Jindal Saw Limited (JINDALSAW) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Jindal Saw Q3 FY '22 Post Results Conference Call hosted by PhillipCapital India Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vikash Singh from PhillipCapital. Thank you, and over to you, sir.

Good afternoon, everyone. On behalf of PhillipCapital, we would like to thank Jindal Saw management for giving us the opportunity to host this con-call. And without taking any much time, I would like to hand over the conference to Jindal Saw management for the opening remarks. Neeraj, sir, over to you.

Hi. Good afternoon to all my friends, investors, stakeholders and people on the call. We had our Board meeting. Then in between, we had the annual budget of the Government of India. And therefore, now we are here to present to you the quarterly results, which is the third quarter results for this year and also to give you a sense of how this budget is going to impact Jindal Saw Limited. First, turning to the results. In Q3, we achieved a turnover of INR 2,800 crores, which is quarter-on-quarter 11% higher. And corresponding period last year 28% higher. EBITDA INR 202 crores, which is quarter-on-quarter 47% lower and comparative last year 31% lower. And the rest pretty much follows the trend. However, one important aspect that we have to highlight is the financial expenses. So at present, we would like to focus on these 3 particular numbers because prima facie at the face of it, it would cause concern to any stakeholder who has any interest in Jindal Saw. So I repeat a top line of INR 2,851 crores, which is higher than both the previous quarter, the previous trailing quarter as well as the comparative last quarter; and EBITDA INR 202 crores, which is lower than, again, both the comparative quarter as well as the trailing last quarter and the financial expenses. The financial expenses, let's address that upfront, has shown a marginal improvement which is an effort of the working capital management and the reduction in the loan, et cetera, that we have done. So that is pretty much going on the trend on which we are following and we have followed. So that's the result of that. Now, let let's look at the turnover as well as the EBITDA and also the percentage of EBITDA to the turnover, which is 7% for this quarter. Friends, typically, Jindal Saw EBITDA percentage, our percentage of EBITDA to the sales is in the vicinity of 15%. Under difficult situations, it would be less than 15%, say, 14.5%. In a very good scenario when we are doing business and things are okay, it can go up to 16%, 17%. So that's the range of EBITDA that Jindal Saw has always been. Here, we are at an EBITDA of 7%, with a top line growth of 11% or 28%, but a healthy top line growth. What does this indicate? This indicates we are executing the projects well. We have the ability to complete, execute and supply to our clients, which we have done. A lower EBITDA and a margin of 7% indicates something is seriously -- there is some serious aberration in the cost structure. And therefore, to all my stakeholders, let me repeat, please take comfort from the reduction in financial charges, please take comfort from the growth in top line because in this environment, I must tell you, we have no notices, we have no litigations, we don't have any serious complaints from any of our customers for nonsupply. So on the top line, customer satisfaction. Contractual obligations, we are absolutely on dot. So these are things that should comfort all our stakeholders that we are not into any litigation. No government action is threatened against us in terms of nonsupply, blacklisting, showcase. None of those are there because we took particular interest to satisfy those and keep that alive in the interest of the organization. So I must tell you, we have fulfilled our contractual obligations, especially to the government agencies, not keeping a very myopic and a quarter into view. It is based on a larger view of relationship, customer satisfaction and all of those. But the EBITDA percentage almost coming to less than half, I would say. Something is there in the cost structure. And for that, let me draw your attention to our basic raw material that we have been using. During this relevant period, which is Jan '21 to Jan '22, I'm taking that as an average, just to give you a trend that here, the HR steel prices have moved from $700 to $900. Coal has moved from $100 to $400. Iron ore $80 to $140 domestic; imported, $180 to $250. So see the kind of variation that we have in the raw material prices, starting from Jan '21. Now when you have this kind of an aberration, then -- this is an extraordinary situation where no hedging strategy would work. Every supplier would find a way to get out of any of your hedging strategy. So this would not work. All I wish to draw attention to all my stakeholders that this is not ordinary business. This is not an ordinary situation. We have been facing an unprecedented volatility in the raw material market. And this quarter is a direct result of the impact of the spike in the raw material prices, where whatever hedging strategies that we had in our arsenal, it was not effective enough for this kind of a movement. We did not want to again get into a litigation into -- when the coal goes from $100 to $400, no supplier is going to honor its commitment of $100 period. He will find a way or else you will have to litigate, go contract this, that whatever. So please appreciate -- all I am requesting all of you to appreciate it, this is no ordinary situation. This is not a business volatility that we are talking of. This is an extraordinary, unprecedented situation. And in that situation, Jindal Saw Limited, the company that we are, have kept up with our promises with our clients, delivered everything. We do not have any litigation either side, either from the suppliers or from our clients. And we have managed to strip through in terms of that, yes, margins came down from 14-plus to around 7%. So margins have halved, but still we have managed to survive in terms of with our head held high. And now this is where we need to look at it and there could be different ways of looking at it. There could be different interpretations of this conduct and behavior of Jindal Saw in this quarter. The first one obviously comes to our mind and everybody is entitled to that view as well that this is a weak performance. The second is, no, this is actually a strong performance because the kind of storm that we have seen in the volatility -- the kind of volatility that we have seen, the kind of storm that we have seen, this organization has still stood tall and fulfilled all its obligations to its customers. The turnover has gone up. So at least during the storm, the organization had stayed strong and has absolutely taken it on its chin. And based on its robust business model, financial strength, they have been able to tide the storm. Obviously, there was impact, and that is in front of us. So there are 2 interpretations. And I would request our stakeholders to really analyze a little deeper, do this over a quarter or 2 quarter and see that it is actually the fundamental strength of Jindal Saw that has helped us perform the way we did in the third quarter. Now the second question that -- or the immediate question that comes to our mind is this going to be business as usual or are we off the valley as yet or are we in the valley still? I must give you again the comfort that the raw material prices continue to be erratic. The coal continues to be in the $400 range. The HR coils have shown some softening, but it is nowhere close to the $700s that we used to see. So the raw material prices continue to behave erratic at an elevated level. But how it's going to impact Jindal Saw in the immediate quarter, which is the last quarter, which is in front of us and the subsequent quarters, at least in the near to medium term? This is where I would like to now draw your attention. You would have noticed that during this quarter, the borrowings have also gone up. Significant part of that is towards working capital. And to that extent, actually, we have a shipment of coal, which is close to 1.5 lakh tonnes, which we consume over a period of maybe 3 to 4 months, is leaving the shores and has already been bought and is on its way. So in a way, for the next quarter, as can be seen in the elevated level of working capital utilization, most of the raw material that is required, which will sail us through the last quarter has been purchased is on its way. On 1 side, this is now a fact. So at least for the next 3 to 4 months, we are now insulated on any further volatility in the raw material prices. Second, during this quarter, since we have maintained our relationships, we have kept our customers satisfied, we have been successful in spite of being a firm price contract in many cases, except for the government, the EPC, all private cases, all EPC cases, we have been able to get a price increase because of our conduct and behavior during this quarter. Because they all appreciate that, yes, this is a genuine issue that we -- so we have been able to achieve a price increase in most of our contracts, except the government contracts. In a lot of cases, we have also been able to convince the government that we need a price variation clause, which is linked to a raw material index. And there also, we have made good progress. So a combination of these 3 that we have received a increase in price in most contracts, except the government contracts, we have been able to convince them for a price increase, but the impact of that is not going to come in this immediate quarter because tenders -- next round of tenders or any further tenders would have a price variation clause. So that would insulate us from the volatility in the raw material prices in the subsequent quarters, maybe in the coming year is when we will get the positive impact. And -- in the short-term, if you see our increased working capital requirement is all locked in for the purchase of raw material. So we have now a 3-month quota of raw material. We have price increase on our side, and we have been able to get the price variation clause included in the PSU or the government contracts and that trend has continued to work. We will work with every government agency to include this going forward. Gives us enough confidence that the worst is behind us for this kind of volatility in the market. So Q4 would definitely be better than Q3. As we progress, we have some visibility of our 1-month performance. Based on that, we have the confidence that Q4 would definitely be better than Q3. How much better? Probably we'll have to see a few weeks more in terms of the trend of how the demand is picking up, how things are happening. But we are confident that it is now upward trend. So in terms of -- we were in a valley, we have come out of the valley. We are trending towards normalcy. Where we get encouragement is the national budget which was presented. So the recovery would be very steep. The trend would be -- steep trajectory is based on the announcements, the investments and the kind of plan that the Government of India has rolled out. And this time, what was a pleasant surprise that government has not just given a very global or a big picture. They have actually gone down to the thing that, okay, it is the government which we'll be spending directly on the projects. So many projects would be done in a period of 2 to 3 years. So basically, the government has actually committed a calendar and a well-thought-out expenditure in infrastructure, which is going to propel the economy. So it's an expenditure-led growth in the economy. It's again, no subsidy. It is no tax break. It is not one of those usual. So it is something like the government has committed to the country, chosen the path that, yes, we will work, we will make you work. And then over a period of time, this will lead to growth and happiness for all. That is very encouraging because linking of rivers, 6 rivers are being linked, Jal Nal mission water to the doorstep, water to the home. All of those are very good news for us. And therefore, now the combined impact of the budgetary announcements, plus the stage that I told you, Jindal Saw is in, in terms of how to deal with raw material prices, gives us enough confidence that we are going to see a very good next year. The fourth quarter also would be better than the third quarter. Turning our attention to the order book. You would have seen that there is an apparent reduction in the order book. We -- our comfort zone is somewhere around $900 million to $1 billion. Currently, we are around $700 million. Again, it may cause some concern. I wish to assure all of you, this is something that we are very conscious and it is out of choice. Because of this volatility, we were shying away from taking contracts unless we get a price variation clause or unless we get the right price. And therefore, it is by choice that we have stayed a little away from taking orders. Even the government side, even the EPC guys have deferred booking the supply of pipes because, again, they also have suffered or are suffering the movement in the steel and coal prices. So this is, again, nothing to get too concerned about. We would be getting -- now the pent-up demand is getting released, and I'm absolutely certain with these budgetary announcements, infrastructure expenditure is going to go up. So even though our order book at this point of time is lower than our comfort zone, it is not a matter of concern. It is a matter of choice and a matter of comfort because now whatever orders will be booked, will be booked at the prices which will be comfortable prices. So that's what I wish to mention as far as the trend and the future is concerned, demand is going to be very robust. So fundamentals over the next 3 to 5 years is very, very comfortable. In fact, it's very positive and very encouraging. Two more important announcements that has been there. One is Sathavahana. As we have said, we are among the few participants. We are very hopeful and if we are successful, this would be a unique advantage to us. We would have a very strong foothold in South India as well. At this point of time, the whole matter is subjudice. In terms of the NCLT, everything has been submitted, we will take a few months before any final result is announced. And therefore, we are constrained by the laws to disclose or discuss anything further except that we are hopeful we are working hard at having Sathavahana with us. The second very important and significant announcement is the joint venture with Hunting. This will put our Nashik plant in the global map. This is the only plant or this will be the only unit, which, along with the JV, the entry into the plant would be billets and the final product that would be supplied to the customer would be a wide range of lower end range of the diameter at [ 2 7x8 ]. The higher end of the diameter is 36 inches, where obviously, we will get [indiscernible] 30 and 36 on those higher the large dia pipes, which will be the LSAW pipes. But to give this kind of a range of products for the OCTG market is unique in the world. It will put us in an exclusive club of few who dominate this in the world. This is not just this joint venture entering the market. This is also for our current Nashik unit, for our current Nashik framework, it is a next door colocated there, a ready market for 50,000-plus because, again, we have to adjust for yield. So 50,000-plus, we have a ready market available for the products from Nashik. So to that extent, the Nashik plant would be a lot more stable. It would have been a lot more predictable and would be able to perform really well. So this Hunting joint venture is going to completely change us. It would be completely changing the OCTG business landscape in India because this is completely aligned to the Atmanirbhar scheme, Atmanirbhar initiative of Government of India. Henceforth, all these products would be available in India by us. Thus far, they have all been imported. So the Hunting joint venture is going to really be or put this business of our seamless market at a very different pedestal and very, very difficult for anybody else to emulate. The reason why I say so is there are only a few players in the world, who have this kind of a technology or product, which is patented. And for those few to choose a partner like Jindal with whom they could replicate a structure like this is not going to be simple. Because this joint venture is actually a collaboration or coming together of 2 very, very strong players with complementary skills. In our right, we have a position in the world. In their right, they have a position in the world. And then we have come together where we don't have to step on each other toes, but both will complement each other skill, and we will attain a different level. In fact, we all committed to make this Nashik unit a center of excellence as per the international parlance. So we are very encouraged about the Hunting joint venture, encouraged about the DI, hopefully, we will -- we are working towards a win. Large Dia is enough headroom available in terms of capacity. Pellet plant is stable. They have sustained. They have acted as a very good counterbalance to this volatility in the raw material market. And the result of Jindal Saw the financial, Jindal Saw has been very robust. One of the contributors has been this pellet plant. The rest, as I say, market outlook looks good. Market outlook looks robust. So with all of these, the way we look at it is that, yes, we did go through a difficult quarter, but we have put effective strategy in place, and now we are out of it. Hopefully, fourth quarter, you will see some very good results so that we will close this year at a reasonable place. And definitely, we look forward to the next year where we expect to do really well because of the demand and our readiness. So with this, I have addressed your -- most of the issues, I believe, in the results. So let me stop and take a few questions.

[Operator Instructions] Our first question is from the line of Pratiksha from Aequitas Investments.

So my first question was in terms of realizations, I think what we had understood as per your previous commentary, that H2 would be where our newly priced orders would start kicking in. And we have started factoring in our -- the high iron prices in our order booking in first half. So this is when the high -- the revised price those orders would have come in. So is it fair to assume that this EBITDA margin is after factoring in those orders or is there anything else?

No, no. These EBITDA -- 3 quarter is essentially where the raw materials -- we did factor in. But let me just tell you, we never estimated that $100 coal will go to $400. We never estimated that a $700 HR will go to $900-plus. So those kinds of neither estimations were there nor any of the strategy which was there to put in long-term delivery contracts could work in this kind of a storm. So this quarter result is essentially because of the volatility of the raw material, which is the prime factor and now we are at elevated levels. Good part is the raw material continues to be chirpy. The top line is likely to be a lot more elevated because of, as I told you, we have taken price increase and some of the orders, which are at the new prices would be now getting executed. So to that extent, we would be able to restore the margin of EBITDA, which is from 7%, it will move upwards for sure.

Okay. So sir, if I look at the order book, remember that it has been as part of commentary this quarter, it looks to me that at least for LSAW pipes and DI pipes, the realization for the new orders is lower than what was done in the previous quarter. So how does that fit in?

No. I don't think -- probably there's a miss realization in Large Dia and DI. If you are saying that realization per tonne for Large Dia or DI in Q3 was less than the realization that was there in Q2, probably there is a miss. I would request you that please get in touch with Mr. Goel. We would like to clarify. I don't have those numbers, but prima facies that cannot be the case.

Okay. So is it fair to say that between 2 quarters, we have definitely booked the new order or the orders that were booked in this quarter, Q3, are at a higher price as compared to?

Yes, yes. Much higher, much higher price.

Okay. And sir, would it be possible to give execution period for our order book for each of our segments?

Yes. Okay. Let me just say DI because of the [indiscernible] et cetera, typically can go up to 12 months. Large Dia is usually 6 to 7, 8 months. Seamless and stainless.

Okay. Currently, about 6 to 8 months?

Large Dia.

The current order book is 6 to 8 months execution.

Yes. And your seamless and stainless would be 12 to 16 weeks, which is 3.5 to 4 months is where our order book or the CDD, as we call it, contractual delivery date would spend. So this is a kind of time horizon over which our contracts in different segments. Pellet, we have a realization of the entire receivable cycle will be less than a month because usually, the pellet works on the spot market.

Okay. All right. And if you can elaborate on the profitability and the outlook for the Abu Dhabi subsidiary?

Abu Dhabi last year, as I told you, this year, we are likely to do better than last year in terms of top line, in terms of tonnage. Again, as far as the EBITDA is concerned, the same raw material prices have hit there, we can expect some moderation. But in aggregate, definitely, we should do better. But in terms of percentages, in terms of EBITDA per tonne, we will have to see the impact of the raw material. But on top line, on aggregates, we are definitely going to beat the last year's performance.

All right. And last question, you mentioned about the increase in borrowings. A part of that is because we have booked a large shipment of coal. So I understand that between September and December, our short-term borrowings have increased by about INR 900 crores. So how much would -- because of this coal shipment?

Mostly, it's coal. Because we got 1 large shipment -- see, coal, we get it from -- so it always comes in the bulk. So there is 1 shipment which has come. So primarily, it would be coal. Some would be steel and which is going to see us most of this fourth quarter. So now if there is any major movement in the raw material prices in the fourth quarter, it would have minimal impact because majority of it is already in our inventory.

All right. And sir, any update on our arbitration with NTPC?

The next hearing is in March. Because, again, the solicitor general has taken a date. See, it's very simple. It has come out. Now it's out in open. You can go to the website and see the judgment. NTPC and the government, they are playing the [ procrastination ] strategy. So -- the next hearing is on 15th March. Hopefully, Judge has said that now I will begin to hear the 34 objection, means now they would want to hear on merit. That is what the Judge has said committed. So we are hopeful that now the discussion on merit would start.

Okay. Okay. And how much of our current order book would be exports?

Between 15 and 20, but that's likely to change because one good thing that has happened is the oil prices in the international market have started coming up, which is good news for our export Large Dia, especially LSAW market.

Our next question is from the line of from [ Hari Varma ] from [ PMS ] Group.

Sir, though the results were not as per our expectation and in line. But being a metal industry, part of metal industry and associated with this, I know that the raw material prices were very erratic, very -- on the unforeseen level, not envisaged by anybody. And we are getting out some inventory also. So that because of that sector [indiscernible] results are somewhere at the bottom of the cycle only. So I hope for a better future in the coming quarter. And definitely, it will be the raw material prices softened out, you have also mentioned that. So I want to ask a couple of questions on this part. Let the other participants should ask. I will draw your attention on some other products, which is reflected in your press release also. And you have mentioned here in your briefing also about Sathavahana's part. Sir, let me congratulate you for Sathavahana for the efforts of getting Sathavahana Ispat into our [ fold ] because as it our DI pipe business was saturated. And I believe that DI pipe has a savior for us actually for our company. It has contributed largely and it has also set up some lower realization in other parts also. So -- and you also said that strategically, it is very good. And you just mentioned that it is a unique advantage to us. Sir, I have visited this plant many times. The plant, DI plant, is very good. It is one of the best plants in India that has been claimed by the technical people or ex Jindal people who have worked there. And because of the bad management and the policy of management, this company is where it is today. Otherwise, this company was very good. We were -- this [indiscernible] were trying to take this company into their fold. Thereafter [ Srikalahasthi, Kejriwals ] were also trying. Tatas were also trying. I think Jindal Saw first came into contact with the promoter of this company in December 2017. At that point of time, the sale price of this company was INR 70. Thereafter, we entered into Oma in August '19. On the same day con-call on second August, you announced the Hunting joint venture. And you also announced the Sathavahana Oma -- Oma with Sathavahana. And we were very happy that because of the management, we being the minister in DI, DI pipe industry in Sathavahana as well as in Jindal Saw in PMS accounts. We were very happy that management of Sathavahana is going to change. And Jindal is coming and everybody was very optimistic, very encouraged. Now finally, Jindal is coming. The company is coming into PR fold and you're being professional management, the company will definitely revive and the interest of the stakeholders will also be revived. But sir, I have heard from my sources, I have information from my sources that in your proposal to NCLT, the Jindal Saw has proposed to delist the share and write-off the share, sir. Sir, my humble request if it is true, if this is true, my humble request is, sir, there are other big promoter's mistakes because of the promoters mistakes the remaining minority shareholders cannot be penalized, sir. There are 10, 12 shareholder families only. Only after promoter's equity only INR 3 crore shares are left. So if you -- and the company is very good. We will get a lot of the DI pipe. There is scope for DI pipe also expense of DI pipe also. I was part of the implementation plant. We will be able to have merchant coke in our fold at least 2 lakh tonne. We will be having surplus power, which will be generated at least 20, 25-megawatt power, which will be generated free of cost, from the [ Kudithini ] plant. The Kudithini plant is just situated outside the Kudithini Station, sir. The raw material and finished goods can be transported by great movements. We will have merchant [indiscernible] also. Sir.

Mr. Varma, sorry to interrupt. May we request you to please ask your question, sir.

Sir, my point is very limited on this issue only. I instead of asking 3, 4 questions, I'm concluding. Sir, Neeraj, sir, my humble request is, if you're proposing or if you have proposed to delist or write-off this year, kindly don't do that. It is a perception matter, perception matter. Tata took Bhushan Steel, they revived and they merged it. Even Sajjan Jindalji took [indiscernible] they revived and they will -- sometimes they will also for merge it. So my humble request is don't write-off, don't write-off, don't delist the shares of equity minority shareholders, sir.

A, I must compliment you that the -- your analysis that you have done on Sathavahana is fairly accurate. And it definitely reflects that you have all the data points kind of well researched out: you know the logistic advantage, you know the advantage of the plant, you know all of those. But in the briefing itself, I had mentioned that now since everything is with NCLT, which is the whole matter is kind of subjudice, it would not be appropriate, and I have been advised by my lawyers not to discuss the resolution plan at this point of time. So I do take your point. I have heard your things, but in terms of what is there in the resolution plan, I am constrained by my lawyers to discuss this any further because everything is now within NCLT.

Sir, I fully appreciate and agree with you. But my -- and I don't expect you to say anything on public forum because this is subjudice matter as you rightly said. But J.C Flowers, Jindal Saw or its associate, I have invested -- has invested in J.C Flowers behind the [ ARCV ] somebody has to be there, you are Jindal Saw is there. And that J.C Flowers is the only [ COC ] sir, and [ RP ] been appointed by them. And today, the other day, the day before yesterday, Sathavahana had its AGM, sir. We -- many shareholder requested to RP to look into their interest part. He said, I will definitely look into part. But it depends on the resolution of applicant first. He has to -- sir, there are a lot of benefits. And it will be a feather in the cap, feather in the cap of Jindal Saw by grading this unit, immensely benefited mostly in DI pipe. Moreover, sir, the perception matter. Today, Vedanta or Anil Agarwal took Electrosteels Bokaro unit. They're just written-off everything. He got very heavy criticism, sir. Last week only, he said I'm going to donate my 75% what is the use of 75% donating, sir. If he could have sale for INR 2,000 crores, the family would have been survived. So sir, perception matter and PR Jindal-Saab very generous, sir. I knew -- I met him once personally with my chairman. So kindly look into it and you are influential, you are the decision-maker, sir. Definitely, if you prevail, you will do something very good for the minority shareholder Sathavahana Ispat.

We will take our next question that's from the line of Anurag Patil from Roha Asset Managers.

Out of our DI order book, what percentage will be from the government-related segments?

DI order book government-related segments. In fact, the entire DI consumption is with the government related segments, which -- there are 2 business models in first, there is a direct purchase, which is called the item rate purchase by the government under a tender. The second is the government appoints the EPC contractor for the water project, which is pipe plus lane. And then in turn, the EPC buys the pipe from these suppliers. So to answer your question, how much of DI goes to the government? The answer is 100% because there are hardly any private players who buy DI, some who may be developing, say, private city, smart city or integrated township but those are all very marginal and then they take it from traders. So the entire DI goes to the government, either through a direct purchase by the government under the item rate contract or through the EPC -- so the 100% goes to the government. Now this breakup is very fluctuating. It keeps on going here and there, like states like Haryana, Maharashtra, they follow the item rate contract model. States like Uttar Pradesh, states like Madhya Pradesh, Tamil Nadu, they follow the EPC model. And depending on which state, which contract you have, you will keep on changing between the item rate as well as the EPC model. But again, just to conclude to answer your question, 100% of DI or more than 99% of DI goes to the government projects only.

So sir, broadly, means, what percentage will be without escalation clauses that I wanted to understand, or all will be exposed?

No. At this point of time, now with every EPC that we are signing, a, we have achieved a price increase; b, any new contract with EPC would be with a price variation clause, and we have also been able to successfully work with a few state governments where we are expecting the tender to come out in the next few weeks with price variation clause. So our effort is to move the entire pipe purchase with price variation clause. It may take a month or 2, but that we have taken as a strategic view after a lot of consultation that we have to move into a price variation business environment for DI, especially when there is a long lead because as I mentioned to you, it takes -- we can get contracts which are up to 9 months to 12 months because they have frame contracts. So that will happen and it should happen over a period of maybe next 1 month or 2 months with the item rate contract with EPC, it's already happened.

Okay, sir. And another question on the Hunting JV, what would be our investment and revenue potential from this project?

It's a 51-49 joint venture in our favor. So again, that should give you some sense of the relative strength that Jindal has that even like a global partner with Hunting, we have managed to get a 51% joint venture. In terms of the revenue potential. In India, there is a target market of over $200 million year-on-year, where this OCTG products, et cetera, are sold, plus we have the MENA region and then across the globe. See what you must focus on. In India, under the Atmanirbhar, we would have this $200 million-plus target market available to us immediately. Once we have a track record then in MENA region, especially in the Gulf and North Africa, we have a very, very advantageous position because of the Mundra port, that's from where 6 days of shipment and you are going to serve that market. Because of the cost advantage that you have, you can actually become a global player as well because wherever all the Europeans and all the Americans wherever they are, that they are no match to the cost structure that we would have on account of and the Nashik plant is colocated, so raw material just-in-time inventory, inward freight almost negligible. It gives us into a position where today, there is a 3-step marketing strategy: first, address the $200 million India market, expand to the MENA and finally go to the world.

And sir, what would be the CapEx required from our side for this plant we are setting up?

The overall outlay in the first phase would be about $25 million to be in the capital shared and all of those, similar amount, $25 million of working capital. But again, because of the relative strength of us and Hunting, the initial equity contribution from both partners would be of a much, much lesser magnitude because we are in the process of arranging bank financing for both CapEx as well as working capital. So for working capital, all the promoters would be required to fund will be the margin. And we expect that at least our debt equity of 1:2 is something that might fly with the banks. That's where we are. So all put together, then the contribution from Jindal Saw in the equity would be less than 4 -- or less than $3 million for overall structure of -- or overall financing structure of over, say, $50 million, $25 million in CapEx, $25 million in working capital.

Our next question is from the line of Hetal Gada from ITI Mutual Fund.

So first, I wanted to ask you about pellet plant, iron ore prices have started rising again in the international market. So how is the business going? And what kind of profitability we are seeing in this plant currently for Q4.

Which one?

Pellet plant.

Pellet plant, okay. Pellet plant, we are operating almost at capacity. We have a 1.5 million tonne capacity per annum, and we are almost operating at capacity. The margins were at 1 point of time, very good, in line with the HR prices and all of those because as you know, pellet is also [ intermediately ], it goes into the steelmaking. So this is where whatever we suffered on the raw material side for DI as well as for HR got counterbalanced by the pellet and their margins were there. It is riding. So capacity-wise, but now pellet prices have softened from its peak a little bit, which was expected, and we are fine with it as the HR prices or the iron ore prices are beginning to soften or beginning to come down.

Okay. But sir, in the last few weeks, prices of iron ore have around $244 in the international market. So are we seeing similar pickup in pellet prices as well? And what will be the.

Yes, yes. It would. See, it would, essentially when you see the iron ore lumps, plats -- iron ore lumps, plats and pellet, they will always be very highly correlated. The only difference would be whether it is pellet of 65 grade or 67 grade. 67 grade will fetch you a premium, maybe a few percentage over the 65 grade, but these prices, all 3 would always be in a range.

Okay. So what -- from the peak levels, sir, what do we -- I mean, what -- and how much difference or what would be the levels at which the profitability will be right now in the pellet segment? So obviously, we are not at the peak, but what levels can we see the margins currently?

So madam, if you are wanting to ask me what is the EBITDA margin for pellet segment on a separate basis, that is something that, as I have said, we don't disclose. It's always the blended EBITDA of -- so what I can tell you is Jindal Saw generally has an EBITDA range of over -- around 15%, which is above 15% or below 16% of those. Currently, we are at 7%. Last quarter, you will see an upward trend for sure. Here, we would have again, an EBITDA margin of close to not exactly 14% or 15%, but very close there, we would achieve because we hope that the Q4 results would be better. And in the first 2 quarters, we have achieved, again, 14-plus EBITDA margin. So year-end would have the impact -- the third quarter will have an impact for sure. But it would recover in Q4 for sure.

Sir, secondly, on your steel business that you were planning to set up a steel business in Rajasthan. You had an agreement even with the government for iron ore mines. So any update on that one?

At this point of time, the steel plant is definitely not on the anvil. It has been there for some time for the -- in the drawing board stage. We stand committed but government has to fulfill certain obligations in terms of land. Now we are told that few new mines may come up for auction. So definitely, long-term, if all goes well, government fulfills all its obligations, gives us the mines and are there, we may look at forward integrating into the steel business, but those are all conditional and those are all contingent upon what government does, how the new mines auction goes. So for the purpose of your calculation, if you are looking at a 2- to 3-year horizon, then neither the CapEx nor the iron ore, et cetera, or nor the revenue from this should matter to you.

Okay, sir. Sure. And sir, lastly, just wanted to understand regarding your bank guarantees that are still remaining for Jindal [ IDF ]. Any update there?

Those bank guarantees are -- they continue to run because they are all tied up to the NTPC the litigation, which is in High Court, the bank guarantees are tied up there, and it continues to be there, status quo.

Our next question is from the line of Saket Kapoor from Kapoor Company.