infrastructure projects beyond Jal Jeevan as well. So this will, I think, lead to the average realization going up. Currently, the realization is between INR 58 to INR 60, but that is for new orders. We are carrying over orders from the past as well. So the effective realization is always a blend of old and new orders.

Sir, what would be your volume guidance for next 2 years?

Volume guidance, please?

Yes, volume guidance for -- sales volume guidance for DI for the next 2 years.

Ma'am, I think for the next financial year, we will be somewhere between 8.3 to 8.5 lakh tonnes. And in the subsequent year, we should be crossing 9 lakh tons, please.

Okay. So another question in a normal spread -- normalized spread scenario, if you do INR 9 to INR 10 EBITDA per kg, then post-tax ROC for the core business comes to around 10%. I just wanted to understand what is the reason behind going for such large CapEx in same business in Odisha and the return ratios are just 10%.

INR 9 to INR 10 would be a conservative figure. I think that the return on capital for the core business would be a little higher than that. We also have to keep in consideration that Electrosteel as a company has historically also exported pipes, and we are also looking at expansion in our fittings business, which is a higher capital return business. So we are very certain of hitting around 12% to 13% at a very, I would say, realistic slightly conservative level.

So this quarter, it was INR 8 per kg, hence I was asking it.

Ma'am, 1 has to appreciate that the last 6 months has possibly been a rock bottom for the DI industry. So we cannot plan basis that as when last year around quarter 3, quarter 4, we were hitting 20% plus EBITDA numbers. Even at that point, we had also mentioned that 20%-plus is an unsustainable number. We are hopeful to -- we are very certain of maintaining a range of 16%, 17%, 18%. So those are the figures that we have to look at. We cannot get swayed by short-term and on things.

The next question comes from the line of Rajat Setiya from ithought PMS.

Sir, what is the maximum achievable capacity utilization possible at the plant at the company level.

Sir, I think between 90% to 95%.

Okay. And you mentioned that we will soon be hitting those numbers like in the next 1 year or so, right?

Yes, please.

Okay. And I mean like we are adding capacity. So that's how we expect our growth to come from. And we expect to maintain increase higher levels as well, right, for the next 3, 4 years.

Yes, please.

And sir, what is the frequency of shutdowns generally? I mean how many years do you need the shut down?

So sir, we have an annual shutdown, which averages around 10 to 15 days in each unit barring that, we have shorter 1- or 2-day shutdowns every alternate month. Kataji, why don't you mention the total shutdowns for a unit of -- our industry.

Yes. But normally, I mean, the running days in a year are in the range of between 346 to 350.

We take the next question from the line of Aashav Patel from Molecule Ventures PMS.

Sir, my question is if we end up receiving the coal compensation whenever we decide it, how do we envisage to consume that capital?

Sir, in the new project.

Okay. But we don't plan to deleverage the balance sheet meaningfully from around INR 2,000 crores net level?

So sir, I think moving forward, we will probably maintain and slightly reduce our total leverage position while it's still going ahead with the greenfield project. So that's quite a comfortable level for us maintaining 1 million tonne plus production capacity in pipe while keeping up, say, INR 1,500 crores to INR 2,000 crores total debt level -- total net debt level. I think it's something that we are targeting to achieve and is very much in our grasp.

Got it, sir. And just wanted to understand what is your thought in terms of selection of products when it comes to greenfield expansion? Because -- what we have also been hearing is that we have been seeing steep competition from the -- some of the non-listed DI manufacturers. In terms of the margins, they are aggressively pricing their product compared to what pricing we are doing. So don't you say there is too much of competition in terms of the supply side is also increasing for the DI. So don't we plan to enter into newer products for the greenfield?

Most definitely, sir, there are new products that are being envisaged. We've mentioned before that as a company, we would -- we wish to move towards a manufacturer and supplier of the entire water infrastructure space. So slowly, we are covering all products. Very recently, we set up a small production line for gaskets also, which goes into the pipeline. And similarly, in the new production facility, we will add products that go into the water infrastructure space beyond just fittings and pipes.

Thank you. Ladies and gentlemen, we take that as a last question and conclude the question-and-answer session. I will now hand the conference over to the management for their closing comments.

I would like to thank all our investors for dedicating your valuable time and engaging with us during this con call. I want to reaffirm that the company is not only expanding, but also preserving the robustness of its balance sheet. Moreover, we are strategically poised to capitalize on the increasing domestic and global investments in water infrastructure. Should the investors have any further questions, please reach out to E&Y, our Investor Relations consultants. Thank you.

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