Jindal Saw Limited analyst Q&A

The first question is from the line of Dhananjai Bagrodia from Alchemy.

Sir, firstly, congratulations on a good set of numbers in a tough environment. I just wanted to ask you, how are we getting feelers from the other regions? Are we -- or demand? Are we seeing much more volume uptick, let's say, in FY '27? Any numbers we can think of?

This is Vinay Gupta. So Dhananjai, at this point of time, the interaction with -- if you're talking about the export business, like if you're talking about the MENA region, the interaction with a lot of customers is not happening on face -to-face basis. What we are trying to accumulate the information and intelligence is from the public, let's say, public platforms and public media. We, of course, since we now have presence in Saudi and Abu Dhabi, we -- our people are trying to get some sense from various stakeholders, including the oil and gas companies there that how they are proceeding, how they want to go forward. But having said all this, there are -- if you're tracking there are a lot of media news where the projects which were in the cold storages, the projects which were stuck for whatever reasons, there is the urgency to push those projects. So I'm not saying they will come overnight, but they would cut short the time lines and there will be urgency in doing this. So that like if this stalemate converts into the stalemate of Ukraine, Russia, then what is going to happen. So eventually, there w ould be some urgency now in the region and that would be helpful and that would be beneficial for the industry as such.

So, India, water demand remains. The only thing was the water business --

Jal Jeevan.

Jal Jeevan Mission. So, Jal Jeevan Mission gave rise to another kind of, let's say, business opportunity where the state governments are arranging the funds and state governments are giving the orders. So this is independent of Jal Jeevan. So whatever business has happened in the sense of fund release from the Jal Jeevan was on account of state. That is a bit competitive. But we expect that -- the macro level demand has not died down. Macro level demand remains the same. It is only deferment. Hopefully, this year, the business should pick up and the industry should respond very quickly. So everybody has the capacity. Everybody has order book, we are gearing up. We -- in fact, our fourth quarter sale is comparatively better than the Q3 sales for water business.

Sure. And sir, with steel prices going up as they are, do we think we'll have a hit by inflation or will we be able to pass it on on margins?

See, we don't accumulate or hold steel in anticipation of getting the order. So it is basically like it's a very narrow -- within a very narrow time line, we book the steel the moment we get the order for the pipe. So eventually, the volatility in the raw material prices is to the account of the manufacturer. So for us, let's say, in this case. So that is why, number one, like for example, if these are the steel pipes, then we don't know like what kind of, let's say, diameter, thickness, metallurgy, the new order will have and that is where the order is placed only once we received a firm order for steel pipes. So this situation normally does not arise that the steel price going up and down is impacting the pipe player very significantly.

Okay. And so margins henceforth, we've bottomed out in '26 and margins should now just be onwards and upwards?

Can you repeat your question, sorry?

I'm saying, sir, margins, would it be fair to say margins have bottomed out and now margins would just be higher from here going ahead?

So that's what we thought for -- at the call of Q3, we said that perhaps we have -- it has bottomed out, okay? And it's a function of all the things. Margins is not a function of only like raw material and steel price because if my capacity is underutilize d, the fixed overheads start hitting you. Now a lot of contracts what industry is today serving, they are delivered products. They are -- in case of international, they are duty deliver products. Now nobody knows like how after 5th of May, what the crude prices will be in India also, right? So you people are analysts, so you would know like whether the crude price goes up or the diesel price goes up, right? So the freight cost will go up. So there are a few things which are beyond the control. The assumptions for the profitability normally ar e made in the, let's say, a stable condition. So as we mentioned in the very last line in the presentation that these are very unpredictable, unprecedented times. Everything is looking [inaudible 0:25:08 ]. So if you say that this has bottomed out, maybe, may not be.

Okay. Got you. And sir, any other risk we can think of in terms of, obviously, one macro risk, any other risk we are seeing at the moment? Because I'm just trying to understand just from the business perspective.

See, we -- our -- this commentary actually is full of risk, what we said. We have not given you high expectation except that like we are doing -- we are projecting -- we are doing setting up the projects in MENA region. But our perspective was to highlight to the stakeholders, to all of you like we are living into the risky environment. We highlighted -- each and every risk we highlight, Jal Jeevan Mission, we highlight the international shipping issue. We highlighted our API business issue in carbon and steel. We highlighted the water business in Jal Jeevan. So I mean, there could be still issues which are very difficult to project at this point of time, as I mentioned, like if there is a spike in the diesel prices, every -- all costs will become inflationary. So there are certain measures which the management can take in terms of, let's say, controlling those risks. There still would be a few risk which we may not be able to control. But given the like, good liquidity, good, let's say, position of the company a nd the balance sheet, some of the risk we can still handle.

Okay, sure. And sir, last question for me, what capex number are we expecting for the next couple of years?

For the capex?

For the next couple of years, how much...

Yes. Okay. So a few of the capex, what we are doing, what we have done in last 1 or 2, 3 years time, maybe we are at the last portion of those schemes, maybe, let's say, INR500 crores to INR700 crores all across India in this year. And 3 projects what we have announced in Saudi and Middle East, they are, of course -- sorry, Abu Dhabi. Abu Dhabi at this point of time, like for a seamless pipe project, we are 100%. So we are still trying to work out like what would be the debt equity, what is going to be the revised project cost. We are trying to bring some more efficiency in that project in terms of the cost. In Saudi, it is a joint venture where we have 51%. So, our cost -- net impact of the cost on our balance sheet will be lower. Otherwise, then we are not expecting -- we are not putting very significant, let's say, brownfield or greenfield projects in India. So we are trying to -- let's say, we will try to work with the available capacity within India, but just trying to see like how best we can derisk our business model. For example, if ductile pipes had taken a backseat, we are working out like the facility should not stop and let's try to work out different options for that also. The different sizes, export, domestic shift and all those things.

Okay. Sure, sir. So any number we have, only INR500 crores to INR600 crores, is that -- or will be more than that?

The capex number?

Yes, total.

Yes. For this year, we expect INR500 crores to INR600 crores.

And for next year, I'm just talking to get a broad base, '27, '28. So INR500 crores for '27 and for...

Okay. Let's put it this way. We have roughly 10 locations in the country, right? Earlier somehow we used to say INR250 crores, INR300 crores. But every time it works out to not less than INR400 crores, INR500 crores sometime and 1 or 2 more schemes are going on, some replacement, all these things. So maybe like this year, we have done INR700 crores to INR800 crores, next -- so '25, '26, we did INR800 crores. Maybe you can consider INR500 crores to INR600 crores this year, INR400 crores, INR500 crores next year, something like this.

The next question is from the line of Digant Haria from GreenEdge Wealth.

Sir, I had one question. See, the macros are very uncertain and we may not want to guide, that's perfectly fine. Sir, but just wanted to know that in all the products that we have, basically saw pipes, seamless pipes, ductile iron, stainless steel and HDPE, do you see any overcapacity in the system? Like if the demand bounces back say water in the next 12 months and oil and gas after, say, another 6, 9 months, will we again go back to the old levels of profitability? Or is the capacity in the system high that we may need a higher level of demand to go there? If you can just segment-wise explain, how do you see the overcapacity or in each of these segments where we operate?

Yes, Rajeev, would you explain this?

So, as you mentioned that overcapacity position, if there is a demand which is coming back. So, what we feel that in ductile iron pipes, there may be some oversupply in terms of capacities. But apart from this, other segments are well placed like longitudinal, helical as well as seamless. So, if in future demand is there, the capacities are available to cater the demand. There will not be any overcapacity, but the ductile iron pipe is something which we feel that overcapacity position is there.

So honestly speaking, yes, there will be -- we have to live with this condition because major capacity expansions in DI pipe was in the estimation or in anticipation of demand from Jal Jeevan Mission and multiple projects at the state levels. But as of now , because Jal Jeevan Mission scheme is not kicking off very well, so this position seems to be remaining as it is for quite some time.

Got it. Got it. And one data point is how much sales did we lose because of the Middle East war, like not getting ships, not delivering products? How much would -- we did like 13.76 lakh tons of volume this year. Like how much would we have lost -- just in this quarter, how much would you have lost in terms of crores of rupees like what would be the revenue loss?

Basically, there is no loss per se, it is a deferment because shipments are going to go once the situation is improved in this region. So approximately 30,000 to 40,000 material was ready for shipment, which was deferred. So apart from this, there is no loss as such.

This deferment would be worth, say, INR30 crores to INR40 crores, right?

So, in terms of value, it would be more than that. But as of now, we have the quantities available, which got deferred.

The next question is from the line of Gaurav Nigam from Tunga Investments.

Yes, sir. Sir, I have two questions on the stainless-steel pipes business. The first one is on the stainless-steel seamless pipes business, sir. We are hearing a lot of [PSC 0:33:13] players adding capacity and they are receiving approval in the critical piping segment as well. So wanted to get a sense from you on it impact on our overall business, both in terms of capacity -- overall industry capacity and on the margins in this business? That's question number one on stainless steel pipes. And second one is on the welded stainless- steel pipes. I wanted to get a sense from you because I think there has been some decline in the overall margins in this business. So how are the things shaping up? And how do you think about that business going forward?

Okay. In stainless steel pipe business, we are trying to capture the upper -- and/or upper end segment or the customer who requires more stringent quality. So impact of that will come, I think in this year, the second half. So -- but otherwise, I must say that complete business of stainless steel will face the margin challenge.

Okay. Sorry, sir, are you talking about the seamless business or welded or both?

Both. I'm talking both. So we have to capture the value -added product and for that as you mentioned that we are trying to get the approvals from the customer end for our facility and for our products.

But, sir, on the welded side, is there upper segment as well? I thought that that would be true for the seamless business. Is there upper segment within the welded as well?

Okay. Okay. We are trying to move up the ladder in terms of quality.

Yes. Yes. Yes. That is the only way to capture the high-end or high-margin business.

And that margin expansion will happen from the second half of FY '27. Is that the expectation, sir?

Yes. Yes. Actually, say, as already mentioned by Mr. Vinay Gupta, at this point of time, everybody is a little slow in investments and slow in giving the orders.

The next question is from the line of Vanshika Jain from Aequitas Investments.

Hello. We lost you.

Sir, the line dropped. The next question is from the line of Sailesh Raja from B&K Securities.

Yes. Congrats, sir, for reporting strong past year CFO of INR1,800 crores even in these challenging times. So given the lower order intake expected from the Middle East due to ongoing challenges, I'm talking about the new order intake. So how are you approaching our selection in the near term? Is this -- this is specific to our helical saw capacity. Do we wait for a recovery in MENA region to secure high-margin orders? Or are we open taking up the lower margin orders in the domestic helical saw segment to support utilization level? So what is our near-term strategy?

So Sailesh, should presume this situation would start working out once the region is fully operational. As of now, let's say, a couple of regions are there where people are flying for the safety. For example, UAE, right? The life is still not back to track. Saudi is still working, operational. But I mean, the business has taken a bit backseat for everybody. Our stronghold in MENA region are like Saudi, of course, Qatar, Oman, Iraq. Iraq is equally disturbed at this point of time. So people are not thinking of giving the order immediately. The discussions which perhaps are happening that how they have to create the energy security mechanism in near term. It might take a year, 2 years, 3 years, whatever. Coming to your second question that -- let's assume that there is a normalcy in the region. Everything has been sorted out, shipment is not an issue. Ships are available, insurance premiums have come down, insurance is available, and all those things are there, then, of course, we would like to, let's say, we would like to have the order book, which should give a reasonable amount of visibility in terms of time and high utilization. We are still booked -- our facilities are still booked provided that we are allowed to produce and sell. So it's not that we don't -- we have a slot available to take the order for immediate next 2 months, 3 months. We actually -- we are fully booked for a couple of quarters. So if we have to -- given the option to take order, we might not be able to take order for next 2 or 3 or 4 quarters time. So to my understanding, the industry is reasonably booked for export as well as domestic. The only thing is the challenge is that you don't have means to transport and dispatch. Just to give an example, for the job-work order what we have, we are -- it's a 6 lakh tons order and we are sitting off roughly 2 lakh tons of steel, which is supplied by the buyer. We are holding on the steel and you can't supply the pipes. We are not making the pipes. I mean, storing the pipe will be a larger problem than storing the steel.

Okay. Okay. Okay. Sir, both Indian and local players, including ourselves, are adding capacity. So do you believe that there is a sufficient demand to support attractive returns like 3, 4 years payback on this investment? And also, could you please talk about the opportunities in the GCC region for helical saw, LSAW and DI pipe?

So okay, let's talk about the seamless and which is ductile. We are not adding additional capacity in ductile. It is basically like we are trying to set up a complementary facility of our Abu Dhabi plant. What we are trying to do for our Abu Dhabi plant that we should be able to have the access to the entire MENA region. Wherever there is some bottleneck, we are trying to, let's say, set up a complementary facility for that. It's not a full-fledged plant of, let's say, starting from the -- from blast furnace going up to the finishing and everything. But in case of seamless and saw pipes, they are greenfield projects completely integrated with coating, all kind of coating and everything. And in terms of, let's say, the demand, we are fully conscious that there are -- the competition is already there. They have acquired or they are setting up and we are considering, yes, the competition is always good for a healthy market. But we believe that there is enough demand and the demand has -- demand is likely to increase exponentially because of this new cris is, which has emerged in the MENA region. This is giving additional -- this is top-up on that plain pizza. So, I mean, we won't like to discuss too much on the call, but we understand that there is enough on the plate.

Okay. Okay. Sir, one last question. Sir, as we plan to undertake significant capex over the next 2, 3 years, with current net debt at INR3,400 crores. So what do you expect the peak debt level during this capex phase? And additionally, what is the peak net debt to EBITDA that we are comfortable operating at?

See, we try to communicate to everyone that let's differentiate between the working capital debt and the long -term debt. So out of the current debt, stand -alone INR2,500 crores, consol INR3,200 crores, whatever, the long -term debt is hardly at stand -alone is INR525 crores. At consol, it is INR650 crores. So, there is a good amount of appetite of the lenders to lend the long- term debt to the company for setting up the projects. And since, it says, we have demonstrated in the UAE in the last couple of years. So there is a good amount of traction amongst the lender, they want to lend to us. Now as you know, like because Indian lenders are also geared up through the GIFT City or dir ect presence into the MENA region, they are equally interested to lend this. So appetite-wise or can the balance sheet handle increase in the debt? Yes, balance sheet can handle increase in the debt. Secondly, as you mentioned that in Saudi, we are not -- it's not 100% subsidy. We are -- we would be 51%. So, a proportionate -- at the best proportionate, let's say, impact would come. In terms of debt to EBITDA, again, if you have to include the working capital debt into the overall indebtedness and then to test it, this, of course, will be on a bit elevated level. It depends like what we are talking when we are talking because in '24, '25, we had EBITDA of INR3,500 crores. And then we thought that in 2 years' time, we would have significantly higher EBITDA. So, if we go back to that , similar levels in some time, then we would still be in the range of, let's say, 2, 2.5 debt to EBITDA, all including working capital, everything.

The next question is from the line of Vanshika Jain from Aequitas.

Sir, my first question is in terms of, we have started our business in Saudi and you mentioned in your opening remarks about how things are not moving there. Considering things is normal in war as to be a better state, how do you think the demand panning out over there? Also, a lot of our competitors also have their factories based out of Saudi. So how do you see the competitive intensity there?

So, Vanshika, so first of all, like once that normalcy is there in the system, our domestic facility in India, that will be fully functional and we will start executing the export order. We have pipes in store and we'll start producing the pipe out of the steel given free of cost by the buyer to us. That's one. Secondly, perhaps you want to mention like how the domestic -- how the demand in Saudi or neighboring countries would be taken care of. So in my view, in next 1 year, the majority of the requirement would still be serviced from the imports in Saudi because like the -- whatever let's say other people are doing, they will still take some time to set up, take approvals and then meet the crite ria and do it. So till that time, if a major requirement comes, that hopefully, that could be serviced out of India. And in next 2 years' time, I think we would also be operational, others will also be operational. Then it would be like how much demand is coming and how this is being serviced from the, let's say, the local units in the MENA region. And it is not only Saudi. We are trying to, let's say, gauge the sense. There is likely demand from neighboring countries of Saudi also, which would be serviced from Saudi and then by India.

Okay. My second question is in terms of coal cost increase, which we are seeing. I think the coal cost has increased by almost 10% to 15%. So how is this -- how has the cost escalation being impacted? Are we -- how much is the spot and like how is it in our order booking?

Can you come back, which cost you said will increase?

Coal. Coal, coal.

No. So we never mentioned the coal. We said -- we gave an example is that how the inflationary trends can impact the profitability. And then I give the example that if, let's say, the fuel cost increase or diesel cost increase or anything which is pushing the shipments increase, it has an overall impact on the profitability because in case of sale, majority of the sale happens on a delivered basis. So whatever orders are sitting in the order book for the last couple of months or every year, then some cost -- there will be some impact on the profitability on account of the increased cost. Of course, we would try our level best to pass on some of the c ost, but there is no guarantee that this cost would eventually be passed on to the buyer.

So earlier I remember, we used to say that the variable contracts where the total pass on was around 30% to 35%. Has this percentage increased for us in terms of a few contracts?

No. So when we say like there is a mechanism, that mechanism is restricted to, let's say, the tie projects. And that was based on the, I think, pig iron prices indexation. So, it is not for each and every component of the product. It is the pig iron -based prices. So that -- because pig iron has its index pig iron pricing is fairly, let's say, transparent. So that was where, let's say, a lot of volatility was there in the iron ore and coal prices. And then some of the contracts had this...

Escalation clause.

Escalation clause.

Vanshika, as you mentioned that 30%, 33% or the strategy was like that in ductile iron pipe to pass on the cost or to protect the company from the volatility in raw material prices, especially for ductile, it was like that we do have the stocks with us als o, coal stocks. We are getting the coal shipped every quarter. So that is something which is already in -built in the pricing mechanism. Apart from this, certain states came out with the escalation clause as Vinayji mentioned, through which that if the prices are moving beyond certain limit, then escalation metrics were there and we could pass on certain escalated costs. So that is the strategy which we are already following.

But that is predominantly for the local market.

Ductile case.

Yes. Domestic. Local market. Domestic market.

Got it. Got it. And in terms of DI pipes, I think you mentioned in your investor report that you have a 1 -year order. However, we are seeing that some state finances were not getting the amount, etcetera. So how is the execution pace right now? And what do you think of newer avenues like Jal Jeevan Mission 2 and PNG -- incremental adoption of PNG, how will this help?

PNG. Yes, Vanshika, PNG, so we are mixing PNG with ductile.

No, no.

Yes. Okay.

Okay.

First question is for ductile. Yes.

Okay. So ductile...

In ductile how are the scenarios, right?

Okay. So, let's first discuss about ductile. So on, let's say, very high level, ductile, if 6 to 9 months ago, people were focusing to Jal Jeevan Mission primarily. And then there were some setbacks on liquidity issues in the Jal Jeevan Mission. Then the states also moved to issue the orders based on their arrangement of financing. And that's where the new contracts which were coming, they were coming backed by the state funding. So state was arranging the funds to the multilateral agencies, domestic, international, whatever. So they were not depending on the Jal Jeevan Mission funding, whatever it is. And those orders executions had also started and the pricing and profitability o n those orders are different as compared to the pricing of the old orders. Now we understand that the Jal Jeevan Mission, like, there is some momentum in that. And there is a paper news also like in the open public platform that center has released funds to some of the states, which has gone to the state government. State has to, let's say, induct their own funds, whatever percentage it is and then they will star t moving the funds to the EPC and all. So that system is still getting formalized. We understand that there will be a new mechanism monitoring system. Now the motto of the Jal Jeevan Mission is also shifting from putting infrastructure to ensuring the service at the end level. So there might be some initial hiccups in terms of fresh implementation. But once it is set up, then there will be -- like it will be business as usual. There will be more monitoring from the center also, but it will be business as usual. Pending that, the execution has a higher mix of state funds backed by state funding and those executions are happening currently, that is also reflected out of our fourth quarter sale, where majority of the sale is for the state -backed funding. Of course, we are supplying to EPC. And then second question is the PNG.

No, the second question is for the Jal Jeevan 2, the second 2.0, which has come. So when is the execution going to start? Because if the current execution has not been completed and the money has not been received, so how do we see the Jal Jeevan Mission 2.0?

Because the system takes less time to collapse and more time to rebuild. So as of now, the system -- the whole system because people like us or any pipe producer is in the value chain. We are in the supply chain only. We don't interface directly with the state or the center. We are -- that interfaces by the EPC. We supply pipe to almost every EPC who is buying pipe from anybody and everybody. The challenges with the EPC for the liquidity, you would be keeping -- you would be talking to those also. There is issues with the EPC, they are small, large, medium -sized funds would be released to them, they would settle their initial issues and then they will start buying it. We still feel that it might still take a month or 2 before the execution starts in a reasonable pace.

Okay. You think -- so maybe post monsoon then?

Yes, you're right. It could be. But it does not mean that we are not producing. We have a mix of business or orders state-backed as well as Jal Jeevan.

Okay. So state-backed is happening, Jal Jeevan is not happening, right?

Jal Jeevan is not happening in the full thrust. And if this MENA region logjam is cleared, we have export consignment which are on hold, even those will go.

Okay. Okay. And for city gas distribution, I was talking about...

Sorry to interrupt, Ms. Vanshika Jain, please rejoin the question queue for more questions.

Sure. Sure. Sure.

The next question is from the line of Sunil Kothari from Unique PMS. Mr. Sunil...

I think he is not connected.

The next question is from the line of Falguni Dutta from Mansarovar Financials.

Yes. I just have one question. Can you just give us an idea about the current demand for the seamless pipe industry? I mean, industry as a whole, also the margins there?

So, demand in seamless segment domestically, it is more or less 1.5 million approximately and there are multiple players. So as the government or the PSUs have announced certain projects in deepwater exploration, we can see some opportunities -- big opportunities to come when these projects are executed. So, announcement is there, intent is there, government is focusing on it. So, there will be a demand and there will be a matching capacity to cater this demand.

Okay. You said it's 1.5 million tons, am I right, the demand?

Yes, yes, in domestic.

Okay. And sir, how are the margins there as of now? I mean, if you were to compare it to last year?

So, margin product-wise, we are not discussing because we have multiple products. So, you can get some sense from the...

No, this is I'm asking you directionally that how would be the margins in that segment as of now versus last year directionally, not in terms of absolute per ton being better, flat, lower?

Okay. And sir, broadly, if somebody were to be buying steel from outside and making steel pipes, then in a rising steel price scenario should we be in a better off situation or it's not like that?

No, it's not like that.

We take this as the last question. I now hand the conference over to the management for closing comments.

We thank you very much to all the participants on this call as well as to ICICI Direct for hosting this call. And we hope that the issues what we discussed gets overcome ASAP, so that we have a good call next time. Thank you very much.

On behalf of ICICI Securities and Jindal Saw, that concludes this conference. Thank you for joining us. You may now disconnect your lines.