Release Date: October 21, 2024
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 top line of INR4,790 crores for Q2 FY25, showing growth compared to the previous quarter and the same quarter last year.
- The company's EBITDA for the quarter increased to INR875 crores from INR842 crores in the previous quarter, indicating a positive trend despite higher steel prices.
- There has been a significant reduction in debt, with a large tranche of the term loan repaid after the September 30 results, improving the financial health of the company.
- The order book remains stable at $1.6 billion, with expectations of growth in the export market, particularly in the Middle East and North Africa regions.
- Jindal Saw Ltd (BOM:500378) is focusing on high-margin products and new market segments, including potential entry into the US market with seamless and stainless products, which could enhance profitability.
Negative Points
- The EBITDA percentage saw a marginal dip due to higher steel prices and a lower percentage of exports in the revenue mix.
- The export revenue percentage has decreased from 32% to 12%, impacting the overall revenue mix.
- There is a potential risk of geopolitical instability in the Middle East, which could disrupt transportation and affect the company's operations.
- The Jal Jeevan Mission is experiencing a plateau, which could impact the water segment's growth, although state-level projects are compensating for this.
- The company's focus on margin improvement over volume growth may limit top-line expansion in the short term.
Q & A Highlights
Q: Can you talk in detail about the Nashik and the coke oven debottlenecking and their impact on capacity and cost?
A: Neeraj Kumar, Group CEO and Whole-time Director, explained that the new coke oven in Mundra will be more environment-friendly and improve productivity, with an expenditure of INR300-350 crores. The Nashik plant will see a 40-50% capacity increase with a new piercer and rotary hearth furnace, costing around INR200 crores. These projects aim to enhance capacity and efficiency without significant CapEx bunching.
Q: Is the focus more on margin improvement rather than volume growth?
A: Neeraj Kumar confirmed that the focus is on maintaining and increasing margins, which have improved from 13-14% to 17-18%. However, with upcoming capacity enhancements, volume growth is also expected in the next phase.
Q: What has changed to improve the margin trajectory from 12-14% to 16-18%?
A: Neeraj Kumar attributed the improvement to better capacity utilization, lower production costs, and a shift towards high value-added products. The conducive business environment has also supported this transition.
Q: Can you explain the slight dip in the order book and the outlook for future orders?
A: Neeraj Kumar noted that while the order book value slightly decreased, the quantity increased. The export percentage dropped due to completed orders, but new export orders are in the pipeline, aiming to restore the export share to 20-25%.
Q: What are the plans for the JV with Hunting, and how will it impact capacity?
A: Neeraj Kumar stated that the JV is operating at high capacity and discussions are ongoing to potentially expand premium connections capacity. This expansion would be a joint decision with Hunting Singapore.
Q: Are there plans to enter the US market with seamless and stainless steel products, and how will antidumping duties affect this?
A: Neeraj Kumar mentioned plans to enter the US market with higher-grade products, which are less likely to be affected by antidumping duties. Current exports are focused on normal grades, but the US entry will target higher applications.
Q: How is the domestic market performing, particularly with the Jal Jeevan Mission plateauing?
A: Neeraj Kumar explained that while the Jal Jeevan Mission is plateauing, state-level projects are compensating for this, leading to stable demand. The overall scenario remains stable to growing.
Q: How will the normalization of raw material prices affect profitability?
A: Neeraj Kumar indicated that current orders have locked-in prices, so profitability won't be impacted in the next few quarters. Long-term planning and purchase agreements help hedge against raw material price fluctuations.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
