Welspun Corp Limited (532144) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Welspun Corp Q2 and H1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sailesh Raja from 360 ONE Capital Markets Private Limited. Thank you, and over to you, sir.

Yes. Thank you, Steve, and welcome, everyone. We thank the Welspun Corp team for giving 360 ONE Capital, the opportunity to post this interaction today. I would now like to invite Mr. Goutam, Head of Investor Relations at Bank to introduce the management team. Over to you, Goutam.

Thank you, Sailesh and good afternoon to everyone. Welcome to our Q2 and H1 FY '27 earnings call. On this forum today, we have Mr. Vipul Mathur, Managing Director and CEO; Mr. Percy Birdy, Chief Financial Officer; Mr. Yashovardhan Agarwal, Director, Sintex; and Mr. Harsh Rungta, Head Group Investor Relations. Before starting the call, you all must have gone through the results and the investor presentation of the company. which are also available on the stock exchanges and on our website as well. And during the discussion, we may be making some references to this presentation. So I request you to please refer to the safe harbor statement, which is their in our presentation. Before the opening remarks, let me just inform you that Mr. Mathur is a little under weather and is not having a good throat. So the -- we'll start the forum with the opening remarks by Mr. Birdy and post that, we'll open the floor for the Q&A. With that, let me hand over the floor to Mr. Birdy. Over to you, sir.

Thank you Goutam. Good afternoon, everyone. Let me first welcome you all on this forum to discuss our Q2 and H1 FY '27 performance. . As Goutam mentioned, I'm sure you all had a chance to go through our results and the detailed investor deck that we published on the exchanges and also on our website. Therefore, I would like to highlight only some of the key aspects in my opening remarks. And after that, we can have more time for an interactive session. We delivered yet another robust quarter. Our Q2 FY '27 EBITDA stood at a record all-time high. of INR 782 crores, registering 25% year-on-year growth. Our half yearly EBITDA rose 30% Y-o-Y to INR 1,538 crore, again, an all-time high. This compares favorably with our annual guidance of INR 2,850 crores EBITDA. Our annualized ROCE, return on capital employed for H1 FY '27 stood at 22.7 percentage, well above our guidance of more than 20 percentage for FY '27. Our net debt cash position also improved further to a net cash of INR 3,887 crores. This is after having incurred CapEx of approximately INR 1,500 crores for H1 of FY '27. As you know, our order book stands at an all-time record high of approximately INR 50,000 crores, roughly USD 5.2 billion. This provides strong growth visibility and underscores our exceeding footprint in the global pipeline market. Before touching upon the business environment, I'm pleased to inform you that the Board has approved 3 key investment relics; debottlenecking and capacity augmentation of our spiral pipe capacity in the U.S. by 225,000 metric tonnes per annum at a CapEx of up to USD 115 million. This is expected to be ready by March 2028. Setting up of a greenfield spiral pipe plant along with a coating facility in Jordan, under a 50-50 JV with Burma pipe at a total project CapEx of up USD 125 million to be shared with the partner. We are going high with this investment on the basis of firm MOU with the developers of Jordan's National Water Career Project and the Government of the Hashemite Kingdom of Jordan to advance the development of pipe manufacturing and advanced coating facilities in Jordan. The proposed facilities will be capable of serving major water, oil and gas, energy and infrastructure projects in the Kingdom and also across surrounding regional markets due to Jordan's strategic location. We are also setting up a joint venture in India for internal FB fusion-bonded epoxy coating capability in an equal partnership with Perma-Pipe. This will give us the complete bouquet of pipe coating services, which will enable us to go after large pipe export orders where IFE coating is mandatory. Now let me discuss the business environment. As far as U.S. market is concerned, demand continues to remain robust. The medium- to long-term outlook continues to be supported by growth in LNG exports, rising electricity requirements from AI data centers cutting the demand for new gas pipelines for captive gas turbine power plants and investment across onshore and offshore oil pipeline infrastructure. We are currently booked through FY '29 in the U.S. KSA market Ongoing investments in oil and gas and water infrastructure are expected to support pipeline demand. The region's evolving energy security and infrastructure priorities may also create opportunities. Also the potential for reconstruction in the Middle East region once the geopolitical situation stabilizes. In the short term, the supply chain logistics and freight costs in the region have been adversely impacted. Coming to India. The domestic demand continues to remain muted. The domestic water market remains under stress. Those that have been some optimism around river interlinking projects and interstate water sharing agreements. However, the central government budgetary constraints need to get lifted for orders to get awarded. On the domestic oil and gas segment, we see a lot of potential going ahead in samudramanthan in deepwater exploration, in PNG connections and refinery projects. However, we are yet to see the orders inflow. Exports from India, of course, continues to be the bright spot, and we continue to focus there where we see good demand coming from the Middle East, Southeast Asia and LatAm. In this context, let me reiterate that our diversified global presence, spread across U.S.A., Saudi India and in future, Jordan as well. This helps us in mitigating challenges in particular geographies. Moving ahead to Welspun Specialty Solutions Limited, WSSL. While higher freight costs and the tariff regulations impacted exports to Europe adversely in this quarter, WSSL continues to focus on domestic power gen, thermal, nuclear defense, aerospace, oil and gas and petrochemical sectors, which are the high value-added segments for stainless steel bars and seamless pipes. Coming to Sintex. We continue to focus on channel expansion. In water storage tanks, we focus on premiumization, alongside sustained momentum economy segment, growth led by urbanization in the Tire 2 cities. In plastic pipes, we have extended footprint to 15 states and continue to focus on product portfolio expansion and brand visibility. We remain focused on our core products and geographies, prudent capital allocation, maintaining strong supplier customer relationships, innovation and building capabilities across our organization. Our people remain integral to our growth strategy, while our sustainability agenda continues to guide responsible manufacturing and long-term value creation. With that, let me ask the moderator to open the floor for the question-and-answer session.

Thank you, sir. We will now begin with a question-and-answer session. [Operator Instructions] The first question comes from the line of Shaurya Shah from securities.

So the first thing that I have to ask about is on the U.S. So of course, the oil and gas front, a large part of order booking..

Your line has been unmuted. Please go ahead with the question. As there is no response, we'll move on to the next question from the line of Vikash Singh with ICICi Bank.

Good afternoon, everyone. Congratulations, sir, on a very good set of numbers. My first question pertains to U.S. business that like we said that we have booked in FY '29 while the narrative on the data center has required pipelines still stays strong. So just wanted to understand, do we are still in a position where the customers are looking beyond FY '29 to give you more orders -- how should we look at the order buildup in that particular geography?

Vikash, good morning. A, the pipeline of the orders or the pipeline of the projects still looks fairly robust at this point in time. However, everyone now understands that ordering has to be slightly calibrated. -- because looking at the capacities, looking at all the orders which have recently been awarded, -- so we are seeing a little -- a lot more calibration happening. That does not mean that the pipeline -- robustness of the pipeline is standing compromise, but it is a very good intelligent thinking, which is now coming in slightly where the calibration is happening. . So we will see that as we speak, there are a couple of projects which are still under discussion, which will still get finalized in the next couple of quarters. But intensity at which they were all getting finalized till now, I think so that intensity will slightly come down. And very rightfully so, it should happen that way. So we continue to stay very optimistic, positive about the robustness of the U.S. business. I have a strong feeling as this demand is going to sustain for next 3 to 5 years more over and above 2029, FY '2029. That's the sort of guide that's sort of a visibility we are getting at this point in time. And -- but it will now come in a little calibrated.

No, that's Sir, second question pertains to our Saudi mill as well as Jordan, which we have interest. In terms of fungibility, U.S. demand remained extraordinarily high. for a number than expected term. Is this capacity, especially the Saudi, which would come earlier, would have a fungibility to U.S. or that we should not think at this point of time?

See, technically speaking that fungibility do exist. There's no doubt about it. But -- the fact of the matter remains that the Saudi market itself would be so very buoyant. We are so very optimistic around and about the best of that particular market, that I think so our first priority would be to cater to the Saudi market. I am not discounting the possibility of addressing the North American market. I'm just -- I'm giving -- I'm not saying this is the U.S. market. I'm not discounting the possibility of addressing the North American market out of Saudi, which is a possibility. . But I have a strong reason to believe that Saudi itself is going to keep us busy. But coming back to your Jordan part of it, Jordan is a very, very strategic decision we have taken, again, a call we have taken. And this was a similar question when we have taken preemptive calls in America or in Saudi I think so keeping that split in mind, we have taken a call in Jordan because we have strong reasons to believe that in times to come, there is going to be a massive reconstruction activity, which is going to get started in that particular region. And Jordan being at the Epic Center, all the reconstruction activity, which happens to be in Syria, which happens to be in Iraq, which happens to be in Lebanon, which also happens to be -- and Jordan itself, there is a massive projects which are going to happen in Gordon itself. I think so we have a strong view that this is going to be -- this strategic investment is going to pay a huge dividend to us in times to come.

No, sir, there's on with you on the reconstruction opportunity. Sir, just 1 last question. We are flooded with cash, even if I add up all these CapEx, we will still be adding cash over and above this CapEx. So just wanted to understand how the management looks for this cash utilization because this will weigh on your ROE guidance?

Right. So Vikash as we have been very careful about our capital allocation policy. So we are -- and I have clearly articulated our positioning that what is our directives from the Board at how the capital allocation has to happen. So first and foremost, I want to make you -- once again, I want to reassure you that we will have a very, very disciplined capital allocation policy, number one. . Number two, it is also a fact that the current businesses are generating sufficient operating cash flows at this point in time, and we would be in, we would be absolutely positive of cash. The cash will -- the deployment of cash, a, primarily would be for 2 reasons: a, for growth and be to our shareholders. That is whatever the direction what we have from the Board. At this point in time, what percentage, what is going to happen, how it is going to happen. It's a little premature because first in former, let the cash come to the bank. Right now, it is only on a paper. It has to come to the bank. But I am only reassuring that, a, the capital allocation part of it is going to be extremely judicious and b, it will only be focused towards growth, and it will be for our shareholders.

Sir, the current participant has been disconnected. We'll move to the next question. It's from the line of Bhavya Gandhi with Bajaj Alternate.

can you hear me? Is it audible? Hello. Can you hear me?

Yes.

So just wanted to understand what is the bid pipeline looking like? And what is the usual conversion ratio a highlight on that. You said till FY '29 you are completely booked, I understand. Post that in your very high-level experience, usually, what is the cycle period when it comes to this oil and gas and water infra. Is it like a long gestation cycle? Or is it like a short cycle? If you can just elaborate on that as well?

So Bhavya, the bid pipeline in the U.S. looks extremely strong at this point in time. I don't wear the demand robustness is unabated, very strong demand still appearing. We are still seeing a lot of traction with respect to data center and demand and offers for the LNG exports, number one. And the bid pipeline for the India domestic business is slightly looking weak at this point in time. I'm sure that things will improve from here on because the water sector has not been doing good here. we are seeing a little bit of a resurgence in the oil and gas sector. But India export bid pipeline is still looking to us. So in export bid pipeline looking good, but India domestic bid pipeline could have been better. It is a little bit of a matter of a concern. Coming back to the Middle East, where the , the Saudi domestic demand is looking extremely bold I think the no sooner this geopolitical situation gets addressed and it becomes table stable a bit. I think so we will see a massive resurgence coming up in the southeast side of it. So from a bid pipeline perspective, other than the India part of it, we are fairly robust. We are fairly comfortable and confident.

So would you like to quantify the bid pipeline amount and what is the conversion ratio like?

It is changing. It is very difficult to quantify. Typically, we see that in any case, 3 million to 4 million tonnes of pipelines, in any case, are always there in contention. But today, that things are changing so very rapidly and so very fast there are so many variables which are impacting it. So it is very difficult to pinpoint it. But it is -- there still are in the vicinity of almost 2 million to 3 million tons of pipeline at any point in time, we are contemplating and contesting for.

Got it, sir. And just a high-level question, sir, on the cycle. How long does the cycle last because we are adding capacity, although we have visibility for next few years. Post that, just wanted to understand will the growth most 30. I know you said you have a strong bid pipeline as well. But I just wanted to understand how long does this cycle last? Is it like a 5-, 7-year cycle? Or is it like more like a 3, 4-year cycle from your experience?

Yes, as I earlier said in my earlier calls as well. See, this is a structural change which is happening in the industry. It is not a sort of a cyclical paradigm shift we are seeing here. What we are seeing is a very structural shift happening in the industry at this point in time. I think so which means that the demand is going to be for a long haul, both in the U.S., both in the Middle East market. I think it is going to be a long-term sustained demand I mean what we have a visibility of next 5 to 7 years at this point in time, crystal ball 3 to 5 years, visibility of 5 to 7 years. And if it is beyond that, I think so it is going to be extremely good for all of us.

The next question comes from the line of Parth with Investec.

First, I wanted to check on Jordan expansion. So sir, what is the capacity we should work with over here in Jordan?

See, we are in the process of analyzing all the capacities and everything, but it is going to be a fairly sizable capacity we will create in Jordan at this point in time. For a simple reason, that the requirement in Jordan itself is going to be huge, both with respect to water and oil gas pipeline. So the Jordanian government has already announced that. And Mr. Percy did mention in the opening remarks, that we are going against the backdrop of an order in any case. So it is not that we are putting up a plant and then scouting for the business. We already we will have a business before the plant is going to start. And so it is going to be a sizable capacity, number one. Also, these capacities are mostly because it depends on what size and what technicals you are doing. But I have a sense that we could be anything between 3,500 -- 350,000 tonnes to 0.5 million tonne capacity range. We will be looking at it because the plan what we have -- we are looking at will have the capability to do that.

Perfect. Perfect. And sir, just to check on the KSA time lines, we had mentioned December '26. Is there a delay or because of the geopolitical reason?

No, no. So from a commissioning point of view, we are absolutely on track at this point in time part, we should be -- we are in the final phases of our commissioning both for our ELSO also as well as for the DIP plan. And in this quarter 3, we will be done with that. Now the order materialization, the business materialization may take some time because of this condition. So today, we have to also understand and acknowledge that the whole -- either this Middle East market, the whole Middle East region is under a massive supply chain disruption is under a massive supply chain disruption. -- this disruption has to ease up a little bit. There has to be the raw material, which has to start mining in you have to have the ability of the finish good being exported or is going to move out. I think so that disruption is currently in place. It is not impacting us. It is impacting the region at large. So -- so we have to see it in 2 parts. In terms of our readiness, yes, we will be up and running ready by the end of this particular year. But in order to capitalize upon the opportunities and to start really transacting the business, I think so we are also equally watching with caution as everyone is that how is the situation evolving and how quickly it is settling down in the Middle East.

Got it. Got it. And sir, there is this 1 announcement by Saudi Arabia Government that there is they are expanding the East-West pipeline capacity. So would that materialize anytime soon? Or would reason that would depend on the supply chain?

That is the only -- that is the 1 which you guys are hearing outside. But when we are there on the ground, we are hearing multiple things. There are a lot of action which is happening there. A lot of action which is happening there. I think the Saudi government is very, very clear as to what they intend to do, and they are completely accelerating the whole processes, right? I think so there is no -- let's be assured that there is no dearth of a business opportunity, both for the oil and gas, with Aramco or in the water sector within Saudi, we absolutely restored. It is just the supply chain disruption, which is currently bothering us and everyone at large. Once that has been taken care of, I think so there is no dearth of opportunity.

[Operator Instructions] Ladies and gentlemen, you are requested to limit your questions to a participant. The next question comes from the line of Shaurya Shah with Equirus Securities.

Hello audible now?

Yes, we can you Yes. .

So just on the U.S. business, again, there was some issue with my line earlier. So apologies if I repeat the same. So of course, the oil and gas front, a large part of order booking has played out. Obviously, the outlook still remains positive. But the data center story front. So is there further fuel left given the massive buildout still happening? So of course, INR 50,500 crores order has been booked. But what is your view on kind of product visibility happening on the data center front specifically?

Sure. So Shaurya, you are right. There's a lot of action happening there because of the data centers. And obviously, they need to have these captive power plants and you need the gas pipelines for them. And 1 of the recent models that we won a large 1 there was actually for our data center pipeline. However, there is also a little bit of a moderation that we are witnessing in the last month or so. And which is actually -- it fits in very well with our business plans as well. So because if everything materializes simultaneously, then really, we also wouldn't have the capacity to convert that into business orders. So I think there is still a lot of scope for more and more orders for gas pipelines for data centers. But we have seen a little bit of caution emerging there and which is actually good in our favor.

If I can just add, Shaurya, on the data, your specific requirement of data center. I think so this demand has now started building up. There was a discussion which were happening, but this demand has now started trickling again, right? And it is now building up. If you look at it in the next 5 to 7 years time, the volume of data center demand could outpace the demand for LNG exports. And that is a sense we are getting at this point in time. So as what Mr. Percy said that while there is a natural calibration, which is happening and which has to happen and which is good. But data center story has started -- earlier, it was only on the books. -- then on to the drawing board, now it is coming to the execution. So this is a stream which is opening up beautifully well, and that is where we see that the demand is going to be there. A long-term sustained demand is going to be there, please.

Understood. That is great to hear, sir. And on the Saudi front, so I believe there was some implementation of antidumping duty as well, which has been finalized on the DI pipe in ports in Saudi -- so like what is your view on the positive sentiment now building up further across the industry in the Saudi as well as surrounding regions across MENA region because the desalination story is, I believe, playing out across the MENA region. So what is your outlook on this front?

We are very optimistic. -- means we -- today, if you look at it, on the DI side of it, only 2/3 of the DI requirement of the South, the captive requirement of South was being serviced to imports, right? -- we are -- now we are going to be fairly -- we are going to be the largest dominant player. So it is going to be a sort of an import substitution. We will definitely be, first and foremost, the first right of refusal in any case for the local demand will definitely come to Welspun. So we are very -- we are optimistic about this DIP demand. And you are absolutely right that this batter and the desalination story across Middle East is gaining traction. And you see our expansion into the Jordan territory is also logical in that direction. That is also the play which is happening in Jordan, that is a play which is going to happen in -- which is already happening in Saudi, and that is the play which will also happen in the other Middle East regions as well.

The next question comes from the line of Neha with Nuvama. .

A couple of questions from my end. The 1 is in the Saudi front, you said everything is on track. The demand is pretty good. Is it that you're waiting for the line to start operating -- in that case, what could be the utilization levels? And how they can inch up for '28 and '29, some color there would be helpful.

As I said, that the demand, both for oil and gas and water is extremely strong. I am in the very first year of operations, we have -- everything evens out and the whole supply chain and the region gets stabilized. -- we are looking at a very high percentage of our capacity utilization. And so we are not going to touch 100% in the very first year. The -- it is not that you press a button and you start doing that. But -- our ramp-up would be very, very fast. Our stabilization would be very, verified for 2 simple reasons. Number one, at a, the demand is already -- demand is there. b, you are on the ground and see these are the products, which is our bidding which we produce every day in day globally. So we are absolutely on top of things. Now how much -- what sort of a capacity utilization will happen, I can say it will be a fairly higher percentage of capacity utilization across both the plants, what we are anticipating in the next financial year.

But just to put a number here, can we put 50%, 60% utilization, at least in the first year of operation?

We should at least be aiming for it, if not more.

Understood. Secondly, not has been broken on the U.S. and the demand front, how do we see India? India would consist years of falling volumes. Of course, there are 2 troubles that there's no CapEx happening in India apart from that entry even the exports hit due to geopolitical issues. How do we see the scenario changing and how do we track that you know whether the spending in all is coming back?

I said, the India domestic demand has been fairly sluggish. And to us, I mean, I don't want to give a very rosy picture. I think so the way things are appearing. It could be sluggish for the next few quarters as well, especially on the water sector. and for the reasons, there are reasons behind it. However, on the oil and gas side of it, I think so as I said, we are seeing a little bit of an uptick -- we are seeing an uptick in the city gas distribution, which are very welcoming signs. And we want to see that how they pan out over the next couple of quarters. . But overall demand will -- the domestic demand is going to be under stress. Having said that, the export demand out of India. What we are exporting out of India, I think so that demand was good is good and will continue to be good, right? It is -- in a few of the markets, you have supply chain issues. But in most of the markets, you don't have it. So I think so our focus will continue to be on exports out of India, right? -- and I'm sure that we have a very impressive record around exports all through the year, and we should be able to maintain that momentum.

The next question comes from the line of Netra Deshpande with Mirae Asset, Sharekhan.

Congratulations for the great set of numbers, sir. My first question is pertaining with the line pipe, the volume, which has sale more than 22%, 20% in the FY -- so what is the volume guidance for the FY '27 sales and again, a this is my first question.

So Netra, the domestic DI pipes market, we all know is facing, what should I say, headwinds and it's all the players are getting impacted. So there is a slowdown, Jal Jeevan Mission, budgetary allocation. We all know these stories, okay? Welspun strategy is slightly unique -- so we are focusing more now on the DI exports, and we have done a lot of work there, so especially to markets like Europe, even in the Middle East. A lot of work has been done. -- accreditations have been obtained -- and we will see that a lot of our production will start going towards exports. And also in the meantime, Pig has been doing well for us. And that's where we are not so adversely impacted by all these things. Things could have been better, no doubt. But I think we are reasonably okay in terms of this particular segment. .

Okay. So volume trend which we can get it as a sales to this FY '27, it will be the..

Domestic DI volumes will be obviously substantially lower, no doubt about it. But our focus is now moving to exports of DI pipes. .

Okay. Got it. Okay. And second question is about the new India JV which is about the Perma Pipes, right? So that is a court matter, what would be this product mix overall end of margin and realization? incremental margins or revaluations that you are expecting, sir?

So the India JV with Perma pipe is a very niche JV. It's for internal FBE coating -- the investments that we are talking about is not anything that great. So I mean its total project we are talking is about INR 110 crores, and both partners will fund it. So we're talking about a small investment. -- but it will give us the bouquet of coating services capabilities. So that means we can do any type of coating, which a potential customer may be requiring, including concrete went going, for example, which we already have. . And this opens up opportunities for exports orders, large export orders where even the bare pipe manufacturing will come to us because sometimes in these orders, there is IFB coating is mandatory. So while this JV gives only the niche capability of IFB coating, but the benefits to us will be much more than that.