Jindal Saw Limited (JINDALSAW) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Jindal Saw Q4 and FY '25 Earnings 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 India Private Limited. Thank you, and over to you.

Thank you, Sejal. Good evening, everyone. Without taking any much time, I'll just introduce the management. From the management side, we have with us Mr. Neeraj Kumar, Group CEO and Whole-Time Director; Mr. Vinay Kumar, President and Head Treasury; Mr. Narendra Mantri, President, Head Commercial and CFO; and Mr. Rajeev Goyal, Vice President, Group Corporate Finance and Treasury. Without taking time, over to you, Neeraj, sir, for your opening remarks.

Good afternoon, investors. As in the last few quarterly investor calls, we have been indicating that now the company is planning for the next phase of growth. There were a few things that were on the drawing board because, as you know, the results were kind of plateauing a little bit in terms of the performance, in terms of the top line and the profit, et cetera. Also, the capital structure was well within control, very well balanced. We have been thinking about a few projects which can bring in the next round of growth. Today, we had a Board meeting, and the Board has approved 3 projects, which I thought as we have informed the stock exchange, I must get an opportunity or I must come to all of you and get a chance to have a little chat so that we can explain our position and we can also take some questions and clarify if you have any questions. So as I said, we are setting up 3 special purpose vehicles below Jindal Saw Holdings based in UAE. If you recall, Jindal Saw Limited in India, of which all of you are esteemed shareholders, has a 100% subsidiary called Jindal Saw Holdings in UAE, under which there's a step-down subsidiary where the Abu Dhabi DI plant is based. Now likewise, the Board has approved 3 more step-down subsidiaries, 1 in UAE and 2 in Saudi Arabia. The reason why Saudi Arabia and UAE have been chosen because all of you might be aware, the business environment, the economic environment in Saudi Arabia is changing very fast with the new Crown Prince MBS coming in. He is opening up the economy. He is attracting FDI. He is giving a lot of incentives, a lot of preferences, a lot of assurances and a lot of concessions, including the speed of setting up our business in Saudi Arabia. Likewise, in Abu Dhabi, they have introduced a concept called local value add. So based on the local value add, government gives you a lot of incentives to make you cost competitive. And also based on the local value add, they give preference to the local produce vis-a-vis import. So because of these reasons, now the Board today has approved to set up at this point of time a 100% subsidiary in Abu Dhabi, which would be essentially similar to our Nashik plant. It would be producing seamless tubes and pipes. The size would be up to 10 inches. At present, this would be a 100% subsidiary of Jindal Saw Holdings UAE. But we are in discussion and we might have a few local partners, in which case, this shareholding of 100% would go down. But under no circumstances we will go below 51% so that the Jindal name and it remains a subsidiary of Jindal Saw. So that is the plan about Abu Dhabi. In the Saudi market, there are 2 joint ventures. In one, we are setting up a helical HSAW facility, where we are 51%, the local partner is 49%. Likewise, we are setting up a DI finishing line only, again, in a joint venture where we are 51% and the joint venture partner is 49%. Let me walk you through some of the other important elements of these 3 companies. Seamless pipe manufacturing facility in Abu Dhabi, this will be largely addressing the OCTG market in oil and gas sector. At present, the shareholding with us would remain 100%, but as I said, we may have a partner. We are in discussion with few where the shareholding will go down. The capacity would be 3 lakh metric tons of seamless pipes and tubes. The total investment, the project cost would be USD 350 million. The equity contribution, if we have the 100% shareholding with us, would be around $105 million. But if we get a partner, the shareholding of 100% will go down and this $105 million will also go down. The second, helical HSAW plant, that will support the oil and gas and water for transportation. It would be a 51-49 joint venture where we would be 41% (sic) [ 51% ]. 49% would be the local partner who has been our agent for helical pipes for many years. They are a very strong EPC company with very good contacts. The total project cost would be $60 million. Our equity contribution would be $10 million. The third, DI finishing facility, we are only setting up a finishing facility, the green pipe will go from Abu Dhabi or from India, would be essentially for portable water transportation. It would again be a 51-49 JV. The total project cost would be USD 20 million. Our equity contribution would be $3 million. The time span within which we are going to set up this, we are targeting 18 to 24 months to set up all this. The equity contribution would be made by Jindal Saw. Obviously, now after this, we would be going to the bank consortium, et cetera, to take all the necessary approvals. Whatever necessary approvals are required by authorities in India and elsewhere, we will be taking. All the debt component, our attempt would be to get a project finance in those specific companies from the local market so that we don't get exposed to any foreign exchange risk. As I said, we expect to be in production maximum within 24 months. And we have done our analysis of the kind of returns, et cetera, that we get. It does give us a very good feel about these projects because of the business environment and the kind of demand that exists in that region. Now let me stop here and take a few questions. So over to you, Vikash.

[Operator Instructions] The first question is from the line of Sailesh Raja from B&K Securities.

Sir, can you please highlight the business opportunity in Abu Dhabi for the...

Would you please speak a little louder and slower and come near the phone? Because I am not able to hear you.

Can you hear me now?

Yes.

Yes. Sir, can you please highlight the business opportunity in the Abu Dhabi for the seamless pipe and also exports opportunity, similarly for the helical SAW pipe and DI pipe business opportunity in Saudi as well as new exports opportunity? And also, sir, your CapEx cost seems to be very low in all the 3 product verticals, all the 3 pipes. So the reason and what is the payback that you're expecting?

Okay. First, let's talk about the demand. The biggest player, ADNOC in UAE, they have a requirement of close to 3 to 4 lakh tonnes, out of which the products that we will produce would address up to 2 lakh tonnes. If, the way we are planning, we get all the LCV, then this 2 lakh tonnes is completely within our range to be able to address. In terms of export market for the Abu Dhabi OCTG, seamless pipes and tubes plant, you have Saudi Arabia. Saudi Aramco is the biggest consumer. You have Bahrain. You have Qatar. So you don't have to go beyond the GCC region where having the plant locally, you would be a preferred supplier. So within this region, if you see, the demand is enough to suffice our production. The range is such that we would be able to address those. Turning our attention to DI. Saudi Arabia is in a massive infrastructure building phase. They are building a new township, which is likely to be the capital, which is NEOM. All other places are also expanding. And therefore, the water requirement, either for portable water or for desal water being bought from the sea is really high, and that is where the HSAW as well as the DI pipe would be used. Saudi Aramco also has pipelines for the transportation of oil and gas products, which our HSAW plant would be capable of supplying. So in terms of the demand, all the 3 plants would be capable of catering to the GCC market, and they would not have to look beyond GCC market based on the demand estimate that we have. Now today, we have taken the enabling approval from the Board to kind of set this all in a very now firm shape moving ahead. Your second question about what returns that we see is pretty encouraging. But your specific question about the payback period, probably we'll have to wait for a while because the techno-economic feasibility by an expert, independent expert consultant, is in the final stage. And we would like to wait and see their report, which obviously will be used by us with the banks and other financial institutions. So the returns are pretty encouraging. But the exact payback, we would be able to give you once we have the TEV report in hand, which will take maybe a month or so. Thank you.

[Operator Instructions] The next question is from the line of Saket Kapoor from Kapoor & Company.

Sir, in terms of the 3 lakh tonnes seamless pipe capacity, do we have -- will we be having any synergies with our Hunting JV also in terms of value-added products that we would be looking into going ahead? Or will it be solely about the pipes and tubes, which you just explained?

No, we are talking to -- we are open to -- obviously, Hunting would be our first preference. But we are speaking to others also because in OCTG, premium trading is required. So we are checking Hunting's appetite of going there. We are in discussion with them. They would be our first preference. But as I said, we are keeping our minds open. So we will let you know as things firm up.

Okay. And just to continue to that, sir, for this 3 lakh tonne capacity, how will the ramp-up happen, whether we will be coming up in phases? If you could just throw some light on that?

No. It would be a single rotary hearth furnace. It will be a single piercer, and therefore, the entire capacity would be set up at the same time. But as we all know, when we commission the plant, there are some balancing equipment, there are some teething troubles, there are some time of stabilization. So there would be a very steep ramp-up. But in terms of setting up, it will be a facility which would be set up with 3 lakh metric tons in mind.

The next question is from the line of Deepak Lalwani from Unifi Capital.

Sir, on your Abu Dhabi CapEx, can you tell us the entire supply in that market? Who are the big players? Is there a protection in terms of tariffs for people who are making seamless pipe in Abu Dhabi? That is one. And on the demand side, how much demand is there vis-a-vis the supply today in that market? And is there a pushback in terms of lower oil prices given the current scenario today? And how should we look at growth on demand? And thirdly on the pricing, is there a pricing discipline within the players today? And what kind of EBITDA margins does that entity make?

Okay. You have asked me probably, I don't know, I lost the count how many questions. But I'll try and answer it in a very comprehensive manner. A, as I explained, there is a concept of local value add or local in-country value, and they call it LCV (sic) [ ICV ]. What LCV (sic) [ ICV ] does is it puts you ahead in terms of the preference for you to become a preferred supplier. So let's take an example. ADNOC would first call the supplier who has the higher LCV (sic) [ ICV ], assuming that he is otherwise qualified, he has the product and he has the grade, et cetera, everything. So among equal suppliers, same quality suppliers, a company which has a higher LCV (sic) [ ICV ], which is local value add, would be given preference to kind of match the L1 price. So it's a clear step ahead. Second, in terms of competition, there is no seamless pipes and tubes unit in Abu Dhabi at present. There are others who are present, but they only do a little value add. Some does threading, some does inspection, some does whatever. But we are wanting to build an integrated plant which will be end-to-end, and that's why we are talking to partners, where we would probably achieve a higher LCV (sic) [ ICV ]. Now in terms of quantity demand, I have already indicated ADNOC has about 4 lakh tonnes of demand. We would be able to address 2 lakhs of that out of the 3 lakh capacity that we have. Now you add the capacity of Saudi -- or add the demand of Saudi Aramco, Bahrain, Qatar and those countries around, some maybe North African countries, and you have an addressable market where you can address or where you can take care of your entire produce. So that probably answers everything in a very comprehensive manner. I have told you about the preference. I have told you about competition. I've told you about the demand, capacity and matching. The product range that we have chosen in our production exactly matches with the demand. We have done a proper market study by one of the most renowned experts, based on which the product capacity, everything has been decided.

Understood, sir. Sir, just one follow-up. What kind of EBITDA margins should we keep in mind keeping -- considering this product and low competition? And in terms of integration, how are we equipped for the raw material for this project? And on the other 2 smaller projects that we are doing, HSAW and DI pipes, can you just quantify how much tonnage are we planning to add there in Saudi?

In terms of tonnage for the DI pipes, it is 1 lakh tonne of finishing. In terms of spiral in Saudi, it is 3 lakh tonnes. As far as your other 2 questions about margins, et cetera, are concerned, I've already said give us a month or so, the TEV, which is a techno-economic feasibility study is being finalized. The marketing study is done by an independent expert consultant. And we will be able to tell you all of those the moment we have that TEV in our hand. But it is pretty encouraging, let me just give you that indication.

The next question is from the line of [ Harish Bilakia ], who is an individual investor.

I just want to know any update on case against NTPC because hearing was to take place on May 22. Any update, sir?

I understand. The next hearing of NTPC is 10th of July once the high court opens in front of the double bench. And we have a good set of lawyers. We are pretty confident that we should be able to sail through.

The next question is from the line of Darshil Jhaveri from Crown Capital.

So sir, I just wanted to know like in terms of all our capacities, new capacity, so what is the peak revenue potential that we can see from these capacities, sir?

Probably you'll have to repeat your question. I really couldn't get it.

So basically, we're adding around like, I think, 3 lakh tonnes in UAE and 3 lakh tonnes more in Saudi. So what kind of peak revenue we can get from these capacities, sir?

Again, please allow me to talk about the financials after we have got the TEV report finalized because -- and probably once we come out with the June quarterly investor call, that is the time when I would be able to share some of these numbers, financial numbers. But allow us the time so that we are able to finalize the TEV report by a third-party independent expert.

The next question is from the line of Siddharth Vora from HSBC Mutual Fund.

Can you hear me? Am I audible to you?

Yes.

Yes. Sir, these 3 projects will bring us incremental new volume opportunities? Or it will replace some part of our existing exports volumes as well which we do from India?

It's a very good question. Largely, it would entrench us very well in the GCC region for all 3 products. So it is like now the country of origin for GCC would be GCC, and therefore, it would entrench us very well in that market, and the capacity that we are creating will cater to the local market there. Now at present, we have been supporting these markets from exports from India. So to that extent, you can say that, yes, there would be a bit replacement to the extent that it goes to the region. But where we see that getting more than compensated, the domestic demand in India by itself for all these products are growing so well that would the Indian operations suffer on account of these capacities being created in UAE and Saudi Arabia? The answer is no. The Indian operations would remain focused on the Indian demand. And GCC, these plants would remain focused on the GCC demand. We have done a thorough analysis. And both, we find it to be well balanced in terms of demand and supply.

Can local production would ideally give you better profitability than supplying from India? That assumption will be correct?

See, per se, cost of production in India would be lower than the cost of production in the GCC region, which is either Abu Dhabi or Saudi Arabia, so if you just take a line-by-line cost of production in those regions and here, India would be cheaper. But when you add the incentives, when you add the subsidies, when you add sometimes the barriers that those countries have created, I've told you, local value add -- in-country value add that, straightway puts you ahead. So the other come into play only if the local guy is not able to cater to the demand. So if you take all those incentives, if you take all of those subsidies, if you take all the other benefits in terms of, for example, Saudi Arabia gives you a price preference, so if you take all of those, then obviously these facilities become very, very interesting and very, very attractive.

Sure. And lastly, does this kind of investment from our side increase the potential of orders like we had won back in '20, '22, '23, those kind of large orders, which can be done from locally or from India?

Obviously. The whole idea of putting up a facility because obviously we would be working very closely with the government of the country, and we would be making sure that they are aware that we are setting up a facility like this only based on those incentives and the kind of policies that the government in the country is pursuing. So that connect or that coordination alignment would always be there where they notice us and we work together and we create -- we give them the -- there's a huge benefit that we give to the country. We add to their local economy. We add to their local skill development expertise. We add to their local employment, we add to their local taxes, a lot of incentives, et cetera, that they give us is plowed back into the economy by way of taxes, et cetera, that we collect. So essentially, it's a win-win for both.

The last question is from the line of Radha from B&K Securities.

Sir, how many years will be...

Sorry to interrupt, ma'am. I would request you to please use your handset.

Is it better?

Yes, ma'am. Please proceed.

Yes. Sir, my question is that what would be the quantum of subsidies and for how many years will we be getting the subsidies? And secondly who is currently [indiscernible] demand of ADNOC? How competitive can we be comparing...

Madam, I cannot make out what you are saying. But anyway, let me try and do a guess of what. How many years there would be subsidy, no, the subsidy that you get in Abu Dhabi, so far, you will just continue to get year-on-year as long as your local value add remains the same. Likewise, the price reference that you get in Saudi Arabia remains the same. As long as your structure, everything remains the same, you will keep on getting year-on-year. So there is -- it's not like a tax incentive that we used to have, which is for 5 years or 10 years or whatever. No. These subsidies are where they subsidize the land cost, the electricity costs, utility costs and all of those or they give you incentives in terms of price preference, reduction in import duty. So those, they are open-ended. As long as you are there in the same formation, they will continue.

Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to Mr. Vikash Singh for closing comments.

Thank you, operator. On behalf of PhillipCapital, I would like to thank Jindal Saw management for giving us the opportunity to host the call. Now I'll hand over to Neeraj, sir, for his closing remarks.

Thank you, investors. As we have always been saying, that the moment we have something in the drawing board that we first would want to take it to the Board. We would come back to you promptly as we did. Today, we had a Board meeting in the afternoon, and we have come back to you to just inform you so that you are well informed and fully updated with what the company is planning to do and how we are. So thank you once again for showing this interest. And we assure you that we would continue to work towards creating value for Jindal Saw, where all of you are shareholders. Thank you all. Thank you very much.

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