Jindal Saw Limited analyst Q&A

Thank you. We will now begin the question-and-answer session. Our first question is from the line of Deepak from Unifi Capital. Please go ahead, sir.

Sir, congratulations on a good set of numbers. Sir, my first question is on the business split between water and oil and gas, both for India and the UAE subsidiary.

Sorry, could you repeat your question, please?

Sir, I would want the business split between oil and gas and water in our Indian business.

Business split between oil and gas and water, just give me a second. This is the order book. Order book, I would say, oil and gas is about 30% , 35%, water is rest. The industrial sector is a very small. So, 70% is water, 5% is others, and the rest is oil and gas.

And what would be the split in the UAE subsidiary between oil and gas and water?

Again, probably you are not very audible. What is the split between?

No, UAE is only water. It is only a DI facility. UAE is 100% DI, only water . And they are also doing well. This year they should hit a good capacity, more than 2 lakh tons for sure.

Sure, understood. Sir, I had a broad question on the water infrastructure today. So, we understand that Jal Jeevan is doing well for our DI pipes capacity, but the SAW pipes, which is at lower utilization today for your company and the entire industry. And it's a state affair where we cater to irrigation projects, to smaller river -linking projects. So, is the dynamic there on the demand side changing significantly, which is giving us some sense of secularity in these order books? So, just needed some input from your side on the SAW pipe demand for water.

Okay. Is SAW pipe demand getting sluggish? No. Are we worried that it is having a hard landing? No. Sometimes there are some spacing that happens in between tenders , and therefore you may have some small bumps, but definitely it is not a trend and at least we are hopeful. The way I see it, at present we have more than 6.5 lakh tons of order for large diameter pipes, and it does not show that we are going for typical.

Sir, has anything changed on the macro side which is giving you this confidence that nothing will go bad? From the state governments, I mean, is there an understanding that the infrastructure has to be built up? Is there any sort of color that you can give on this?

Government of India has come up with, I would say, a balanced scheme, where most of these projects of great importance, they participate, but their funds get released only if state s bring in their contribution. Now that, in a way, forces the state to match the contribution, otherwise they run the risk of losing that budget allocation. And that is making sure that the projects are on track, the investment is on track. Only state government projects are not very ma ny. And therefore, our focus is largely on projects which are funded by multilateral agencies and projects, which are either center or center -state partnership. Because there we are seeing the progress, the allocation, everything is better than just solely state-managed projects. But some states, again, are doing well there as well.

Sir, in our export business, what is driving that, is it oil or is it water? And if you can explain which geographies and what is the macros in the export division?

See, export at this point of time, we are maintaining almost 70 :30 ratio, which is a good, sweet spot for us. Export, largely water sector goes to Middle East; oil and gas, we do across the globe . Because water sector , the pipes are of very large diameter, so there is freight kind of limits the distance that we can take those pipes. In DI, we do not export much because we have our Abu Dhabi facility. And exports are largely my LSAW and HSAW, HSAW primarily towards Middle East; LSAW, oil and gas all over the world.

No, we have not announced any project as yet. See, when the company starts doing well, and we are at this point of time conserving capital within the company, therefore the dividend distribution, we have improved, but still probably people would have expected more, primarily because we are trying to conserve money, building reserves, and keeping ready. So, we are exploring possibilities, but no project has been announced as yet.

Sir, one last question from my side , you mentioned that the loans have gone up and the debt you have taken to lock in raw material prices. So, how many months of coking coal or steel have you locked in for our project requirement?

See, coking coal, we normally get four shipments a year. And we like to keep one ship on the sea, more than one and a half ships in the yard, so that we do not have any disruption. And as far as the steel is concerned, we do not block steel like this. We keep steel which is project wise. So, steel manufacturing or steel storage raw material is project wise, we try and lock in for the entire project because a lot of our project revenues are fixed revenues. Therefore, not to get into the trap of a moving commodity price, we try and book for the project. Coal, as I told you, or bulk, sometimes iron ore or coal, whenever we import, we try and maintain a cycle, one ship in the sea, at least one ship in the yard, that's how it works.

Understood, sir. I have more questions to ask, but I will just join back in the queue. Thank you, sir. Look forward to meeting you. Thank you.

Thank you. Our next question is from the line of Radha from B&K Securities. Please go ahead.

Thank you for the opportunity and congratulations on very good results. Sir, my first question was on the stainless-steel side. So, two years back we had estimated that on the stainless-steel front we could do an EBITDA of Rs. 300 crores. So, where are we in terms of stainless-steel now? And when can we reach our full potential?

Madam, probably you are new to our call , we never discuss segmental EBITDA on any investor call. We have only two business segments , one is pipes, which is the entire range of pipes and pellets. But that, again, is only for the purpose of tonnages. EBITDA, segmental EBITDA, we do not discuss as a matter of principle for the company.

Sir, actually, we stopped bifurcating from 1Q FY '24. So, I was talking prior to that --

Madam, please appreciate, I know not having a segmental EBITDA, sometimes the analyst may find it a little difficult. But please appreciate , since you are interested in this company, if I am giving you a 19% EBITDA-to-sales margin, please understand, as a stakeholder I am protecting your interest. And this is a USP which we have, which helps us do many things in the business in terms of pricing entry that others are not able to do. And therefore, allow us to maintain this USP that we have, so that we continue to create value for our stakeholders.

Okay. Sir, if we can understand at least in terms of the capacity size , how much of the 30,000 metric ton would be welded and how much would be stainless? And previously, you had also mentioned that we have both hot extrusion as well as piercing.

Hold, madam. Let me just be with you on the number. You mentioned 30,000, where ? Where is 30,000?

Stainless steel, metric ton capacity, capacity, sir.

Capacity of SS, where did you get this 30,000?

From the annual report, sir, historical annual report.

Historical annual report, madam, I do not remember. And since I do not remember, I would not like to speculate and give you a speculative answer, because stainless-steel, okay, let me at least give you a sense of what our stainless-steel business is. Our stainless-steel business is distributed in three locations and that's why I am surprised where did you get this capacity from. It has got three locations, Nagothane is extrusion. Samaghogha is welded, large dia going up to 70 inches in diameter and pilgering for large diameters. Kosi is the sophisticated small diameter welded as well as seamless. Now, if you look at my large diameter, the 70-inch stainless-steel pipe that I can make, if you talk about the capacity, it has a huge capacity. But there is no point in talking about that capacity because that kind of utilization, at least at this point of time or in the near future , we do not even expect. Also, whatever gets extruded in Nagothane can either be sold directly into the market or can come to Samaghogha and Kosi for further processing. So, again, the extrusion capacity and the capacities at Samaghogha and Kosi, would you treat it as one integrated or are they separate capacities? Because Nagothane also has a market and also supplies to these. See, there is a reason why we do not declare all this, reason we do not put it out in the market. Because eventually as an analyst I would be putting you on the wrong path, because you will not have these finer points and therefore you will go wrong. See, Nagothane can feed both Kosi as well as Samaghogha and it can also straight away hot finish goes into the market. So, any indication about any of the equipment capacity, this absolutely will mislead you for the capacity of my entire SS business. You get my point?

Yes, sir. Okay, understood. Sir, next question is on the --

But hold. Largely what we are going to achieve in our stainless-steel this year would be somewhere around between 20,000 and 25,000 metric tons of stainless-steel welded and seamless would be in the market or would be sold in the market. That much at least I can tell you, which will be a combination of all these capacities that I have at all over the place.

Okay, sir. That's very helpful. Thank you, sir. Second question was on the Hunting front. So, the press release mentions that we have 70,000 capacity. And I understand that this is an import substitute product, so could you mention what is the industry opportunity size in India and our expansion plans, if any, on this?

Roughly, OCTG annually $200 million are getting imported per year, putting ONGC, Oil India, Reliance, Vedanta, all put together $200 million. At this point of time, our facility, as I already said, is more than 85% plus utilization. We are catering to a few segments of ONGC, 100%, especially the casing, etc. Tubing, they still have more, plus on the east coast there is some import, which is happening still. But we are likely to prepare ourselves such that we make India aatmanirbhar in OCTG mar ket is something that we have discussed in the Board and we would work towards it. Let us see this committee of experts, once they come up with a report, what does it say.

Sir, what is the current realization from these products, average?

Average realization of what?

Of the product that will come from Hunting.

Again see, the kind of question that you are asking, I do not want to mislead you. The grades that I supply to ONGC is Rs. 13 crores, Rs. 13 crores is Rs. 6 lakh a ton. I supply Q1 '25, which is probably Rs. 3 lakh a ton. And we also do some P110, and we also do some other lower grades, which will be in the range of Rs. 2 lakhs. So, tell me what NSR should I give you?

Sir, on the basis of sales that we have booked this quarter, so just wanted to understand average realization of what it would be, the product, which depend on that.

I gave you the range and, again, if I do not want to, because these are all getting recorded. Suppose this is all tender -based business, I give you my last quarter average at a certain, because it is a combination of these three in a certain proportion. Next quarter the proportion changes because the tender changes. Next quarter if you ask me the same question, I will have to give you a separate, different answer . A nd then you will say, okay, why there is a disconnect between these two ? Because my product mix has changed. See, today what Jindal Saw is focusing on, a full range. In fact, today we were talking about Super 13 Chrome, which is Rs. 15 crores, because now we are successfully Rs. 13 crores, so we want to go to Rs. 15 crores and we also do the basic carbon sales --

Yes, sir. Riya ma'am, please go ahead.

Thank you for giving me the opportunity. Sir, in Sathavahana we are seeing huge demand coming in and we had also said that a new CAPEX will be coming in next year, so when around next year we will see this coming?

What? Coming what?

Sathavahana, ma'am, we already have a very healthy demand, we are operating at 80-80 plus, this year probably we will cross 2 lakh tons of supply for sure. We are now de-bottlenecking there by just making sure that all the balancing equipment is there. We are trying to maximize everything around the hot metal, because we have a blast furnace which has a certain capacity.

Yes, sir I was actually talking about the debottlenecking only, and the incremental --

So, that will be 2.5 lakh tons; it will take the capacity to upward of 2.5 lakh tons. We are currently operating at 2 lakh tons-plus already. It's doing well, so that's the headroom for next year, probably, we will be at 2.5 lakh tons.

And in terms of the order book, $1.6 billion, what volumes are there in totality of those all your sites?

You are talking about what? Tonnage you are talking about.

Yes, tonnage.

That's about 16 lakh tons.

And in UAE, what kind of export geographies are we looking at, is it mainly Middle East and --

No, in UAE the market is, we have gone right up to Norway, we give them those special planet pipes which is used in very winter conditions. In the West, we go down as far as Brazil, Chile. In the East, we go down and as far as Australia. Because our DI facility in Abu Dhabi is very versatile, it can do double chamber, it can do diameter up to 2.2 meters, which is a unique thing. In India, we can do only 1.2 meters. In Abu Dhabi, we can do 2.2 meters, and therefore we have a very wide -- if I remember correctly, probably over 30 countries for sure, probably we have put our products from Abu Dhabi has gone to at some point of time over 33 countries.

And in terms of tonnage, how much would be there from UAE, in terms of order book?

This year we should cross 2 lakh tons for sure.

Okay. So, the order book has 2 lakh of tonnage?

The order book is more. I am talking about annual , this year we should do more than 2 lakh tons of dispatch.

And the order book is $251 million for how much tonnage?

Right. And in terms of execution, so basically a lot of water EPC players are saying they are seeing slowdown in the ordering or the execution happening. So, are you seeing similar trends in domestic particularly?

This is just tender-specific, because budgets have been announced or budgets have happened just now, which should happen in February, but because of the elections. So, many of the state governments or many of the projects are yet to get their budgetary allocation. So, it's a temporary blip. We hope that there will be a catch-up, because we do not see a downward trend in the water infrastructure. But this temporary blip is only because of the budgetary allocation getting delayed by a few months.

Our next question is from the line of Hitesh from ULJK Securities. Please go ahead.

Sir, as the business is tender-based business, so what type of benchmarks are taken to set the prices of pipes?

What kind of, a benchmark means what?

Means to set the prices for tender, so how do you set the prices of pipes.

Boss, I am really sorry, do you want me to discuss my pricing strategy on an investor call?

No.

Probably then I can't help. I do not get you. What is the margin? How do I set my prices? What do you expect me to say?

Yes. I mean, what index do you take to consider setting those prices?

Without giving you any numbers, I will give you the concept. We take raw material price, we build it up to landed price, we add for the time value for money, we add for the minimum profit that we require, and then we add or subtract the strategic value, because as I told you, and that's why we do not discuss EBITDA anywhere. Because suppose if I must win this, then maybe my strategic input could be reducing this a little bit. If I want to scheme, then the strategic input will be adding a little bit. So, once I stack up all this, I get my price. But obviously, do not expect me to discuss my pricing strategy on which tender, how do I fix my price.

Thank you.

Thank you. Moderator, probably the time I had set for this call is up , so would you please thank everybody on my behalf? And I would like to assure all my stakeholders that we will continue to do well, we will continue to create value. We are all the time looking at businesses very carefully, costs very carefully, markets very carefully. So, with this, hope to see you all next week. Thank you all. Thank you very much. Sorry, next quarter. So, hope to see you all next quarter. Obviously, most of you are free, all of you are free and welcome to connect with Rajeev Goyal and his team for any other specific questions and answers. So, thank you all. Thank you very much. Bye.

Thank you. On behalf of PhillipCapital (India) Private Limited , that concludes this conference. Thank you for joining us and you may now disconnect your lines.