Welspun Corp Limited (532144) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and a very warm welcome to the Q1 FY '22 Results Call of Welspun Corp, hosted by Emkay Global Financial Services. We have with us today on the call Mr. Vipul Mathur, Managing Director and CEO; Mr. Percy Birdy, Chief Financial Officer; and Mr. Akhil Jindal, Group CFO and Head Strategy, Welspun Group. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. [ Abin Tanal ] from Emkay Global. Thank you, and over to you, sir. [ Abin ], over to you.

Good morning, everyone. I would like to welcome the management of Welspun Corp., and I would like to thank them for this opportunity. I shall now hand over to the management. Over to you, sir.

Thank you very much, and a very good morning to all of you. Thanks for taking your time out to the morning to attend our investor call for Q1 FY '22. Let me just first highlight the key -- bring the key highlights of our operational and financial performance during the quarter ended 30th June 2021. The PAT stands at INR 97 crores, up 68.6% on a Y-on-Y basis. EBITDA is at INR 203 crores, up 2.9% on a Y-on-Y basis. We enjoyed a very healthy balance sheet, with a net cash of INR 853 crores. Our total income from operations was at INR 1,299 crores. Our sales volumes stand at 175,000 metric tons. And we enjoyed a healthy order book of 487,000 tonnes, with an active bid book of almost 1.7 million tonnes. For this quarter, the production and sales volume for our total operations, including Saudi, was at 119,000 tonnes and sales of 175,000 tonnes, respectively. The breakup of that is as rendered. For India operations, our sales volume was 83,000 tonnes. For our U.S. operations, the sales volume was around 58,000 tonnes in this quarter. And for Saudi operations, our sales volume was around 34,000 tonnes in this particular quarter. Let me just give you a broad outlook and update about the key drivers, which we are seeing in each market. India. The demand for steel pipes is expected to improve with the higher level of economic activities amidst optimism that the vaccination program will stimulate the economy -- economic recovery. The government's thrust to improve infrastructure is expected to augur well for industry players. A study by OPEC shows that India boasts of the highest growth in demand for oil from 2020 to 2045, with a CAGR of nearly 4% to reach 11.1 million barrels per day. India contributed around 5% of the world's total demand in 2020, and which is expected to jump to 10% by 2045. To match the increasing demand for oil, the necessary infrastructure would have to be developed, which will result in several opportunities for pipe manufacturers. Another major demand driver for pipes is natural gas transportation and distribution. As per Petroleum, or PNGRB, the ninth and 10th round of bidding of city gas distribution organized in late 2018 covered 50.61% population, spread over 42% of the geographical area and is expected to require 1.74 lakh kilometers of pipeline. Out of this, only 75,000 kilometers has been laid until September 2020. Water continues to be a key focus area. Currently, the country's per capita availability of water stands at abnormally low numbers. We are seeing a huge capital infusion by Jal Jeevan Mission announced by the Government of India and under their significant scheme, Nal se Jal, and Nal se Jal at every home. And that seems to be now gaining momentum. Further, the scheme called AMRUT also aims at enhancing sewage treatment capabilities across India. Both these policy initiatives combined are expected to boost the demand for DI and HSAW and spiral pipes in the time to come. However, despite this optimism, we also have to recognize that there has been a steep increase in the raw material prices which has impacted the cost for major projects. This has resulted in delays in project implementation, especially in the water segment as the project costs have significantly revised upwards. However, we are confident in times to come that this will get adjusted in the value chain and things will be back on normal. We are also in discussion for several orders in the export market, which have seen significant improvement in prospects due to higher oil price and demand and availability of low interest rates. These opportunities are mainly for gas and slurry pipelines across all over the world, especially in Australia, Middle East, East Africa and Latin America. With our exceptional track record in execution and our price competitiveness and also with very limited competition in these projects, we are very well-placed to fill a large chunk of business in due course of time. U.S.A. The oil and gas rig count, an early indicator of future output, rose to 484 in the week of July 16, its highest since April 2020. This put the total rig count 91% higher than this time in the last year. It was also up by 98% since falling to a record low of 244 in August '20. However, there is a caution among midstream companies about regulatory issues and environmental opposition. Currently, we have -- we are not seeing too much of a visibility for any large potential order for our Little Rock facility, but we continue to be engaged with all the key midstream players and keeping a very close watch on every upcoming opportunity. In the meantime, just to optimize, we have taken several measures in terms of cost optimization and rationalization. However, considering the demand and considering the oil prices and also considering that there has been a significant uptick in the rig count, all these 3 are clear indicators that this economy will revive, the oil and gas economy will revive, sooner rather than later, and we stand very optimistic around that. Saudi. The Saudi business got momentarily impacted by a sharp increase of steel prices, which impact our profitability on a very small unexecuted order quantity. However, as of now, we have no open position of raw materials or steel for all the -- and the steel for all the orders happen to be secured. Further, the market, housing market is extremely bouyant. They are absolutely running high in terms of -- for the oil supply and the oil demand. They are -- we are seeing Saudi Aramco rolling out multiple programs in terms of bringing capital projects upon the table. And we also -- we, being one of the LTA holders, are -- will be a significant beneficiary as and when the pipeline orders will get funded. We are likely to see a lot of traction happening towards Q2 and Q3 from Saudi Aramco. On the water side of it, there are demand for the movement of desalination water to their inhabitants in the cities, continues to be strong. There are a couple of projects in which we have participated in at this point in time. These projects got slightly delayed because of a very high steel price and the Ministry of Finance making adjustments in terms of project cost. I think so, by -- in the second quarter, all these adjustments would probably be done and all the projects which were being put on hold because of this high-price steel price will come back on track. So we stay extremely optimistic with respect to our Saudi business, both on the oil and gas as well as on the water front. Lastly, as I informed earlier, we have already filed for an -- we have already started the process for an IPO. The process is on track. The regulatory approvals, which have been sought, are likely to come sometime in Q2. And then we will decide the timing in terms of when to hit the market for the successful IPO. We are aiming that -- we are aiming to complete this during the financial year '22 itself. I would also like to bring some business updates. As you recollect, in the last call, we have talked about the proposed acquisition of steel business of WSL by WCL through a Scheme of Arrangement. We have already filed -- just to give an update, we have already filed for all the necessary approvals. At this point in time, we are expecting comments to come back from SEBI, and the process seems to be completely on track at this point in time. On the DI project, as we announced in October 2020, we are going full ahead with our DI project and the greenfield facility at Anjar. And we are absolutely optimistic that it will be commissioned on or before March '22. So this project is absolutely on track, and we should be seeing production coming out in March '22. As you are aware, that the divestment for the Plate & Coil mill is now completed. We have received the final consideration, and no dues are now payable to us from the GSW who's the acquirer for this particular asset. So with this, the entire cost has been completely reimbursed and received. Lastly, I also want to touch on the key initiatives, ESG initiatives which the company has been focusing on. We are very, very committed and focused on a couple of things on the ESG front. Number one is the greenhouse gas inventory; number two, strengthening our supply chain, sustainable supply chain framework; number three, strengthening our governance structure; and number four, we are also working in terms of upskilling and bringing better Board effectiveness. These are the 3 or 4 buckets under which -- under ESG we are working at this point in time. And you will see significant actions coming up around in subsequent quarters to come. With this, I would like to conclude my opening remarks. I would like -- I would be happy to take any questions that you may have, please. Thank you very much.

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

And congrats on concluding or closing the deal to seal the PCMD asset. Sir, I have a few questions. Firstly, from the last quarter's interaction, I mean, we are seeing that the build book has increased from 1.23 million tonnes, to 1.77 million tonnes. Now what are the key segments and regions that have added to this build book? You mentioned that you have -- from the India plant, the potential has come from the slurry pipelines, but if you can just elaborate the reason why, and what are the key segments which has led to this increase in build book?

So there are 2 reasons which have significantly contributed, where the visibility is looking better and things are moving in a very favorable direction. That happens to be Latin America and the Australasian region from an export perspective.

Okay. And the segment is -- the incremental has come from which segment?

The increment has come from our oil and gas segment, and the product would be the longitudinal pipes.

Okay. Okay. And sir, you mentioned that your India -- when you were mentioning on the India operations, commenting on the outlook, you mentioned that the gas and slurry pipelines across the world from these countries, so is the value addition or the margins very similar to what we get in the oil and gas segment for slurry pipelines? Or there's a difference, sir?

They are pretty much the same. They are pretty much the same.

Got it. Just second question is on the U.S.A. operations. I mean if you can just share, for this financial year, what will be the annual fixed costs over there for the U.S.A. operations?

You know the largest cost component there is the manpower component, right? And until now, we have been running full blast. Until the end of July, let's say, until the end of this month, we had some orders in hand. And so we were running full steam, and an appropriate level of manpower was maintained. Now as we are seeing for the next -- as we are seeing a limited visibility of the business in subsequent quarters, not that we are not in discussion with some of the key players or key midstream companies to secure new business, but by the time they will materialize and by the time they will come for execution, there could be a little bit of a pause. So we are taking all the measures in terms of optimizing the cost, including the manpower cost. And we are absolutely working very diligently on that particular front at this point in time. Now the moment we will crystalize that, I think so by the end of this week or early next week, we should be in a better position to crystallize that. And if you allow us to get back to you by that time, I will appreciate that.

Perfect. And just a related question to the U.S.A. operations is, in the last call, you mentioned that the order book is -- visibility is still July. So whatever orders we had in hand over there, I mean, can we expect them to complete -- the pending order book to be executed in this quarter itself?

Yes. Absolutely. Absolutely. The production is over. The entire execution would be over in the -- by the -- within the next quarter itself.

Got it. And just the last question is, sir, what's the strategy with respect to Welspun's Specialty steel? I mean will we need to infuse more money over there? And what is the strategy over the next 3 years, broad strategy? If you can just share on that, that is the last question.

As you know, Welspun Specialty steel is a boutique company, right? And we have seen the peers in that business, what type of -- what -- the amount of recognition and the amount of growth they have recorded. I think so, we are even much better prepared than them. At this point of time, we have some big plans around that particular company. But I think we are taking fairly calibrated steps at this point of time because as we have filed for the Scheme of Merger, we want -- the first step is that, that should get through. And once that happens, and it is through the WCL acquisition -- WSL acquisition, it comes under our port, that is the time we would like to invest some -- it will require some marginal investment in terms of ramping up the operations. But we are very, very buoyant and very, very ecstatic about the growth of that particular company. And I don't have to elaborate that you are seeing the performance of the peers in that particular segment. So we should not be left behind in the whole process.

The next question is from the line of [ Avesh Khandelwal ] from RIA.

So I just have one question on this, the steel business. So if you can just share about the, I mean, the EBITDA, what you have done from last year in the [ problem then maybe ] EBITDA ratio for the business?

By the way, sorry, we could not get the question clearly. Can you repeat it, please?

Yes. I'm seeing that the steel business, so can you share the EBITDA, EBITDA ratio for the steel company which you are going to [ get revenue later ]?

Vipul, EBITDA.

For the steel company?

Yes. Yes. So basically, the valuation for Welspun Steel and for Welspun Specialty Solutions was conducted by, of course, 2 independent valuers. And if I'm not mistaken, the amount comes to close to about INR 360 crores to INR 365 crores for both these put together. WSSL, as you know, is a listed company, and the market cap is available in the public domain as well. And WSL, the numbers were -- the top line was close to INR 650 crores and the EBITDA was close to INR 39 crores for the year, March '21. So I think that might help you based on the consideration and the numbers as to what the valuation norms would be.

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

Sir, I just wanted to understand your views on the long-term planning on the oil and gas pipeline because now there's a lot of talks about the carbon neutrality and people are moving to solar and wind power. Since the pipeline planning time of 25, 30 years, so how do you see any feedback from the customer side in terms of anything that some people are reluctant to put in our pipeline because, obviously, the oil and gas transaction in the next 20, 30 years might not be in the same proportion as previously thought?

Because the oil and gas pipelines are going to stay at least in our lifetime, whatever is happening, it is happening for good on the renewable side of it. But the demand -- by the time that renewables will become completely full blown and could be able to get as a complete requirement, I think so there's a long way to go on that, number one. Number two, but also there is a paradigm shift which is happening in the oil and gas space. We are seeing emergence of like -- of hydrogen pipelines. We are seeing emergence of carbon capture. So these are all large -- it is quite possible that there could be a migration from the oil pipelines to hydrogen pipelines, to a carbon capture pipeline. But the intrinsic question is whether the pipelines will be there, the answer is yes. What will flow in those pipelines? There is a shift which is happening. We have to recognize that fact. We are preparing ourselves for that. And I can assure you that Welspun was, again, one of the pioneers in this country in terms of capturing those opportunities.

Understood, sir. Sir, my second question, in terms of tax implication in our bills, and so if you could just give us a little bit of more insight into this thing?

Yes. Okay. So as you know, the PCMD division was sold for INR 848.5 crores. And after the tax, WDV was reduced from that. We had a capital gain of almost -- about INR 590 crores, INR 600 crores, on which the capital gains tax is about 23 percentage. So it involves about INR 130 crores odd is the capital gains tax. However, we did not have the cash outflow towards this because we had certain long-term capital losses also on our bonds historically, which we had. And also, we had MAT credits, accumulated MAT credits. So at the end of the day, we didn't have any cash outflow towards the tax on PCMD. But if you look at the P&L expense, then you can say it's about INR 130 crores is the long-term capital gains tax on the PCMD sale.

Okay, sir. And sir, in terms of our net cash balance currently, is it after paying that INR 350 crores, INR 360 crores for the new acquisition? Or is it prior to that, and post the payment, our net cash would be lower?

It is prior to that. It is -- right now, it is prior to that. And as you know, that right now, we are only filed for the merger scheme to be approved. Once the merger scheme gets approved, and if you see the contours of the scheme, in any case, we are not going to pay -- it is not to be paid on day 1. It has to be paid over a period of 18 months from the approval of the scheme. So it's a -- there is no immediate cash outflow, which is going to happen of this INR 350 crore on account of this merger.

Understood, sir. And sir, just one last question, if I may ask. How much you have spent on the overall DI CapEx so far and the next 9 months pending, if you could give us that number?

See, as you know, we are looking at a total CapEx of close to INR 1,550 crores plus the soft cost at this point in time. I think so we are well-within our budget and also well within our time. We should be able to conclude this project well within that case.

I think he's asking what the cost incurred? Yes. So, so far, as we speak, we have already invested about INR 400 crores. So all that has gone into land, buildings, capital advances, plant and machinery. So about INR 400 crores has been done.

Yes. But I think the important thing is to note is we that have not yet drawn any debt on this. So all of this has been from the internal accrual. So this is a part of our equity contribution. If your question is how much further equity contribution is to be done, it's around INR 200 crores further. Rest all funding will be done through the debt, which is already tied up. So we would be shortly starting that accrual in August and all further CapEx really funded by that.

Understood, sir. Just one request from you. So basically, your press release is quite comprehensive and it's pretty good. But just one request is that any which way we usually take on the con call [ here of ], geography-wise, the volume [ and execution ], so if you could just see India and U.S. volume, also in the press release, that would have been wonderful year further.

I think so we have -- it is there in the press release.

No. Sir, not separately. So you gave Saudi plus India plus U.S. volumes combined. So India, U.S. and Saudi, if you could give us on the press release, just sir, it would be wonderful. And maybe, say, because you disclosed that number on the con call, so I thought probably it is possible in the press release. So otherwise, your press release is quite comprehensive.

Fair point. Vikash, we'll take care of that. Valid point. We'll take care of that.

The next question is from the line of [ Ayush Kumar ], an individual investor.

Sir, I have 2 questions. So as per the investor presentation, we have a net debt, net cash position of INR 1,700 crores, a gross debt of INR 800 crores. Don't we intend to pay off the complete debt and become a debt-free company?

Percy?

So Ayush, the gross debt that you see, about INR 816 crores, out of that, roughly INR 190 crores to INR 200 crores are sitting in the U.S., and that loan is maturing in the end of August. So as of now, our intention is to pay it off. So you will see a reduction in INR 816 crores by at least INR 190 crores, INR 200 crores. That's in the gross debt number. The remaining debt is sitting in India. And in India, we are actually raising new NCDs, nonconvertible debentures. So as we speak today, we have already raised INR 440 crores worth of new NCDs. Our plan is to go up to around INR 500 crores. So we could be raising another INR 60 crores of NCDs in the next 1 or 2 months. By and large, the reason for raising these NCDs is the long-term funds, just to make sure that those plans, in the longer run, like what the MD just now referred to our investments into the new projects, DI projects as well, so we are financing all those things through this long-term debt.

But is it that we are making more than on our cash than we would be paying on the borrowings?

Yes. I think -- see, we have to be mindful that we are investing for growth.

I think the cost of these NCDs had been kept quite under check. So the 3-year paper that we raised is around 6.5%. The 5-year paper is around 7.25%. And you are right. On the cash basis, also, we try and earn almost around the same number. So there is no negative carry. But as Percy was saying, it is -- the financing has been done. So keep in mind, the DI pipe funding requirement of the equity. Other than that, there's no requirement.

Okay. Okay, okay. But how come we are making almost 6% to 7% on the cash in hand?

Yes, they are being invested as per the Board guidelines, the Board-driven policies, which is usually in the AAA PSU bonds. We are not doing anything on the private sector while we talk. So they're all AAA bonds and other things. So prudent policies are in place by the Board. Sectoral limits and the company limits and everything has been put into place, and we are adhering to that.

So the plan is not to become that we have some cash in hand and then borrow from the market, CDs and -- CDs or commercial papers.

CDs and CPs are just to be in the market rather than any funding need. They're just to be active in the market. The CP -- the NCD program is what Percy mentioned, going up to INR 500 crores as a total. Out of which, we already have done INR 440 crores, which is in the June books, and the other INR 25 crores is in the pipeline. So by the end of second quarter, we would be done with the INR 500 crores NCD total.

Okay. Okay. Sir, the second question is for that Amalgamation Scheme, the total consideration is about INR 300 crores, INR 320 crores. So why are we issuing preference shares to pay for that? Why can't we pay from the cash in hand instead of issuing fresh preference shares capital and then [ readily made ] after 18 months, which we have interest-bearing? Why don't we plan to use the cash in hand in the balance sheet and just pay it off and get rid of the interest?

See, it is good for Welspun Corp that there is no immediate cash outflow. So these ratable preference shares are basically after 18 months. Okay? And the interest rate on these also is very nominal. So et cetera is for the market rates. So it's actually beneficial for Welspun Corp that the cash outflow will be after 18 months. And by that time, it gives us an opportunity for these businesses also to ramp up and start generating free cash. So I think it's in our interest.

Okay. Sir, the last question is, so all of us are talking about the cyclical theme, the -- that for the next 2, 3 years, the steel prices will be on the higher side. So don't we think by the time we will be able to commission that new project, we will be done with the cyclical period? Or we will still have some time to make up for that?

No, see we are talking of 2 entities here called, what we call WSL, which is fully operational at this point in time. We are talking of an [ event, ] WSSL, which is also a producing and fully functional entity. All what we are ending up is a new entity called TMT into the WSL entity, and that would take around 10 to 12 months' time from today to be up and running. So either way, we are not going to miss the steel cycle because both the entities are currently operating. And even at the steel opportunity, which is likely to be commissioned in 10 to 12 months' time, it will still have quite a bit of a headroom in terms of capitalizing that growth which is happening in the steel sector.

Okay. And the effective date is 1st April 2021, that will be from the back date. Is it?

That's correct.

Appointed.

Appointed date is 1st April 2021.

The next question is from the line of Rishikesh Oza from RoboCapital.

Sir, so my first question is, so by when can Saudi contribute numbers similar to Q2 and Q3 of last year? Can we say by next quarter itself?

Rishikesh, again, Saudi is -- the entire business spectrum of Saudi is about a project business, right? At this point of time, we are -- we have bidded in a couple of projects. We are favorably placed in a couple of projects. The awards have to happen around that. And once those happen, then you will see the benefit starting coming up. If you recollect, 1.5 years -- for the 3 quarters before, we had almost close to 1 million tonnes of an order book, which got executed over 6 quarters, 6 to 8 quarters' time. Right now, that is the type of goals we have set for ourselves for our Saudi business. We are working in that particular direction, but it is not going to happen in 1 quarter time. You have to understand, friend, that it is a project-based business. You have to bid. You have to get an approval, then the execution phase will start. So I think that it will take a few quarters before we would have -- all our aim, at this point of time, is to build up a significant order book in our Saudi business as well as in India, both.

Okay. And sir, my last question is, if you can give an order book bifurcation between Saudi, India and U.S.

So as we said, that we have close to 487,000 tonnes, roughly 500,000 tonnes of our order book. Out of these, 300,000 tonnes is in India. And almost a Little Rock, as I said, is -- America is low, it is around 30,000 tonnes. And Saudi is something like 170,000 tonnes. So all these put together, is close to 500,000 tonnes.

The next question is from the line of [ Manish Agarwal ] from [ Arrissan Power Limited ].

Congratulations on a good set of numbers. Sir, my first question is, sir, we are increasing our capacity for DI pipe. So are we looking for a great opportunity in the Nal Se Jal scheme that the government is planning to implement sooner?

Yes. We are seeing a tremendous amount of opportunity, which is going to come up. And the way things are moving under the Jal Jeevan Mission, Nal Se Jal scheme, is very, very encouraging. If you would have noticed, that the government also introduced a scheme called AMRUT, which was creating a sewage network, so that also will require DI pipes. Third scheme, what they have also have implemented is about this tap water in every other [ on the one ] side of it as well. So today, the water connectivity in villages, the sewage and the water connectivity at every house in the urban network, these 3 schemes put together is giving us a very encouraging -- great encouragement in terms of this particular business.

Okay, sir. And my second question is the government is planning to implement gas projects in most of the industrial segment, [ some tapping ] with the crude oil. So do we see the same kind of opportunity in the gas segment as well because the more the gas pipelines will be required, I think it will increase your order book as well?

Absolutely. If you -- the government is already on record. And if you see the PNGRB estimates, they are likely to put almost 37,000, 38,000 kilometers of gas pipeline network in the country, right? And we have started some 3 or 4 years back. I think so this upside of gas infrastructure would take another 5 to 7 years before the whole network will get created. So I think so for the next 5 to 7 years' time, there appears to be a great potential in terms of developing of a domestic category and in which the pipelines will be used and we -- and every pipe in the sector, including we being the leading one, will get benefited around that.

My last question, sir, OPEC has decided to increase the production of crude oil. So how do you see this move for the benefit of the company and the orders coming in the future?

If you see OPEC, OPEC and OPEC+ have actually calibrated their output. They have not decided to increase. They have calibrated their output. I think so when they are -- the whole purpose behind this calibration seems to be that they want to keep the price of the crude beyond a particular point. And if you see, today, as we speak today, it is almost close to $75 a barrel. If you see the last 8 weeks, it has been in more than almost $60 to $65 a barrel. So I think so by bulk, OPEC is working in a very, very calibrated environment, and they want to keep the oil prices high and which is good for the infrastructure developments to happen.

The next question is from the line of [ Vikram Damani ] from [ Damani Securities ].

I'm sorry if I'm repeating something that was mentioned earlier because I joined a little late. I just wanted some clarity on why our revenue was lower year-on-year, Q1 to Q1, as well as the pipe sales volume. If you could just throw some light on that, please.

It's a combination of the order book, which was to be executed in the quarter. You know, Mr. Damani, that it's a project business. It is all about what projects and what -- which has to be -- got executed in every quarter, right? So in this particular quarter, in comparison to the last year quarter, I think so the -- what was to be executed was on the lower side, and that is why the revenues are -- both the revenues are less. But as we move forward into the subsequent quarter, I think so you will see a significant uptick, which seems to be happening.

[Operator Instructions] The next question is from the line of [ Hamisha ], an individual investor.

So I would like to know more about the DI pipe business because you are adding a significant amount of capacity when I look at the capacity of other players. So would it not impact the margins of all the players for next year?

I don't know whether it will impact their margins or not. We stay -- we are very buoyant about it. We see a tremendous...

What are the margins that you are forecasting for that business then?

It's a factor of multiple things. It's basically a steel product, what is going to be the iron ore price, what is the going to be the coal price and all this. So I think there are various factors. It will be slightly premature for me to discuss about that. As we reach there, I'm sure we will be able to tell you in much more clarity. But right now, I think we are completely obsessed with 2 things. Number one, that, a, the project should get executed well in time and within the cost; and b, that demand, is the demand going to be buoyant or not. I think so we are convinced on both the fronts, and that is what we are currently focusing on. As regards the pricing and the costing, as we reach to that milestone, I think so that will be a more appropriate time for us to discuss that.

Okay. And I'm assuming it will take around a year for you to operate at optimum capacity. And if you can just share the approximate of the revenues it can generate when it operates at around 100% capacity.

You're right. It will -- I mean it's a new business. A new business will need some incubation time. But looking at the demand, looking at the [Technical Difficulty]

Ladies and gentlemen, we have the management line reconnected. [ Hamisha ], you may want to repeat your question.

Yes. So I was asking about the revenue forecast when it operates at 100% capacity.

I don't know where did I lose you, but as I was saying, that it is a new business. It will take some time. Any new business will need some time for incubation. But looking at the growth and looking at the demand, which is emerging in this particular segment, we are very, very optimistic that we will reach to our peak demand much earlier than in a normal course of situation would be. And also, the top line will be completely dependent upon as to -- of the prevalent pricing at that point of time. But just to give you a rough flavor that what could be a potential steady-state top line could be, it could be anything between INR 1,500 crores to INR 1,800 crores on -- when we are fully in an optimum utilization of our capacity. Having said that, but if it is a [ good, tonnage ] market situation, when there's [ steel and pipe ], it can be in excess of INR 2,000 crores as well.

Okay. And I want to know what are the CapEx plans for Welspun Steel? Because we are paying a good amount for an entity that is only -- and you said that it only generated EBITDA of INR 39 crores in FY '21.

Yes. So Welspun Steel's existing business, of course, has been our top line of INR 650 crores and an EBITDA of INR 39 crores, INR 40 crores. Nevertheless, they are also getting into the TMT business. And they have investment plans also, which I think we have disclosed in our press release documents as well. So we see a lot of potential over here. And the valuations that we are paying is nothing [Technical Difficulty]

We have the management reconnected. Sir, you may please proceed.

Sorry, we don't know where we lost you in terms of while we were answering. Can you help us? Where did we lose you?

About the TMT business that was in Steel's current...

Right, right. So if you look, it is a producing asset. It is producing top-notch billet at this point of time. It has a top line of almost INR 650 crores. It is contributing almost INR 40 crores, INR 45 crores of EBITDA. Looking at the steel cycle, which we are currently into it, I think so it is going to behave this way or even better. And on top of it, as you know, we are now investing into a TMT plant, which is a further value-added product, downstream side of it. So the incremental earnings of this is only going to go up from here, and that is why a very calculated decision was taken in terms of acquiring the [ fact ].

So what's the rationale to acquire this to use? I mean because Welspun Corp. is a stronger entity, so I mean, it will be better to scale up that business. Because and I mean, as of now, it's only generating EBITDA margins of 6%, around 6%.

See, it is not that Welspun being a strong entity and it wants to play a big better road. I think that the business rationale, it was purely based on a very sound business rationale. Welspun Corp. wants to consolidate his operation. We want to bring predictability and enhance earnings in our balance sheet. And we see that this is a natural fit. Today, adjacent to it, we are setting up a DI plant. We are making steel in any case, right? Why it makes the perfect sense for us to integrate this operation, along with the Welspun DI business, and bring it under onefold, so that we can leverage the capabilities, which are going to be [ generated ] between the 2 entities. So it's a very well-thought of decision rather than a big biller attitude being played here, purely based on commercial parameters.

I think in addition to the EBITDA being generated by WSL, which is Welspun Steel, you must also keep it in mind that we are also getting more than 50% stake in WSSL through this. If I go by the market cap concept today, the market cap of the company is almost INR 1,200 crores. And with that, the equity value that we are getting through this merger is nearly around INR 600 crores. So one, there is a consolidation of the business, the steel businesses, all of them coming together in the adjacencies, plus the EBITDA numbers and the WSSL business folding into WSL -- Welspun Corp. portfolio. It all makes a huge sense to merge all of them together.

Okay. And one last question is on the dividend or the payout policy that you have. So my broad question is after the major CapEx is [ over the ], let's say, for the DI pipe business and for the new TMT plant that Welspun Steel is also coming up with. What will be the -- if you can come out with a proper dividend or a proper payout guidance because I mean it's been very erratic, the kind of dividend payouts.

Not really. Not really. I think so we have been consistent -- our -- we have been very consistent in terms of making our payouts for the dividends, right? Wherever we had an -- if you see, in the last 2 or 3 years, we have been consistently paying that and depending on what earnings we have been doing. So I think so we have a very -- our intent is very clear that while on one side, we will have to chart out our growth plans, but on the other hand, we also would like to take care of our minority shareholders. And we have been regularly doing that. So I think our track record speaks on that.

No. No. So I'm just asking for a rough figure of the payout ratio that, that will be after next year, like after '22, when your CapEx is over in the DI pipe business.

So we will have to see that what type of earnings we are making. And I think so then we will appropriately discuss at the Board level and whatever the guidance will come, we will address that. But the one thing which I want to only assure you is that the interest of our minority stakeholders is always important of us. We always are very, very completely mindful. The Board is completely mindful of that particular fact. They work with that purpose and intent.

And I think you should also count the buyback that we did in the past, which was in lieu of dividend. So buyback and dividend put together, I think what Vipul is saying makes sense, that this has been a consistent policy and of course, it has been well defined at the Board level. So going forward also, we'll try and maintain that.

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

Congrats on the management on consummating the plate deal and again increasing the overall cash level.

Thanks, Bhavin.

And for the company. Just a few questions on, first, if you can -- I just missed out on that. If you can break up the order book into LSAW, spiral and ERW.

No. What we gave -- what I told earlier, Bhavin, was about the order book for the region. That was the question to me. As I said, that we have, approximately, an order book of 500,287, to be precise, let's say, 500,000 tonnes. Out of which, 300,000 tonnes is in India. In Little Rock, we have 30,000 tonnes. And in Saudi, we have close to 170,000 tonnes. So 170,000 tonnes of Saudi is all spiral. 30,000 tonnes of Little Rock is all spiral. The 300,000 tonnes of India is escalated between longitudinal, spiral and ERW, out of which, 150,000 tonnes, half of it is longitudinal, and the balance is ERW and spiral.

ERW and spiral. So this 150,000 of LSAW, again, will be largely exports?

156,000 would largely be exports, yes. It has a small domestic component, a small domestic component, which was one of the PSU, but largely, it is an export order, yes.

All right. So regarding this low India order book, I understand, obviously, this to be the sharp steel price rally look to be some postponement of orders [ then ] because India order book looks very low, and hardly, it's less than the quarterly run rate of what India can do and all that. So any discussion with the government and oil PSUs, which largely give this order and EPC companies because it doesn't look like steel or metal prices correcting in the near term soon. So how are they positioning on the upcoming CapEx, what we have been planning on this front?

So on the PSU side, especially on the oil and gas side of things, I think so this fact has sinked in and the market has calibrated itself. So we are seeing a continuous progression happening on the PSU side of the business. We are not seeing any slowdown happening on the PSU business in terms of their inquiries and their tenders which are coming out. So they are completely on track. They have completely understood, this change in the fundamental shift in the steel industry, and they are calibrating according to that. The challenge is coming up more on the water side of it, where on one side of it, because that the steel prices have gone up, the EPCs have taken their back [ book ] because they have booked their businesses at a much lower cost a year, 1.5 years back, number one. Number two, the payments from the government is also getting delayed because the entire machinery and the fund has been diverted in terms of handling this pandemic. As things are settling down, we are seeing that the government is gradually increasing the spending and the allocation of the funds for the water sector and started coming in. On one side of it, the funds have started coming in. On the other side of it, there is also a little bit of a moderation, which has also happened on the steel price. And third, the government is also considering to give a price rise to the EPC guys. So they are trying to bring both these points together, and I'm sure that it is a matter of time. I think so in this quarter, I think so there should be a convergence, and we should see the water business coming -- bouncing back to full steam. That is what we are hoping at this point of time. And once that happens, Bhavin, then I think it will give a quantum leap in our order book.

Sir, my second question was, I think, again, there remains a concern of the long-term energy needs and oil prices and demand and all that. But my view is that, obviously, a lot of your pipeline goes into the gas pipeline, and the demand for gas is increasing. And obviously, the usage of also gas will increase in the future. So though the gas prices are higher, are you not seeing some uptick in demand from either U.S., Canada, Australia? And how are the inquiries [ of the group ] because a lot of pipeline may be needed for export of gas also. So how is the situation there?

So you look at -- if you look at the North American market, we just concluded a large budget of a -- which was a gas pipeline. That was the highest operating pipeline, gas pipeline, which will ever be -- get commissioned. So we just concluded that. So right now, there seems to be a little bit of a slowdown in the North American market. But the Australasian market, the Southeast Asian market, has become very, very buoyant at this point in time. We are seeing a lot of inquiry, a lot of businesses emerging from Australia. You see, in last year also, we executed one project. The second project which got canceled, but now it got reinstated. We have already announced that. We are also pursuing 1 or 2 or 3 more large projects in the Australasian market. So there is a demand which is emerging in that particular market. Having said that, in my earlier conversation, an earlier question, I was saying that we are also seeing a lot of developments happening at the Saudi Aramco level, right? Saudi Aramco is also coming up with large projects. They have put 2 or 3 projects on the back-burner, especially the Marjan and the Zuluf. Now we are completely hearing, we are hearing that they are -- all those projects stand sanctioned, and they should also be coming up in the later part of this year, early next year, with their buying stream for those particular projects as well. So gas, in any case, Bhavin, is getting a lot of traction at this point in time, and it will continue to get in times to come as well. More domestic as well as for exports.

Sir, and how much time it would take for you today now is consolidate your Steel entity and Specialty steel. Approval process would take how much time?

Actually, it's a process of anything between 4 to 8 -- 4 to 6 months, 7 months. It is a regulatory approval process. You don't have too much of a control. But historically, in the indication side, it takes anything, 6 to 8 months' time.

[Operator Instructions] As there are no further questions, I now hand the conference over to the management for their closing comments.

Once again, thank you very much all of you for joining us on this particular call today for our Q1 results. I hope we have tried our best in terms of answering all your questions. But still, if you have any doubt, any queries whatsoever, you can reach back to me directly or to Mr. Percy or Akhil, or to our Investor Relations guy, and we will be more than happy to answer any queries, what you would have. Having said that, I once again want to thank you for taking time out. And stay safe and stay blessed. Thank you.

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