Welspun Corp Limited (532144) Earnings Call Transcript & Summary

John, you may go ahead.

Yes. Good evening, everyone. I would like to welcome the management of Welspun Corp., and thank them for giving us this opportunity. I now hand over the call to the management for the opening remarks. Over to you, sir.

Thank you, John. Very good afternoon to every one of you. We welcome to our Q2 FY '21 conference call. I thank everyone of you for taking time out to attend this call, and I believe and hope that you and your family members continue to be safe and healthy. This has been a very interesting quarter for us after we are coming out of this pandemic, which hit us very badly and every one of us very badly in the quarter 1. I would like to run through some key of our operational and financial performance during the quarter. And I would also like to give you an update on some key issues and -- before we get into the question-and-answer sessions. Some of the key highlights of this quarter are we locked in a pipe sales volume of 249,000 tonnes, which is higher by 12% on a quarter-on-quarter basis. We had pipe production volumes at 268,000 tonnes, which is almost 106% higher on a quarter-on-quarter basis. We have reported an EBITDA of INR 240 crores. The reported EBITDA is INR 240 crores, which is 22% on a quarter-on-quarter basis. Our operating EBITDA stands at INR 187 crores. Our PAT is INR 152 crore as against INR 58 crores as of the last quarter, up by 163%. Our debt position is that we have a net cash of INR 655 crores versus INR 198 crores in the quarter ending June '20. And on top of it, we have a global order book position of more than 700,000 tonnes, valued at INR 6,100 crores, which stands unexecuted at this point of time. If I can give you update on some key activities, the first one happens to be COVID-19. I am very pleased and happy to inform that all our plants are fully operational. The company and all its subsidiaries are operating in accordance with the health and the safety guidelines as has been issued by the respective government authorities. We have adopted several additional measures, encompassing global best practices across our offices and plants globally to keep our employees and service providers safe. So all the plants in India, Saudi and Little Rock in U.S. are completely working COVID free. Given the brief market overview, as we know that in the month -- at the end of the -- in the month of March, April, when this pandemic struck us, this industry was hit by a double whammy. First and foremost, there was a complete meltdown in the demand in the oil prices, and on top of it, was this pandemic, COVID-19. While on one front, we have recovered well, that the oil has gained some traction and has become little -- much more stable than it was. And for the last 2 or 3 months, it has been fairly stable. But COVID-19 still continues to throw a challenge and brings unpredictability. We are seeing the sort of a mixed response, while some economies are showing a V type -- V-shape recovery, which is, let's say, a case in question could be China, but there are certain economies which are going into a second lockdown as we know here happens to be Europe. I think so in India, we have managed this situation fairly effectively, and slowly and steadily, we -- the economy seems to be coming back on track, and it is -- and the reflection of that could very be clearly seen in the quarter-on-quarter performance or the performance between the quarter 1 and the quarter 2 and it can directly be correlated there. Having said that, I would say that -- is that the challenge is yet not over, and let's talk about India. In India, despite all the global turbulence, which has happened, I think so the country as a whole, is charting its own path -- charting its own growth path rather, and we are seeing the traction coming back both in the oil and gas sector as well as in the water sector. We have seen that Ministry of Petroleum and Natural Gas and oil PSUs have announced a CapEx of more than INR 1.2 lakh crore in this fiscal to boost the employment, economic growth and the infrastructure. In co relation to that, we have seen increased tendering activity from all these PSU companies and -- which has resulted Welspun winning several orders against that. They are currently embedded in our order book of 700,000 tonnes. We are also seeing a continued demand for the small diameter pipes, which is the HFIW pipes for CGD, PNG and CNG stations. We are also seeing little uptick in the downstream segment and are hearing that expansion -- refinery expansions for Barmer, Vizag, Paradip and Ratnagiri are very much on cards. On the water segment, while most of the states are still fighting for this pandemic and their allocation to the project's funding is still low, but none of them seem to have shared any of their long-term projects. I'm sure that no sooner we have some respite around this pandemic, the economic activity around the water would come back sooner rather than later. Some -- for instance, we are seeing that the state -- in the state of Uttar Pradesh, the Chief Minister has set a target of providing piped drinking water in each and every household of the state, including drought regions like Bundelkhand, and that too, all within next 2 years' time. We are also seeing a lot of interest by the multilateral financing agencies like ADB, JICA, NABARD and a very aggressive pitch by the central government for funding these projects. I believe it is just a matter of time before this water demand will also -- we will see a resurgence in that. On the export front, things have been relatively slow. However, I am very pleased to inform and as we announced also, we have been able to secure an export order in a new market -- in new market in Australia and which is now coming up for execution. So while this pandemic has been there, the economic slowdown has been there, we have been working diligently in expanding our customer base. And as a result of that, this Australian market is a new market which has opened up for Welspun. Currently, from an India stand perspective, the orders, out of this 700,000 tonnes of total order book what we have, we have close to 420,000 tonnes of an order which will be produced and executed out of India. This reflects a fairly stable, healthy order book, and it will keep most of our assets occupied for the balance part of the year. I -- however, I wish our asset utilization could have been still higher. But given the situation we have been in, I think so the team -- the company has done a fantastic job and having such a healthy order book sitting in India. I would now move to our entity in U.S. As we know, U.S. currently is under election mode, we have the Presidential elections going on. And as expected, during such periods of uncertainties when elections and all those things happen, there is generally a slowdown. So we are seeing a slowdown in the U.S. from an oil and gas perspective at this point of time. I'm sure as soon as the clarity with respect to a new government would emerge, which should be sometimes later this quarter, there would be some resurgence, which is expected to happen. Having said that, we still have a reasonably decent, healthy order book for our U.S. market, much better than any of our competitors or any of our competition in that market -- region. At this point of time, we have an order book of close to 130,000 tonnes, which is to be executed, and that will keep our operations continued till the end of this fiscal -- end of this financial year -- end of this financial year. Over and above that, we are seeing some incremental projects for enhancing incremental capacities coming up on the table. They're not very large projects. They are small, medium-sized projects, they are coming up. And we are participating in that, and we are very hopeful that some of them would definitely materialize into our order book in days to come. So U.S. market is -- we are very closely and keenly watching the U.S. market despite that we have an order book till the end of this financial year, a little beyond that. But still, our focus still remains the same that how can we see to -- that our order book goes much beyond this financial year. So I'm sure that no sooner the clarity on this government comes in, we will see some traction there. Coming to our JV in Saudi Arabia, we still have an order backlog of more than 4 months, rather close to 5 months, and possibly we will be booked till the end of this financial year. If I have to say, we still have almost an order book which yet to -- which is yet to be executed, is close to almost 148,000 tonnes. So this will see that we are absolutely in operations for the next 4 to 5 months or maybe until the end of this year. Having said that, and as we have informed earlier, we are seeing that despite all this pandemic and the oil meltdown which happened, the Kingdom of Saudi Arabia seems to be coming back on track much faster than anticipated. This is a -- this is getting reflected with the new projects and the inquiries which they have announced and which have come up for the bidding. We have -- as you know, there were a couple of projects in which we have bided and we were the lowest bidder or the favorable bidder. We are now seeing discussions of their revival and we are -- and there is a very high likelihood that out of those 2 or 3 projects, where we are the most favorable bidder and the L1 bidder, at least 1 or 2 of the projects might get awarded pretty soon. Once they are being done, it looks like that Saudi Arabia business continuity could be for a much longer period than what it is at this point of time. As also we have informed earlier in the -- for our JV in Saudi, we have -- the company has decided -- the JV has decided to -- for the proposed listing of our global entity there at the local Stock Exchange. The process of listing would involve divestment of 30% of the stake is split equally between both the JV partners. Which means at this point of time, Welspun stake, once the listing happens, the Welspun stake would come down from 50% to 35%. All the regulatory procedure formalities are being worked upon at this point of time. We have submitted our applications which is under evaluation at the local agencies, the CMA, and we are expecting an approval sometimes later this year. Once listed at the Stock Exchange, the liquidity -- you would see liquidity coming into the Welspun Corp because the investment in Saudi Arabia is also Welspun Corp through our subsidiary so -- through our vehicle in Mauritius. Further, I am also very pleased to inform that the Board in its meeting today has approved our foray into the Ductile Iron Pipe segment. If you recollect, we had sometimes back made our intentions to look at and evaluate opportunities under this DI Pipe segment. Over the last 3 months, we have done tremendous amount of diligence on this -- on the viability of this particular project. And we are very happy to inform that we found that it is an extremely viable project commercially for a company like Welspun to foray into. The key driver is the exponential growth in the urbanization, necessitating to create enabling and supporting water network. We are seeing a huge demand of DI pipes over the next 10 years. The CAGR growth projected is over 6% to 7% in this sector for the next 10 years. In order to capitalize on this demand and to bridge upon the widening demand and supply gap, we have decided to set up a greenfield facility at Anjar to enter in this high-growth segment. As you know, Di pipes find their key application in water supply infrastructure, sewage pipes, irrigation water systems, industrial water transportation, both in urban and rural areas. DI pipes are easy to install, they are corrosion-resistant, temper proof, cost-effective and have a serving life of more than 50 years. Due to these features, DI pipes in the small diameter water pipe segment are rated very high by the multiple stakeholders, including the project management consultants, EPC players and the water departments of various states with whom, in any case, Welspun as an organization deals regularly. We are also seeing that there's a huge push coming from the government on this water -- for development of water-related infrastructure, Nal se Jal and others, which will drive the DI demand. We saw almost a spend of INR 10,000 crores in the year 2019, and this demand -- or this market is due to grow to almost INR 20,000 crores by 2029. So in the span of 7 to -- 8 to 9 years' time, this demand -- the expenditure is going to get just doubled. And for WCL, DI pipes is a natural fit from a portfolio product expansion, would have good synergies with our existing business and also will bring in financial stability and consistency to our earnings. At this point of time, we are setting up a capacity for making -- we are setting up a steelmaking capacity of 400,000 tonnes and a DI capacity of 250,000 tonnes. This project is being set up with an initial investment of around INR 1,250 crores plus the soft cost, including contingencies and the GSTs. And we are very hopeful that it will be commissioned within 18 months' time. Though we have internally a very aggressive target. But out and out, we are more -- it would never -- it won't exceed 18 months. We have -- as you know, we have a healthy balance sheet to leverage this type of investment, and this project will be funded through our internal accruals and some external debt. So this is a new segment in which Welspun is foraying into. And in due course of time, we would like to attain a leadership position in this segment, too. On the plate mill side, I just want to once again reiterate that the business transfer agreement is still in place, and the deal is to be consummated before March 31, 2021. As you are aware, we have received some advances to firm up this deal. We are also very -- we are also hopeful that now that steel is absolutely on the buoyant side, we have seen a tremendous amount of on buoyancy on the steel side, the possibility and the likelihood of this deal getting consummated on or before 31st March is even becoming brighter day by day. So this -- so we are very confident that place and coil mill division divestment is on track and should happen on -- before the committed dates. Lastly, on the Bhopal project, as we have informed earlier, We did some reallocation of our assets for optimal utilization and have accordingly relocated one more spiral mill from Anjar to Bhopal. I am pleased that, that mill is in its final commissioning phase, and we are likely to see commencement of operations in the next few weeks' time. I'm very hopeful that we would be able to supply pipes from that new entity from 15th November onwards. With this, I would like to conclude my opening remarks, and we'll be very happy to take any questions whatsoever you may have, please. Thank you very much.

[Operator Instructions] The first question is from the line of Vikash Singh from PhillipCapital.

Sir, I just want to understand one thing. So this Saudi mill, which you are talking about the listing in the local exchanges, so the proceeds to which would get through to us. So how we are going to utilize that money?

Go ahead, Percy.

So the Saudi joint venture investment is held from our Mauritius holding company. And the proceeds of the divestment would first come to Mauritius. In Mauritius, we have certain liabilities as well. So we'll first utilize the funds to repay those liabilities. And if any surplus remains, then we will see as to what is the best way to put that surplus to use, whether to repatriate it to India through a dividend or any other options, we will evaluate at that time. But the first priority will be to repay the liabilities in Mauritius.

So how much of -- how much liability is in Mauritius entity, if you can share with us?

There are -- approximately $27 million, $28 million worth of liabilities are there, which are owned to our own group companies. So we'll first use to extinguish those liabilities, and then any surplus is less, then we will look at other options.

Okay. So it's fair to assume that no CapEx in the Saudi assets for the new money, right?

CapEx in Saudi? You mean to say in Mauritius.

Yes. No CapEx. So that money was -- no, no. So basically, many times people do list and that money usually utilize on some CapEx internally. So no CapEx is planned in Saudi?

No, no major CapEx.

Is it fair to assume, right? Yes. Sir second question...

Right. This is a divestment from existing shares. The money is not going to Saudi joint venture, the money is coming to the shareholders.

Understood, sir. Understood. And sir, second question pertains to the U.S. business this quarter. So if -- it seems that there were no dispatches. And basically the U.S., EBITDA was neutral by, saved by the inventory adjustments. So sir -- so if you could explain us since we have -- you said, we have already more than 180 orders. So why there was no dispatches this quarter? It seems like that in the number?

So in the quarter 2, all these orders got fructified and the production has only started in Q3, right? So we would see that some dispatches of those productions happening in Q3 carried over to Q4.

So if you could explain us the top quantum, how much of the tonnage is got delayed or -- in terms of Q2 to Q3?

So between Q3 and Q4, almost 80% to 85% of our order book -- current order book what we have will be executed and balance 10%, 15% might spill over to the next year -- the first quarter of the next year.

Understood, sir. Sir, in terms of DI pipe capacities, since mostly the customers are government organizations. So do we have already team in place in terms of the marketing side? Or -- and second thing related to the time. 18 months seems to be quite a small time frame. So have we ordered some equipment and machinery already? Or how is the current scenario right now?

So firstly, I think so the DI pipe, again, the customer -- the state government buy, but the -- typically the buying is by -- through the EPCs or directly by the state government in which, in any case, Welspun for this large diameter is participating. So it is nothing new for us. We are dealing with them, with the same customer base for our different products. So we are completely well versed with that procedure, number one. Number two, but this being a new product, at this -- by the time this product will come on the ground, we are still at least 12 to 14 months away, if not more, and we are in the process of constituting a very robust sales team around that as well. Our existing -- to start with our existing team, which handles water is competent enough to manage this. But as we move forward in the execution phase of this particular project, we will ring-fence and further strengthen the team, bringing absolutely specific skill sets on the table so as to capitalize upon this growth opportunity.

Okay, sir. Sir, just if I may squeeze in one last question. Any amount already spent on the order manner -- equipment manner orders or we have still yet to start this? And how much time as far you would take for you to get the approvals from the different entity, as I understand that DI pipe also needs the specific approvals in terms of dispatch getting participated in the order?

Right now, what we have invested is in time and complete diligence, I think we are -- we have done all the groundwork, homework in order to kickstart this particular project. We have finalized all the consultants, the equipment suppliers, the technical specifications, the lead time, all that groundwork and the homework stands completed. So we are absolutely clear with respect to now to start the project work. We are actually aiming for starting our civil activity in as short as 3 to 4 weeks' time from today. So we are -- so coming to your last question that in terms of approval, the first and foremost approval in this segment is required for IS grade. So no sooner we would have the production commencement happening. We will get our IS approval. And the moment we have IS approvals, on the strength of our relationship with the customer base, which is already our existing customer base, we should be able to get a breakthrough and start marketing and selling these products to them. The challenge in this particular project is the lead time, how quickly we can get into the market. Approvals and all those stuff are not as they are for the API grade of pipes.

All the best for the new venture. It's really good to see you into DI market as well.

Thank you, Vikas.

The next question is from the line of Sangeeta Purushottam from Cogito Advisors.

I had some questions on the foray into the DI pipe. What kind of asset turn are you likely to get on this investment of about INR 1,250-plus crore that you're planning to make? And also regarding your internal planning, what kind of ROCEs, ROEs are you expecting to get? That's one. The second is, if you could give us some idea about what is the competitive landscape in the DI pipe area? And what advantages, if any, would you have? And how do you see that emerging? Because if that's going to be a big opportunity, then is there -- are you likely to see a lot of more players come in? And what will be the outlook that you essentially see over here?

Okay. Quite a few questions loaded in this small question you asked for. But nevertheless, I'll be very happy to answer all of them, please. As you know, this investment -- this CapEx investment is going to be over -- is about INR 1,250 crores, number one. Number two, the asset turnover probably would be -- could be one.

Sorry, one?

Yes, please. Now there's a reason for the location for this particular project is our -- is at Anjar, where we have -- already have an existing customer base. The reason for that location also happens to be the -- yes, yes, sorry, my apology, I lost you for a second. The reason for that choice of location also happens to be because west and the north seems to be the major consumption center in times to come. Also, we are seeing there's a demand and the supplies skewness around these consumption centers. So it will be very, very -- it will be much easier go-to-market strategy in the -- if we would have -- if we are in the west and cater into west and the north rather than being into the south. We are -- what was other things wanted to know?

Yes. So what I want to know is that, okay, you've answered one that your is likely to be 1:1. And is this 1:1 only on the CapEx or it includes the working capital investment also?

On the CapEx.

On the CapEx. So actually, if you include working capital investment and your asset turn will be less than 1.

See working capital investment could be actually financed through short-term borrowings. So the initial investment that we are proposing is about INR 1,250 crores. And that will be all into the fixed assets. And the typical...

[indiscernible] of investment, you expect to generate a revenue of about INR 1,250 crores. And it could be an additional borrowing, which you need to do of about whatever, INR 250 crores, INR 300 crores, whatever be the working capital to finance this, right?

That is your rolling working capital financing, so that will be self funded.

Right. Okay. So my second question was that what kind of ROCE are you targeting here?

We are looking at almost close to...

18%.

18-odd percent of ROCE.

So are you expecting that your EBITDA margins, therefore here will be in that, whatever, maybe about 20% because with 1:1 fixed asset turnover and some financing to be done off the working capital, your EBITDA, therefore, needs to be at least 20%.

It is in the 15% to 30%, yes.

15% to 20%?

Yes, please.

Okay. So if you take 15% to 20% and let's say, we take a midpoint of maybe 17% -- let's say, 18%, and net out whatever you may need to invest in terms of your working capital because that's a choice you have what you invested out of loans or out of your own money, then actually if you're looking at a pretax ROCE, which is less than 18%. So if that's the case, then unless you're planning to finance this -- or significantly from debt, your post-tax ROCE on this will be -- post-tax ROE on this will be maybe about 13%, 14%? Is that what you're looking at?

See, the way the DI business is typically set up is that the asset turnover ratio -- because it's a capital-intensive business, so the asset turnover ratios are usually, as we indicated, about 1, 1.2 in that range. But the EBITDA as a percentage to sales is relatively higher than what other businesses would have. So that is where the...

I understand. So at the end of the day, the whole gain is about what return you're going to get on your capital. right? So whether it comes from -- if it's a low asset turn -- low capital-intense business, then you can work with a slightly lower margin, higher the capital intensity, you need a higher margin to be able to compensate for that. So are you -- therefore, if we work numbers around, it seems to me that your ROE that you will generate on this is likely to be about maybe 13%, 14%. It doesn't look higher than that.

It -- the return will come -- if you're looking at the return on capital employed, then that would come closer to about 16 to 17 percentage.

Okay, 16. Okay. Then how are you actually planning to finance this? Because as of now, you do have a lot of cash with you and you're expecting some cash also, right? So you have a net cash of about INR 655 crores. You'll be getting some money from the Saudi sale. You will be getting some money from the plate mill sale. And you're generating the profit. So all of which should be really sufficient to finance this. So is this going to be largely equity financing? How have you thought about it? And how are you actually overall thinking about what kind of ROEs you want to generate?

Yes. So if you see our September balance sheet and of course the consolidated balance sheet as well as stand-alone, both are in the public domain now. The stand-alone balance sheet of India shows that we have cash position of almost INR 880 crores. So that is one balance sheet strength which we have right now immediately available to us. Secondly is, of course, our leveraging capability because now that we are having a net cash position and even our gross debt which is miniscule now. So we have very little commercial papers about INR 60 crores outstanding now, which we keep on a rolling business. And we have only long-term NCDs of LIC, which are remaining of about INR 90 crores. So our debt is extremely at a low level, which gives us a lot of gearing capabilities, so that we can borrow funds at a very attractive rates. We are also looking at various options for raising the funds at the lowest pricing. One other thing you should keep in mind is that the investment of INR 1,250 crores that we spoke of is not on day 1. It will be spread over 18 months. So there also, our free cash flows will kick in. And over the next 12 months, whatever free cash flows our business throws up, which will be in the vicinity of around INR 300 crores, that also will be available for us to fund the project. If there's anything left about INR 100 crores, INR 200 crores, we can always look at debt options as well. So we are looking at options of debt as well to bridge the gap. And I have not counted PCMD divestment proceeds and the WME IPO proceeds. So all these things will be -- will give us that reasonable comfort level that we have the funding ready for the project.

Right. Actually, I'm not so worried about the funding. I mean, the funding seems reasonably comfortable, right, because you have a lot of -- you have cash -- you have a lot of cash flow coming in. I just want to know how are you thinking about generating ROE because that's ultimately what the shareholders will be concerned about, right? So if you have so much money coming your way, you could either choose to invest mostly equity money in the project or you could choose to basically give some of that back to shareholders in the form of dividend or whatever else and partly finance this project out of debt, which is what will give you a little bit of extra ROE. So have you really applied your mind to how are you looking at the overall capital structure of the company, so that you strike the right balance between safety and ROE?

Yes, we understood your question. So we are funding this project using a 70-30 proportion. So that will keep obviously the return ratios in control. Your question whether the internal cash, whether we would like to return it to the shareholders and finance the project more through debt, that's something which is, of course, internally, we are evaluating various options. So right now, our various options are, of course, we have the cash position in our balance sheet itself. So -- but your point taken that we could use more of debt, so that the return ratios for this project will improve. That's what you're saying.

That's right. That's right.

Yes. So I think it's ultimately a Board level decision as to the funds that we have, should we invest it into the project or whether we should use those funds to return it to the shareholders and finance the project through extra debt.

See, all we have -- all -- it's also about a hybrid strategy. See, at the end of the day, we have been also -- we also have to write our growth story. And we see a segment which is exponentially growing, and we have to ride upon it. So we will eventually opt out for a hybrid strategy. And while, of course, the interest of the return to shareholders continues to be of a paramount importance to us, that leads will also get addressed. And at the same time, we will also like to go on to this growth story, and we want to see that financial stability also comes to our earnings over the next 10 years' time.

Right, right, right. Yes. Okay. And one more clarification. You mentioned to an earlier participant that the money you will get from the JV listing, the IPO, will be used to repay some debt that you have in Mauritius. Now is that debt a part of your gross debt, which you are holding? Or what debt is that you will be using this money to repay?

So Mauritius has certain liabilities, which are payable to our U.S. company. In U.S., we have, as you know, we have an EXIM loan of $25 million. So we have the options available to us. We can use the funds from Mauritius to repay the loans to U.S. and U.S. can possibly use those funds to repay the external liabilities. We have that choice.

So at a consolidated level, you are going to use the money to repay debt, right, of the company? It is not there was some between structure, which is borrowed to invest and that debt is being repaid?

No, no, no. It is all within the company, all within the company, yes.

It is all within the company. Okay. And could you also just talk a little more since this is a huge investment that you're going to be making. In terms of the competitive landscape, where do you stand? If you could just give us some color on that to help understand your position better.

Fair point. I think so this is -- there are 2 or 3 large players, Tier 1 players, which are very dominant in this particular industry. One of them happens to be in the south. The other happens to be in the east. East is very densely populated, I would put it this way and there happens to be one large player on the west side of it. So the competitor -- and these are 2 or 3 companies which are Tier 1 companies. And if we see their historical performance, I think so they all have been operating at more than 100% capacity utilization over the past few years, right, both the ones in the south and the ones in the west, right? The ones in the east because there's a -- competition is a little more, there's a lot more capacity, which is available. But still, the average capacity utilization across the industry has more than 80%. So at this point of time, with the technology and the product mix, what we intend to -- we are bringing on the table, which is absolutely would be in direct competition to the Tier 1 suppliers. And specifically, when we are on to the west side of it, we are looking forward for a ramp-up of our capacity utilization much faster than it would have been earlier.

[Operator Instructions] We'll move to the next question from the line of [ Sudarshan ], an Individual Investor.

Yes. So any customers -- like have you got any more orders on September 29, where we had 755 kilo metric tonnes. Since that have we got any new order in the last one month?

Sorry, you're not audible, please. Can you repeat your question, please?

Yes. Since we announced the last order statement on September 29 for 755 kilo metric tonnes in our order book. Have you that any new orders in the past 1 month?

Last 1 month.

Last 1 month? Yes, so there have been some small orders, which would have come in the last 1 month. And the -- I mean, after execution of our orders up to the September, that is what we have reflected is 700,000 tonnes, after adjusting for execution till September.

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

Good set of numbers. Three, four questions. First on the debt side. Now out of this gross debt of INR 335 crores, how much is in India and how much in U.S?

I think out of this INR 335 crores, we have almost close to INR 150 crores in India and almost INR 185 crores is the U.S.

INR 150 crores in India and balance INR 185 crores for...

In the U.S., adding up to INR 335.

Okay. And entire cash is in -- INR 990 crores is in India, right?

Majority of it. So about INR 880 crores is in India and the rest is in U.S.

Cash, INR 880 crores in India and balance in U.S. Okay. Other question. Firstly, just on the Saudi part, I didn't understood the $27 million, $28 million liabilities of the group. So it is Saudi payable to U.S. entity or -- so in between, if you can clarify?

Bhavin, at the time of -- when we had invested into WME, we have brought in some kept funds out of our U.S. entity via Mauritius. So to that extent, that liability is sitting on our books from an entity-to-entity perspective. It is that entity -- it is that debt which we want to repay back. So the first, the proceeds which are going to come, we would first like to route it through back to U.S., so that what we can pay back those liabilities. And those liabilities, which will sit as the cash in the U.S. will most probably be used for setting our EXIM loan.

Sure. But what will you -- there is a -- is this the same the shareholder loan, which we have been talking in the past, which was outstanding of INR 120-odd crores. But I thought that was routed via Indian stand-alone company. So is that separate or is this part of the same thing?

So Bhavin, now from India, there is no more anything outstanding from Mauritius. So India has recovered all its investments, okay? So now whatever Mauritius has invested in Saudi is all financed with the U.S.A. -- loans taken from our U.S.A. subsidiary.

Okay. U.S.A. subsidiary. And U.S. is 100% owned by India stand-alone?

Yes, of course.

So I think it's all in Welspun Corp Group only. There's nothing -- no funds going out of Welspun Corp Group. Once it's coming to Mauritius and then we can...

Understood. So the Saudi stake sale money goes to Mauritius, which again goes to U.S.A. and which you use it for paying EXIM loan of $30 million?

Correct.

So you more or less become a debt-free in -- gross debt-free in U.S. also.

Absolutely. That's what our current scheme of thing stands.

Great. Second question, coming to the order book. So out of 701,000, 148,000, Saudi, as you said, will be completed in 4, 5 months, so this entire book would be completed then? And balance, overall 80%, 85% would be executed. So I was looking from balance 550,000 we will be executing 4 lakh in H2, right? And 150,000 would roll over into FY '22. Is that understanding correct?

See, what -- let's clarify, again, Bhavin. I think so this 100 -- let's go geography by geography. So let's say at WME we have currently an order book of 148,000 tonnes. That will get completely executed in this financial year. Then we have in U.S., Little Rock, right, we have close to 130,000 tonnes of an unexecuted order book, right? A large portion of that would get executed in this financial year. While the production -- that is why I'm saying almost 85% of the production will get done and -- of this order book will get executed. Only 10% to 15%, there is a possibility that it might go. If we can improve upon it, we would like to do and execute in this financial year itself.

So out of 130 000 we are doing, 10%, 15% may get rolled out of say, INR 20,000, INR 25,000 max. So over 1 lakh gets executed in the U.S.?

Yes.

Much more over 1 lakh. And plus whatever small orders come in or whatever, right?

He is talking -- one second, Bhavin.

So what I'm saying the U.S. 130,000, I understand you may produce and some orders dispatches may happen next fiscal as per the dispatch sheet. So in terms of sales and -- so production will be almost like 120,000, 130,000, sales volume may be 1 lakh, 1.10 lakh depending on the timing.

My Apologies. My apologies. I think I was answering you on the production side of it, right? So the production almost will get completed, 80%, 85% production would get completed.

Out of 130,000? Okay.

Yes. But the sales recognitions will not be in that manner. Sales recognition will get spread over to Q4, Q1 -- Q4 and Q1. yes.

Okay. So even Q3 would be low because of this election period?

Yes, yes. It's a very uncertain time. Now coming back to India, I think so we have an order book of almost 120,000 tonnes. This almost complete order book will get executed in this financial year.

In this financial year. Okay. All right. And how much is the LSAW order pending here and Australia is all LSAW what you got, right?

The one what we have, we got an LSAW order from Australia, which was deferred and in our -- LSAW order which we had from Australia. This is order which we have now is for spiral. So in the total order book of, let's say, 420,000 tonnes what we are seeing in India, almost 150,000 tonnes of business is in LSAW.

150,000 is LSAW. And if you have the ERW and spiral also handy there?

ERW will be close to 50,000 tonnes and the balance would be spiral piece.

Balance would be spiral. Okay. And 150,000 LSAW is almost 100% exports, right? There's no LSAW sales in India, right?

So there is a component of domestic as well. We have some PSU orders, which are necessarily LSAW orders. So in this 150,000 there is a component of a domestic order as well.

Okay. And other income had this INR 38 crore gain on sale of land or something. So even the gross proceeds was a similar number or a higher number?

The -- yes.

So the gross proceeds was about INR 43.5 crores, and that included an interest component as well of almost INR 4 crores. The cost of the plant was just about INR 2 crores.

Okay. So INR 43 crores cash you received and INR 38 crores was the gain. Right. Last question now, sir, your interest run rate will again fall sharply from next quarter after your gross debt levels coming down and cash levels going up. So I think your quarterly interest in this quarter was around INR 15-odd crores. So this should be some sub-INR 10 crores from next quarter onwards, right?

It will be lower than that. I mean, for sure, the interest component is going to come down, Bhavin, for sure.

[Operator Instructions] The next question is from the line of Bharat Sheth from Laksh Capital.

I have just one question because most of the other queries have been asked by the previous participants. About this PCMD plate mill sales, you said you're fairly confident that because of the robust steel market, you will finish the transaction before 31st of March 2021. So the total proceeds -- the total amount was around INR 800 crores, right, for this -- the sale proceeds?

INR 850 crores.

Okay. And you said you have received some advances, but if you can specify the number, how much you have received till now?

INR 50-odd crores.

Okay. So you said you are fairly confident that you will receive this INR 800 crores before March '21.

We are very confident. We are very confident. I mean, there are strong fundamentals around it. This deal was completely based on very strong fundamentals, nothing seems to have got changed. And on top of it, when the steel market is showing such type of resurgence and buoyancy, we stay very, very optimistic that this will go through.

Yes, I appreciate that. But see, it's been almost 2 years. So have you -- I mean, I'm sure there must be a continuous dialogue with the buyer. So I mean, because the amount is pretty big and now since you are going for the DI project as well. So I'm sure that you must have got some feelers from the buyer that they will finish the entire transaction by March '21.

We are absolutely engaged with them on a continuous basis. We have nothing -- we have seen nothing as a red flag at this point of time. And we stay very optimistic around this.

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

I just had one question. I think it might have been answered before, but I missed it. Could you please just specify what the other income is?

The other income has two components. One, there was a land parcel, which got -- which we sold, and there was some interest on the -- or gain on the ForEx area. So these are two other incomes.

Yes. And some treasury income as well.

Some treasury income. My bad.

The next question is from the line of [ Rishabh Makhija ], an individual investor.

Congratulations on good results this quarter. [indiscernible] cultivating the talent for this segment?

Sorry, we missed the question. Can you come again please?

How are we cultivating the talent for this project, the entire DI Pipe segment are going to hire a new talent? And how much -- could you quantify that, please?

Talent?

Talent.

Talent. Okay. It's good. It is an entity which will be under Welspun Corp. And we will be levering that -- we have a huge pool of talent already available with us. So we would leverage that capability. And whatever needs to be augmented from outside in terms of government specialists and technical specialists that is what we will bring on the table.

Okay. I understood, sir. My next question is on the cash flow generation this year. Would we be generating around INR 800 crores of cash this year, would that be fair to say from our existing business?

We would be -- my apology, I didn't get your question, so...

Cash flow generation from the existing business, would we be generating about INR 800 crores of cash this year?

See, in the first half of the year, as you can see, our improvements in the net cash position is very substantial. Almost INR 450 crores is the improvement, if you see from April to September. However, we were able to also see that in Q3 and Q4, as we ramp up, so if our volumes start picking up as we see them, they will be happening, so some funds will go into working capital as well. So you will see that the cash flow generation for the second half of the year will, to some extent, it will go down because some working capital requirements will come up. But by and large, you can say that in the whole year, we can expect a free cash flow of at least around INR 600 crores around that.

Understood, sir. My last question, if I could squeeze in. So if I look at the order book position right now, we have executed about 280,000 tonnes in the first half. Are we optimistic of touching around 1 million tonnes this year because if I calculate, I mean you said earlier, we are close to 900,000 this year. Are we hopeful of getting the small orders which would take us to 1 million tonne and beyond that mark?

Well, if it were, we would see it, okay. I mean -- and all depends how the markets recover and how the situation improves and we are very focused on each and opportunity. And whatever will come our way, we will like to convert that opportunity into a business reality. We would like to execute that.

The next question is from the line of Abhishek Gupta from Goldman Sachs.

Just kind of 2 bookkeeping questions for my better understanding. So First thing is if I look at the realization for the second quarter, they have dipped significantly. So the volume contraction, and I'm not including Saudi sale, is about 20% from 180,000 tonnes to 150,000-odd tonnes. But the overall realization on the revenue recorded is almost half. So could you help me understand why there's such a significant drop in the realization?

So while the volumes could have contracted, but the product mix has been very favorable in this particular quarter, the type of orders which were getting included in the realization on that, the high-margin orders, and that is the reason you see that.

No, but the realization has actually gone down. It's gone on significantly. So it just -- and it's significant. I would expect that there is obviously a change of product mix, but this number looks way too high for the product mix change.

No, no the realization only in the U.S. has gone down, right? But the realization in -- and if you see the realization in the Saudi and the realization of orders in India, that realizations have gone up. So...

Okay. Okay. And just to be sure, you did mention there was no dispatches this quarter when it comes U.S market, is it correct?

No dispatches in?

U.S. market.

In the quarter 2, there -- it was a very limited -- almost, 6,000, 7,000 tonnes of -- yes, 12,000, 15,000 tonnes dispatches which happened in the quarter 2. And as I said, that in quarter 2 was a phase in which we have got all the orders and the raw material order was placed and the steel would have come in. We have started producing in Q3 and the then execution -- portion of it will get executed in Q3, Q4 and then Q1. That is how the existing plans look like.

Because sir, we had a decent opening order, about 94,000-odd tonnes at the start of Q2 for U.S. specifically. So it's just the kind of procurement schedule which you have, which is kind of did not let you sell anything, right?

The lead time for the steel is -- the U.S. mills after the 232 duties there's any -- there's no steel which can come from outside. It is all domestic buying. The domestic mills have been significantly busy. There are lead time for API pipes. So -- and they are -- and between order and also the [indiscernible] steel, there are a lot of procedural formalities which are involved in order to do that. So we would have -- we now have steel coming in Q2 and of course, the starting in Q3. So that's the way to that.

I understand. Two more questions. One, clearly, looking we are looking at a new opportunity in DI segment. But if I look at the existing capacity, right, we have abundant capacity available across geographies. Even if I look at maybe our stated capacity is about 1.6 million tonnes, and the number which we'll be doing is somewhere about 6 lakh tonnes on annualizes currently. So won't you to think maybe right now, it would have made more sense to sweat this capacity rather than kind of committing to a new CapEx down?

If you look at the capacities, they're completely skewed. You have a huge capacity which is sitting up in the east side of it, right? But if you look on the west and if you look on the southern side of it, there's not that much for capacity, which is there. And when I compare it with the potential, which we have seen clearly, the west and north seems to be the growth drivers in the key potential area. There is definitely a demand supply gap, which is there and we want to fill up that gap. That will be the fastest way in optimizing our capacity utilization on the DI side.

So in that case, sir, given that we have extra capacity availability and you're saying that clearly the visibility is a little lower -- lesser there. How do we suppose to fund that capacity? Is it going to get converted into something else or you are hopeful that eventually the demand will come in from there also?

My apologies, I didn't get your question.

I'm just trying to understand that the kind of capacity which we have right now in India, and as you said east market is where you have excess capacity, what's the end plan there with that capacity? Would you convert it to, let's say, to the segment where you're seeing more demand? Or it will remain there till the time the demand recovery happens in that market?

I don't know. I mean on the east side of it, what is going to happen, we would -- we probably might see under capacity utilization on the east side of it. And from the southern and the west, there seems to be a robust demand, and I personally believe that there would be a very high capacity utilization in comparison to -- so you see, we also have to see it from different context. In this particular line of business, they're 2 times of players. Tier 1 player and the Tier 2 players. I think for the Tier 1 players, which are in the east, one of the player happens to be in the east, one of them happens to be in west and one of them happens to be in south. I think the Tier 1 players would find much more acceptability and suitability and to continue to be -- they would see -- you will see a very high capacity utilization for them. But for the others, it will may not be the same case.

Okay. Okay. So just an observation -- rather a thought. I mean clearly, given that we are expecting this plate mill deal to conclude by end of this fiscal. Would it make rather more sense to kind of get that money cost in our balance sheet and then commit to CapEx of this size? I mean so what -- otherwise what happens is, is just about 2 to 3 quarters when we started generating cash and balance sheet started looking favorable, and we are going there and committing CapEx immediately. So this kind of hurts. That would have made more rational sense to get that money first and then commit a CapEx.

You see, it's also to -- there are 2 ways of looking at it. First and foremost, a, we have -- we are confident about this, it will be recurring into our book. So which means that also weighed on to us when we made this investment decision, number one. Number two, because that -- the gestation period for the project of this magnitude to be setup is almost 15 to 18 [ year's ] time. And the go-to-the market strategy has to be faster in order to really capitalize on it. So it was a -- we have to take a little balanced on call around that. So we evaluated, yes, about our confidence of getting the [ critical ] money. We saw the liquid free cash flow available to us. The free cash flow what it's going to generate over the next 4 to 6 quarters. So all the factors went into our diligence process, and then we took this call in -- for going ahead.

Clearly, a good quarter in the context of how the market situation is. And hopeful to get positive news on this plate mill soon.

Thank you, Abhishek.

We will take the last question from the line of Sanjay Parekh from Nippon (sic) [ Nippon Life ] India Asset Management.

Congratulations to the whole team, Vipul and the whole team. I mean, fantastic cash generation. So I had a question...

[Operator Instructions]

Hello? Is it clear now?

Sanjay, you need to be slightly closer to the micro, it's cracking up, please.

Is it clear now?

Yes. Much better, please.

Okay. So the first thing is we generated significant cash this quarter. So this INR 478 crores of free cash, obviously there is a working capital release. So just can I get a break up of where -- how -- from where has this INR 478 crores been generated?

Percy here. So this generation of free cash that you are seeing now, of course, it is coming through the decrease in net working capital. And some of it is also because we have received advances from our customers. So it would not be that every quarter we will have this magnitude of free cash generation. So some of this as we ramp up our business also in Q3, Q4, as our production and sales volume also get ramped up, you'll see that some funds will get utilized into the working capital also. So on an ongoing sustainable basis, you can say that working capital cycle of about net 30 days is what we would like towards.

Perfect. Secondly, as I see your slide on the financial results for Q2, volumes and -- this is Slide 15. So one of my colleagues also asked the question, basically your volumes have gone up. You revenue is down, but your EBITDA has significantly been higher. So essentially, your EBITDA per tonne, and Vipul did say, if we're going to take -- and the EBITDA is of course is not Saudi but this is an operational EBITDA it was. So this is in India and U.S. So the EBITDA percent this quarter has to be significantly higher, right?

Yes. So if you look at -- if you see it, Sanjay, our EBITDA per tonne for this particular quarter is almost close to 165 -- almost INR 12,400 per tonne in this quarter.

And what will be the breakup of India and U.S. in this?

It is -- this is primarily out of India.

Okay, okay. So Vipul, this is a very, very good number sold. So is this a sustainable number?

See, Sanjay, it is all depending on the type of products mix, what we are doing. If we continue to do a similar type of product mix, which is the PSU orders, and this and that, all India products in India and blend it with some nice export orders, as what we were doing for the [ CGL ], our Canadian order. It is a clear reflection of that because PSU orders plus the export, these 2 put together is giving us this brilliant EBITDA. Right now, and what we see is that we would definitely continue to have an export visibility in futures to come as well. So we will -- we have a large export presence, a large footprint, and we will continue to work on that. So if the blend continues to be the same, I'm sure this is sustainable. There will be some timing as well. In 1 particular quarter, you may have -- only have domestic orders or no export billings happening. Then we have seen in the past some fluctuations happening around. But our endeavor would be to keep it as close to $150 and all that stuff. That's what our aim is. But as you know, it's a project business and then it all depends what types of projects what you have and what is the execution cycle, what is getting executed in all those particular quarters. So this is where these numbers keeps on changing. And to address, this has been a perpetual issue. While we have been having this clause and with the investors because the fluctuations which will happen consistently. I think so that is what we are trying to now plug in with bringing in more stability, much more stable earnings through this DI plants and the DI project.

And one more is in the U.S. now the crude has been up above $40 for a while, and it's difficult to take a view there. But assuming crude remains at $40-plus, how do you see the traction of new orders for next year, assuming it remains in the $40, $45 range?

So if you see the test, the crude has been stable almost at $40, $45, right? So even it has been consistent around $40, $45 for the last 4, 5 -- 4 months at least. So that has bring some sort of a stability into the U.S. market. But having said that, people are still very skeptical at this point of time because first and foremost, there is a lot of uncertainty. I was in U.S. two weeks back. I just came back from there. There is still of -- a lot of uncertainty about the political dimension that [indiscernible] will take. I think so that this particular quarter will go all in that, assuming that there is a favorable industry, oil and gas centric favorable government starting. I think so then we can possibly see in the next 2 or 3 quarters, an uptick into the industry. All of them are unanimously suggesting that it is in Q3 of the next calendar year, not the financial year, the Q3 of the next calendar year, probably they would see as sort of an uptick coming in the oil and gas industry. That is the general sentiment I'm sharing with you, like that is what the case is, right? Now how does it impact Welspun? We are currently booked till, let us say, April -- or little -- end of April. All what we have to see is that between now and April, we need to see some orders, which keeps on coming and trickling in, so that we go through till the quarter 3 of the next calendar year. But having said that, is that economy going to go down for a longer period of time? The answer is no, it has to bounce back. The earlier it comes, the better it is. And the other thing I also want to add that it is on the oil and gas side of it, I think so whether it is Democrat or the Republican, I think so there seems to be a broad consensus ow emerging, which was not the case in the past. Either there was an extreme right or there was an extreme left. But this time when you -- when I was there and I happen to see the debate and the sentiments which are emerging around that, I think so everyone seems to be trending a normal middle part. So there is nothing for extreme right or extreme left, which is good for our industry, which means the resurgence in the oil and gas would be much faster than what was anticipated.

And one more question I had which my colleague also alluded to, just trying to be broadly net cash of INR 655 crores. And I'm just saying -- I mean, I have done a little bit of economics for a buyer [indiscernible] very right. So for -- very likely l that the buyer would want to go [indiscernible] as much as you want to sell. So takes us -- if that deal gets through [indiscernible] plus the cash flow, what will be generated in the next half. So does that -- sorry, 1,400 -- INR 800 crores plus INR 655 crores, so INR 1,455 crores plus what we'll generate in the second half. So what I -- the question I had is the new project clearly has to be done because there [indiscernible]. But after plate mill having done, we have a policy which is [indiscernible] because you can appreciate that our stock is [indiscernible] undervalued. So would make sense and that is just a suggestion that once plate mill gets through, both the project that have -- of DI pipe expansion also go through and a good [indiscernible] policy which is good for all the shareholders, including the you [indiscernible].

So we completely respect the sentiment, Sanjay. And as I said earlier in this conversation, shareholders value creation, even from all -- the return to shareholders also happens to be our top most priority. And it is -- the sentiment is very clearly driven from the Board level and the Board is completely mindful of these aspects of it. And we will -- we are committed on working on a hybrid strategy where we have to see, we have to continue to be on a growth path and at the same time, keep on generating our shareholders as well. So I think so the Board is completely mindful and as and how the time lines and the guidelines will keep on coming. We have seen that in the past. As and when the guidelines will come, we will continue to implement. But we are completely mindful of this sentiment in principle, what you are suggesting.

Okay. Great performance in such times like this.

Thank you, Sanjay. And having -- see what we have -- what we also must be confident of the fact that we are coming out of a major pandemic situation, right, which, in Q1, we all are saying that there is a thing called, it's the end of the world, and from there this resurgence, I think so that speaks volume about the strength, the DNA of this organization. And I think so this is what we will continue to leverage of course in subsequent quarters to come.

I now hand the conference over to the management for their closing comments.

So again, thank you very much, gentleman, for being on the call. I think we have tried to the best of our ability to answer all of your questions. If you still have any questions, any clarifications around any of the questions, you may continue to -- absolutely free to reach out to us. We are completely committed to be in full disclosure to all our investors and the stakeholder here. And once again, thank you very much taking your time out and giving us a chance to present our financial results for you. Thank you very much. Take Care. Bye.