Welspun Corp Limited (532144) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Q3 FY '22 Results Conference Call of Welspun Corp hosted by Emkay Global Financial Services. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Abhishek Mody from Emkay Global Financial Services. Thank you, and over to you, sir.

Thanks, Faizan. On behalf of Emkay, I would like to welcome you all to Q3 FY '22 Earnings Conference Call of Welspun Corp. I would now like to hand over the call to Mr. Abhinandan Singh, Head, Group Investor Relations at Welspun Group to introduce the management and take it forward.

Thanks, and good morning, everyone. On behalf of Welspun Corp Limited, I welcome all of you to the company's Q3 FY 2022 earnings conference call. We have with us today Mr. Vipul Mathur, Managing Director and CEO; and Mr. Percy Birdy, Chief Financial Officer of Welspun Corp Limited. Also with us is Gaurav Ajjan, who heads Investor Relations for Welspun Corp Limited. We will start this forum as usual with opening remarks by Mr. Vipul Mathur, the company's MD and CEO. After that, the floor will be open for your questions. Should you have any queries that remain unanswered post this earnings call, we can reach out to either Gaurav or me. With that, let me hand over now the floor to Mr. Vipul Mathur. Over to you.

Thank you, gentlemen. Thank you, and very good morning to all of you. Welcome to our Q3 FY '22 conference call. I greatly appreciate and thanks all of you for taking time to attend this call. And to start with, I would like to take you through the key highlights of our operational and financial performance during this quarter ending 31st December 2021. In this particular quarter, we saw a successful IPO of our Saudi company, and it was an overwhelming response out there. As you know, we have diluted 30% -- the partners have diluted 30% of their stake out there. And this got an overwhelming response where it got subscribed in the institutional tranches by almost 72x, and on the retail side, it got oversubscribed by 16x. Further, we have a robust net cash position of INR 839 crores, we have a current order book of 543,000 tonnes and an active bid book of almost close to 2 million tonnes. Our sales volume for quarter 3 stands at 171,000 tonnes, and the total income from our operations stand at almost close to INR 1,300 crores. For the quarter, the production and the sales volume for our total operations was at 140,000 tonnes and 171,000 tonnes, respectively. This is our production and the sales numbers. For India operations, the sales was at 133 tonnes. For U.S. operations, our sales was around 3,000 tonnes. And for our Saudi operations, the sales was around 35,000 tonnes. Importantly, I would like to give you some outlook and updates and what are the key drivers which are going to take this business forward. Friends, as you are aware, -- the Brent crude pricing has touched the 7-year high of almost -- almost taking $94 due to tight global supplies. Several OPEC members have struggled to meet even currently monthly targets and lack spare capacity to boost production any further. Only a handful of states like Saudi Arabia would have some spare capacity that could possibly increase output. Even gas prices are an unprecedented high levels driven by a very, very strong demand. Overall, the current level of elevated prices, which we believe would stay is a big positive for WCL and is expected to drive global spending for oil and gas pipeline related infrastructure project in the medium term. We are also witnessing market corrections in steel price and they are now at a much more acceptable level across geographies. So we have seen an unprecedented commodity cycle in the last quarter, that seems to be slightly cooling off. As regard to India, India leading state oil and gas giants are expected to spend nearly INR 1.1 lakh crores together in the upcoming '22-'23 financial year as they supplement the government spending program to spur economic growth. The massive capital expenditure plans were unveiled during India's recent union budget and includes oil and natural gas corporations, IOCL, GAIL, BPCL, HPCL and Oil India. So all the oil and gas companies are spending -- upping their CapEx. The CapEx spending of INR 1.1 lakh crores in 2022, '23 compares with a revised estimate of INR 1 lakh crore for the current fiscal year that ends in March. According to the union budget document and almost 7% higher than the combined spending in the current financial year. Notably, GAIL gas utility -- gas utility GAIL will invest more than INR 7,500 crore in the expansion of pipeline bids and petrochemical plants. The PNGRB, which is the regulatory board announced the tenth CGD round bidding has authorized 228 geographical areas comprising 407 districts in 27 states and union territories covering 53% of the geographical area and 70% of the population for the development of CGD network, the City Gas Development network. PNGRB has also launched the 11th round of bidding in September 2021 and has received 439 bids from 26 entities against 61 geographical areas. The government plans to raise the share of natural gas in this country's energy basket to 15% from the current level of 6.3% by 2030, and city gas expansion is a part of that road map. Despite the increase in the gas prices, cost economy remains favorable for CNG and PNG compared to the alternate fuels. The Union Budget '22-'23 has also allocated INR 60,000 crores to extend tapwater coverage to 3.8 crore households in 2022, '23. This is a signature scheme, which we are talking about, the Nal se Jal scheme. The previous budget has allocated INR 50,000 crores for the piped water mission. The finance minister also said that the implementation of Ken-Betwa River Link project at an estimated cost of INR 44,000 crores would be taken up soon. This is aimed at providing irrigation benefit to almost 9 lakh hectares of farmers land, drinking water supply to 62 lakh people, 103-megawatt of hydro and 27 megawatts of solar power. To provide greater access to irrigation and drinking water, draft project reports of 5 interlinking projects, namely Damanganga-Pinjal, Par-Tapi-Narmada, Godavari-Krishna, Krishna-Pennar and Pennar-Cauvery has also been finalized. Once the consensus is reached among the beneficiary states, the center will provide support for implementation. Overall, the government programs reflect the continued focus of improving the lives of the people through several schemes to build water infrastructure to increase the use of -- and to increase the use of natural gas to build refining capacity, et cetera. We are confident that we will see a steady improvement in demand both for line pipes and DI pipes as these programs are implemented over a period of time. U.S.A. The U.S. production of dry and natural gas averaged around 93.5 billion cubic feet per day in 2021, up 2% from 2020. Natural gas production fell in 2020 as a result of low natural gas and oil prices that reduced drilling activity. However, the production has started growing in 2021 as drilling activity has come back online, especially back in -- especially in the Permian Basin, where associated gas production in the region contribute to the overall growth in the natural gas production. EIA forecast, dry and natural gas production will increase by 3% in 2022. The recent increase in oil and gas -- oil and the domestic natural gas prices will contribute to an overall increase in drilling activity that will lead to the production growth from second quarter of 2022 onwards. The U.S. crude oil production averaged 11.2 million barrels per day in 2021. EIA expects production to average 11.8 million barrels per day in 2022, and to rise to 12.4 million barrels per day in 2023, which would be the highest annual average U.S. crude oil production in the cart. The current record of 12.3 million barrels per day was set in 2019. The midstream companies have slowed down on investing in new pipelines as there were concerns about the regulatory issues and environmental position. Nonetheless, at the current level of high oil -- current level of the high oil and gas prices, we are confident of a revival in the midterm. Pipelines continues to be the cleanest and the fastest way to move vast amount of energy as opposed to more carbon emissive method like rail and track. Saudi Arabia. The Middle East is a key area for the welded pipe market due to rapidly growing water and gas consumption driven by announcement of large and vital projects requiring significant investment in pipelines. The Saudi market is the main driver of the demand volume in GCC region. We see a huge demand for Esso pipes is driven by the growth of the economy and the clear development programs launched by the government under the Kingdom's Vision 2030, the National Transformation Program, the National Industrial Development Program, the logistic program, the housing program and the financial sector development program. Moreover, with a pickup in oil prices, we are confident that further opportunities will arise both in oil and gas and the water segment from Saudi Aramco and SWCC. I would also like to inform you about the few business updates. One, IPO update on the joint venture company. As I mentioned earlier, the public offering of a joint venture company in Kingdom of Saudi Arabia, East Pipes Integrated Company on the Saudi exchange main market has been successfully completed in January of 2022. The IPO of EPIC was for 6.3 million ordinary shares, representing 30% of the issued capital of 21 million shares by way of existing shares of the current shareholders on pro rata basis. Post the IPO, WCL will own 35.01% through its step-down subsidiary in Mauritius and will continue to be the largest shareholder in Epic. Trading of EPIC shares in the exchange is expected to come in soon after fulfillment of all relevant statutory requirements. The price band of the IPO during the book-building process was in the range of SAR 72 to SAR 80 per share, as per the local regulations, 10% of the offered shares were reserved for retail shareholders and the balance 90% for institutional investors. The final offer price was set at SAR 80 per share with an oversubscription coverage of 72% of the total shares for the institutional investors and almost 16% -- more than 16% for the retail investors. So it was an overwhelming successful IPO, and we are expecting that it will get listed soon. Second, merger, update -- acquisition of steel business of Welspun Steel Limited. The process at this point in time is in the final hearing at NCLT and which is scheduled on the 23rd of February 2022, and we are expecting this transaction to be completed on or before 31st March of 2022. Third, update on the Ductile Iron project. As announced in October 2020, given the industry prospects and synergies with our existing business, we are setting up a green greenfield strategy at Anjar to enter the Ductile Iron pipe business. We are expecting to hit the market with our product offerings in Q1 of FY 2023. There is a big focus on creating drinking water supply in the country for government programs. As previously mentioned, the honorable Finance Minister, Nirmala Sitharaman in her budget speech for the financial year, almost earmarked INR 60,000 crore for the Jal Jeevan mission, that aims to provide potable water to 3.8 crore households in 2022, 2023. Overall, the Jal Shakti Mission -- Ministry was allocated INR 86,000 crores higher than INR 70,000 crores allocated in the previous fiscal year. ESG. I am very pleased to announce that Welspun Corp has been ranked 13 among the 41 companies included in the industry group in S&P Global DJSI Index. On the social dimension, we were ranked -- we were at the 77 percentile and on the governance and economic dimensions, we stood at 78 percentile, both are the top quartile in the steel industry. This marks a milestone in the company, which is a part of growing -- where they are part of a growing movement of ESG and around consciousness and transparency. Lastly, as you may be aware, during -- on the dividend side of it during Q2 of FY '22, the company paid a dividend of INR 130 crores and that amount -- dividend amount declared per share was -- in FY '21 was 100% of the FB of INR 5 per share. With this, I would like to conclude my opening remarks. We will be happy to take any questions. And the floor is now open for the questions, please. Thank you very much.

[Operator Instructions] The first question is from the line of Abhishek Ghosh from DSP Mutual Fund.

Sir, if you can just broadly help us understand the outlook for the domestic part of the business, the volumes are still kind of muted to that extent. So how should one look at it? How is the outlook because earlier you used to clock a much higher run rate of volumes in the past. So how should one look at it in that context? Some color there will be helpful, sir.

See, the volumes in the first 2 quarters have been slightly muted, I understand. And we all know the reasons that what were the contributing factors around that. We still -- in the domestic market, we still have the third wave of pandemic coming up and there were certain issues around that. However, now all those things happen to be behind us. I think there are a couple of factors which are very, very encouraging. We are seeing a consistent and a very steady growth in the demand in the oil and gas sector, number 1. Number 2, we are also seeing a very steady growth and demand in the CGD sector. What does it mean for us that when the oil and gas sector is steadily growing, our large diameter pipe business is going to see a growth volume. When the CGD business is going, there will be -- it will have a positive impact on our ERW business. The best part of it at this point in time, and we will see in the coming quarters is that because -- the capital investment in the water sector has also started coming in, which was missing in the last few quarters for a simple reason that all the state governments were more focused in terms of diverting funds for fighting pandemic. And they were not -- unable to invest that type of capital investment in the development of the water sector. So that has taken a hit. But what we have started seeing in Q4 onwards is that those investments in the water sector has also started to come in. We have also started seeing an uptick in the volume in the water sector. So all the 3 sectors put together, the CGD sector, the water sector and the large diameter oil and gas sector, I think so we are seeing an uptick. And in fourth quarter onwards, we should see a positive traction in that.

Sir, if you can give us some color in terms of how is the bid book looking like? How is the pipeline looking like for the domestic part of the business?

See, if you look at the total bid book, I think we are still looking at an active bid book of close to 2 million tonnes, but that's a global bid book number 1. Now if we talk about the India bid book, what are the prospects which are going to be in India, see, typically, in Indian market, we have been -- we have consistently been seeing that almost close to 700,000 to 800,000 tonnes of pipes are being bought on for the large diameter, number 1, right? Now on the ERW side of it, we have seen almost close to 200 -- 250,000 to 300,000 tonnes of ERW pipes are being bought for the CGD part of it, are being bought on a consistent basis. And on the water side of it, it is also close to 1 million tonnes of pipes, which are being bought on a year-on-year basis. What was missing in the last couple of quarters was that the water sector was completely redundant because the state governments were diverting the funds to fighting the pandemic. The oil and gas sector and the CGD sector were doing good. We were getting our own share around that. And we were absolutely fine with that. What was missing from our portfolio was the water sector because that investments were not happening. And that is what will now come up on the table. So it will -- it will not only bring in additional volume, but incremental income as well.

Okay. So sir, essentially, what you're saying is this 1 million tonnes of water which is combined ERW and large dia give you from the oil and gas was missing and which will kind of come back now? Is that the right way to look at it?

They bought itself, yes.

And sir, broadly, what is the kind of market share that you enjoy, I know it's a tough one because project to project it differs. But when you're kind of internally looking at, what is the typical market share that one should expect Welspun Corp, given that now you have plants across the center region also. How should one look at the market shares for you all as far as the water projects are concerned?

See, we have a strategical geographical positioning in South, which is by virtue of our plant in Mandya. We have a strategic geographical positioning in the central part of India, which is a by virtue of our plant in MP. And of course, we have a significant presence, which we have in Gujarat, where we have plants in the Dahej and Punjab. So in all these 3 states, we are seeing an uptick in -- we are seeing an uptick in the water demand now coming. And the state governments are willing to fund those projects. In these states, I think depending on the competitive framework, the percentages would vary. But just to give you a brief -- just to give a back of the palm, I think so we should definitely enjoy close to 20%, 25% of the market share.

And sir, just one last thing. We have seen good profitability in the domestic part of the business. So how should one look at it now going forward when these water projects kind of come through, there'll be some -- there'll be a function of operating leverage, but then there're function of lower margins also. So how should one look at the domestic margin going forward?

See, they are bound to only improve from here for a simple reason because the water business brings significant volume for us, and it helps us to amortize our cost, which indirectly directly helps us in improving our operating margins. So this volume, which has been missing was a little bit of a pain area. But I think with this coming back, we are very confident that things financially will also look much better.

And sir, just 2 more questions and I'll come back in the queue is that if you look at the U.S. outlook, while you may not have orders, but the outlook, all parameters, which are required in terms of higher energy prices and other things have all kind of tick marked. So internally, when you speak to your team, is it like a 1- or 2-quarter phenomena or a year or 2 phenomena when those orders kind of come in, how should one broadly get some understanding around the U.S. part of the business?

I can give you the comfort that we -- U.S. is 1 of our very, very focused area, and we are very closely plugged to that particular market. I think that the way things seems to be looking at this point in time, there is always a pattern which follows in U.S. The pattern is the first and foremost, the drilling activity has to ramp up and which we are seeing that the number of drill rigs have started improving -- started increasing. It is being -- it is followed by the demand -- uptick in demand in the OCTG. That also box is not getting ticked because if the drilling activity is starting, the OCTG demand is also going up. That is followed by the demand in the small diameter, which is the ERW pipe. And now we have seen some inquiries started trickling into that. And then it is followed by the large diameter. So that is how the U.S. follows a pattern. And out of this pattern of 4 blocks, we have seen the first 2 -- we have very strong demand in the first 2. The third one, which is the ERW part of it, we have started seeing some trickling. And I'm very confident that in the fourth part of it, which is a large diameter, it should follow soon. Maybe the -- and on top of it, it is all governed all because of high energy prices at this point of time. If you see the WTI and the Brent, they're all in plus of $85. And if you look at the gas pricing at this point of time, they're almost close to $4.5 and above. So these are absolutely high levels of pricing, which is at this point in time, which is making the E&P companies to rethink and come back with their capital expenditure progress. And -- if that is the case, I think it will be a matter of 1 or 2 more quarters when we should see a significant demand coming up on the table.

Great. And sir, just one last thing. On the DI part of it, when should one expect the first pipe to kind of get commercialized and come out because -- adjusted for because there's a lot of disruptions in supply chain. What is a legitimate time line to expect to -- for the first hot metal to kind of come out of that?

See, hot means I can tell you that from a project perspective, I think we are -- despite all the disruptions, we have been able to make up the most part of it. I'm not saying that we have been able to make up 100% part of it, but we have been able to make up the most part of it, knowing fully that the disruptions were of a severe nature. My sense is that our products will start hitting. We would be making various products, which would be pig iron, Coke and DI and all that stuff. I think so our product offerings one by one will start coming in the very first quarter of FY 2023.

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

Yes, sir. Thanks for the opening update and a very good presentation. A few questions. First, if you can update us on the progress on DI pipe project, how much is spent till date? And what's the road map to start the blast furnace followed by DI pipe targets for next year? Second question is on WSL merger. If you can update how much is paid till date, what is the deadline and status quo of the merger happening? And -- how is the WSL doing, if you can give some operational numbers there?

Yes, good morning, Bhavin. On the DI side of it, at this point in time, I think so we have -- in terms of your question with respect to the capital expenditure, we are almost close to INR 1,800 crores -- INR 1,700-odd crores of capital expenditure, which has been done, which is almost -- we are almost 85%, 90% of the spend at this point in time. And as I said earlier, we -- as you know, we are creating a facility for blast furnace [indiscernible] and DI, all put together. And one by one, these facilities would start coming on stream and the products will start hitting the market, sometimes from the very first quarter of FY 2023. The project is absolutely going smoothly, and we see no concern whatsoever, at this point in time. Of course, our project of this magnitude would need, of course, some time in terms of stabilizing and all that stuff, which is a normal standard industry practice. And I'm sure we will also undergo through that. But despite having said that, we are not seeing any major challenges around that, number 1. Number 2, as regards to your question with respect to WSL merger, as I said, there have been a couple of hearings, which has happened at the NCLT. The last happened to be on the 8th of February, in which the Honorable NCLT court has directed -- has listed for a final disposal around 23rd of February. We are expecting that it is just a matter of few more weeks when this merger activity should get completed. And we are -- I mean, internally, we are keeping a view that it should get completed on or before end of 31st March, 2022. So that's the update on the merger side of it. In terms of performance side of it, we have taken -- WSL, we have taken it through a capital revamping program. That program stands completed. We have already started sponge making -- we have already started making sponge out there. And we intend to start making billets there from the very first week of March. So that is where -- that is when I think when we will talk about the fourth quarter, we'll talk about the performance of that of WSL. In the demerged entity, as you know, that we also have WSSL and which is our specialty steel company. And I think, so we -- and I'm sure that you will be privy to the results, which were announced yesterday. More than the results, the performance of that company was also disclosed. And I can assure all of you that the company is absolutely on track, both in terms of performance. And it is only a matter of time that it will come out of the woods. Their acceptability, their product offering and their acceptability both in the domestic market as well as in the international market is ever increasing. They already -- just to give you some numbers, they have close to 2,000 tonnes of an open order book -- and out of that, 40% of the order book comes out -- comes from export. In this quarter, they have done -- quarter 3, they have done more than 900 tonnes of sales, which has been the highest ever, which has been done in the history of that particular company. So all in all, if you connect all the data points, the block, if you take all -- I think so they are absolutely on the track. And I mean -- and we see a tailwind in that particular segment as well. There is a lot of demand, which is coming up domestically. There's a lot of demand, which is there on the export side of it. And with respect to their quality and respect to their servicability, they have been able to capture it. Few of the highlights also around that they have done very high-quality grade HP heated tubings, which are used for the high -- for the thermal power plant. And they also are supplying instrumentation tubings, which is meant for the defense and all that stuff. So not only that the volumes are going up. The point I'm trying to highlight it is not about the volume, but they are also making the inroads and presence felt in the niche sector, which is what our ultimate goal is. So I think for the journey around that has been fine. And as the merger would stand complete in, I think, in the fourth quarter of this financial year, from next quarter or from the first quarter of the financial FY '23, we will start making you a detailed presentation about the progress of the same as well.

Sure, sir. Good to hear that Sir, just on the DI pipe, you said INR 1,800 crores CapEx is completed. How much is the cash spent and capital creditors because I see still the cash balances remains high in Welspun balance sheet at INR 839 crores. So if Percy is there, he can update how much actually the cash outflow has happened out that CapEx.

Yes. So Bhavin, there are 2 things that are happening. One part of the project is getting funded by the promoter that is WCL, which is a promoter for and WML and WDI. So there, we had taken certain long-term debt, as you are aware, in terms of NCDs. And that funding has more or less been going on track. So so far, it's about INR 650 crores, which has already been funded by the parent. Rest of the funding is coming, we are...

Ladies and gentlemen, the line for the management has got disconnected. Request you all to please stay online while we reconnect them. Thank you. Ladies and gentlemen, the line for the management is reconnected. Thank you, and over to you, sir.

Yes. Bhavin, I don't know where exactly you dropped off. Do you want me to repeat the answer? Or you heard it.

You can repeat it, I think yes.

So basically, Welspun Corp, which is a parent has funded about INR 650 crores into the project. And the WML, WDI, which are our wholly owned subsidiaries, they have also taken term loans from the banks, which is also coming close to about INR 350 crores to INR 400 crores. And then there are another INR 400 crores worth of LCs for the...

Ladies and gentlemen, the line for the management has got disconnected. Request you all to please stay online while we reconnect them. Thank you. Ladies and gentlemen, thank you for patiently waiting. The line for the management is reconnected. Thank you, and over to you, sir.

Yes, Bhavin, are you on the call?

Yes, I'm on the call. I think you said INR 650 crores is funded from Welspun Corp balance sheet and balance some LCs are open.

Correct. About INR 400 crores LCs and another about INR 400 crores is term loans in the subsidiaries.

So if I try to cross tally this number, your net debt in Welspun Corp, which you showed at INR 839 crores cash, so here only INR 650 crores of cash outgo has happened from the Welspun balance sheet in debt. So the pending payment must be close to now INR 500 crores, INR 600 crores. The cash would reduce by that amount, right?

So cash has already reduced until December, it has already reduced.

Yes, post December, Post December till the project start, your cash balance will reduce by another INR 500 crores to INR 600 crores purely because of the DI project.

Yes, yes see. LCs will also come up maturity. INR 400 crores other LCs, so they will also mature at a certain point in time in future.

Okay. Okay. Okay. And you will get the inflow from the Saudi IPO, so that cash balance will again go up.

That's right.

And is there any clarity on what kind of taxes the Mauritius entity first have to pay? And then Mauritius will give back money to India. So what kind of overall tax impact would come?

So Bhavin tax is still being worked out in a bit of detail. So maybe for -- we have about 60 days as per the regulations there to work out the tax impact. So I think we will reserve that answer for some more time. But I can tell you that the gross proceeds from the IPO is about SAR 252 million. So gross proceeds coming to Mauritius, which SAR 252 million, if you just multiply it by about INR 19.8, it will come close to INR 500 crores. But this is gross before IPO expenses before tax. So that clarity we will give you after some time. Definitely, in Q4, it will come. So before Q4, we will have that clarity.

And India holds 100% in Mauritius, right, this entire money would come to India from Mauritius?

So India holds 90% in Mauritius. There is another partner also who holds 10%.

Okay. So 90% of that INR 450 crores would flow.

Yes, we can roughly say that, yes.

Net of tax, net of tax, yes.

Yes.

The next question is from the line of Nirav Shah from GeeCee Holdings.

Congratulations for the successful IPO. Sir, a few questions. Firstly, if you could just give a broad breakup of order book plant wise. I understand that USA would be hardly anything, but how much is Saudi, India, if you can just give that breakup, please?

So at this point in time, we have close to 543,000 tonnes of open order book at this point in time, out of which close to 350,000 tonnes is here in India. South LR is close to 5,000 tonnes. And in Saudi, we have close to almost 190,000 tonnes. So that's a broad breakup please.

Okay. And sir, we did dispatch of around 3,000 tonnes from the U.S. plant. But out of the INR 132-odd crores of operating EBITDA, if you can just broadly give a breakup between the U.S. and India.

So in our operating EBITDA out of India was close to INR 112 crores and our operating EBITDA out of little -- U.S. was close to INR 22 crores. .

Got it. And in our last call sir, we did mention that -- our fixed costs in the U.S. are somewhere around $2.5 million, and our storage income is around $0.5 million per quarter. And if I'm looking at our other expenses, it's fallen very sharply compared to the average run rate of the first half. So I mean, is there -- I mean, are there any write-backs in U.S. because on a 3,000 tonne of dispatches in U.S. and net fixed costs of $2 million, we still have reported an operating EBITDA from INR 22 crores. So any one-off items over and above the storage income in the U.S. operations?

So what has happened is the other expenses are a bit on the lower side, largely due to freight. So there's substantial reduction in freight expense. -- both in U.S. as well as in India. So U.S., of course, as you know, the volumes are on the lower side. And India also comparatively speaking, in this particular quarter, our freight expenses were on the lower side.

But is that the only reason because if I see the net fixed cost of $2 billion and hardly any operating EBITDA from steel of pipes, so still we have reported a $3 million of positive EBITDA compared to a net fixed cost of $2 million. So the delta is a little.

So there are certain storage revenues also that we received from the customer there. So there are certain pipes which were stored on behalf of the customer, we also get certain storage revenue for that.

So that's nearly about $0.5 million of storage revenue that we generally do for that old order.

That comes -- yes, that comes in the U.S. EBITDA, correct.

The next question is from the line of [ Shivam Prashul from Pandit Sales Agency ].

Sir, I'm...

So we are not able to hear you please increase the volume of your device.

Yes. Now I'm audible?

Yes.

So I want to ask about the China Plus One issue -- China Plus One strategy that's happening. So that the export like from the previous few quarters, we were listening from you that China Plus One like China is not exporting. So what's the current status of that?

Sir, you are asking about the export of the raw material.

The export of their pipes also, the competition that we directly face from China in the international markets?

We are not seeing, to be honest, at this point in time -- even at this point in time, we are not seeing any significant competition coming off of Chinese pipe into the international market. There could be some pipes here and in the African market, where we do not have a very dominant presence and we do not -- we are not very competitive either way. But in the markets of -- in the mature markets where we work and with the Fortune 50 companies whom we work with, I don't think so we are seeing any influence of challenge by disrupting the business.

Okay. And sir, like you said about the public CapEx which is happening in the CGD and oil and gas space. Can you also comment on the -- on what side the private CapEx is happening in -- domestically in India, like if you can highlight some sectors that you are seeing -- that private CapEx also happening that can benefit us?

We see a lot of investment. And I mean I also read exactly what you are reading. But we see a lot of CapEx investment happening in renewables. We are seeing a lot of investment happening in the steel industry. These are the 2 sunrise sectors, which we are seeing that there's a lot of CapEx, which is being infused. I mean that's -- at least these 2 sectors happened to track. I am not too very sure that -- I'm sure that there would be multiple sectors where it would be happening. But these 2 sectors, which I keep a close watch on. I'm seeing resurgence and capital expenditure definitely happening in these 2.

And sir, in private participation on the CGD side, if you can comment on? Any private participation on the city gas distribution side?

I think the dominant -- we are seeing almost some 28, 29 entities -- strong entities competing around that. And we have been extremely successful at least to supply to quite a few entities, including Adani's and to Torrent's, but I mean, there is -- there are some very strong entities which are now getting into it.

Okay. And sir, any guidance on improving the return on capital numbers and all, if you can give us an idea from which quarter it will look. Like you said, in the 2 quarters, the situation might improve. So can you give the guidance on that also?

See, it would be difficult to give a guidance, but I think so what I'm trying to highlight is that what -- I see that a big chunk of business, which was a water business, which was completely evasive in the quarter, first 3 quarters, we are seeing a trickle that trickling back, and that is a very good sign. And I think so that in terms of volumes and margins, should head up into our profitability. So we are also -- I mean, we are seeing that happening. But I think it's a little too early to predict around that. And I'm sure -- give us this quarter and hopefully things will only improve from here. .

Sorry to interrupt. One last question. Can I ask?

Yes, please. .

Yes. Is there any impact on the -- like the volatility in the steel prices, does that impact or -- does that impact our order book and all?

Impact, what?

If the steel prices go up from here, if we take a scenario that will there be an impact in demand of our products?

See, first and foremost, the steel price impact has no -- steel price increase has no significant impact on our P&L for a simple because steel is a pass-through for us either way. And at this point in time, every order what we have globally is covered with a backup steel. So on this order book of 543,000 tonnes, we are not exposed to any potential steel impact if the prices goes up, number one. The -- on the second part of it, that does -- what about the steel pricing, I think so the steel prices were at an unprecedented high level because the commodity prices significantly went up. We have seen significant calibrations which has happened. But having said that, there has been a fundamental shift in the steel market also because the input cost has gone up. So I see that the steel market will also be in a -- will be pretty much range bound -- and as long as it stays range-bound and as long as it stays predictable, I think the buying activity will not get impacted because people have factored that into the costing and pricing.

The next question is from the line of Vikash Singh from Phillip Capital.

Sir, just 1 clarification in terms of Saudi money. So apart from these taxes, are there any intercorporate loans and adjustments which could have some and first impact due to overall remittance from Saudi to India?

No.

Okay, sir. Sir, my second question pertains to U.S. So there was a infrastructure bill passed on the water as well amounting to over USD 50 billion. Do we have any opportunity or the scope to service that part from our Little Rock mill or that is completely out of portion at this point of time.

See, while the infrastructure bill has already got passed, the financing to that to the various states is yet to trickle down, number one. But -- and -- and as it procures down to various states, I mean, we are absolutely open and prepared to explore those opportunities both in the water sector as well as in the structural sector. Because from a capability point of view, we can make those -- whatever the tubular products they require in our range, we can always make that they are nothing different than what we produce today. So as -- so we are keeping a watch on that. And as things will -- as things pans out, if there is a need, and if we can service those needs, we are absolutely open to do that. Technically, we are confident to do that.

Understood, sir. And sir, from our execution point of view, considering that U.S. is still pretty low on the order book. So at least it would take at least a couple of quarters for it to recover on the execution side -- because if we even start getting order from tomorrow, it would take us some time before we start executing. So is that understanding correct at this point of time?

There's always a lead time to that, and those are standard lead times, and that understanding is correct. Tomorrow you get an order, you don't start servicing from tomorrow. They are lead times of 3 to 4 months. So that -- we will also be subjected to that.

Understood. And sir, just 1 last question. So we were thinking of spending INR 170 crores on the TMT manufacturing also. So any update on the same? Where we are in terms of improving in that capacity or whatever we have done so far?

We have gone ahead with that particular project. We have -- there is a significant progress, which has happened on that particular project. Good question that you asked that question, Vikash, greatly appreciated. We are well on track on that. And I think we are still looking at August. Our target was always to get into the market by August, September. We are pretty much on track on that.

The next question is from the line of Saket Kapoor from Kapoor & Company.

Sir, firstly, to this storage part -- storage revenue, is it relating to the Keystone pipeline therein, we are accuring this income, sir?

That is one of it.

Okay. So sir, exactly, what is the status there, sir? And any -- and are we getting the cash or only the provision increase being made.

We are getting cash. We are invoicing them. We are getting cash.

Okay. And what is the update, sir, there should be a resolution for the same? Or what is the end story for it, sir?

And the market has to come back. That's it. The end story is simple. The market has to come back. The demand has to pick up. The pipelines have to get constructed. And that is where these pipes are going to get consumed. And as I said earlier in this particular call, I think so at this point in time, all the boxes, whether you see the oil price, whether you see the gas price, whether you see the demand you see the rig count, you see the OCTG. I think all of them are now falling in place. So we have reasons to believe, we have seen the cycle multiple times in the past, basis that we have reasons to believe that things are coming around the corner. And it's a matter of 1 or 2 quarters here and there, where things in the large diameter should also pick up. And that is where the final disposal of these pipes will also happen and our operations in little should also come back on track.

So do we have any environmental issues also, I think, so -- due to which the deliverables were stopped. So any update on that front?

Environmental issues, we were not concerned with any environmental issues.

No. pertaining to this dirty crude flowing to Canada and in that region, specifically, that was the reason for which the pipeline was not laid out if I was not wrong, if I understand correctly there.

Yes, Saket, you are right. They have political issues, and we don't want to get into that. That's between the governments to settle it out. We are a line pipe producer. We produce a high-quality line pipe. We produce that, and we are there to service our customers. And all of them whom we have supplied the pipes, they stand completely satisfied with our product offering.

Sir, coming to the fixed cost, sir, what is our fixed cost for the U.S. facilities currently?

As I said, we have almost $2.5 million a quarter. That's sort of a fixed cost, what we have at this point in time. And it is about -- it comprises of our manpower. It also comprises of some statutory taxes and duties, which we are -- which are there. And so that's the way it will continue.

And what is the breakeven for us just to cover those fixed costs, what should be the execution in the minimum -- bare minimum requirement of the pipes being produced?

It depends, we have multiple product portfolio. So it all depends which product we are going to supply. So I mean, I would love to have all my products my spiral mill, my ERW Mill and my coating mill working. And for the good part at this point of time, as we speak, our ERW mill and the coating mills are working. And it is only a matter that our large diameter spiral mill has to come into play. And as I said earlier, I think so the things are -- seems to be improving in U.S. We could see a light in the next 1 or 2 quarters, the things should improve there.

Sir, for the large dia pipes, sir, are therefore also we are doing back-to-back steel purchase or that has kept open index since they are long gestation period for the order execution. So what is the take on the raw material security for large dia pipes.

Always. As I said earlier, as a policy, -- we are completely covered. We always cover the steel. We have always maintained that in U.S. That is our standard policy. So never ever, we have kept it open. We are never subjected to that risk.

Sir, last 2-points. The question is Saudi IPO, the congratulations to the team for that, what kind of valuations sir, if you could give some understanding in terms of the EBITDA number or what kind of fee ratio the same has commanded -- so that would give us some understanding how are pipe companies being valued globally, especially in the Saudi region. So if you could share some light on that also, sir.

One thing this IPO reinforced is that pipelines are going to stay. That is a very clear message, which is coming. If you see the oversubscription which is happening, which means that investors still have tremendous amount of confidence, not only in the company's ability, but also in this particular sector, right? So we have been hearing talks that fossils are histories and all that stuff. I think so that's not the case. This is going to be -- we are there for a long place, number 1. Number 2, -- in terms of valuation, we -- you're talking about the IPO valuation, right? .

Yes, sir, yes. I want to see how is the company valued sorry to interpret, but what actually happens is that in an IPO, even in our country, Nykaa and Paytm were subscribed many times. So oversubscription does not -- according to me, the fine -- the real value, it is the cash generation from the company that is going to stay in the long future. So just wanted to understand how is the business is evaluated there at that time, the value given for the business since it is a cash-generating machine.

No, you are entitled to your view Vikash (sic) [ Saket ]. But I'm telling you the feedback from the ground because I have personally been completely plugged in into this whole IPO process. What I'm trying to give -- I'm not giving a political statement. I'm only reference -- representing the sentiments what I encountered during this IPO process. All -- when we met all the investors, I think so they were extremely confident and buoyant about the future of this particular industry. That's what I was trying to tell you. If I said it differently, my apologies for that. Now -- from a futuristic perspective, I think so that market is a very, very strong market at this point in time. I think so the amount of investment and the capital investment, which is going to happen in that particular market, is going to be phenomenal. They have a vision document called Vision 2030. And if you look at it, the amount of network -- pipeline network, both for water and oil and gas that they are going to create is absolutely mind blowing. And I think so keeping that in view, the market has responded extremely well. And if we saw -- I think so from a PE perspective, we would have got a multiple of more than 12%, 13%, so that is around -- so PE would be around 12%, not online. So as a PE ration, we should have got a multiple of around 12%. And that is how the market has valued us there. And if I may add my personal comment, that is what this industry is all about today, it might not be valued at other places. But this is the right valuation any industries in this particular companies,, in this particular sector, should be looked at -- but anyway, that's my personal view to that Saket, did I answer your question?

Yes, sir, I got the point. And sir, earlier sir, we also had some modification in the -- in the memorandum article wherein we were pursuing some marine fabrication industrial certification part of business prospects. What is the update on that? And sir, especially with this Welspun Specialty Solutions also -- we did spoke about it in great detail that the type of import substitute we can expect going forward from there. So if you could throw some light on these 2 aspects?

Let me take this Welspun specialty solution first. I think so in the earlier part of the call, I'm sure you would have heard I gave a little about as to how this company has been performing. And you are mentioning a very right point. I think so in terms of import substitution, it is great because there's a lot of restrictions which are now coming up and under this Atmanirbhar Bharat scheme also where the imports of these products are almost coming to would be very, very difficult. So I think so that is giving a further uplift to that particular business. So we are extremely buoyant and confident about the future of that particular company, number 1. Number 2, with respect to -- the marine -- the marine fabrication part of it, I think on the object clause part of it, we always keep on evaluating growth strategies around Welspun Corp. And we have been very clear that we have to diversify our portfolio at the Welspun Corp level. Typically, we have been a B2B company, and our intent is to move to -- bring specialty steels into our play a B2C component to a play so that we are able to bring much more predictability into our earnings and for our investors. So it is in that framework that we keep on exploring multiple opportunities. The marine opportunities as what we talked about it, we have been looking at various options. And as and when they will conclude, they will come to a conclusive state. We will come back and make a disclosure, please.

A small point in Welspun facility, sir, with this restructuring and all, Welspun facility would be fully owned by Welspun Steel, WSL, and that is being owned by Welspun Corp. That should be the structure there?

No. Percy, can you help us.

So Welspun Specialty Solutions Limited is a 50% subsidiary of Welspun Steel Limited. And Welspun Steel Limited steel undertaking is getting demerged with Welspun Corp. So the end result after the merger will be that, Welspun Corp will be holding 50% of WSSL, which will continue to be a listed company.

Okay sir. Can I have a -- there's a question on Welspun Specialty Solutions performance also sir since it is -- it will be a part of Welspun Corp going forward?

It would be -- from a compliance perspective, I think that may not be very appropriate Saket for us to answer that question at this point in time. That being a listed entity, but I would be subjected to all those questions when this merger happens, and I'm sure I will be able to satisfy all your questions in times to come.

All the best, and thank you for all the elaborate answers sir. We hope things do move for improvement on the going forward form.

Thank you, Saket. Thank you very much.

As there are no further questions from the participants, I now hand the conference over to the management for closing comments.

Gentlemen, thank you very much for taking your time out today and hearing us out, our perspective, our outlook and our future growth strategy. All in all, on behalf of Welspun Corp, I want to assure you that the company is driving and growing and moving forward by virtue of expanding the portfolio, also all the markets, all the segments where they are present in, which is the oil and gas, the water and the specialty steel, the sector, which is going to get merged and the B2C business of the TMTs and the billets what we are venturing into, all these sectors are showing significant growth prospects and I am sure the performance of the company will meet the mark of the investors and their expectations. And we stay committed to our governance, we stay committed to our quality and we stay committed to our serviceability to our customers. And with that, I would once again like to thank you once again for joining us today morning. And if you have any further questions, you are absolutely please kindly reach out to Abhinandan and Percy or Gaurav and we will be happy to answer all your questions. Thank you very much, and have a good day ahead, please. Thank you.

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