JINDALSAW — earnings call

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Prepared remarks

JINDAL SAW LIMITED. · MR. RAJEEV GOYAL – JINDAL SAW LIMITED.

MR. NARENDRA MANTRI – PRESIDENT AND HEAD COMMERCIAL AND CHIEF FINANCIAL OFFICER,

MR. RAJEEV GOYAL – JINDAL SAW LIMITED.

Moderator · Conference Operator

MR. VIKASH SINGH – PHILLIPCAPITAL (INDIA)

PRIVATE LIMITED · Management

Jindal Saw Limited August 08, 2022

Moderator · Conference Operator

Ladies and gentlemen, good day and welcome to Jindal Saw Limited’s Q1 FY23 Earnings Conference Call hosted by PhillipCapital (India) Private Limited.

As a reminder, all participant lines will be in the listen only mode and there will be an opportunity for you to ask questions after the presentation concludes.

Should you need assistance during the conference call, please signal an operator by pressing “*” then “0” on your touchtone phone.

Please note that this conference is being recorded.

I now hand the conference over to Mr. Vikash Singh from PhillipCapital (India) Private Limited.

Thank you, and over to you, Mr. Singh.

Vikash Singh

Good evening, everyone.

On behalf of PhillipCapital, I would like to welcome you all on Jindal Saw, Q1 FY23 Conference Call.

From the management side, we have Mr. Neeraj Kumar – Group CEO and Whole Time Director, Mr. Vinay Gupta – President and Head, Treasury, Mr. Narendra Mantri – President, Head Commercial and CFO and Mr. Rajeev Goyal.

So, without taking much time, I would like to hand over the call to Mr. Neeraj Kumar for the opening comments.

Over to you, sir.

Neeraj Kumar

Good afternoon to all our stakeholders.

Friends on Friday we had our board meeting, where we announced our first quarter results which is standalone as well as consolidated.

The gross income was Rs.

3,019 crore with an EBITDA of Rs.

255 crore, PBT of Rs.

37 crore, PAT of Rs.

28 crore these are all standalone numbers.

Since the other group companies contribution in the consolidation is not very much or very large significance, we would focus on the standalone numbers a little more.

So, if you are now look at these results, Q1 FY-2022 top line was Rs.

2,477 crore which is the comparable quarter, trailing quarter was Rs.

3,345 crore.

If you now correlate this with our order book position, this gives us enough comfort that now the demand is picking up and we expect the year to end on a very robust note.

On all our business segments, we are seeing a healthy demand in terms of the deal flow or in terms of outlook.

Raw material consumption continues to be a matter of concern for all of us.

The other matter of concern is finance expenses, which is now moved away from Rs.

97 crore to Rs.

131 crore.

The major contribution on one side you have a positive on the top line which gives a very good and a healthy order book plus a trajectory for growth ahead.

For this quarter, raw material and finance charges are something which has caused the EBITDA to drop to Rs.

255 crore as opposed to Rs.

412 crore for the comparable quarter and Rs.

391 crore for the trailing quarter.

Let’s first deal with a simple finance expenses: This is nothing but primarily because of the fluctuation in the foreign exchange as we all know last quarter it has seen a lot of volatility in the dollar rupee market.

So, that is a large contributor to the increase in foreign exchange expenses because the accounting treatment requires that the negative must be booked as the financial expenses even though when there is a positive build actually it comes to the top line when it comes to the receivables.

So this quarter happens to be the year whereas as per the accounting, the exchange has put us on the wrong foot.

Jindal Saw Limited August 08, 2022 The raw material, we all know what the whole world commodity market has gone through.

Just to take a comparison of coal, which is now around 200 and it used to be, it went up to 600.

So, it has gone very volatile and unprecedented level of cost for commodities like coal, iron ore, which has kind of put our inventory and consumption at a very high level.

This did suppress the result for this quarter. but the good news is that now we are booking orders we are seeing a very robust growth.

Commodity market has largely corrected itself and we see that that trend should continue.

So, going forward, the second quarter may still have some residual impact of raw material, but definitely the way the raw material bookings, etc., are happening.

We are very, very confident of the second half that we would reap the benefits of the reversal in the commodity price at this point of time, as well as the robust order book that we are seeing and the orders that we have booked.

So, that is about the raw material.

As far as coal is concerned, we have long term contracts.

For economies of scale, we take one shipment per quarter, which we import those coal which has provided us with a very stable raw material, actually the price, the contract is such that the quantity and the periodicity they are all confirmed, the price is fixed spot.

So, even though we have taken precautions for kind of hedging our raw material but this time because of the extreme spike, the hedging mechanism didn’t work or didn’t had a minimal impact.

So, we did have one or two shipments, so as I said, Q2 also may have some residual impact on the volatility in the raw material prices.

But beyond that, we see a very, very good outlook.

So, on that, let me then turn my attention to the gross consolidated or the consolidated results.

There, again if you see the PAT does show a marginal red, but it’s primarily because in Abu Dhabi facility which is again, we have a very good order book and is operating well.

But there again, we got hit by the raw material which is pig iron.

Pig iron has been hit in Abu Dhabi primarily because of the (A), commodity prices, (B), Russia Ukraine war.

But now we have stabilized, we have found alternate market to buy it from and going forward that should be again stabilized.

So, nothing beyond that in consolidated view, except that the performance of Abu Dhabi was less than expected on account of the change in raw material prices.

As you would see deliberately as a strategy to contain our exposure towards the volatility of the raw material, we had brought down our order book from the usual comfort level to around 60% to 65%.

Now, you would see a trend where the order book is going to swell up to our comfort level which will be around a billion dollars.

Order book at this point of time is largely driven by a very strong tailwind in the domestic market.

If you look at Europe, there is a question mark because at this point of time even if there are some orders, we are not very much sure how Europe is going to perform if the recession happens.

We are not sure how Russia Ukraine war will pan out, we are that way relieved to see that at least now the China, Taiwan conflict is not in the immediate near it may be somewhere distant, but at least the way it was panning out appearing we had some concerns, but that is a sense of relief.

US is sending some very strong signals.

US is giving good demand, inflation is high which is kind of squeezing the credit control there, which is a mixed bag for us.

But there is demand in oil and gas.

In India, the water segment is going to drive the growth.

The other is the new Jindal Saw Limited August 08, 2022 segments or the new markers that we are entering which is seamless stainless alloy, and now with Hunting, this combination is going to be very, very formidable, the Hunting joint venture is moving towards a soft launch in this year for sure, we are targeting that if we can do that towards the end of this calendar year or beginning of the first calendar quarter next year.

That plus this seamless stainless and alloy combination that basket is becoming very formidable.

We are likely to get a lot of orders, or a lot of tenders are in the pipeline from ONGC and that would give us a lot of comfort.

So Hunting, joint venture once it comes into play.

We also have now signed an exclusive technology transfer with OSI USA, that’s again a very specialized oil and gas company across the globe, we would become their exclusive partners in India.

So we have signed that exclusive arrangement and that would give us even a strong foothold in the OCTC market.

So to give the sense, the good thing that we are seeing is large Dia because of the water sector is coming back, oil and gas also in large Dia we are seeing a good traction we have got some very good wins.

As the commodity prices moves, we are seeing a little bit of softening on the pellet prices.

But that’s expected and that’s okay because that is getting more than compensated by the players in the pipes.

With that, broadly, I’ve covered the standalone as well as consolidated results at a high level.

One thing that I’m sure is all of you would be looking at is the update on NTPC.

The next date for NTPC is September 6th and 7th.

This time the judge has given two dates and therefore, we expect that the arguments would begin on merits.

Once that happens, then we are very hopeful that we should be able to close this process soon.

So with that, let me pause and take some questions.

For the questions, I have my colleagues Vinay and Narendra wherever the numbers are required, they would assist.

One request that if you have something which is very, very specific or a very small nitty gritty number, if we do not have the answer around the table now, please send a mail.

Rajeev is sitting, he will note down or, he would expect a mail from you.

We would be answering by mail as well if something that is a minor detail for which we may not have those numbers on the table for now.

Let me stop here.

Thank you.

Moderator · Conference Operator

Thank you.

The next question is from the line of Abhishek Maheshwari from SkyRidge Wealth Management.

Please go ahead.

Jindal Saw Limited August 08, 2022

Abhishek Maheshwari

So, a follow up on the previous question regarding working capital debt.

There will be slight reduction in WC debt in coming quarters, can you share the effective interest rate that we are looking at right now including the current data that we had from RBI?

Moderator · Conference Operator

Thank you very much.

The next question is from the line of Sneha Jain from Brickwork Ratings.

Please go ahead.

Sneha Jain

I just wanted to confirm, do we have any price escalation clauses, because a lot of our orders are Government based.

So, how about these escalations and all?

Moderator · Conference Operator

Thank you.

The next question is from the line of Akshay Kothari from Envision Capital.

Please go ahead.

Akshay Kothari

Sir, regarding the case of Jindal ITF versus NTPC have we received that amount of around Rs.

1,900 crore or not?

Moderator · Conference Operator

Thank you.

The next question is from the line of Anurag Patil from Roha Asset Managers.

Please go ahead.

Anurag Patil

Given that the demand environment is now positive, and the commodity prices are stabilizing, what kind of volume growth we can expect in FY23, in pipe segment, particularly?

Moderator · Conference Operator

Thank you.

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

Please go ahead.

Saket Kapoor

When we look at the volume data for Q1 and compare it with last year’s Q1, we have seen lower execution on all the verticals except seamless.

So, even the pellet is down, so could you explain what was the reason for lower execution for this quarter?

Moderator · Conference Operator

Thank you.

The next question is from the line of Vikash Singh from PhillipCapital.

Please go ahead.

Vikash Singh

I want to understand what is our bid book position currently versus what it was five, six months back how it has been moved in last six months?

Moderator · Conference Operator

The next follow up is from the line of Abhishek Maheshwari from SkyRidge Wealth Management.

Please go ahead.

Abhishek Maheshwari

I wanted to know apart from Sathavahana and Hunting JV, you don’t have any other CAPEX lined up at the moment, right?

Moderator · Conference Operator

Thank you.

Next question is from the line of Saket Kapoor from Kapoor & Co.

Please go ahead.

Saket Kapoor

On the volume front, I missed your deliverable for FY23. How are we are lined to end the year in terms of the delivery schedules for pipes.

And, I have another question about the value creation ideas taking into account the working environment has been really tough for us because of the decrease of the commodity prices and that is relevant to all pipe companies.

But over and above, what step we have only the professional management present here and nobody represent from the promoter side, since they are the largest shareholder, but would like to understand steps like creating separate vertical, steps like going for a buyback, steps like creating acquisition, what’s the thought process of the team in terms of these assets, since investors having invested in Jindal Saw over a period of time have been losing a lot, so firstly is it a cause of concern for the team or not because whoever is representing us on the board today are professional people who are there to discuss the numbers, discuss the outflow, discuss the way how things are today and what it can be shaping up tomorrow.

But in terms of value creation, when it comes up the right value ascertain to your stock, which is trading on the stock market, you have limited power and it is only to the promoters that these questions could be very well answered.

So, your take on that please?

Moderator · Conference Operator

Thank you very much.

I now hand the conference over to Mr. Vikash Singh for closing comments.

Vikash Singh

Thank you.

On behalf of PhillipCapital, I thank you all for joining the conference.

And Jindal Saw management for giving us the opportunity, over to you Neeraj sir for any closing comment.

Jindal Saw Limited August 08, 2022

Neeraj Kumar

I wish to close this by a big thank you to all of you, as always.

We fully have a sense of the anxiety and the concerns that you people have in terms of market cap, not reacting to even though the issue that we are all grappling with is, that if you look at the fundamentals of the company, they are very, very strong look at their credit rating, look at the performance by itself.

Compare it over a period of time, that kind of things that we have gone through in the last two quarters, again gives us a lot of confidence that indeed, the fundamentals are very robust.

We are taking steps towards value add, i.e., Hunting, i.e., Sathavahana, all of those are steps which are going to consolidate and improve.

But yet, the market cap is not giving us or is not reflecting all the efforts that are being put or the status of the companies.

That’s a matter of concern for all of us.

And we hope that we would be able to correct that soon because of these extraneous factors, one of them being the NTPC arbitration award.

So, with that, I thank you very much.

We would be back with the second quarter or first half yearly results.

And hopefully we would have a lot more good news to share then.

Thank you, bye.

Moderator · Conference Operator

Thank you very much.

On behalf of PhillipCapital (India) Private Limited that concludes this conference.

Thank you for joining us, you may now disconnect your lines.

Thank you.

This is a transcript and may contain transcription errors.

The Company or the sender takes no responsibility for such errors, although an effort has been made to ensure high level of accuracy and edits have been made wherever felt necessary to make the matter more clear.

Questions and answers

Moderator · Conference Operator

Thank you very much.

We will now begin the question-and-answer session.

The first question is from line of Pratiksha Daftary from Aequitas.

Please go ahead.

Pratiksha Daftary

My first question was if you could quantify the Forex expense that is included in our finance cost right now, for this quarter, what is the impact of Forex?

Neeraj Kumar

It will be in the tune of upwards of Rs.

40 crore, say between Rs.

40 and 45 crore.

Pratiksha Daftary

Okay, alright.

And in the last quarter commentary you had mentioned that for SAW pipes and DI pipes we had covered our raw material, so in the order book raw material was covered.

So, if you could just update us on the position for current order book?

Jindal Saw Limited August 08, 2022

Neeraj Kumar

Again, what you would see that there is a lag in the raw material, but as I explained to you in coal, where we get four large shipments in coal per year.

So, there the contract is, it’s a framework arrangement, the coal prices are fixed on the monthly average in which the supply takes place.

So that is more or less on spot.

This at least has given us a sure supply of good coal, which is largely imported.

Pratiksha Daftary

Okay.

And how about the metal sir?

Neeraj Kumar

Say it again.

Pratiksha Daftary

Metal, for the steel as per DI and SAW pipe there is steel also that cover order book?

Neeraj Kumar

Yes, the steel now we have booked the raw material prices, for future where LCs, etc., I have opened, when the market was very volatile, then the suppliers were also shying away from getting into a contract which was anything beyond that a very short delivery period.

Because what we have seen in the commodity market is absolutely unprecedented.

So, that kind of disruption all the market order or the trade arrangements that we had, but now they have all come back to normal it looks like it will normalize and therefore we are able to block or book raw materials.

Pratiksha Daftary

We should see margin deterioration even in the next quarter from these levels.

Neeraj Kumar

We should see not margin deterioration, we should see pressure what we expect Q3, Q4 to be absolutely fantastic where we should actually see an upswing major.

Q2 should be a residual impact so it would be under pressure, but maybe a little better than Q1.

Pratiksha Daftary

Okay.

And on seamless front, if you could just highlight on the export, the quantum, the export opportunity there and also.

Neeraj Kumar

Export we are doing very well.

In seamless business, stainless business, Ukraine was a major supplier to the world.

So, that supply has been kind of vacated which gives opportunities for us, new players to enter.

So export is doing well.

We are getting very good prices and we want to build on it, we want to consolidate on it.

Pratiksha Daftary

So, from an existing order book, how much would be exports and seamless?

Neeraj Kumar

Export in terms of a top line you would see around 30%.

Pratiksha Daftary

And order book?