Jindal Saw Limited (JINDALSAW) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q1 FY '21 Earnings Conference Call of Jindal Saw Limited hosted by Emkay Global Financial Services Limited. We have with us today Mr. Neeraj Kumar, Group CEO and Whole Time Director; Mr. Vinay Kumar, President and Head Treasury; and Mr. Narendra Mantri, President and Head Commercials. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Anas Dadarkar from Emkay Global, and over to you, sir.

Good morning, 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.

Good morning to all of you. I hope all of you are keeping safe, and all of you are staying healthy. My best wishes to all of you, and we all hope that, now, India soon tries and gets over this, either by way of a vaccine or by way of a discipline. So wish you all the best in this pandemic situation. Yesterday, we had our Board meeting, and we declared our Q1 results. We had a gross income of INR 1,405 crores as compared to INR 2,600 crores same quarter last year, and INR 2,500 crores of -- in the trailing quarter. Looking at the results, you would see that the month of March towards the end, April and a good part of May was under the severe lockdown announced by government of India, where we all had to observe very, very minimal business. We had to just -- we could just manage to keep our plants up and running. And some of the things like blast furnace, et cetera, we had to just keep it going. Otherwise, because of the lockdown impacting logistics, et cetera, there were hardly any dispatches. So looking at those conditions, we believe that we have done reasonably well in the circumstances. We were among the first to get all the requisite approvals at all our units and start manufacturing activity at the earliest possible. And in the balance period that was there, which was about 1.5 months, we could have a top line of INR 1,405 crores, EBITDA INR 211 crores. So basically, if you see, everywhere, it looks like it was kind of a 50% of our performance, but the time available was kind of less than 50% because we had to ramp up things. And then we also had to face issues like logistics, quarantine, migrant labor and all of those. So in those circumstances, a PBT of INR 15 crores and a PAT of INR 10 crores in Q1 gives us reasonable confidence that we should be able to catch up in the balance 3 quarters that we have, and our year-end result should be more or less in line with what we have shown so far. So at this point of time, the way the business outlook appears, if you see in the last quarter, the most encouraging fact was that we could book close to INR 1,400 crores, INR 1,500 crores of order book. That is commendable, and that gives us a lot of confidence of the quality of orders that we have in the pipeline and the quality of orders that we can hope, which is likely to come. So booking close to INR 1,400 crores to INR 1,500 crores of orders in the first quarter is actually a very encouraging sign for the rest of the year. Just a word about how, as general organization, we have dealt with the pandemic. We followed strict protocols. We had geared ourselves very well to the extent every manufacturing facility had a quarantine, had a help desk and had a basic medical facility available, so that any person who needs attention could get immediate attention. And then we also had understanding, tie-ups, discussions with major hospitals in the region, so that in case anybody requires hospitalization, that also can be availed timely. And I'm very happy to tell you that all these results -- resulted in a very robust kind of a response from our side. None of our units lost any man-days in terms of -- during the quarter in terms of COVID after the lockdown was opened. And we also did not have any major issues with any of our people at any of our units. That, at least, gives us a lot of satisfaction that the protocol that we put in place did work well. Going forward, I must confirm to all of you that we have a very healthy order book. We are seeing an increase in our export portfolio. We bagged a few very good orders. We have seen an increase in our water business. So the Jal Mission of the government of India is now touching the ground, and we are seeing that initiative getting converted into orders, and that again gives us a very encouraging sign in the medium to near term because, as you know, in the water sector, Jindal Saw is very well poised. We have the helical pipes, which are used for transmission. And we also have DI, which is essentially within the segregation network systems. We also have on our small plant, STP, which is working very well. Largely, we are using it for the last mile connectivity. We produce small-diameter STP pipes just to complete our portfolio for the water sector. So with these opening remarks, let me stop here and welcome questions. One thing that I must draw all of your attention to is that this quarter, we had no exceptional item. Going forward, we don't expect any exceptional items to come in because most of it cleanup we have already finished last year. Thank you.

[Operator Instructions] We take the first question from the line of Ritika Gupta from AEQUITAS INVESTMENT.

So I wanted to know how is the capacity utilization currently and what do we expect for the rest of the year.

The capacity utilization as you'd -- is ramping up. So if you really look at a week-on-week kind of a performance because quarter's -- first half of the quarter was near shutdown, we have started ramping up at this point of time. If you really take a break and look at our weekly or a daily capacity utilization, we are close to 60%, 70%. And we intend going full capacity, as I said, for the rest of the year because now, luckily, the major part of monsoon also seems to be now peaking. And within a week or 2, we expect the monsoon to ease out. So therefore, for the rest of the year, that is left, means August 15 onwards, we wish to go up the capacity, almost full capacity, because we do have a healthy order book. We have enough financial resources. Working capital limits are intact. Raw material inventory, we have stocked enough, and everything is in pipeline. So we expect a good performance for the rest of the year.

Okay. And how do we see EBITDA per tonne on a blended basis?

You would see that the trend should continue. See, we are showing a 15% EBITDA. More or less, it will stay in that same range. We, in fact, expect things to move up a little bit because the movement in the steel prices and the way the auctions, et cetera, have happened, pellets are beginning to show some encouraging trend.

Okay. So we do expect a 15% EBITDA?

For sure.

Okay. And the orders that we booked in the Seamless segment seem to be at lower realization.

Our Seamless segment is one segment where we are in the process of ramping up, but you would see a noticeable change in our Seamless Stainless segment as we go forward because we are just in the process of executing some 13 chrome order for ONGC. This will be the first time that an Indian manufacturer would be giving 13 chrome. There are a few others that have been taken away from the imported list and put under the Atmanirbhar or Make in India. So -- and all those segments pertain to our seamless alloy and stainless seamless pipes and tubes business. So there, you can expect the EBITDA to improve in the near term.

Okay. But realization seem to be much lower on a quarter-on-quarter basis in seamless order booking. Is that...

Madam, please don't look -- yes. Please don't look at Q1 as a representative.

No, no, no. Order bookings -- as a part of our total order book, I'm talking about.

That also I'm saying. So don't look at the current order book or the Q1 as a representative of any of these. Lot of ONGC orders are in the pipeline for the Seamless business. A lot of other PSUs are in line. Stainless, now we are beginning to get traction. We have 1 or 2 major awards in terms of orders just last week. So you would see a noticeable improvement in the Seamless Stainless business.

Okay. And can you give an outlook on the Saudi business? I mean this quarter was EBITDA positive.

When you said Saudi, we don't have a presence in Saudi. I hope you are talking about...

I was asking about Abu Dhabi.

Okay. Yes. Abu Dhabi, 2 things. First quarter, Abu Dhabi was cash positive. It did have an impact on the top line and the bottom line because of the pandemic, because being a small country and the rest of the country, every country took chances and took turns to lockdown, so it did have an impact. But the very good sign of the Abu Dhabi is, at present, we have a very, very healthy order book. We have an order book of more than 200,000 tonnes in our Abu Dhabi plant, which is very, very encouraging. So now as things have opened up, we are looking at really ramping up the potential for production. We are also looking at debottlenecking a few things.

So what period is this executable over?

Normally, if you see the DI, we get orders which have almost 12 months maximum. It keeps on happening in phases. But normally, we would like to finish this 2 lakh tonne definitely in the next 12 to 15 months.

Okay. And what would be the EBITDA per tonne for Abu Dhabi?

EBITDA per tonne, there, again, we would be happy if we are able to get a margin of over 15%.

Okay. But so -- is that likely? I mean because I think till now we've not got those margins?

Primarily because, madam, we have not been able to run the plant at the full capacity. So now if you see all these plants, the moment you ramp up the capacity utilization, your cost of production per tonne comes down significantly because of the continuous campaign.

Ma'am, I'm so sorry to interrupt. May I please request you to rejoin the question queue for your follow-up?

Okay.

We take the next question from the line of [ Srihari Varma ] from BMS Group.

And my point is regarding Sathavahana Ispat. Last -- in the last con call, you said that you were having meaningful discussion currently. And in next con call, you will come out with some announcement because Southern states are showing good potential for DI pipe actually for last 3, 4 years and going forward also.

Yes. In fact, we were hopeful, but Sathavahana, which way it will fall, it's looking a little uncertain. The clouds have yet not cleared. We were interested. But now again, we see sometimes -- it's going through a cyclical situation. So at this point of time, I am not in a position to give you any concrete or a very positive news, but we are still hopeful. And definitely, the Southern states are showing demand. So let's see how things pan out because in between, you see the banks and the Sathavahana promoters, they all -- it all has got a little delayed because of this pandemic scenario. So I don't have, at this point of time, any major announcement or any positive. But it should suffice to say that we are hopeful that something may work out.

Okay. So we are still in discussion part, right?

Yes, yes. We keep on talking to them, but we also keep on hearing a lot of things.

Okay. Because our DI capacity, more or less, showing the saturation thing actually, so there is no -- there is not much of this...

No. In DI, we do have very little headroom to go up, unless we change our tonnage, et cetera. But in terms of the OEE, overall equipment efficiency, the DI is doing well, little headroom to go up. And therefore, we will have to do something for sure, either Sathavahana or something else.

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

Sir, firstly on the Seamless Pipe segment, sir, the antidumping duty prevailing from China, especially, get expiring on the next financial year, I think, sir, sometime in April, May in '21. So how -- we have entered this seamless as well as this Stainless Seamless segment and are thinking in a big way that it will be revenue -- generating revenue for us going forward. So how does -- will this removal of antidumping duty be playing its part?

Let me answer your question in 2 parts. A, the way the India-China relationship is developing, I don't see business as usual with China, so things would not remain the same. So even if it expires, et cetera, we don't know what China-specific sanctions government of India may come out with. So that is the overall scenario. But the more important and more relevant for us is the government initiative and the push on Atmanirbhar Bharat, which is the modified form of Make in India. There, we are seeing a lot of traction, and we are getting a lot of support, where governments are actually taking out things that now is having domestic capability and capacity and putting it under the Make in India scheme. So there, then you don't need antidumping, et cetera. It is just that unless you have capacity within India, none of the PSUs or none of the government organizations would be allowed to import. So we are relying more on the Atmanirbhar and Make in India initiative of the government based on the recent successes that we have in that field. As I mentioned to you just a while back that, now, we are supplying their entire 13 chrome piping and tubing and casing to ONGC that we can manufacture from India. And we are not facing any competition from any outside players, including China. So we are more hopeful about getting them under the Make in India policy, so that these antidumping, et cetera, will not be relevant anymore. And that's where we hope that we will get our success because, definitely, within the Indian players, our capability, capacity, product range, the diversification of carbon alloy and stainless is far, far more than any of our peers.

All right, sir. And sir, about the Stainless Steel segment, altogether, I think this is the first maiden order we have gone through that 1,497 tonne -- or metric tonne, am I wrong on that?

No, no, no. Steel business now, we have been in operation for a while. We used to operate the steel business under JQTL earlier, so it was one of the subsidiaries. But now we have got OMA arrangement where the operations, maintenance, everything is being taken care of by Jindal Saw, and we are able to present our integrated Jindal Saw face to the customer. So this OMA arrangement is recent. But in stainless business, now we have been there, and we have established a good presence in the Stainless business. Going forward, it will be an integrated phase of Jindal Saw, where JQTL facilities have been taken over by Jindal Saw under the OMA. And we would be able to give the entire product range of carbon alloy and stainless as Jindal Saw to our customers, which would be our USP.

Sir, for the current year, what are our debt repayment maturities? And what would be the effect of moratorium?

No. Okay. Good question that you asked on the moratorium. This is for all our stakeholders to note. If you see RBI has announced 2 moratorium, first 3 months and then an additional 3 months. First moratorium, we all definitely took because we were in a very uncertain position, and we wanted to make sure that we reserve our resources. But after having done a proper analysis and checked our resource status, et cetera, we have opted not to take the second moratorium. That essentially should give you the comfort of our resources. It should give you the comfort that, as a management, as an organization, we are absolutely in control. And it also places us well above many of our peers in the eyes of all the banks, stakeholders, rating agencies, et cetera. So this is actually, I would say, a demonstration of the fundamental strength of the organization that we have chosen not to avail of the second moratorium announced by Reserve Bank of India because we want to get back to normal business as quickly as possible and really do good business.

And what are the current maturities, sir, that figure?

Okay. The repayment, as you see, the way our liability profile is, at this point of time, on the term loan side, which is already less than now INR 1,700 crores, INR 1,800 crores, we have roughly INR 250 crores to INR 300 crores of repayment every year. This year, also, it is there. And we intend to repay that entire INR 250 crores to INR 300 crores, which is due for this year. We have enough resources to pay that. We would not be either seeking any deferment moratorium or we will have no problems in paying that. So INR 250 crores to INR 300 crores of debt, the existing debt would definitely be repaid during this year.

Sir, our long-term debt is INR 2,276 crores.

No, no. You're looking at the consolidated. I'm talking of Jindal Saw.

Okay. But is it fair to look at the consolidated picture only, sir?

You should not look at the consol picture. I have been repeating it time and again that for the purpose of reporting, as is required by law, we give consol picture. But Jindal Saw resources are not used in terms of the cash, et cetera, to repay any of our subsidiary tax. So if you are really looking at the cash position of Jindal Saw, the relevant figure to look at is the standalone debt number of Jindal Saw.

Right. And last point on the working capital, sir. As -- in the last call also, you have mentioned about we reducing our working capital requirement. So for running the -- plants running at optimum levels from August 15 onwards, what is the basic requirement -- and what is the fund requirement going forward on a quarterly basis, just the working capital requirement?

See, I'll tell you. If you -- right. If you look at my working capital utilization to the extent of, say, INR 2,500 crores, INR 2,500 crores, if you take as my working capital requirement at any point of time in terms of the peak, you would not go wrong because, typically, we would always stay below that. That is what we have seen. So that should be the working capital utilization for my inventory receivables and all of those put together. But there in working capital also, if you see our Board meeting yesterday, we have taken certain initiatives because of our AA rating. Now we are planning to go for listed commercial papers, which should, again, improve. It would give us interest rate arbitrage for sure. It would open new avenues to mobilize short-term working capital. But being listed, we expect that we would have a very robust rollover facility, so that even though it's a short-term instrument, it would be in perpetuity and it would give us an interest arbitrage for sure. So on working capital side, we feel pretty confident. In fact, I would let Vinay comment on it because he looks at it on a day-to-day basis. But working capital, we are in a very robust position.

Yes. This is Vinay Gupta. So in terms of the working capital, the company is geared up to scale up the operations. We have enough working capital lines from a consortium of banks led by State Bank of India. And we have -- and we remain pretty liquid in terms of our fund baseline as well as non-fund baseline. So in the pandemic situation also, we have kept the headroom available. So we foresee that when the operation increases gradually from here and we match the operations of last year, maybe next 12 months' time, we don't need any additional working capital lines for the same. And we -- basically, our effort as of now is to how to, let's say, reduce the overall interest cost.

We take the next question from the line of Vikash Singh from PhillipCapital.

Sir, I just want to understand one thing. In our DI pipe order book of 1 year, so basically, it's very difficult to guess the hedging on the iron ore and coking coal side. So how are we planning to manage our margins there because one year is a pretty long time and commodity prices are on a uptrend?

On the coal side, we have long-term contracts. We almost get -- under the long-term contract, we try and get maximum 2, but we prefer 1 shipment per quarter. That takes care of the stability on the coal side. On the iron ore side, now, we are more or less self-sufficient of sourcing all our iron ore requirements from within the country. And there, again, our effort is to try and have arrangements where our raw material price, there is stability. And we buy in such a manner that -- at regular intervals to keep enough stock. Moreover, you would also notice that in DI, there is lag factor whenever there is a spike in the raw material prices. But very soon, the market price of DI catches up with the movement in the raw material prices. So sometimes, because of the lag, we benefit. Sometimes before -- because of the lag, we -- margins did -- do get squeezed a little bit. But overall, if you see, we are able to maintain our stability, which you should take comfort from. Just analyze the Jindal Saw EBITDA margin over the last many quarters. In spite of movements in prices, either at the top or at the raw material level, we are in the 14% to 16%, 17% range consistently for many quarters in a row. So that should give you comfort that as an organization at a blended EBITDA level, which is material for all of us in this discussion, we stay in the range of 14% to 16% all time.

Okay, sir. And sir, just more clarity in the DI pipe, the entire -- this entire pipeline order book is on a fixed price or some portion is linked to the pig iron index also?

No. Why should it be linked to pig iron? Because we have the -- basically, we have last for -- this is all our the -- all our DI pipes are manufactured by the 2 blast furnace that we have. So essentially, the raw material that we have is iron ore. Pig iron is one of the byproduct when we have excess liquid metal, which we are not able to cast into the DI pipe, then that becomes a byproduct that sometimes we sell. But again, it is immaterial or it is very, very minimal. So pig iron does not play a part of -- any part in our business plan.

No, sir. Actually, what I was asking is that this entire order is based on the fixed side or some is variable linked to the current -- going forward with -- linked to the raw material price or that...

Most of our -- okay. Most of our contracts do have a price variation clause, but they are all government-based and such index that we do not get major -- either negative impact or positive impact. So more or less, you can take it for the purpose of modeling. We are more or less riding the market, so we do not get major benefit or -- and at the same time, we also do not get majorly hit because of the nature of -- and the kind of price escalation clause that we have in most of our contracts.

Understood, sir. Sir, in terms of our debt increase and our interest of payment this quarter, so there is a likely mismatch. So interest payment has gone down, but debt has increased. So if you could just elaborate that -- what I'm missing, is it the interest cost has come down or something else is there?