Release Date: October 27, 2023
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Jindal Saw Ltd (BOM:500378, Financial) reported a significant year-on-year growth with a 20% increase in top line, 22% in EBITDA, and 25% in PBT.
- The company has a robust order book of $1.4 billion, indicating strong future demand.
- The company's debt is under control and showing a downward trend, reflecting disciplined financial management.
- Rating agencies have upgraded Jindal Saw Ltd (BOM:500378) to AA with a stable outlook, indicating strong creditworthiness.
- The company has a diversified product portfolio across various segments like water, oil, and gas, which helps in maintaining a good market share.
Negative Points
- The geopolitical scenario in the Middle East and the ongoing Ukraine-Russia conflict pose potential risks to the business.
- The company faces volatility in raw material prices, particularly coking coal, which could impact margins.
- Despite significant EBITDA generation over the past five years, the company's debt levels have not significantly reduced.
- The company is not planning any major CapEx or M&A activities in the near term, which could limit growth opportunities.
- Export revenue has slightly decreased from 37% to 34%-35%, indicating potential challenges in the international market.
Q & A Highlights
Q: Can you provide more details on the demand outlook for different product categories like saw pipes, DI pipes, and stainless steel?
A: The demand is strong across all product categories. We are taking a more customer-centric approach, focusing on industry-wise outlooks such as water, oil, and gas, and industrial sectors like power and defense. The joint venture has a potential of 50,000 to 70,000 metric tons annually, and we are awaiting API license approval.
Q: Which states in India are investing more in water infrastructure, and how is Jindal Saw positioned in these markets?
A: Key states include Rajasthan, Himachal Pradesh, Uttar Pradesh, Gujarat, Maharashtra, Telangana, Andhra Pradesh, and Odisha. We are strong in these regions and are also looking to penetrate further south into Tamil Nadu. The Jal Jeevan Mission and state water grids will keep the water infrastructure segment busy for the next two to three years.
Q: Can you provide guidance on margins across different product segments like seamless pipes, DI pipes, and line pipes?
A: We do not disclose segment-wise margins as it is part of our strategy. However, the overall EBITDA margin has improved from 12-13% to 15-16%. This improvement is sustainable given our strong order book and market position.
Q: How are rising coking coal prices impacting your costs, and what mitigation strategies are in place?
A: The current movement in coking coal prices is not as sharp or volatile as before. We have hedged prices and included price variation clauses in contracts. Technological modifications like pulverized coal injection in blast furnaces will also help reduce costs. Any impact will be marginal compared to last year.
Q: What is the current capacity utilization at Sathavahana, and what are the plans for excess capacity?
A: Sathavahana is currently running at 60-70% capacity utilization. We are adding balancing equipment to increase capacity by 20-25%. By next year, we expect to run at 80-90% capacity.
Q: What is your strategy for maintaining the order book while achieving growth?
A: We aim to maintain an order book around $1.4 billion, which is our sweet spot. Growth will be achieved through faster execution and moving towards value-added segments like stainless steel and defense. This strategy allows us to maintain a healthy order book while increasing sales.
Q: Can you elaborate on the demand-supply situation for SAW pipes in the domestic market?
A: The demand for SAW pipes is expected to grow at 10-15% per annum. The industry is operating at good capacity utilization, creating space for new players. Our plants are currently operating at 60-65% capacity utilization, and we have headroom for 20% more.
Q: What is your capital allocation policy for the next two years?
A: We have no major CapEx or M&A activities planned. All current CapEx is for maintenance and technological improvements. Surplus cash will be used to repay debt and reduce working capital loans.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
