Welspun Corp Limited (532144) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q4 FY '20 Earnings Conference Call of Welspun Corp Limited Hosted by Emkay Global Financial Services Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Anas Dadarkar from Emkay Global. Thank you, and over to you, sir.

Good evening, 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.

Yes, hi. A very good evening to you. This is Vipul Mathur from Welspun Corp. and it's a great pleasure to have you all here on this particular conference call. Thank you for taking time out so late in the evening. And with your permission, we'd like to start this call. Just to give a brief overview about -- we will come to our performance a little later, but I just want to give you a little brief overview about the company, where we are. As we all know that we are all sitting and meeting in a very unprecedented and a very challenging environment at this point of time. We are all impacted, one way or the other, with this COVID-19 situation. We are seeing that the impact of COVID is pretty stiff, and we still feel that it is something which is still not completely quantified. There's still a lot of uncertainty prevailing around that. And under these circumstances, we have been running our operations. So we had -- we took a temporary pause when this COVID thing happened. All our operations facilities across the globe, both in India and Saudi Arabia as well as in U.S., they had to stop down their production. But since then, it was almost 2 to 3 weeks of disruptions, basically, across all the locations. But I am very pleased to inform that just about every other facility has now come back on track and they are working absolutely to their fullest potential. Having said that, it has, of course, COVID and the oil meltdown, as a company, we are also -- we were impacted by a double whammy of COVID as well as oil meltdown, and it has left some scars on us as well. The oil meltdown meant that the sentiments in the global market went very, very low. And we saw some of the projects getting deferred and some of the projects getting canceled and some of the projects which were on the drawing table, they were pushed off the table. But having said that, I think so now, as we all are seeing that the crude seems to be taking some -- it is moving in the right direction. If you see WTI and Brent, they're all around $35 to $40 [ a tonne ]. It means that the sentiment of the people are coming back. But are they going to really put money on the table tomorrow? I don't think so. The answer to that is no. But at least the sentiments are getting optimistic. And in medium to long-term basis, I personally feel that things are only going to improve from here on. As regards the operations, as I said earlier, all the plants in India are operational, fully operational, and our plants in Saudi Arabia are fully operational and our plant in U.S., which has -- which also has some order books, they are also operational and they are no more impacted by COVID-19. Now I would like to turn your attention to the performance of our company for the financial year '19-'20 and this has been sort of an exemplary year for Welspun Corp. All my friends on this call have been associated with this conversation for a quarter-on-quarter basis, and we have been continuously focusing on performance and excellence about our operations. And as we finish up the year, now the final report card, the scorecard is in front of you. And the basic highlights of that are for the -- the company achieved the highest-ever production. We produced 1.60 million tonnes of pipe in the financial year FY '19, '20. This is the highest ever production in the history of Welspun. We made a sales of 1.5 million tonnes. Again, this is the highest-ever sale in the history of Welspun. We achieved an EBITDA of INR 1,284 crore, which is probably one of the highest -- or in the last 8 years, it probably would be the highest. There has been one more incident where we have -- have an EBITDA like this, but not in the last 8 years. If you see our PAT, we have -- we have a PAT of INR 674 crore, which is almost 887% up on a Y-on-Y basis. If we also look at our EPS, it is around INR 25.56 crore at this point of time, which is around 895% basis on Y-on-Y basis. So all in all, if you -- again, net debt, if you will look at net debt, we have been able to reduce our net debt by almost INR 254 crore and it just -- it currently stands at INR 32 crores. We were very confident that it will become 0. It is almost 0, but bearing 1 or 2 things because we got slightly caught up into the COVID thing and some collections got delayed. So that is a reason it is this trivial amount of INR 32 crores is getting reflected. But all in all, it is sort of funded there. It's a net debt-free company. If you see, we achieved a turnover of almost INR 10,000 crores. And as I said, EBITDA of INR 1,284 crores and a PBT of almost INR 900 crores. I mean these are some significant numbers which are clearly representing that, that effort, the performance of the company in the financial year FY '20. The key to this performance has been that all the 3 geographies, which is India, America and U.S. -- and Saudi, all 3 of them significantly contributed in achieving these numbers. India did almost close to 600,000 tonnes, America did like close to 400,000 tonnes, and Saudi also did close to 475,000 tonnes. So there was an equal, almost an equal share, which gave -- which came from all the 3 geographies. And this is something unique which we have seen in this particular -- in the financial year FY '19 and '20. As we speak today, we are still going through a challenging phase. We still have that COVID-19 situation, we still have that oil -- the sentiments around the oil is still -- though it has recovered a little bit. But have the situation completely normalized? The answer is no. But we believe that the confidence in the market, well, is likely to return in next 12 to 18 months' time. And it is for this particular period, we have to brace ourselves and prepare ourselves to stay afloat. We have -- we completely recognize and acknowledge this particular situation and all the strategy, all the planning, what we have done is kept -- has been keeping these factors in mind. The next 12 to 18 months would be challenging, yet we have to fight it out. And if we can keep the nose above water, we will come out much, much stronger. So there were a couple of actions which we were supposed to take. First and foremost, it's all about structure. So we aligned our organizational structure. We did a sharp cost-cutting across the board. We have a very -- we bring in a very robust cost-control mechanisms. And most importantly, we -- you need orders to survive. And I am so very pleased to inform that we -- despite all these challenges and these challenging conditions, we still have -- we have a robust order book of more than 700,000 tonnes, which is in rupee value for almost INR 5,700 crores, confirmed order book with us at this point of time. We -- even if we execute -- and these orders are again well scattered over India, U.S. and Saudi. And just to give you a sense that even if we execute these many orders itself, our nose will be above the water. So all in all, what I am trying to give the assurance and the confidence to my friends here on the call is that we have very meticulously navigated this particular situation, surgically operated into this situation, and with this order book and with the cost control and with the realignment of our structure, with the very sharp focus on the CapEx and all that stuff, we have ensured that we -- even in the financial year 2021, which we have already entered in this pandemic situation, we would still be floating around. As I said, 12 to 18 months are -- is very, very critical for us. 12 months we have already taken care of, and we still have 9 months to go. We are focusing -- we are heavily focusing on the business development activity. We're keeping a very sharp focus on all the projects which are emerging, either in domestic market or in the international market. We are, as we speak, we are chasing up quite a few opportunities at this point of time. We still have a robust bid book in place. We are confident that some of the -- quite a few orders under that bid book will also materialize irrespective of the condition. And if they get materialized, we will, as a player, a leading global player, we will get our share of that. So anything which we will get over and above the existing order book, the top of what we are going to have is only going to make us much more stronger and steadier and which will help us to navigate the next 12 to 18 months in a much more effective manner. So we are completely geared. What we -- '19, '20 was a performance, we will -- we feel very proud of our performance and I'm sure the numbers reflect that. But more importantly, year 2021 which is under sort of a black clouds world over, even in that situation, we see a silver lining, we are well-prepared for it, and I can assure you that we will come out much stronger and steadier in times to come. With these opening comments, I leave the floor open to -- for further discussions. Also at some point of time, if you -- I'm sure you -- my friends would be interested to know about more and more about the geographies that in each and every geography, how things are panning out. So just to give you an overview, in India, we are seeing a lot of traction of business coming from the public sector unit. Yes, we are seeing a lot of projects being announced by IOCL and GAIL, and they have already been announced. part -- a few of them are only entering the tendering process at this point of time as we speak, and we are very confident that we are going to get a significant share of that business as well. Apart from that, we -- as we have always been talking about the CGD business in India. And we all know that for the last 2 quarters, the CGD business has been -- that opportunity has now converted into business. And we see a huge traction even in the CGD business, which is going to happen. So the PSU business, the CGD business in India and the export opportunities what we are exploring from India, I think, so these are the 3 -- 2 or 3 key value drivers or key drivers for the business in the next few months. The water sector, which has been very strong over the last 2 years, seems to have taken a little backseat because that being the state subject and all the states are more focused on the pandemic side of it, their resources are more allocated to that. I think it's a matter of another quarter. And then we are hopeful to see that they will also come back and invest into the water sector because they can't afford not to invest into that. So it is the PSU business, the CGD business, the export potential and resurgence of water business in the second half of the year, I'm sure will keep our Indian assets and operations completely occupied. As regards Saudi, we still have an order book of -- unexecuted order book of more than 200,000 tonnes which will keep us busy for at least 2 more quarters, if not more. And as you are aware, I have earlier told as well that there were certain projects in which we have participated and we were the lowest bidders in those particular projects. But they could not be finalized. They could not be awarded because of this particular situation. We are now very heavily focused and liaising with the agencies out there. And just to convert these businesses where we are the lowest, to convert them and award them to us. We -- the good part is that we have 3 to 6 months' time in between because we have a confirmed order book, and I am very hopeful that the orders in which -- and the projects in which we are the lowest bidders, they should be awarded to us. And once they are awarded to us, that will bring a further visibility of -- for our Saudi business for at least 4 more quarters 1 year. So I stay very optimistic about our Saudi business as well. Coming back to U.S., in the U.S. things went really bad because of COVID and because of oil, I think the things really went from absolute north to south. We had -- we were looking for a great year in 2021. '19/'20 has been a great year for Little Rock. 2021 was looking even better. But when this double whammy hit us, we saw a major cancellation of an order which was from an American customer. We -- and that was supposed to keep our plant busy for 6 to 8 months' time, and we suddenly saw the cancellation of that particular order. And that really -- it did hurt us the most. But since then, we have recovered from that. We have -- we were awarded another order of almost 90,000 tonnes from another customer in North America. And with that order and some other small -- and other orders, what we are -- we have in hand. I think we are pretty much done for the -- it will keep us busy for the financial year FY 2021. So in other words, what I'm trying to say, the U.S. business is not going to drag us down by -- we have absolutely surgically reduced our costs there. And on top of it, we have secured orders which will keep us afloat. Now we are also pursuing a couple of leads and I am sure that some of those leads will materialize into order, and they will all be top up, and they will all bring positive contribution to that, to our consolidated financial numbers. So U.S. order, which was -- U.S. entity, which was looking to pull us down our financial numbers in this financial year 2021, it has -- that issue has been completely addressed and put to rest. So it will not drag us down. It is not only -- whatever incremental orders we are going to book are only going to bring much more the profitability into our consolidated numbers. We are confident that in the U.S., all of us know that things go very -- it's always a V. The drop is also very fast and the resurgence is also equally fast. So while the drop we have seen was extremely fast, we are very hopeful that resurgence also should be very, very fast. We are, as we speak, we are engaged with quite a few customers. We are chasing quite a few opportunities, and I hope those opportunities get converted into business. We are -- what we are emphasizing here is that we will like -- we will -- we are completely plugged to all the customers in that U.S. market. And whatever opportunity will come up there, we will definitely have a play and some say in those matters. So this is where our creditability, this is where our workmanship and hard work of 10 years in U.S. market. In these times, we will definitely have the first sight of refusal for most of the customers. And even that, this 90,000 tonnes of the business, what we have got which is going to keep our plant occupied until the end of this year, financial year, but also purely on relationship basis and purely on our past performance basis. So that is the one market with respect the services what we have done in the past, and they really like it. So I am very confident that the U.S. market will also see a quick turnaround. And it will continue to contribute the way it has been contributing in the past. In this financial year, maybe the contributions may not be of the similar levels as what has been in the financial year '19, '20, but I'm very sure that it is an 12 to 18 months' time, that market would fully be on track. So all in all, if I look at it, it is -- and I'm sure all of you would agree that this is a time not to be over-adventurous. It is a time to be absolutely -- move in a very, very calibrated manner, realign the structure, cut down the cost, focus on operational excellence and give you best of whatever opportunities which are going to come up on the table. All these things put together will help us to tide over this crisis which is looming, not only on to us, but across the globe. And I'm very, very confident that at Welspun, that with the order book we have, with the almost no debt in our book, with the relationship what we are enjoying with our customers, I think all these 3 put together, we are in a very good position to overcome this crisis situation and we will come out much more stronger. This is all what I wanted to put on the table before we start on our detailed discussions and the question-and-answer session. And gentlemen, I will encourage you to please ask, as much ask questions, and we would like to bring as much as clarity we can bring on the table. Thank you very much. Greatly appreciate your hearing.

[Operator Instructions] The first question is from the line of Nirav Shah from GeeCee Holdings.

Congrats on a very decent set of performance and a record year for Saudi. Sir, a few questions. Firstly, we have seen some recovery in oil prices in the last 40, 45 days. So just want to get a sense from you whether at least the discussions have started from our customers, especially where we have canceled one order or postponed the order. Has initial discussions started? And at what oil price do you think the actual awarding will start in the U.S.?

So I think that anything which is north of $35 is a very comforting position for most of the E&P players, including the midstream company. And I am seeing, I am definitely seeing some confidence coming back into the market. But does that mean that this confidence is going to immediately translate into the business? The answer is no. I am sure that they are all prudent and they would like to wait and watch and they would like to do the math. They would like to see a very stable market conditions before they started doing large CapEx coming up -- before we see large CapEx coming upon the table. Having said that, the 2 projects which got canceled, one in the U.S. and one in India, these were the 2 large projects which we have orders in hand. They got canceled. The good part is that the engagements have started with them, the customers have started exploring about options, they have started looking at alternative options. And at least they are back on to the drawing board. So I'm not saying that they are going to get concluded immediately, but at least the discussions have started around that.

What was the size of the India order which was canceled?

So the size of -- it was almost close to 90,000 tonnes, 87,000 tonnes, to be precise.

And it was for the Indian market or it was in export orders?

It was an order to be produced in India for export.

Got it. Sir, just -- now the second question is, we have received order of 90,000 tonnes. So from when will the execution of that order start?

Q2.

Q2.

Middle of Q2.

Got it. And sir, we had some target of the Saudi operation reaping the shareholder loan of around INR 150 crores till June. So any further update on that? Because we received around $4 million in Q3. So any further update on that repayment of shareholder loan?

We are -- while they have the ability, but we are also looking at the situation. And we will take appropriate calls around that. But this is a time that we want to -- as I said in my earlier comments, this is a time we want to conserve cash to the last cent at every place, right? So it is in that. It is a uniform policy we are applying to our U.S. operations, Saudi operations as well as India operations. Having said that, as you know, that they have the ability, you have seen the turnaround of the Saudi business. Last year FY '18, '19. When we were discussing they were like almost to a negative of -- from a negative of $6 million, they are now contributing positive of $100 million, $100 million in EBITDA. So that's the thing which has happened. So the financial of the company is strong. It is all a matter of call. We will take appropriate cost of doing the shareholders' loan at the right time.

Okay. And so was the debt over there, the net debt at Saudi operations?

Yes, Percy.

So the net debt as of March at Saudi, which is from the external banks and all, is aggregating to about 100 and odd million U.S. dollars, USD 110 million.

Last question is if you can just share the plant wise order book break, that would be very helpful.

Sorry. Sorry, what was the question, please?

Plant-wise order book?

Okay. So we -- in India, we have close to almost 380,000 or almost close to 400,000 tonnes of an order book in India, almost close to 230,000 tonnes of our remaining order book in Saudi and almost close to 100,000 tonnes in U.S.

[Operator Instructions] The next question is from the line of Kaushal Shah from Dhanki Securities.

Sir, can you share some thoughts on what would be our breakeven production level in all the 3 geographies that we operate? These are obviously very, very difficult times for all players. So in terms of -- you did mention about cost-cutting initiatives taken in the U.S.A. So what would be the bare minimum production that we would kind of need in all the 3 geographies where we have to kind of operate? That was my first question. My second question was regarding the sale of the plates and coils division. There is a note in the results, which has said that it is getting consummated. But I want -- what I also wanted to find out is that the entire sectoral dynamics has changed quite dramatically. So are we hopeful of this deal still getting through in terms of likelihood? And three, your thoughts on -- on the India business. You did mention that some of the oil and gas majors have already started inquiries and they are kind of -- so if you can share some more thoughts and maybe add some more color on the demand scenario as far as the India business is concerned.

Okay. So as regards breakeven, as I said, that even at 100,000 tonnes order of what we have in the U.S., it is definitely -- and so we have at least ensure that it is not going to be a drag on our consolidated balance sheet. Right. So anything -- any order booking here on and which we are pretty hopeful that we will be able to do that is only going to top it up and only going to be -- only going to consolidate, further consolidate our financial position. Saudi, in many case, 228,000 tonnes of our robust order book, which is extremely profitable order book, we are seeing the performance over the last 6 quarters and this is only a residual order book. So we all know that what sort of profitability it can offer. So I'm not too worried at all that Saudi is going to let us down in terms of profitability. Coming back to India, we still have almost 400,000 tonnes of order book and the visibility onto the PSU sector, the public sector is looking very, very robust. And there has been, at various forums and at various interactions with all these PSUs, including IOCL, GAIL, Ministry, all the 3 places where we have been very closely working with. We have been assured that government of India is accelerating the whole process. And we are seeing the traction. It is not that we are not -- it is not just words. We are seeing the traction. We are seeing almost close to almost 250,000 to 300,000 tonnes of projects. Close to 300,000 tonnes of projects are already, right now, as we speak, are under the tendering stage. And I'm sure that out of that, we are going to get some quantity around that. So does that answer your question, please, across all the 3 geographies? Number one. Number two, you asked about the placement. As you know, that we have a business transfer agreement on the placement which is valid until 31st of March 2020. And we'd know the reason that's why it's extended because the raw material, the corresponding slab availability was the challenge I think. So the things are moving -- we hear that the things are moving absolutely fine on that front, number one. Number two, in order to bring more confidence into the whole deal, we also have an advance, because as per the understanding, they have also paid us the advance, so -- and number three, and most importantly, I must slightly give you a background. Yesterday, the minister of steel had called for a meeting. And in which they were talking about what is the steel consumption going to be and the way that India is going to position themselves. And in that discussion, all the steel majors are present. And way they were talking about, I think, so all -- that gives us an optimism that this is an asset which is going definitely be of very, very creditable use to some of the buyers in any -- to the buyer whom we are referring here. So PCMD deal, we are -- we have an agreement in place. We think that it should get consummated. It makes a great value. So -- but we have to see how things flow.

So you mentioned about the inquiries of the tenders currently of around 2 to 3 lakh tonnes. Can you share as to who these entities are, whether it is the oil and gas segment, whether it is a CGD segment, and maybe some more color in terms of the total value that it could mean?

This is a primarily from the PSU segment, primarily IOCL and Gail and the CGD segment put together -

The next question is from the line of Bhavin Chheda from Enam Holdings.

Good set of overall performance in FY '20. Just on the opening remarks, since you have covered major, and the presentation also covered a major thing, just on the finance side, how much is the -- because I think the first question was missed out. How much is the outstanding shareholder loan of Welspun pending in Saudi now? Mr. Percy mentioned the external debt figure of $110 million. How much is the partner's debt figure pending there?

So first of all, I would like to clarify that the $110 million of external loans that you mentioned, there are only working capital loans, and they're all tied with the project executions. So as we get the collections from the customers, these loans get automatically repaid. So as such, there is no long-term debt that we have there. It's only the working capital debt which is tied with the project loans. That's the first clarification. The second question you asked is about the shareholders' loans. So there are -- as of 31st March, we have the partners' loans where our share is close to about SAR 75 million. So we have these which are outstanding, which will get repaid as and when the cash flows improve, we'll get those repaid.

So it's a 50-50, right? So both the partners would have SAR 75 million outstanding.

That's right. It is $20 million. In dollar terms, it is $20 million.

Yes, sure. Both the partners are having some $20 million, $20 million. Because I saw, I think, cash flow statement shows you have received INR 55-odd crores in FY '20, right?

That's correct. We have been receiving repayments. So that's correct.

Bhavin, just to add that because of this -- all the East holidays and the COVID lockdown in Saudi Arabia, there were some -- the payments and all that stuff have slightly slowed down, got slightly slowed down. That is the reason we took a call that, okay, let the things come back on to the track, and then we start from there. If you see, there's hardly SAR 20-odd million which is left and looking at the order book, what we have and looking at the visibility, it's something which is definitely going to come back.

Sure. Second question on the order book breakout that you gave. So U.S. is 90,000 tonnes, which is same as a new order which you've got. So U.S. order book consists of a single order, right?

I'm sorry, come again?

So current order book breakup of over 7 lakh tonnes [ consists of ] 90,000 tonnes in U.S. and this is a new order which you got. So the U.S. business is just single order of this 90,000 tonnes, right?

The new order was close to 83,000 tonnes.

Okay. So 7 days from the old. Okay, yes.

. Yes, there were some old orders as well. There is some order in the HFI on a small mill as well. So all put together, we have close to 90,000, 91,000 tonnes of business. And as I said, that we are pursuing a couple of active projects, both on the HFIW side of it and as well as on the large diameter side of it. Of course, they are not as large as 150,000 or 160,000 tonnes. They are something in the range between 30,000 tonne to 50,000 tones projects. That is what we are pursuing at this point of time and as they materialize over a period of time, right? They are only going to add up and top-up our earnings.

Sure. And sir, the 90,000 tonnes won't be enough to cover your fixed cost, right? So I'm sure, I'm confident to get new orders. But current order book in U.S. still doesn't cover fixed cost, right?

See, what we did, Bhavin, that we have also taken, as I said, a serious cost optimization at the U.S. level, and with the cost optimization, what we have done and the earnings around these 90,000 tonnes, we will make a breakeven at the EBITDA level for sure. It is not going to be a negative EBITDA. It is not going to drag the in-debt number down.

Okay. That's a big number because I had a number in mind of 160,000, 180,000. So if you're saying on that day, if you are able to cover all your fixed and variable costs, I think that's a very big achievement. So because historically, I think top 150,000, 160,000, I think the U.S. has been reading. So I'm sure, I think as you said, there's a lot of cost cutting, which has happened in April. So that's very positive. Secondly, FY '21, as you said, there would be just maintenance-type of a CapEx and all that. So if we can get the number across 3 locations, how -- what is the minimum maintenance CapEx at each of the locations? And I think your press release mentions 1 more mill you are shifting to Bhopal, so that's -- I think that's a small CapEx there also. So adding all these figures, if you can update on FY '21 CapEx?

Right. So effectively, please -- first, let me answer the movement of one more mill to Bhopal. See, we have a huge concentration of capacity in; Anjar right? And whereas we were seeing that the optimal utilization of our assets was going down in Anjar, because in Gujarat, the water business is definitely on a slow mode at this point of time. Whereas in MP, we still feel very robust about that particular location. And all the infrastructure, in any case, was built up at a very minimal cost if this model was to be kept or have been mobilized, and that is the reason we are moving that there. So we are adding up our capacities and augmenting our capacities in lost MP because we still see a growth story for the next 4 to 5 years' time there, number one. And we want to capture that.

[ The, sir? ]

It's around 150,000 tonnes.

150,000. So 150,000 will move out from Anjar to Bhopal.

Yes, that's only a relocation. That's correct. And we'll move from Anjar, and it will get captured at Bhopal.

And any timelines and costs on this?

All put together, this will -- ancillary facility development and all that stuff put together, we should be not exceeding INR 40 crores either way. Okay, on the timeline state of it, I think so, we should be able to -- our endeavor was to complete this activity by July, August. It looks like we would get delayed by 2 months because for 2 months, almost 6-odd weeks, things have been completely shut down and the laborers have not been there. So there has been an impact of almost 6-odd weeks. The work has completely resumed, and it probably looks like -- that it will be towards October and early November. Q3 of this year, it should be up and running.

CapEx sides to it.

Yes, on the CapEx side of it, we are looking at a total CapEx of close to -- we have -- at India level, we are looking at a CapEx of almost somewhat INR 20 crores, INR 25-odd crores in India, and that includes the carryover CapEx activities which we have already started in '19/'20 and some new activities, which we will be doing. And this time, the CapEx is very focused on the -- on our HFIW mill. Because there's a lot of -- we are seeing a lot of CGD business, which is going to come up, and we really want to capture a maximum portion out of that. So all put together, India CapEx is close to like INR 20-odd crore, including the carryforward of the last year and the one which we intend to do this year. As regards to Little Rock, this is the time that we will be spending additional INR 20-odd crore in Little Rock. And see, at the end of the day, this U.S. market, as I said, is going to bounce back. And this is the time we want to bring our mill to us almost to a sort of a next-gen mill. There are a couple of areas we have identified. So we will be spending around INR 20-odd crores then at Little Rock. So these are the 2 major CapExes. All put together, INR 40 crores , INR 45 crores is going to be the CapEx, including both maintenance as well as new CapExes, which are going to happen in this year. And of course, there has been a Bhopal CapEx. As you know, that the Bhopal project has a residual CapEx to be done. So that will happen.

Okay. Just on one more thing I'll add. So on the -- since I think you'll see -- you're almost debt-free and still order book is strong, and you'll be generating a lot of cash, plus INR 800-odd crores which will probably come by year-end. So even if that comes back ended for the year, your business will pull in a lot of money. So -- and the first buyback, the 100% was not completed. So obviously, you'll save money from there also. So any evaluation? First, what is a legal timeline after which you can do the second one? And what would be the thought process of capital allocation going forward? You gave a very good dividend, obviously. But so going forward also, what would be the strategy to distribute free cash flows to the shareholders?

Bhavin, we have been very clear that the shareholders have to be rewarded appropriately at the right time. Whenever we had an opportunity, we have done that. Our track record very clearly validates that. At this point of time, at what time the plate -- the deal of the plate mill is going to get consummated, that is also a big factor. And in any case, at this point of time, this is definitely not a topic which we have deliberated upon, not at the -- even at the CapEx level or at the Board level. Right now, our focus has been, in the last 2 months, has been -- the complete focus has been that how to come out of this double whammy situation of COVID-19 and oil meltdown. The entire energy and the focus of the management has been on to that. And today, when I'm sitting on this call, I'm assuring that we will be one company where you will come much more stronger [ in history ]. I think our focus has been more on that. As things will stable over a period of time, we will get back and look at what are the options available. And whatever is the right way of doing rewarding our shareholders, we will -- I'm sure the Board will give guidance accordingly.

So if I may add, post the balance sheet date, also we have repaid some of our long-term debts in India. So our focus is, of course, to bring down the gross debt as well. So when we come out with our June numbers, you will see that our gross debt has further come down substantially.

The next question is from the line of Sanjay Parekh from Nippon India Management Fund.

Congratulations to the whole team for a commendable performance. I have a few questions. One is Saudi. Can you just run us through on a 100% basis EBITDA to profit? Because I see a share of profit at INR 206 crores for '20. But if you can give us what the EBITDA is -- I heard you said $100 million. So if you can give us the rundown from EBITDA to profit on 100% basis, that is the first question. The second question is on U.S. There, clearly, the activity levels have gone up. And hopefully, if crude sustains at INR 40 crores, INR 45 crores for a longer period of time, what would be -- how do you see the demand coming back if crude were to remain in this band at around INR 40 crores, INR 45 crores? Do you see the variable of demand? A little perspective around that would help. Also, the customer base that we have, I suppose, they're very strong customers in terms of balance sheet. But if you can give us some perspective of what is their standing to give us orders if things were to get better. The third is the working capital in this environment. How do you see our working capital in terms of this, which the last slide says that I think we are at 35 days on FY '20. Some perspective there will help. And the fourth is the plate mill, of course, their Dolvi expansion is delayed, so let's say, which they said on the call, that it will get over in the March end. I understand we put in INR 2,000 crores. So I just wanted to understand that for him to convert from slabs, having a plate mill, what sort of returns would he make and GSW make? And does it get really -- because it will all make -- I mean, there is a commitment, but economic sense, once Dolvi comes through, it would be a strong rationale for them to close the deal. So if you can give us some perspective there, it will help. So these are 4 questions.

Sure. I think let me -- before we run down on your Saudi number, let me answer you the demand in U.S. . I think so if the oil, we have seen -- what we have seen, Sanjay, is that if the oil stays consistently around $35, $40, I think so the confidence of the investors come back to the market. Right? So if that happens, I'm sure that the way I see things, probably Q3 or Q4 of this financial -- of the financial year. I would see that if the consistency in the oil is like this, it should -- the demand should come back to the market. But it should come back in a limited rate. It's not going to come back in the same way as what we have seen over the last 2 years' time. But it will definitely come back in a much better way than what we are currently seeing. So there will be better demand definitely if things -- if the oil has to stay around $35, $40. Number two, as regard the customer there, I think that we have -- the customer base from Welspun has been dealing, all of them are in an extremely sound financial position. I must tell you that the orders which got canceled, it was almost 160,000 tonnes of order which got canceled. And the resolution of that order happened over 3 weeks' time. We were paid to the last cent to the penny, right? Within 3 time. That speaks about the financial -- the depth of those companies whom we deal with. So they will be the first one to come back into the market once they see the sentiment coming back to the market. So we are very confident that in third quarter, fourth quarter, we will see a lot more traction. Also, we will have to keep in mind that in the U.S. also, it is an election year. And they have an election coming up in November, right? So I am sure that everyone is also equally cautious and watching things -- as how things are going to evolve. So all in all, I would say that third quarter -- later part of the third quarter to the early part of the fourth quarter, we will see a much more traction coming up from a business point of view to us in the U.S. And until that time, we have to see that whatever opportunities are there, they may not be very sizable in nature, but there are small, small opportunities which are coming up. At a minimal CapEx, people are working on at a minimal CapEx, how can I increase my throughput. Such opportunities are coming up of 30,000 tonnes, 50,000 tonnes, such opportunities are coming up. Our focus would be to keep on capturing them and work around that. Now does that answer, Sanjay, about the U.S. part of it?

Yes, yes. And just one more thing is, which you said, and it was really happening, which my colleague also said that at 90,000 tonnes, you breakeven. So -- sorry, this is an extended question. So essentially, your cost would have significantly come down there. And that would mean, actually, when the revival happens, your actually flow down to EBITDA could be far faster. Is that -- I mean, so what I'm asking is the cost-cutting is can be a sustainable number as well, right?

It is, it is. In U.S., the manpower for -- the fixed costs are very sizable in nature. And it was a need of the hour. And that is what I said, that our focus, when we saw this thing happening, the COVID-19 and oil meltdown, the entire energy and bandwidth of the management got focused there, that we must bring up the cost to an absolute rational level. So that it is a -- it stays a sustainable operation. So we are -- we did that, and that is why I am saying that, today, even at this level, when we are saying that 90,000 tonne level, when we were producing close to 100,000 tonnes, we would still be EBITDA neutral. So there's a lot of work which has been done behind that, and that has definitely consumed a lot of time and strategy behind it. So it has already been taken care of. But now as we move forward, now the focus has moved from cost optimization to now to see order book. So we now have an order book of 100,000 tonnes. And now the entire effort has been moved from topping up these orders, because whatever topping we can do on this over and above that, that is all going to -- our fixed cost completely getting absorbed. They are all going to reflect into positive EBITDA. So it is in that strategy, we are working. Absolutely, there's no [ media vehicle ] here. It is a completely well thought of strategy, and we are executing in an absolute pace manner. That is how we are handling the Saudi part of it. Coming back to the plate mill side of it. I think what you see and what you hear, we also hear exactly the same thing. And in our [ Olympic ] conversations, what we are happening, we are not seeing any indicators of a red flag, which is saying that the deal may not get consummated. I -- if you ask me, my personal perspective around it, I mean, this plate mill can do 0.5 million tonnes. They would have that surplus capacity of slabs available at Dolvi. And I'm sure, even if they make $50, $60 EBITDA, it's a sizeable number. Money is going to make out of this mill, number one. Number two, we have to see that demand. Yesterday, only the steel minister and the steel secretary -- they were making a projection. That instead of like the API grade steel or the steel consumption Man India has produced 110-odd million, but the high-grade steel, which is the API-grade steel, they are focusing to convert that from 300 -- 3 million tonne to 6 million tonnes. I mean that is what the discussion I was hearing around. And if there's a purpose behind that, I am sure this asset will be very useful for them to use it. That's my sense. So all in all, I see that, a, there's a need. They have excess slab available. And even with that excess slab and they get $50, $60 for a convert, they will make their money. Number two, the Indian market is going to grow for sure. Number three, we will see a lot less imports coming into the country. So there is a space which is getting created. Number four, if you see, there is only 1 placement -- 2 placements. One is the ESPL and the other one being [indiscernible]. One in the East and one in the west. And they are the only ones who are capturing the market, where the market is much larger there. So all in all, if you look together, I have a great sense that this deal has -- this deal is based on merit and those merits even are outstanding, as firm as they when we got into understanding. The third, capital -- the third question you asked was the working capital. I think so we have been on and around 30, 35 -- 35 to 40 odd days. I think so moving forward also, that's the sort of a working capital cycle we are looking at. All the businesses what we are taking both in the government sector, PSU sector and the water sector are as well for import. I think so the hybrid of that is still suggesting us that we will be well within that loan itself. So I -- we are not seeing any drastic increase, I'm not seeing any drastic reduction. I think so 35 to 40-odd days will be the way in which we will display -- we think working capital, certainly, moving forward. Your fourth question was around Saudi. Just to give you a complete drill down on Saudi, what was the performance. In Saudi, we did almost close to 480-odd thousand tonnes of production. We did almost 0.5 million tonnes of sale. And we had an EBITDA of the revenue, I would put it this way. The revenue was a SAR 1,800 million. Let's say, SAR 148 billion. And our EBITDA was around SAR 376 million, which is like close to $100 million and which gives us a PBT of almost close to SAR 280 million. So these are -- this is the financial drill down of our Saudi performance.

Perfect, perfect, perfect. Commendable performance. And one last question is what we hear from you is, this year is going to be a tough year as we slowly recover. But your endeavor would be that what net cash position we have can be retained. I'm not at the off plate mill, plate mill is separate. Can -- will it be retained or it can get marginally better? Is that what I am -- can we -- that there'll not be a drag on cash flow this year?

It will not be. It will not be, Sanjay.

The next question is from the line of Sunil Jain from Nirmal Bang.

Most of my questions are answered. Only one thing I would like to know is how much is the sales volume of the U.S. mill in this quarter? For -- and in the year.

So this quarter would be, because we have inventories of -- we have a carryforward inventory. So -- Q1. You were asking about the Q1 for this financial year, right?

No, Q4.

Okay, okay, okay. So in Q4, we did close to 106,000 tonnes.

106,000 tonnes.

Okay. And for the year?

430,000 tonnes.

And sir, second question was related to India operation. Like the EBITDA, which we had done in this last year, full year, EBITDA per tonne, can that be sustained for the Indian operation?

For the Indian operations? I think so. I'm pretty hopeful about that.

That is sustainable.

That is sustainable. Because see, the blend of the orders of what we have the last year would almost be a similar blend, which will have a cost -- which will constitute of the businesses from the PSUs, the business from CGD, some business from export and some business from water. So the -- and the ratios are also almost in -- almost going to be similar. So I see no reason why it should not -- why it should be very different from this, what we have achieved the last year. But we have to see. As things move forward, see, these are all good feeling, good assumptions at this point of time. But I mean, we also have to recognize that these are very, very challenging and uncertain times, right? We cannot discount this factor. But our -- I mean, I'm very optimistic around things.

Okay. And about the CGD, you were quite positive. So can you share how big the order we might have in this order book? Or how is the pipeline for that?

CGD is getting a tremendous amount of trust from government of India I think they are really investing a lot of money in terms of bringing the last mile connectivity. What I hear is that their target is to bring more -- almost close to 400 cities under the -- in this particular phase to connect with CGD. So this is going to be an ever-increasing market in times to come, I think. So we will see at least traction for next 3 to 4 years in this particular segment. Their aim and their objective is to connect almost 70% of the Indian population to the last mile connectivity. So that's the goal they have set to themselves. It is going to take some time. And if that is the goal, I think so next 4 to 5 years seems very, very promising from a CGD standpoint of view.

Yes. I agree. Only thing -- are we seeing traction in orders on the ground level?

Yes, we are seeing. If I see -- let's say, today, as I speak, we have closed -- we have almost close to 30,000 tonnes of our small diameter business, which is the ERW business. That's the order book we have in the current order book. And as I said, almost 300,000 tonnes of business, which is right now under tender state. It also has a sizable amount of business facility diameters. So it is -- this business is definitely growing.

The next question is from the line of Dhananjay Mishra from Sunidhi Securities.

Most of the questions have been answered. I just wanted to know the breakup of Q4 in terms of U.S. volumes in there.

So the Q4 volume, sales volumes were 418,000 tonnes, out of which, India is 180,000, 1-8-0; U.S. is 106,000; and Saudi is 132,000.

113?

1-3-2. Saudi is 132.

Okay. And sir, given the [ availability ] you see in India as well as in the Saudi business, so even Saudi, we have end of order book for next 6 months, and we are setting some good orders in the next 3 to 6 months. So if we do similar or maybe 90% of what we did last year or 80% of what we -- can we maintain our earlier target of $120, $130 EBITDA per tonne for Saudi business or 5,000 EBITDA per tonne for India business?

See, we have always maintained that Saudi business will be close to $100. And I, see even for the one -- while the performance has been much better than that, and even for the residual order book, where the prices are fixed and the steel is already logged in. So I see -- I would see that a similar sort of an EBITDA per tonne, what we have got in the last 4 quarters, which we should be able to maintain. Moving forward, the new business is what we would have, I'm very sure that a $100 per tonne EBITDA guidance around that is a fair guidance.

Okay. So even for FY '21, this $100 for Saudi and about INR 5,000 EBITDA for India business is doable and breakeven level for your business? Can we take that estimate for FY '21? Assuming there is no further uncertainty into...

Yes. Now we have to put a caveat around everything. So if those caveats are in place, there is no further uncertainty, things are only going to stabilize from here. I think so that's a fair assumption to make.

The next question is from the line of Vikash Singh from PhillipCapital.

In terms of Saudi EBITDA pattern, which is significantly higher this quarter, shall we assume [ likely the ] guidance of $150 per tonne? So over and above as far as the commodity gains for this quarter?

So Saudi -- see, as I say, EBITDA per tonne is a factor of the product mix. We have 2 or 3 projects which are working in a particular quarter, depends which project you are running the most. So I think so rather than pinning it down to 1 quarter, I think so we should look at average, and that is how -- that is what guidance we have been maintaining. You have seen, in some quarters, we have gone high, up to $150. In some quarters, we have gone as low as $120, $100 as well. So I think so we should look purely from an average point of view because that is completely dependent on the product mix, Vikash. And moving forward also, we have to see that -- which orders -- which project will get what variety and all that stuff. So I think $200, $200-odd guidance per tonne over Saudi is the right way to assume things.

Okay. Okay. And sir, in terms of the incremental orders, especially in U.S. So given that we now too many players might be facing too few orders, how do you see that the margins there? So would it come down to even -- from the 2016 levels of $100, $150 or you are it should settle between the current margins and the bottom margins?

That's a very good question. Everyone is starving for business. So the competitiveness, the level of competitiveness definitely will go up, there's no doubt about it. But as I said, that it is a matter of which is one surviving, right? Not too many -- there is also a possibility that quite a few may not even survive this situation. So our strategy is very, very clear that we have that we have to see to it that we've tide over this uncertain situation for next 12 to 18 months' time. And then we are -- so that we are back with a bang. But answering your question that today, something has to happen, some bids have to come and would there be a very intensive competition around it? The answer is yes. Very natural.

And sir, just one last clarification. Sir, U.S.A., there's a lot of companies which are into transportation of oil and gas, whose may not been that much impacted with the oil price crash. That is largely dependent on the volume getting transferred from their network. So how is the -- have you got any setback from their projects and if they are also slowing down?

See, they are basically -- you are referring to the midstream companies. They are basically the one connect pairs on the 2 ends. The 2 customers, 1 on the producing end and other in the receiving end. So what they are doing there, playing the role of intermediatory and they are connecting them the 2 people, 1 on the producing and one on the receiving end. What has happened? Because of this oil meltdown, both at the producing and the receiving end. The appetite to invest money has gone down. So that is why the midstream company, whose job is to connect these 2 people, has -- also got impacted. So while on a stand-alone basis, they are -- and they are the companies whom we deal with. And so on a stand-alone basis, they are financially extremely, extremely sound. But of course, they are also impacted with all of these business scenario at this point of time. When on the producing and on the buying and people are willing -- not willing to invest money at this point of time. So their business also, business model also comes under this question. The new businesses. They are already making revenues and profits out of their existing businesses. Existing lines are already flowing and they are getting the revenue of that either way. But the new lines, what we are talking about, where our pipes comes into play, they are also seeing a slowdown there.

The next question is from the line of Shikha Mehta from Equitree Capital.

So most of my questions are answered. I just have a couple of more. Sir, could you give us your capacity utilization for the oils in the U.S., India and Saudi for the year?

Our last -- our FY '19, '20, when we produce almost 1.6 million tonnes of pipe and sold 1.5 million tonnes of pipe, our capacity utilization was almost in around 65%.

Okay. And could you give the break up, area wise?

Yes. So if you look, Saudi capacity utilization was more than 100%. The U.S. capacity utilization was almost close to 85%. India capacity utilization was close to 55%. So if you look at it, so average EBITDA -- we did an average of something like 55%

Okay, great. So in our Q4 numbers, the other expense compared to Q3 has risen sharply. Is there any specific reason for that?

So this quarter in Q4, because of the rupee depreciation, we also have an exchange loss, which is sitting there. In addition to that, we also have certain impairment provision that we have taken for our loans to shareholders, loans to the joint venture, the Wasco joint venture. So these are the 2 exceptional items that are there in this Q4.

Right. And sir, if we look at our stand-alone numbers, the cash conversion cycle and the working capital cycle is really stretched. Could you throw some light on that in our stand-alone book?.

And when you say stress, is what exactly do you mean by that, please?

The inventory receivables days have risen sharply, almost about -- it's actually above 100 days. Apart from that, it seems in line with this sharp rise in inventory days has caused stretch in the working capital cycle.

So see, there's been nothing exceptional as such in India. But on a consolidated basis, when we look at the numbers, our working capital cycle is well within control. So it's ranging around 35 days cycle time. Of course, because of the March 31 and the COVID situation, there would have been a few fluctuations that would have happened. But there's nothing major as such that is there. We also -- we are also executing one large export order from India. And as we execute, the advances that we have received from the customer, those are also gradually unwinding. So that may be one of the reasons why you would find that our current liabilities, that's where the advances from customers sits, that is reducing. And when current liability reduces, you will find that our net working capital goes up marginally. So that is another reason why you may find India stand-alone, the working capital becoming a little higher.

Right. And so in FY '21, we've spoken about the EBITDA margin which shall be at around $100 per tonne, and they are around INR 5,000 per tonne. So that was combo. And assuming the U.S. is neutral, so would that mean we fall below double-digit EBITDA margin for FY '21? Is that understanding correct?

It's too early, too premature to make an assumption like that. I think so let's be a little more patient. Let's see how things are unfolding, how the situation is unwinding itself. And I don't think so that there's any serious reason to be -- to carry a sort of a pessimistic view. But we need to be a little more realistic. I think so in times to come, in a few weeks from now, things are only looking much better. We have seen that. In a couple of week, things are starting moving -- looking better. I'm sure things will look better. Probably this is a question which we should deliberate sometimes around when we are looking at the end of quarter 2. I think so that is a time more appropriate time because that is the time -- a lot of amount of certainty would be in place. Today, all what we will do is making an assumption, and that may not be very fair.

Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments.

Yes. So thank you, everyone. And if any of you have any more questions, we would be glad to answer those. So if you can give us a call or send us an email, we will definitely try and answer those. Thank you.

Thank you very much, sir. Ladies and gentlemen, on behalf of Emkay Global Financial Services, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.