Jindal Saw Limited (JINDALSAW) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to the Q4 FY '20 Earnings Conference Call of Jindal Saw Limited hosted by Emkay Global Financial Services. We have with us today Mr. Neeraj Kumar, Group CEO and Whole-time Director; Mr. Vinay Kumar Gupta, President and Head - Treasury; and Mr. Narendra Mantri, President and Head - Commercial. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Anas Dadarkar from Emkay Global. Thank you, and over to you, sir.

Good afternoon, everyone. I would like to welcome the management and thank them for giving us this opportunity. I would now hand over the call to the management for the opening remarks. Over to you, sir.

Hi, good afternoon, friends. I hope all of you are keeping healthy and keeping safe. As you all know, this Saturday, we had our Board meeting to declare our annual results. But before we go to the results, let me address the impact of COVID and the pandemic situation for the Jindal Saw and the larger PR Jindal Group. You would be very happy to note that in the entire Jindal Saw Company, which is a stand-alone company having more than 10 manufacturing locations and a corporate office in Delhi with regional offices, there has been 0, mark my words, there has been 0 reported COVID cases in any of our factories. And all those units are running near normal because we have put a very strong protocol and we have made adequate preparation in terms of self-quarantine, tie-up with hospital, keeping our self-quarantine facilities completely ready to accept any quarantine people. So also, we have other protocols in terms of restricted movement of employees, social distancing. If you go to our website, you would be able to get some glimpse. So we have 0 reported cases of COVID on -- in any of our units. In our head office, we have, as you know, Delhi, we have 2 offices. One of the offices have reported a few cases, but the good news is they all have successfully come out of it, and we call them COVID warriors. In fact, that team is now even stronger because they have developed that immunity. So in short, Jindal Saw is taking all precautions. So far, it is showing results, and we have had minimal negative impact due to COVID on our current operations. When the government of India announced a lockdown in the last week of March until April end, in fact from May 4, we started opening up after requisite approvals. But during this period, the operations were impacted due to the national-level lockdown. So we lost about last 2 weeks -- 15 days of March, which is reflected in the current financial results because as you know even they are 2 weeks, but they are significant because typically our fourth quarter and that too towards March, the business really spikes because of the government budget ending period and the push to complete everything. So it did impact our financial results that we are going to discuss today, for 2 weeks. And the month of April was impacted in terms of operations going down to the minimal level that was permitted by the government. But we were among the first to get all approvals from the authorities to open up. And that's how we created all these facilities to give the confidence to the authorities. And since then, our operations has ramped up and now we are almost operating to near normal. So that's a good effort, resulting in a very satisfactory result. Going forward, we will see how the COVID is going to have an impact on our future business. Now turning our attention to the results. I would like to divide this into simple modules because it's important for all of you to understand the result in the correct perspective: the first, impact of COVID last 2 weeks, it did impact to the extent that at least we lost about INR 75 crores to INR 100 crores of EBITDA in the financial year ending 31st March, 2020 on account of this sudden severe lockdown because there were a few export consignments, which were large, which we could not send due to the lockdown. So in our estimate, we lost about INR 75 crores to INR 100 crores of EBITDA due to the lockdown resulting out of COVID in the financial year, which we are discussing now. Be as it may, still if you see, we did manage to keep our top line flat. In fact as opposed to INR 10,051 crores, this year, we closed at INR 10,327 crores. That happened with a lot of effort to make sure that all our accounts, invoicing, everything happened even though we were facing the lockdown situation in the last 2 weeks. In terms of EBITDA, it was again a similar situation. I'm now not counting of what we lost -- our opportunity lost because of the lockdown. As opposed to INR 1,517 crores of EBITDA last year, we did manage this year INR 1,552 crores. Now this is where we need -- I need to draw the attention of all our friends, that look at now the fundamental strength of Jindal Saw as a pipe manufacturing and selling unit as we have always been saying that we have made -- or we have got a business model now which is very resilient. We have got a business model which is very robust. And this result again is a testimony to that effect that at an operating level, now Jindal Saw has become fundamentally very strong. If you see the percentage wise also, EBITDA percentages or other percentage, they are all in a similar range of what we have been showing over the last few years. Now turning our attention to the extraordinary item. You have seen a exceptional write-off of INR 134 crores. Now this again, please look at it in the perspective over the last few years. We have been in the process of cleaning up all the legacy issues, taking it on our chin, but making sure that one after the other, we completely insulate or ring-fence Jindal Saw from all these legacy issues. So in is INR 134 crore of write-off, which constitutes INR 102 crores towards our Italy operations, INR 14 crores for Jindal Fittings and INR 19 crores for Algeria operations. Please note now Jindal Saw is completely free, and when I say completely free, we are 100% insulated from all the 3 write-offs that we have had. Means going forward, now there is no possibility of any write-off on account of Italy, any write-off on account of Algeria, and any write-off on account of JFL because now of the structure of JFL and for Italy and Algeria, we have just cleaned our balance sheet 100%. We took this opportunity this year to do it primarily because we do not know the uncertainties that this pandemic is going to bring, especially in Italy situation where anyway we wanted to scale down our operations from finishing just now to trading a small presence in Europe, which we need; the rest, it was becoming very uncertain. So we thought it's now prudent to at least get the investors, stakeholders a clear message that now Jindal Saw is completely insulated from the Italy operations. Likewise in Algeria, we have again taken a complete -- and all these at this point of time, are by way of provisions. So there is no possibility of any further negative impact, but we have all kept it as provisions for now because there could be some more collections that we have in Algeria. If that happens, or there could be some improvements in Italy operations. So any of these happening may, and I emphasize may, result in some write-back. But definitely, there is no possibility of any more write-off on account of our Italy operations and Algeria operations because everything has been provided for. Coming to JFL, as you know the fitting units is a part and parcel of our DI pipes. It gives us a lot of significant advantages because it only makes us among the few players in the country who has pipe manufacturing as well as fittings. You would have seen that now government is coming out with some tenders where we do get significant advantage over only pipe manufacturers, suppliers. So this unit strategically is very important. On a stand-alone basis, there were some losses which were being incurred. So now under our operations, management and maintenance arrangement, this unit at an operating level has been fully integrated with our DI plant. And therefore, all these possibilities of any more losses occurring on JFL has been completely ruled out because now it operates as an integrated unit with DI. So therefore now, there is INR 135 crores of provisioning. It did impact our current year results. But going forward, this is the end. There is no more possibility of any more provisioning in Jindal Saw on account of these 3 accounts. Now that leaves Jindal Saw with the following subsidiaries when we look at our consolidated results besides Jindal Saw, because we all have seen how robust now Jindal Saw has become. So among the other subsidiaries is our Abu Dhabi operations. This year, our Abu Dhabi operations also did get impacted by the COVID, but still this year's performance has been better than last year's performance. And currently, we have a very robust order book. In fact this month, we are likely to do far better than what we have been doing. And you have JITF. JITF as you all know, there are hardly any operations. So whatever cash flows that we earn is more or less sufficient to keep the operations going. So it's a very small scale cash-neutral transaction. The big thing in JITF is this litigation with NTPC, which this year we did get an additional INR 500 crores. So to put it in perspective, out of a total award of about INR 1800-and-odd crores of principal, plus till the date of the award, it all added up to about INR 2,200 crores. We have received INR 500 crores this year, plus INR 356 crores earlier. So that makes a total of INR 856 crores has been received this year -- up to this year. And now as the courts begin to open, we hope this NTPC appeal or the judicial process to reach its conclusion. So receiving this INR 500 crores also adds: a, to our liquidity; b, it adds to our confidence that yes, the -- everything is moving in the right direction, and we are most likely to get the entire award. That gives us that additional bit of confidence. The third subsidiary is JFL, which we have already spoken about, that it will operate as integration has happened. Likewise, now on Jindal Quality Tubular. As you know, we had this joint venture or 66% subsidiary of Jindal Saw where through Jindal Quality Tubular, we entered the stainless steel pipes and tubes market. Now we have integrated our carbon steel, alloy steel, stainless steel tubes and welded pipes market. That has put us significantly ahead of competition because there are players who are in the stainless segment, and there are players who are in the seamless segment; we are the only one who have the entire range, and it has begun showing results. The other significant thing that has happened in this segment in an integrated manner is that we have got this exclusive strategic alliance with Hunting, which gives us again a significant advantage in being able to go for value-added products, in being able to give the premium connections. And in this area, there is a significant push from the government side to take this Atmanirbhar Bharat forward. Already a whole lot of products that were imported so far by organizations like ONGC, et cetera, has been taken out from the import list and put it in the India list. And all of you would be happy to note, on most of those products, whether it is 13 chrome, drill pipes, we have received developmental orders already. We have tied up all the raw material domestically, and we are well on our way to execute these contracts on time. So the moment that happens, it would give us a unique position to then take over most of the domestic market share, which will give us the necessary track record to address the global market of these value-added segments, where it is at this point of time, dominated by a few players. But with Jindal Hunting combined, we are confident of being able to break into this high value-added segment of carbon alloy and stainless steel tubes and welded pipes market. So having got that operations all integrated, there again through an OMMA arrangement, we have made sure that JQTL also integrates well with Jindal Saw. So therefore now what you are left with are these 4 subsidiaries of Jindal Saw: Abu Dhabi which we discussed, JITF that we discussed; Jindal Quality Tubular and Jindal Fittings, both have been integrated with Jindal Saw with the OMMA arrangement. So now looking at this whole picture going forward from our balance sheet from a consolidation purposes, Jindal Saw is: a, now completely focused on pipe business, which is its core business. But for JITF where the arbitration award is there, every revenue, every penny that comes, comes from its core business, which is largely now under the direct control of Jindal Saw except for the DI facility in Abu Dhabi, which is in the subsidiary. And that also as I said, is improving year-on-year, but we would have liked to see a better -- in fact had this pandemic, et cetera, not happened, maybe we would have seen a better result. So that is how now you would see Jindal Saw moving forward, both on a stand-alone and consolidated basis. Currently, if you look at our order book, we are in a very healthy position where we have 11,50,000 tonnes of orders in hand. Already mentioned that all our operating units are -- or all the factories are working near normally. So this gives us a lot of confidence that this year starting now is definitely going to be a 10-month normal year for sure unless there is only caveat, this pandemic again forces an unusual circumstance of another lockdown, et cetera. Otherwise, we are absolutely confident of 10-month normal year going forward. May, we did do good business. We ramped up. We did much better than all our peers. April, the business was low because of the national lockdown. So that's how we see the year panning out. Beyond that if you want to look at what happened, so if this year we are almost having a near-normal 10-month year. Beyond that, we see a lot of good news for us. Essentially, as I mentioned to you, the Atmanirbhar initiative of government of India, import substitution, less reliance on China, all are absolutely fantastic news for us. Second, the Jal Jeevan Mission and all the other initiatives that government of India is taking in terms of infrastructure -- rural infrastructure and other infrastructure development, all are good news for us. ONGC, Oil India, the oil and gas majors in India, again we have not seen any slowing down because of the oil prices, et cetera. So we do see a very, very strong domestic market, which is very, very encouraging for us. Export market also now with the oil prices going back to the 40s -- low 40s, we have seen some traction on the projects which were held up, opened up. But anyway, our reliance on export is not that much. And now with Atmanirbhar Bharat gaining momentum, we expect that export as a percentage of total top line may decline a little bit more. So we definitely see a very good future for us beyond that 12-month period that we are talking of, which is the next year scenario. We are fully ready, we are fully geared, and our systems and processes all are in place to take care of all of these situations. Turning ourselves to how we dealt with the pandemic situation, one very important aspect that I would like to bring to the notice of all of you. During this period, Jindal Saw, the whole PR Jindal Group, we managed our liquidity position very, very well to the extent that we always had enough resources with headroom available. We have not delayed any payment to any vendors. We have not resorted to any salary deferments or salary cuts. We have not looked at any of those retrogade steps that we had to take because of the liquidity crunch. As we speak, we still maintain a very good financial position to the extent that the first moratorium which was announced by RBI, since we were in the middle of the whole pandemic, we did not have -- there was uncertainties, we did avail the first round of moratorium, which was for first 3 months on our principal and interest repayment. But the second round of moratorium that has been announced by the RBI and the banks, et cetera, there, our treasury team is evaluating it. And there is a good possibility that we may or may not even take it, so a point about maintaining our financial discipline, liquidity position. I'm also happy to let you know that the rating agencies have reaffirmed our AA stable as well as the A1+ rating. We are in the market now even to get some commercial paper because our ratings permits that. So on the liquidity, financial management and treasury management, the company has relatively become even more stronger among the peer groups or among the -- all players that we have in the industry. All our accounts have been reviewed again post-pandemic by the rating agency, and we have not received any formal information, but we were also told that we should feel satisfied and happy because wherever they have found anything, they have already communicated. So the sense, I repeat, we have not got any written confirmation from the rating agencies, but the way we understand, no news is good news because they have already reaffirmed our rating, so the status quo is maintained. So that is where our rating agencies stand. If you look at our debt position on a total debt, INR 4,000 crores -- INR 4,061 crores last year; this year, we closed to INR 3,500 crores. So there has been an overall reduction. If you look at the term loan, it has now come down where our debt to term loan EBITDA ratio if you see, it puts us into a very, very healthy position. The rest is all working capital. I keep on repeating this, that working capital loan for Jindal Saw where we have 0 write-off on inventory and 0 write-offs on -- or near 0 write-offs on receivables, should always be taken as a self-liquidating perpetual loan, and therefore it should not cause any concern to any of our stakeholders. So we do see ourselves even on a consol basis if you see from INR 5,600 crores to -- it has come down to INR 5,000 crores. So overall debt position has improved, will continue to improve. Our liquidity position is very strong. We do have some transactions in the pipeline where we would be able to further improve our liability profile, bring our cost of debt down. And in the whole process, we wanted to also make sure that we give or reaffirm our faith in our operations, in the robustness of our entire financial results, and therefore even during such a year, we have maintained a 100% distribution of dividend. Going forward, we only expect that these things are going to improve and improve further. So let me end by giving all of you confidence that... [Technical Difficulty] Hello?

[Operator Instructions] Mr. Gupta, you can go ahead, please. Mr. Gupta are you there?

Yes.

Yes, sir, you can move ahead.

No, sorry, is there any question? Hello, moderator?

Yes, sir, we have questions in the queue. The first question...

Yes. So we'll let have the question answer because there is hardly half-an-hour left in the call.

Sure. the first question is from the line of Saket Kapoor from Kapoor Company.

Thank you, Neeraj sir, for a very elaborate and descriptive discussion on the numbers and the way forward and infusing the confidence in the fraternity. Sir, you spoke about the JV we did with Hunting. Have you spoken about the update on the Sathavahana Ispat? What is currently the status on Sathavahana Ispat?

Sathavahana Ispat, it should suffice to say that at this point of time, we are having very meaningful discussions, and maybe we should be in a position to give you some firm announcements in the near future.

Maybe the next quarter, sir?

Sorry?

In the next quarter itself, sir?

Yes. In all probability, we should be able to give you some news in our next investor call that we have maybe after the quarter.

Right, sir. Sir, about this exceptional item part of INR 135 crore, all these are related to the noncash items. There is no cash...

Yes, yes, yes. They are all related to noncash items, a; b, they are all related to a complete cleanup. So now gone, all noncash prior legacy issues, which we have just cleaned up our balance sheet 100% from these issues.

Sir, you have been harping on the point on the -- on infusing confidence in investor community through your initiatives, and the endeavor always be. But that is somehow not translating into the market cap for the organization, and the wait for your investors has been too long. If we compared us being a pioneer and a leader in the sector having a diversified portfolio, with other peers of yours, they are commanding higher P/E with better investor profile. So with all the good works, sir [Foreign Language] where is the disconnect within -- between investors? I'm talking about mutual funds, I'm talking about high-net investors. None of the people are buying your story, although it is very well articulated in your numbers, reflected in the cash flow statement. But there is a disconnect, sir, and I think that some introspection needs to be done why is this so.

I take your point fully. And we do, on one side, assume full responsibility that yes, we have not been able to position ourselves the way the fundamentals of Jindal Saw reflect. But we also believe that it's only -- it's not a disconnect. Probably there is a time lag because maybe the investors are -- or the stakeholders are, just taking some time to get fully convinced about the whole story. So we do take responsibility. And I agree with your point that our book value of over INR 200 shares trading at, whatever it is trading at, it is definitely not what it should be because we know the fundamentals, we know the performance. We also have been walking very sincerely the path of reorganization, cleanup everything that we have said, that we have said. But we are only -- we are confident that investors would soon get the confidence. They would get that certainty, that is the need to be able to see the path that lies ahead for Jindal Saw. And very soon, we would -- we should see a catch-up and a true reflection of our market cap as a shareholder value or a stakeholder value. So I agree with you. And as I said, we do take responsibility on this. We are doing our best. I must tell you, we do our best to answer all questions in all sincerity to make all representations, to make -- one thing that we don't do is yes, we don't do -- or we have not launched a massive PR exercise, or we have not launched a massive exercise to put all of those; that we have not done because at this point of time, we would rather like to focus our attention, energy and everything on building the fundamentals of the organization because we believe that there is a time lag on this, and stakeholders would definitely give us the attention that we deserve very soon.

Sir, what is the take on the dividend distribution policy and the ESOP policy?

As I mentioned to you, the ESOP policy is already in place. And we are going for a situation where now depending on the things -- the way things move, the ESOP policy is very much in place. The company has set up. It has got a corpus of funds, and it is going ahead with its entire plan where the economic benefit of the movement in the share prices would definitely be shared with the select group of people, which is the senior management to start with. And slowly, we have our intention to percolate it down to operating level, and then we see how far we can go about it.

You mean to say exercise options from -- for the employees? Or what is the thought process? How -- what is exactly we are going to do?

We have set up employee welfare trust. They are going to be an independent trust. And they would have corpus of money, which would be investing essentially in Jindal Saw shares. And all the selected employees, first, senior management; second tier, strategic people; then take it to the unit heads and the operating people, they would all get the economic benefit of the entire capital appreciation or market appreciation. So we are going for the SAR model rather than giving them a right to buy, et cetera, because then we don't want to get into a situation where the employees have to make initial investments and get into those issues. So it's a simple structure where all the selected group of people within the system would get the appreciation, the economic appreciation, which is the SAR model.

Right, sir. And coming to the tax dispute, we were finding a lot of assessment -- pending assessment with the tax authorities, so with Vishwas to Vivad (sic) [ Vivad se Vishwas ] Scheme under implementation, what is our understanding out of the number of -- the amount that has been ascertained by the auditors? What should be the figure we should be offering going forward? Have you done any internal assessment on the same, sir?

Some of the small issues, yes, we are resolving through Vivad to Vishwas (sic) [ Vivad se Vishwas ] and all of those. But we also see that some of the assessments that we have got whether within just Jindal Saw or some of our group companies, we very strongly believe that the first order or the working order assessment, they have gone beyond the reasonable limits, maybe because they had their own pressure of meeting targets or whatever. And we are not going to relent on that. We are going to fight back and fight back well because we are very, very confident of our position. So our entire income tax, we are going to divide it into -- or we have put it into 2 buckets: one, which are marginal, small and not -- or insignificant or maybe not having too much impact, we will -- in the -- we have done our first benefit effort analysis. So we will go and settle it under that, Vishwas and other scheme. But there would definitely be few that we are going to -- we are already contesting and we will contest. And we are hopeful of a win. You will see those results soon.

Right, sir. A very small point, and I'll join the queue. For the investor presentation part, I think there need to be serious work done on presenting our numbers with more elaborate discussion in the print form itself. That is a bit of lag, sir. If some more work could be done and suggestions offline can be taken from investors at large.

Thank you very much.

[Operator Instructions] The next question is from the line of Parthiv Jhonsa from NVS Brokerage.

Sir, I have got a couple of questions. Can I just know the production numbers for FY -- this current FY '20?

When you say production numbers, you are talking about the tonnages?

Yes, the tonnages, yes.

It is there. Okay, I'll give it to you. We'll close the year at [ 12.59 lakhs ]. 12 lakhs is the sale -- it is the sale figure. I have a sale figure in front of me.

No, issues. That also works fine for me. [ 12.59 lakhs ] ?

Yes.

Okay, sir. And I was just going through your results. And I think in the note #1 itself, you have mentioned that under one of your subsidiary, you have won some award of about INR 1,890-odd crores plus interest and all, out of which you have already received INR 850 crores. So about INR 1,000 crores-plus is pending. So any timeline on that, that when you'll receive that -- those INR 1,000 crores?

Yes, this is at NTPC that we talked about. So we have -- I gave you detail. So the moment the high court opens, we would go through this whole process. And we expect that the max that they should take -- again, it's very difficult to take a call on the judicial process, but not more than 12 to 15 months further because we have moved in this a lot and we already have received...

Yes, it has been delayed for quite some time, that is the reason.

Yes, so maybe another 12 to 15 months, we should be able to get through this.

Okay. Sir, any plan on the debt reduction? Not the working capital, but the other kind of debt reduction, any plan on that going forward?

Debt reduction will happen as this -- as the thing happens because...

But any guidelines for this year that what kind of debt reduction can we plan for FY 2021?

Maybe as per the repayment schedule, we have about INR 300 crores of reduction. So that would bring the debt to less than the EBITDA that we would be earning for this year.

[Operator Instructions] The next question is from the line of Vikash Singh from PhillipCapital.