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Operator
Dt-13 May11
Ladies and gentlemen, good day and welcome to the Jindal Saw Limited FY11 Results Conference Call hosted by MF Global Sify Securities India Private Limited. As a reminder all participants' line will be in the listen-only mode. And there will be an opportunity for you to ask questions at the end of today's presentation. Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Kapil Bagaria. Thank you and over to you sir.
was a very significant part of our Helical SAW prices, which was done for domestic GAIL was extremely low margin driven business, which was about 3 to Rs. 4000 per metric tonne EBITDA number. So, that has reflected majorly during this quarter. The second is that on an yearly basis with one analyzes, we have been able to do an EBITDA of 20%, which has been our consistent guidance that we would be.. For first three quarters, we did above 20% and for the fourth quarter we did 15%. Thereby generating an aggregate EBITDA of about 20%. The raw material pricing on the input side specially the coal prices and the coke prices, both have really short-up, as well as the iron ore prices they are significantly hinged-up. So, that's why we are very excited about our backward integration into mine, which should result in the significant saving, when they get on line. I will definitely give you an update as to what is happening on mines. It's a result which is on fourth quarter side I would definitely in a state that these are subdued results. But in terms of our overall yearly delivery, we are within the margins in terms of 20% EBITDA and about 11% PAT on a yearly basis. We have comeback to a run rate of about 1,200 crores and we expect that going forward we would be doing about 1.1 odd million tonnes of sale of pipe this year, which will primarily comprise of about 650 to 700,000 tonnes of LSAW and HSAW combined. We would be doing about 300,000 tonnes of ductile iron pipes, which will include enhanced production for some part of the year from our Abu Dhabi plant. And we will be doing about 160,000 tonnes of seamless pipe, which will also include some drill pipe in it, which is getting commissioned as we speak, it's a relabeled in terms of production. These are some of the challenges of raw material costs are not under the control even the best of judgment we can, commodity prices have reasonably been volatile. We have been able to control them on our LSAW, HSAW style, because of our policy to contract the steel pricing from the steel makers as soon as we get an order. But in the business of ductile iron pipes, where we use iron ore and coal, these are more salt driven. And our order book also is not of a contractual nature, where we get a significant order for a significant period of time. So, there we get definitely affected. Every single shipment of coal can change the pricing in a very significant way. I think the whole industry is witnessing that. Our outlook on commodity pricing, it is difficult to take a call. We would have to play as we go along. This can post some rest to, as specifically to our ductile business. But our backward integration into iron ore mines, which is about 90% or 85% of our total raw material cost, should bring up clear winner in the whole ductile iron space. And we are able to streamline pricing as well as the volatility of that pricing. In terms of what should we expect next year, as I said we should be looking at good terms of tonnage, which should deliver top-line at the current market pricing of about 6,500 crores. We would be targeting about 17 to 18% EBITDA at this level, which is lower than 20% plus for the last two years, but this is primarily because of the higher input pricing. We see that in the fourth quarter being, of the current financial year to be significantly higher EBITDA, because of our mining coming into the play. We expect that our iron ore mine, which we said should be able to supply our beneficiated iron ore by September. We still are not taking as a prudent policy for October to December, but we are taking the benefit from January to March.
This should be a reasonably large value creator. So, we will see the third and what for sure the fourth quarter has to be the significant higher EBITDA number. Thereby implying that we would see lower EBITDA numbers on first and second quarter. Because we continue to execute some part of our domestic Helical SAW price, which are not analyzing any meaningful EBITDA. We would be very careful with the market opportunities that we can produce since there is 1 million tonnes of may be Helical's and LSAW combined. But we will not take orders, which are not, do not meet our hurdle rate of our EBITDA expectation. We have mining operations remain on track and I continue to emphasize because I believe that's a very, very large value creator for Jindal Saw. The first value comes out of the beneficiated iron ore itself. The iron ore should allow us to have about 300 crores saving on EBITDA alone, even taking a conservative deal. Part of that would be available this year and for the whole next year that would be available. We also are setting 2.4 million tonne pellet plant in phases. The first phase should be fully available for benefit, for the FY12 and '13. We expect to generate about 700 crore additional EBITDA from that. We would be commissioning the expansion of our ductile iron plant both in Abu Dhabi and Mundra by December of this year.
So, they will remain available for one quarter. But we haven't taken the full one quarter production benefit in this financial year. Our second phase of palletization would get commissioned in '13, '14, where we expect again a very significant EBITDA transfer to the business. We expect these results to be delivered, as we expect for the next financial year in terms of tonnage, sizing and EBITDA. Our first two quarters would be subdued, but our next two quarter would be, and the fourth quarter specifically would be significant. I think with this I would be very happy along with Vinay to answer your specific queries and points in details you would like to know. And I am very happy to do that. Thanks.
Ram Modi
Hello. Good evening sir.
Ram Modi
Sir, just wanted to know the employee cost has jumped a lot so is there any specific reason?
Ram Modi
Just wanted to know how much is, what the quarterly run rate we can expect on employee cost now? Just wanted to check how much was the arrear for the quarter, October to December?
Ram Modi
Okay.
Ram Modi
Okay, okay. And sir, if you can just provide us an update on the Jindal ITF business that will be helpful?
Ram Modi
Okay, okay. Fine, okay. And sir just to be, wanted to know how the pricing has been moving in DI pipes? Have we will been able to at least for new orders able to pass on the cut, increased raw material cost or the pricing remains the same and we are hit by raw materials? I am just...
Ram Modi
So, for even the new orders the margins will below?
Ram Modi
Okay. I will join back in the queue sir, yeah.
Operator
Thank you. The next question is from the line of Puneet Gulati from HSBC. Please go ahead.
Puneet Gulati
Hi. Just wanted to understand when you said there won't be a huddle rate below which you will beat, what is that hurdle rate in terms of EBITDA?
Puneet Gulati
Okay. And is this, what is currently in the market as well?
Puneet Gulati
Okay. And how much of that order is still left?
Puneet Gulati
Okay. More often.
Puneet Gulati
Okay. So, your sales, is it possible to give us a breakup of LSAW and HSAW for fourth quarter?
Puneet Gulati
Yeah.
Puneet Gulati
Okay. And, okay. So, this Helical was all GAIL, is it?
Puneet Gulati
Okay. And is it possible to have a similar breakup for the order book, your $1 billion order book in tonnage?
Puneet Gulati
Sorry?
Puneet Gulati
Okay.
Puneet Gulati
Okay.
Puneet Gulati
Okay.
Puneet Gulati
Okay.
Puneet Gulati
Okay. So, that's fine. I'll come back with the questions on JITF data. Thanks for this.
Operator
Thank you. The next question is from the line of Sai Anjali Nair from Capital Market. Please go ahead.
Operator
Thank you. The next question is from the line of Nirmal Shah from Alchemy. Please go ahead.
Nirmal Shah
Yeah. Good evening sir. Sir, I wanted your volume breakup for the full year for SAW pipes, how much did you produced for longitudinal and spiral?
Nirmal Shah
Okay. Sir can you just give us EBITDA, hedge list for these two categories for the year, so that we can come to know how much was surprising pressure on Y-o-Y basis you are feeling right now?
Nirmal Shah
Yeah sir, my next question is based on your current order book, close to you have a 6 lakh tonnes of SAW pipe order book. So you are now hedged back to bit for your raw material price in that?
Nirmal Shah
So, basically it will be like close to Rs. 10,000 a tonne EBITDA for LSAW and close to 4,000 for spiral, is it right?
Nirmal Shah
Okay. Thanks a lot.
Operator
The next question is from the line of Vineet Maloo from Birla Sun Life. Please go ahead.
Vineet Maloo
Hi. Good afternoon sir.
Vineet Maloo
Sir, still wanted to know your coal inventory situation, I mean you mentioned that coal prices have gone up. So, you already started buying $330 coal, right?
Vineet Maloo
And so would we have any of the earlier lower price coal in the inventory or all of that has been exhausted?
Vineet Maloo
Sure.
Vineet Maloo
No. I'm asking from a point of view that in terms of accounting, we would see lower margins only in September quarter due to high coal prices right, because you said till June you would still have old inventory?
Vineet Maloo
Right. It is later to come, but in terms of accounting it will come a little later.
Vineet Maloo
And the second thing is on your employee cost, I mean I just wanted to understand, you said 10 to 11% increase you have given, right?
Vineet Maloo
Sir, the two quarters of increments you are saying, right?
Vineet Maloo
Right, understood. Sir, still I mean sir you reported staff was roughly 64 odd crores and sir two quarters of increment I would say would 10, 12 crores not more than, right?
Vineet Maloo
So, that would...
Vineet Maloo
Sorry, 100 crores, I didn't understand I mean.
Vineet Maloo
Right.
Vineet Maloo
Sir, these arrears are since when? This are 1 October 2010, right?
Vineet Maloo
Right. So, I mean there is only three months worth of arrears which are paid out in this quarter?
Vineet Maloo
Yeah, Jan, Feb, March would be for this year itself right?
Vineet Maloo
Right. So I just feeling...
Vineet Maloo
Yeah.
Vineet Maloo
Right.
For, January and February, you get the salary and the increase values...
Vineet Maloo
Right.
Vineet Maloo
Right, right. I understood. But as I am saying your absolute amount of staff cost in December '10 was roughly 46 crores.
Vineet Maloo
Right. So, on that if I get 10% increase it will be roughly like 50 crores, which would have happened in, 50, 51 crore which should have happened in December right. So, the 5 crores that did not happened in December quarter has come in this quarter, right?
Vineet Maloo
Right. So, I am unable to understand this 100 crores number.
Vineet Maloo
Right.
Vineet Maloo
Right, right.
Let's take a ballpark number. We had 47 crore employee cost, it got increased by say 10%. So, it reached 52 crores plus this increase which is the new salary for Jan quarter is 54. So, there is 5 crore of additional, the 54 plus 5 or 6 whatever takes us to 59, 60 crore. That's the number which is getting differentiate here. One month, just the arrear on the increased cost. So, 5 or 6 crore increase plus the new rule, I mean the new base which is 5 to 6 crore enhance, will lead to 10 to 12 crore difference between last quarter and this quarter. So, 47 becomes 64 may be it's not exact number of 47 to 64. But that's the rational behind it may be the increase was 12%, may be the increase was 13%.
Vineet Maloo
Right. I guess I'll understand it separately, because I mean according to me the difference is coming 20 crores, what you say should be 10 to 12 crores. I will just try and understand it separately. Thanks.
Vineet Maloo
Right, yeah.
Vineet Maloo
Sure, sure. Thank you.
Operator
Thank you. The next question is from the line of Mihir Jhaveri from Religare Capital Market. Please go ahead.
Mihir Jhaveri
Good evening sir.
Mihir Jhaveri
Sir, is it possible for you to give us the breakup for the realizations in Q4 in terms of LSAW, HSAW and DI? And what it is currently stand into, the realizations? First question. And sir also the CapEx for FY12 and FY13?
Mihir Jhaveri
Yeah, this quarter. Separate breakup of the realization?
Mihir Jhaveri
Yeah.
Mihir Jhaveri
Okay, sir.
Mihir Jhaveri
Okay.
Mihir Jhaveri
And sir how it is standing currently this must be...
Mihir Jhaveri
Yeah. So, is it anything different, it is gone down or have been stable at current level currently?
Mihir Jhaveri
Yes, sir.
Mihir Jhaveri
Okay, okay sir.
Mihir Jhaveri
And sir can you give us the CapEx for FY12, FY13?
Mihir Jhaveri
Okay, sir.
Mihir Jhaveri
Okay. Thanks a lot sir.
Operator
Thank you. The next question is from the line of Harshad Gujarati from Khandwala Securities. Please go ahead.
Analyst
Yeah, good evening sir. Two questions. One is on the, your, status of your iron ore mine, when it is expected to start? And how much of incremental benefit you are expecting from the mining division as well as the backward integration, which you are doing from the pellet segment side? And how much will be incremental addition at EBITDA level, EBITDA part?
Our iron ore mines, we have an internal target of commissioning that by September. But we are thinking that we need to build some cushion and that's why we have taken the production of mine from January to March. Our target is to mine about 800,000 tonnes of iron ore mine. Iron ore which will be supplied to our blast furnace, which will be producing about 550,000 tonnes of hot metal to be converted into ductile iron pipes.
Analyst
Okay.
Analyst
Okay.
Analyst
Okay. Which includes the logistical cost?
Analyst
Okay.
Analyst
Okay.
Analyst
Okay. So this 800,000 you are talking about for FY12 or FY13?
Analyst
This financial, and then remaining will be coming from the next financial year?
Analyst
Okay. What is the total approved capacity of this mine?
Analyst
6000 plus tonne day. Okay, that is...
Analyst
3 million per annum.
Analyst
Okay. And this year you are expecting, how much of production will come, this 800,000 tonnes
Analyst
150,000 will be addition only this year.
That's right,
Analyst
Okay. And one more thing on industry perspective, can you throw some light more on how the demand supply in the pipe division especially, in the domestic market and international market?
Analyst
Okay.
Analyst
Okay.
Analyst
Okay. How much of your revenue, you are expecting from this KG Basin area? And how much will it going to affect your business as because the capacity of, the production of the KG Basin gas has decreased substantially. So is there any affect on your business side?
We have never done any business with Reliance of course in terms of supplying them sites.
Analyst
Okay. One more question last on the pallet segment. You are setting up total 2.1 million tonne of capacity, right?
Analyst
2.4. So, this will be purely for the captive consumption or are you going to sale merchant basis also?
Analyst
Okay. Thank you, sir. Thanks.
Operator
Thank you. The next question is from the line of Sanjay Satpathy from Merrill Lynch. Please go ahead.
Sanjay Satpathy
Hello, sir. Just couple of, information wanted. On the DI pipe, can you just let us know what is the current EBITDA margin for the quarter?
Sanjay Satpathy
No, in terms of rupees per tonne. It was 8,500 in March quarter.
Sanjay Satpathy
And it has fallen from about Rs. 11,000 in the previous quarters. Am I right sir?
Sanjay Satpathy
Okay, okay. And sir I mean you were giving a bit information about the realization of LSAW and HSAW, I could not really take it down. Can you just repeat it for myself?
Sanjay Satpathy
Sir, just wanted ask on, just hear your on thought on this question that you always complain that the EBITDA margin within the India for this Helical pipes, even for usage in the oil and gas sector is extremely low. Whereas for customers in U.S. and other markets is much better than that of Indian market. So, why is it like that? Is it because Indian companies are not quality conscious or why is it that? That's one. And then the second thing is that, do you think this global margin will sustain or they will come down to Indian level?
Sanjay Satpathy
Okay. And as far as your effort at capturing more markets here in North America, how the progress is? And I mean when can we see the mix, and your product market changing significantly in favor of North America and other markets away from India?
Sanjay Satpathy
Thanks a lot sir. And wish you all the best for rest of the year.
Operator
Thank you. The next question is from the line of Abhilasha Sable from Techno Shares & Stock. Please go ahead.
Abhilasha Sable
Sir, all my questions have been answered. Thank you.
Operator
Thank you. The next question is from the line of Ruchi Vora from UBS. Please go ahead.
Operator
The next question is from the line of Bharat Goraya from ICICI Bank. Please go ahead.
Analyst
Yeah. Good afternoon sir.
Analyst
Sir, I just one small thing on the other expenditures you shared your expense have gone up, because of higher transportation cost. So, can you just quantify that number? And what is the split in the other expenditure, I just wanted to know?
Analyst
Okay.
Analyst
So, going forward this will be the standard run rate. Is Latin America, a new geography for us? Or Is it...
Analyst
Okay. And sir one small question, I might be a bit ignorant. On the pallet, I just wanted to know what will be your incremental contribution from there, you said it was 2.2 tonnes. So, on the EBITDA front what would be your cost fee? And what would be, you will be selling at, so a rough number there?
Analyst
That's fine sir. Brilliant. Thanks a lot.
Operator
Thank you. The next question is from the line of Garima Mishra from Citigroup. Please go ahead.
Garima Mishra
Yeah. Hello sir. I had a few questions basically on this iron ore mining business. Are there any clearances or any issues which are pending and which might not be within the company's control and could lead to delays? Or everything is sorted out and I mean implementation is well on target?
Garima Mishra
Okay, sir. Sir, also on the DI pipe business, you mentioned that the domestic business continues to be under pressure especially on the pricing front as well as the raw material front. You think this trend will be attributable to the Abu Dhabi business also, when you start production from there? Or you think pricing there would be stronger?
in Western Europe today is about 40% higher than what is surprising in India.
Garima Mishra
All right sir. Sir you don't think there could be any competitive pressures et cetera there, because some of the other players are also talking of Middle East as an upcoming area, wherein they see very robust demand. So, you don't think there, at least there would be any significant pricing pressures going forward?
Garima Mishra
Right
Garima Mishra
Okay.
Garima Mishra
Right.
Garima Mishra
Right.
Garima Mishra
Right.
Garima Mishra
Right sir. Sir, also you mentioned that there are significant entry barriers there in the Middle East. Could you just elaborate on that a little bit?
Garima Mishra
Right.
Garima Mishra
Okay, sir. Sir, also one last thing you also mentioned that on the seamless pipes you're planning to sale pipes in North America. So, do we have clearances there, all the API clearances et cetera?
Garima Mishra
Right.
Garima Mishra
All right sir. Thank you so much.
Operator
Thank you. The next question is from the line of Bhavin Chedda from Enam Holdings. Please go ahead.
Bhavin Chedda
Yeah. Good evening sir.
Bhavin Chedda
Sir, you said 35,000 tonne, the entire HSAW volume was to the GAIL in the quarter, there is no other HSAW volume?
Bhavin Chedda
Okay. And how much is pending now of GAIL? Because I believe you got some 110k right?
Bhavin Chedda
So, 70k will be pending, will be entirely executed in Q1 or it will get carry forward?
Bhavin Chedda
Q1 and Q2. Okay. Sir, what I am trying to do is I executed, I deducted your GAIL low margin orders and also it seems that your margins are fallen to around Rs. 9,200 a tonne, which I think quarter three blended which was 12,000. So, is that the balance fall attributed to significant fall in DI pipe margin?
Bhavin Chedda
And now, is this the reality for DI pipes or you think there will be recovery?
Bhavin Chedda
Okay. And sir just coming back to your net debt number, I think there is a note that there is some commitment spending also. So, what will be the actual debt if these commitments are made?
Bhavin Chedda
Right.
Bhavin Chedda
So, operational debt will be 16, 1700 crores.
Bhavin Chedda
Okay. And sir what will be your CWIP on 31st March?
Bhavin Chedda
Okay. And sir the ForEx MPM note, which you give every quarter, I believe the expiry of this contract is March 12, right?
Bhavin Chedda
December 12. So, you are 18 months away, roughly 18 months away from the actual realization.
Bhavin Chedda
So, in the worst case scenario, if the yen stays currently, this will be the actual cash payout by December 12?
Bhavin Chedda
Right.
Bhavin Chedda
Okay.
Bhavin Chedda
Okay. And sir on the pipe order value terms you have given. Can you break it into volumes also?
Bhavin Chedda
Okay.
Bhavin Chedda
Okay.
Bhavin Chedda
Everything put together 800. Okay. And sir now other businesses can we ask the questions, or we are done with the points?
Bhavin Chedda
Okay. Sir, any numbers you want to update on that, how much loss annually will be there on Jindal ITF? And what will be the debt in that company and CapEx for FY12?
Bhavin Chedda
Right.
Bhavin Chedda
Okay. I am done on pipes.
Operator
Sir we do have a question, should we move on to the next question?
Okay.
Operator
The next question is from the line of Chirag Shah from IDFC. Please go ahead.
Chirag Shah
No, all my questions have been answered. Thanks.
Operator
Thank you.
Operator
Yes sir.
Operator
Sure. Sir, we move to ITF discussion sir.
Waterways. As of now the waste-to-energy facility, which is the largest in this country should have the first boiler fired before 30th June COD by the regulatory authorities by 30th September. As of now we are L1 in other, three other such waste projects, which again had a significant amount of potential. India generates about 160,000, 170,000 tonnes of waste everyday. I think these businesses have a significant upside. These are businesses which can generate 50% plus EBITDA margins. And they have a significant again first mover advantage that if you are able to tie up with the city for 25 to 30 years of its waste processing, you are almost an incumbent for 30 years and probably a great advantage for next 30. Our
other services business have a significant upside potential. These are executionally challenging businesses, Jindal Water and Jindal Urban has made that, have gone through that journey. And we think that this would generate significant free cash flow as well as the value creation opportunity. In Jindal Waterways, as of end of April, we would have 13 ships, which is an enhancement from eight ships we had. We would have two of our ships in our subsidiary company in Singapore, which would allow us to take the advantage of the lower bunker cost. We expect this business to do about 250 crore of revenue with about 55 crore of EBITDA. Our fourth business is Jindal Rail Infrastructure, which commissioned a plant to produce 1,000 rail wagons. As of today, we are expecting the award through our tender process, the tender has been floated. This is for 18,000 wagons and we believe that we should be able to execute 500 wagons this year, at a roughly price of 30 odd lakhs. We think we should be able to generate 150 crore of revenue this year with an EBITDA of about 13%, 1,3, 13%. And Jindal Shipyard operate part making facility in Calcutta, which was an acquisition we did about two years back. As of today, it has delivered 2,500 tonnes, which is going to be operational in July and would be operated by Jindal Waterways. This is Jindal ITF, we continue to believe that investment in these infrastructure areas, where there is a huge latent demand, but the sector per se is not one of the easiest sectors to operate to any company which is able to build up the all the PQ requirement, the execution capabilities and has a significant profit and loss account to show the significant activity would have a significant potential to create value. We as of today raised 200 crores of quasi-equity from IFCI, which is converted in fifth year. It was raised at 9.25% debt, which allows us to fund these businesses without Jindal Saw putting in money, which had a commitment to put $100 million, which is debt. All our businesses as of today would be a function of this 200 crores, which was raised in month of I think 31, March, sometime in March. We should be in a position to not raise anymore equity unless there was a significant inorganic opportunities. The chances of that happening always is, can never be put more than 50%. So, we are very confident of achieving the numbers we have given. We should produce a significant amount of EBITDA, may be in financial year '12, we might not be in a position to generate free cash flows, but our EBITDA margins would be significant to serve with debt and as well as capital depreciation. If there are any specific question, I would love to answer them.
Operator
Sure sir. Shall we move on to, our next question sir?
Operator
The next question is from the line of Vineet Maloo from Birla SunLife. Please go ahead.
Vineet Maloo
Sir, my question has been answered. Thank you.
Operator
Thank you. The next question is from the line of Tridhi Trivedi from Mandate Securities. Please go ahead.
Operator
Ma'am your line has been unmuted. You may go ahead please.
Analyst
No, my question has been answered sir. Thank you very much.
Operator
Thank you. The next question is from the line of Puneet Gulati from HSBC. Please go ahead.
Puneet Gulati
Hi. Yeah, I didn't quite catch it I think what is the status of CETP plant in Sitarganj, is it operational?
Puneet Gulati
What is the percentage of completion of project?
Puneet Gulati
Okay. And what is the status on the Timarpur-Okhla Waste Management Company, is the power plant still sir?
Puneet Gulati
So, what has been the reason for this delay, I thought it should have been done in the previous financial year right?
Puneet Gulati
Okay.
Puneet Gulati
Okay, fine. Thank you so much.
Operator
Thank you. The next question is from the line of Manish Bishnoi from Macquarie Bank. Please go ahead.
Manish Bishnoi
Hi, Mr. Indresh. I just want to ask few things, I mean I had questions on pipe, but given that we have moved to infrastructure, what will be the contribution next year you said?
Manish Bishnoi
Okay. If you don't mind, I just have some quick questions on core business of pipe.
Manish Bishnoi
You are guiding around 1.1 million tonnes for the next year. We have seen in last two quarters, your execution has been a bit weak, I am not sure it was due to shipping delays or something. Are you confident of executing that much orders next year?
Our mills have a capacity to produce more than 1.1 million tonnes only on large diameter. We are quite confident that we would deliver these volumes.
Manish Bishnoi
Okay. On the demerger of the investment and when will that be happening?
Manish Bishnoi
Okay. And on the iron ore mines. How are you going to transport it from Bhilwara to Mundra through road, through rail, what's your plan right now?
Manish Bishnoi
Okay. Thank you.
Operator
Thank you. Ladies and gentlemen, that was the last question. I would now like to hand the floor back to Mr. Kapil Bagaria. Thank you and over to you sir.
Operator
Thank you, sir. Thank you members of the management. On behalf of MF Global Sify Securities India Private Limited that conclude this conference call. Thank you for joining us and you may now disconnect your lines. Thank you.