Jindal Saw Limited (JINDALSAW) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Jindal Saw Q1 FY '22 Earnings Conference Call hosted by Prabhudas Lilladher Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Amit Khimesra from Prabhudas Lilladher Private Limited. Thank you, and over to you, sir.

Thanks, Amvee. On behalf of Prabhudas Lilladher, I welcome you all to the Jindal Saw Q1 FY '22 Post Earnings Conference Call. Today, we have with us Mr. Neeraj Kumar, Group CEO and Whole Time Director; Mr. Vinay Gupta, President and Head Treasury; and Mr. Narendra Mantri, President, Head Commercial and CFO. I thank management for giving us opportunity to host this call and also would like to congratulate for a good set of results in a challenging environment. I now hand over the call to Mr. Neeraj Kumar for his opening remarks, followed by interactive Q&A session.

Good afternoon, friends. I hope all our friends, investors, stakeholders, they're all safe and taking good care of themselves during this pandemic, which is kind of playing hide and seek with us. This quarter, again, was infested with some anxious moments. But luckily, our performance did not get impacted. Friends, as we have been saying repeatedly, our Q1 performance is a living and absolutely current testimony of what we have always said is the hallmark of Jindal Saw. To use an analogy, it is like a steady ship, which is almost like a Rock of Gibraltar in stormy seas. If you look at the stormy sea, which is the business environment, the steel prices have gone -- have reached all kind of precedence in terms of the steep rise. The pandemic is not letting us breathe easy. The business environment due to the pandemic is getting impacted. Monsoons have become very erratic. Either there is no rain or there is so heavy rain that there is a problem. From all sides, there are different kinds of, metaphorically speaking, storms, but look at Jindal Saw, as steady as the Rock of Gibraltar and that is the hallmark of Jindal Saw. On a quarter-on-quarter performance as opposed to INR 1,400 crores of top line Q1 last year, we are at INR 2,474 crores, which is 76% growth; EBITDA, 95% growth; PBT, obviously, from INR 15 crores to INR 227 crores; PAT from INR 10 crores to INR 148 crores; EBITDA percentage, 16.63%. Classic example of on one side, we are suffering the rise in raw material prices, which by the way, most of this thing we have taken over, now we are able to pass it on to the customers. At the same time, there is a compensatory effect. The pellet division has more or less -- or I would say, more than compensated for the volatility in the raw material prices. So this stability of Jindal Saw business model has always kept us in very good stead. Look at 2008, '13, '19 and now '21. And this is one area that we always focus on as a management and we are confident it will keep us in a very stable state as we go forward, and we have developed new business drivers, which are going to take us ahead. The second equally important aspect that I would like to highlight, again, something that we have been saying. We look at our debt profile. Steadily but surely moving in one direction. Jindal Saw overall debt less than INR 3,000 crores, out of which close to INR 2,000 crores is working capital. For a trade finance-driven business like ours, this is, again, a very healthy sign. Consolidated debt, similar direction. Consolidated results. Again, looking at the business environment where the U.S. pipe business or oil and gas business or water business is yet to pick up the stimulus announced by the government, still it's going through their congress, everything has yet to hit the ground. Abu Dhabi, the second wave of the pandemic because now probably it looks like the Chinese vaccine that Abu Dhabi went for, what UAE went for did not have the right kind of protection because a lot of our people who did get fully vaccinated on Chinese vaccine have got impacted, once again, have got affected once again. Same is like the situation in most of the UAE where there are very strong restrictions between Dubai and Abu Dhabi in terms of travel. So look at all of those, but still EBITDA positive. We did contribute over INR 40 crores in EBITDA between the stand-alone and consolidated results. So today, I would like to have a more interactive session with you. I have just highlighted you 3 things: the stability of our result; the control of our debt profile; and the consolidated results also now showing the trend or moving on the stated path. Let's very quickly now focus on what is in it for us as we look ahead. We are confident except for 1 caveat. Unless the pandemic unless the COVID really comes with a very disruptive force, we are confident that this year should be a significantly better year for us as compared to FY '21, where we had a top line of INR 9,000 crores with a bottom line of INR 329 crores. So the way our order book is, the way we see the business, because in the last quarter, we have had some very good interactions with some of our potential clients, some of the senior-level authorities, the way we see it, we are confident that our performance should be significantly better, except for a huge disruption caused by the pandemic. Raw material prices, also, we are hopeful that the impact of raw material prices have been largely taken care of, and it would help us because now we have been able to pass on those increases. And if we -- as we go forward, prices should ease out because we are seeing that at least the momentum of the raw material prices is gone. Now there is a regulatory, I am told, oversight on it. Probably I'm told that the Competition Mission is going to look into the prices of the steel. So that may have its own impact. But the outlook -- business outlook is looking good for us. Few significant items that we must mention, the relationship with Hunting is getting deeper and is likely to take a much more concrete shape since it's in WIP. Probably next quarter, I may be able to give you some more specific details, but it is taking a lot more concrete shape where we would be able to expand our product portfolio in the very value-added OCTG segment. The stainless steel business is beginning to do well for us as we absorb that business in Jindal Saw. So there are some specific business drivers and our overall positioning in the market with our very strong capital structure is such that we feel confident of steady, good performance even in these times where things are troubled. Oil and gas sector is also likely to do well. Water sector is likely to do well. I'm sure all of you would know that from the market, from the various other players in the market. So Jindal Saw, we are confident we will do well during this year. So with that, let me stop here and take some questions from all of you. Thank you.

[Operator Instructions] The first question is from the line of Pratiksha from Aequitas Intelligence.

So first question was about our UAE operations. So we've seen a marked fall in the volumes there. So if you could just elaborate the reasons what happened. And how do we look at volumes going ahead?

When you say we have seen a mark...

On a quarter-over-quarter basis, sequentially.

Sorry?

Sequentially, on a quarter-on-quarter basis.

Yes, sequentially, as I told you, for our business everywhere, sequential looking at is not the best way to look at because everywhere we have these seasonal. So you must compare it with the last year, same period, because what we are confident of, last year, we crossed the ever highest 2 lakh tonnes. Even after this first quarter performance the way it is, we are still confident of based on the order book that we have. But as I said, I keep on caveating the performance, first quarter got impacted due to the pandemic, in terms of we did have a lot of people get impacted and the operations had to be scaled down significantly because, as you know, at this point of time, there are visa restrictions. We can't send people from India to Abu Dhabi. The people who got impacted, very certainly, they had to be put in quarantine. And therefore, our production level had to be scaled down because of this unique situation. But otherwise, in terms of the order book, still we hold that for the full year performance, it would be -- it should be higher than and better than the 2 lakh tonnes that we have done last year.

Okay. That's very encouraging. Okay. On the second question I had about the seamless division. So what I understand is the order book. In terms of volume, sequentially remains more or less same, but our value of order book has risen significantly. So what would be -- why would be there's such a marked increase in realization?

Marked increase in realization of?

As in our order book. What I understand it's $94 million. This compares to $54 million in March '21. But in terms of volume, the order book remains flat, like constant.

Correct. So that only shows that now we are entering the volume that that's something that we have been saying, and it reflects exactly the same; that now because of the Hunting, now because of the [indiscernible], we have moved up the value chain where the NSR, which is the net sales realization per ton is going to go up and seamless business, stainless business are the ones which will see this the impact the most. And so that only reflects what we have been saying that in the seamless/stainless/alloy business, we are looking to go up the value chain. We are also entering some very exotic segments like the 13 chrome and all that.

Sorry. We are entering? Could you repeat that?

Exotic segments like 13 chrome. See, okay, let me just take a minute to explain all the investors a little bit about this. In seamless pipes and tubes, there is a segment which is called carbon steel, which is typically the carbon steel, which is the commercial grade. Then there is a segment which is the stainless steel. Stainless steel typically starts with -- or there, you have the 304 and 316 and the others you keep on going there in the [indiscernible] and other exotic grades. The third segment is what we call the alloy steel. Alloy steel is rare. It is essentially carbon steel, but mixed with certain alloys like chrome. So 13 chrome means there is a higher percentage of chrome, then you go to 18 chrome and then 25. So these are some of the exotic grades of carbon steel made out of alloy. As Jindal Saw, we have made a conscious decision of moving up the value chain where Atmanirbhar Bharat is also helping us. These were grades or these were tubes made out of these products where thus far been imported. Now we are able to replace them through our own production facility in Nashik, and therefore, there is an increase in the NSR.

Okay. Sir, one question on saw segment, large diameter pipe segment. So when do we see the order book or the mines to pick up and reach our previous level? So generally, we used to have about 500 tonnes in terms of all the order book. So what's the outlook there? How will we see things moving there?

It all depends. If we assume that the third wave doesn't come, then you will see that soon. Maybe we will see that in the third quarter. Second quarter on the order book and execution beginning in third quarter because I must tell you at this point of time, oil and gas is seeing some buoyance here. You see the oil prices have come to a level where some of the projects are becoming viable. Second, in the water segment, both for DI as well as for large diameter pipes, it's good news. Most of the states have their own pipe grid, which is almost now running the tender stage where the basic survey, et cetera, has been done. The project has been conceived and it is now hitting the tender stage. So if there is no third wave, then it is as soon as order book in quarter 2. Execution will begin in quarter 3. Because please understand Jal Jeevan Mission is one of the major initiatives of this government and they have to go for reelection in 2024. So they would have to show some results. And therefore, there is a time constraint on Jal Jeevan Mission.

[Operator Instructions] The next question is from the line of Anish Tusnial from Wealth Creators.

Congratulations on a good set of numbers. I have 2 questions. Number 1 is that could you give any forward guidance on the year-end EBITDA we can expect? Will it be in the same trajectory better than what is to be guide? Because in the last con call, you had said that this is what more or less you can extrapolate into 4 quarters. So can we expect anything above, say, a INR 1,800 crores to INR 1,900 crores EBITDA?

I don't think I would be allowed to speak numbers. All I can tell you is that this year's EBITDA, if there is no third wave of pandemic would definitely be significantly better than the last year.

Okay. Okay. And the next question is on the debt reduction. As guided in the last con call, it was to be INR 550 crores to INR 600 crores of normal debt reduction, which was due this year. So seeing that we are going to do significantly better, hopefully, we will, so will that change to a higher number in the sense that would you reduce more debt than INR 600 crores?

See, it all depends on the -- when you say now, long-term debt is already INR 1,600 crores. Right? Now INR 1,600 crores, depending on the repayment schedule, et cetera, may become INR 1,200 crores, INR 1,300 crores, but it all depends on how we manage our working capital. So if we are able to liquidate a lot of -- the effort is always to liquidate inventory and collect as much as we can during the March end. So if we are able to succeed in that, then you will see definitely a good decrease in the debt level. But let me ask you a question. Do you think now an organization of our size, with an EBITDA and with the stability of EBITDA that we have, is debt still a concern for all of you?

Sir, to be very honest, the overhanging concern with all investors remains that the NTPC money is not coming in and the dates are getting pushed quarter-to-quarter. So that is one major concern with all the investors that it's understandable from your side that the COVID has happened and the High Court and the Supreme Court must not be functioning, but -- but the problem is that, sir, there's a major overhang of the debt concerns. So now that even though our stand-alone business is doing very well…

Let me stop you there. Are you saying -- There's a large chunk of money, yes. When it comes, it will have a different kind of an impact on the balance sheet, yes. But are you -- I just want to understand that INR 1,600 crore debt with maybe INR 1,100 or INR 1,200 crores of working capital, our organization of our size with the stability of EBITDA of our size, on a stand-alone basis, does it still remain a matter of concern for all of you? I can get that NTPC. There is not going away from that. We are all looking at it. But as you know, we are helpless because now the dates that have come is 2nd and 6th of September. I'm sure you would be able to check that the Delhi High Court is absolutely acting mechanical. Mechanical means they just in, block, take and give a new date. So it's not a question of they are being selective or they are being -- and we are not putting in effort or whatever. This is a matter of fact that can be checked. Delhi High Court is picking up all cases in block and shifting the dates.

No, sir, I completely understand in that point. Just that as investors, we have a major concern about that point because it's been quite some time and getting that huge chunk of money really changes the whole balance sheet for our organization.

Correct, but is the debt still causing a -- that's a different issue. The moment that comes, maybe we will become a debt-free organization. Maybe, I don't know, because I have my own observations or I have my own views on should we be a debt-free company or should we be a completely equity-driven company? That's a situation because then the return on capital employed, return on equity and other factors come into play. But with this debt level, is this debt level something which is causing or should it be cause concern to you, especially the kind of trend that we have shown over the last few years? It has never shown any erratic behavior is what that I'm saying. March 31, we mobilized INR 500 crores from LIC. And we did say that it is essentially to correct our capital structure. I'll see that has indeed happened that even after mobilizing that quantum of debt, the overall debt has come down. So I want to give that confidence to the investors that when we say that we are managing our capital structure diligently, objectively, we are doing so.

Okay. Okay. No sir, over the past 4 quarters, it's been really encouraging how investor friendly and how all the positives have come up, and we are quite happy to see that. But it's just that in the stock price, it does not reflect it and then we tend to think that because of the NTPC money, maybe there is an overhang. That's why we are a little disheartened in that regard.

I absolutely share your views that NTPC should happen. But I must also tell you that now the dates have come, 2nd and 6th of December and that we have been -- we had to put in a lot of effort in this. And the good part that we have achieved is we have been able to isolate 34 from all other matters. Earlier, it used to be 1, and that's how NTPC managed to so far hide behind the other matters and not let the objections and enforcement progress. But now High Court is one of the hearings where we had to bring in real heavyweight. I have to make a personal request to those heavyweight lawyers because normally, they don't appear in High Court, to make that effort and they have succeeded in separating the 2, where now the Section 34, that means NTPC's objection, plus our enforcement of the order will be dealt with independently from all other matters. And that, we believe, should give enough momentum to this case to reach it to its finality. So there is a step which we believe should help us expedite the whole thing and get us the retired -- or the desired destinations we hope we should be able to. But I absolutely agree with you that this is something which is not a matter of concern, but until the time it doesn't happen, it is always so much money, which is pending, and it is not helping us grow our business or helping us correct our CapEx or helping us correct our capital structure. So I share that with you. And I hope that we would be able to do this very quickly.

[Operator Instructions] The next question is from the line of Urvija from Isha Securities.

I had a couple of questions, sir. If you can help us understand what led to the margin expansion this quarter. So is it safe to assume that the pallet sizes have also been a major contributor this quarter? And sir, just as far understanding of all other companies give us understanding between the value-added business and the commodity business. So can you give us an understanding what percentage of revenues is pellet business? Sir, it is a pure commodity business. So as investors, sir, just to understand the nature of -- If you can give us a rough idea what percentage of EBITDA and revenues for the pellet business.

No. To answer your first question, did pellet business contribute to the EBITDA this year? The answer is yes. This is the nature of business, madam, that you must understand. This is the nature of our business structure, which has been deliberately, consciously created so that it provides the stability to our business model. Second…

Right, sir. I did attend your AGM, and we had visions from the chairman also that...

Exactly. Now what you do see -- yes, now for you to seek segmental details. I do appreciate that for a business analyst, it would be easier if you get that number. But also, please appreciate since you are a stakeholder in our company, this is a USP. This is a competitive sensitive information. This is the one which keeps every of our peers guessing in terms of our pricing strategy. And therefore, we don't put this in the domain not because we don't want to, I do understand it will make your life easy, my life easy, but this is a very competitive sensitive information. This is a USP of our organization.

Right, sir. But from the revenue point of view, is it right to assume that it would be roughly around 20%, 25% of revenues in this quarter, the pellet business?

Madam, I'll give you a -- I'll not answer a straight question. I'll give you a very -- give you tonnages…

Yes, your suggestion.

Yes. We give you tonnages everywhere. You know the NSR, the market price of everything. So with a little bit of calculation, you will arrive at your own conclusion, which will be within a band of 5%. I must tell you that. Yes, just take the quantity, take the market price, and then you would be able to arrive at everything. But for us to put it in the domain, we consciously don't do it because then we will have to -- as I said, it's a competitor sensitive information.

Right, right. Okay. So how has the DI price pricing trend been? Sir, if you can give us some idea on that, the overall market?

Yes. Okay. Let me tell you, DI, now we are sitting pretty. We have a very strong order book. Most of our old order book, we have been able to reprice it with the clients except the ones which are with government without any price escalation clause. So wherever we have a contract directly with the government, and in the contract, if there is no price escalation clause, then we have no option but to honor our commitment to the government. But for others -- but for those contracts, we have been able to arrive at a price escalation on most of the other contracts. So we are able to pass on this increase in the raw material prices. We are hoping that once the raw material prices soften a little bit, we might be able to get some more benefit out of it.

Right, right. Okay. And also one last question. The pellets that we know the verification and then we sell them. So can you explain the cost economics of this process?

Cost economics, I can get that.

See, we get at -- we get pellets. We have our own mines. We get pellets. We have our own beneficiation facility. And then we have our own facility for pelletization. So the cost just stacks up. It is the mine cost beneficiated, take it to a higher [ fe ] and then make them into pellets.

The next question is from the line of Sailesh Raja from B&K Securities.

Sir, in DFI as you partly answered, of the total outstanding order book, how much would be legacy orders? And how much will be like order, which will give decent EBITDA per tonne of INR 5,000 crores? Because given the iron ore price of $200 and coking coal price of $230, what is the best guess, sir?

As I told you, but for -- but for the few contracts which are with the government directly, most of it we have repriced. So you would say -- I would say that less than 25% of my current order book is on the fixed price and the rest is all with increased price. So it's just not a -- I would say the price increase impact, the worst is over for Jindal Saw.

Okay. Okay. That was very helpful, sir. Second is like your largest player in stainless steel is talking big plans. And what is the growth plan for us to progressively move from 5,000 tonnes volume to 25,000 tonnes. What are the initiatives we are taking? And what is the total investment in this segment? What payback you are expecting?

You said total investments?

Yes.

Yes, you look at the balance sheet, it is still all showing up in capital work in progress, which is more or less now coming to an end. We will have to -- whatever is there in the CWIP, which is visible to all of you, probably we'll have to add in maybe another INR 40 crores to INR 50 crores just for finishing and just for the balancing equipment, and then we are ready for large capacity in terms of stainless. Plus welded, we have even higher capacity because in welded, we can go up to 40 inches in diameter.

Okay. Okay. Now, what was in 1Q? What was our volume, sir, in stainless steel?

See, again, stainless steel bars don't look at volume because stainless steel is not a volume business. And especially when I told you that we will go up to -- because if you look at a 0.5-inch tube, which is an instrumentation tube, that would sell at maybe INR 12 lakh a tonne. Whereas if you look at the 304s, would sell at INR 5 lakh, INR 6 lakh a tonne. So therefore, just tonnage is -- If I give you just the tonnage about stainless steel business, I would be misguiding you, sir. Because our effort is not to just become a volume player; our effort is to have a base level, just of the base grade, which is 304, 316L, but definitely have value-add where we go into duplex, super duplex instrumentation tube and all of those. So probably, we would be able to take the value is more important than tonnage.

Okay. Can we expect INR 500 crores kind of EBITDA in the next 3 years?

Say it again?

Can we expect INR 500 crores EBITDA in the next 3 years?

INR 500 crores EBITDA in next 3 years? No, that would be a little stretch unless we are really able to move everything into value segment. Yes. So in terms of expectation, it will definitely be above 3 for sure, but 5 would be a stretch. And I'm talking of a 3-year period. Yes, above 3, is definite.

[Operator Instructions] The next question is from the line of Sahil Sanghvi from Monarch Networth Capital.

Yes. So I have 2 questions and this is regarding the DI segment. Sir, [indiscernible] think that the [indiscernible] industry is undergoing a situation in which there is investments made in their supply and the demand is going to [ go up. ] Sir, do we have any expansion plans to actually this opportunity?