Y 2011 Earnings Call - Jindal Saw Dt-13 May'11: Operator

Y 2011 Earnings Call - Jindal Saw
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.
Kapil Bagaria, MF Global Sify Securities India Pvt. Ltd.

Thank you, Faisal. Good evening everyone. On behalf of MF Global, I welcome you all to the FY11 earnings conference call of Jindal Saw Limited. To discuss the results we have with us Mr. Indresh Batra and Mr. Vinay Gupta. I would first like to hand over the floor to Mr. Batra to give some initial remarks. And then we can proceed to the Q&A session. So, over to you, sir.
Indresh Batra, Managing Director

Good afternoon. Thanks a lot for attending this call. I along with Vinay would present you with what happened in last three months and how does it look for next twelve months. Couple of major highlights of the points. Our performance on the profit after tax level has been below the market estimate and also about the guidance we were giving. The reason
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.
Questions And Answers

Operator
Thank you very much sir. Ladies and gentlemen, we will now begin with the question-and-answer session. [Operator Instructions]. The first question is from the line of Ram Modi from Dolat Capital. Please go ahead.
Ram Modi
Hello. Good evening sir.

Good evening, Ram.
Ram Modi
Sir, just wanted to know the employee cost has jumped a lot so is there any specific reason?

The annual increment process in our company is done in October. And it gets implemented by January or February, but the wages are due as of 1st October. So, there is a significant outflow which is very, I mean it's every year you will see that there is a significant jump, but it's on account of wages. We normally would go with the industry standard, but our average wage and fees has been about 11 to 12%.
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?
It's about 5 crores.
Ram Modi
Okay.

Sorry 50 crores.
Ram Modi
Okay, okay. And sir, if you can just provide us an update on the Jindal ITF business that will be helpful?

Sure. Ram, we can give this, but we can go with the Jindal SAW questioning and I would comeback and give you a detailed update to the, for the benefit of everyone in Jindal ITF.
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...

As of now the pricing power is not with the producer. We expect that rational pricing should move, but as of today the pricing is almost what it was last quarter and quarter before. And the coke prices have moved up significantly.
Ram Modi
So, for even the new orders the margins will below?

I mean there is a three month gap. I can't say what we will book for three month later production won't be higher. But I would be realistic that there is a significant opportunity to increase the pricing.
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?

We are looking for about 9 to Rs. 10,000 EBITDA on LSAW basis per tonne, per metric tonne. And we are looking on HSAW something like Rs. 4,000 EBITDA.
Puneet Gulati
Okay. And is this, what is currently in the market as well?

Currently, I think lot of producer would be doing at negative EBITDA frankly. In terms of Jindal Saw has shown cost operational efficiency, but I won't comment on what they are doing. But on the orders which we are executing on the GAIL, which is HSAW price, we haven't been able to realize Rs. 4,000 EBITDA margin.
Puneet Gulati
Okay. And how much of that order is still left?

There is a significant portion, it's about 65 to 70,000 tonnes more often.
Puneet Gulati
Okay. More often.

That's right.
Puneet Gulati
Okay. So, your sales, is it possible to give us a breakup of LSAW and HSAW for fourth quarter?

Absolutely, we can. In terms of, actually you are talking about the quantity?
Puneet Gulati
Yeah.

Yeah. It's approximately 70,000 tonne of longitudinal and roughly 35,000 of Helical what we sold in this quarter.
Puneet Gulati
Okay. And, okay. So, this Helical was all GAIL, is it?

All, GAIL.
Puneet Gulati
Okay. And is it possible to have a similar breakup for the order book, your $1 billion order book in tonnage?

Approximately 4 lakh tonne of longitudinal.
Puneet Gulati
Sorry?

4 lakh tonne of longitudinal.
Puneet Gulati
Okay.

Approximately 2 lakh tonne of Helical.
Puneet Gulati
Okay.

Close to 180 to 190,000 tonne of ductile. And around 20,000 ton of seamless.
Puneet Gulati
Okay.

Close to 800,000 tonnes put together.
Puneet Gulati
Okay.

Yeah.
Puneet Gulati
Okay. So, that's fine. I'll come back with the questions on JITF data. Thanks for this.

Thanks.
Operator
Thank you. The next question is from the line of Sai Anjali Nair from Capital Market. Please go ahead.
Sai Anjali Nair

Hi. Just a little follow-up to one of the questions you had answered. You said that the pricing is now with the producers now and it's been almost the same as what you have been in the last quarter and the previous quarter. Can you tell why the pricing is not moving up though the coke prices are going up?

It's about a competitive dynamics in terms of supply and demand. There have been two plants, which have been commissioned in that one year on ductile iron side. This fresh capacity has definitely put pressure in terms of producers capability to carry this quarter.
Sai Anjali Nair

Okay. Also I am so sorry, I just missed out one of your initial remarks. You have said that in FY12, '13, there will be something which should be around 700 crore addition, will be an addition to your EBITDA, I missed out?

Yes, Sai Anjali, we have been allocated mines by Rajasthan, on which the work is continuing. We have about 200 million tonnes of proven reserves as of today. Our intended use of this mining, the resources have been number one to put up a beneficiation plant to feed the blast furnace for iron ore. The second purpose of that is to produce 2.4 million tonnes of pallet plants, setting up these plants in two phases. And I was taking about the EBITDA increase due to the pallet plant capacity.
Sai Anjali Nair

That's through pallet plant. Okay.

That's right.
Sai Anjali Nair

All right. Yeah, that's it from me. Thank you.

Thanks.
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?

Can you just - do you think that would be helpful?
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?

Sure. Just hold for a second, yeah we will definitely give you this. Vinay is just digging into that data. If you have the question, next question?
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?

Absolutely. For full tonnage, absolutely.
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?

I mean this is not a just a multiplication number. We said, yeah it's about 10,000 and it's about 4,000 for the spiral.
Nirmal Shah
Okay. Thanks a lot.

Thanks, Nirmal.
Operator
The next question is from the line of Vineet Maloo from Birla Sun Life. Please go ahead.
Vineet Maloo
Hi. Good afternoon sir.

Hhi.
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?

That's 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?

We have up to June, but the next cargo which will come in would be at a higher price. But prices have been pretty strong for last about four to five month. So, there is no significant advantage of pricing being driving at a very traffic speed. So, that we can take advantage of the dual inventory. Second is that this inventory has to be related with our capacity to push up the prices.
Vineet Maloo
Sure.

So, that flexibility as of today is not available as I said because of the competitive dynamic. So, there is no significant lower price for coal or coke inventory available with us.
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?

That's the correct interpretation. Yeah.
Vineet Maloo
Right. It is later to come, but in terms of accounting it will come a little later.
This is right. This is absolutely right.
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?

Okay. Vineet, it's actually what we were trying to streaming that the appraisals under review in the company from October till September. So, with some other extent that the normal employee increase for the company is wholly 10 to 11 or 12%. Okay, when we take the salary in the quarter, it was with the arrears. So, the whole of the arrears get reflected in this quarter. So, when you will see the next quarter, it will be like, if we say Rs. 45 crore in the third quarter. So, that's a 10 to 12% on that. So, it will be 50 crores approximately the salary. Because it is an additional two quarter employee cost, which has been cash payable in this quarter, which has been paid.
Vineet Maloo
Sir, the two quarters of increments you are saying, right?

Yes, that's right. So, as the arrear of the increments.
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?

Okay, yeah.
Vineet Maloo
So, that would...

Arrears of that would be in addition of 100 cores, say 54 into 2.
Vineet Maloo
Sorry, 100 crores, I didn't understand I mean.

Arrears which are paid for the salary.
Vineet Maloo
Right.

Has getting reflected in cash outflow in that, this particular...
Vineet Maloo
Sir, these arrears are since when? This are 1 October 2010, right?

Yes, that's right, yeah.
Vineet Maloo
Right. So, I mean there is only three months worth of arrears which are paid out in this quarter?

No, October, November, December, January, February, March.
Vineet Maloo
Yeah, Jan, Feb, March would be for this year itself right?

Yeah. It's okay.
Vineet Maloo
Right. So I just feeling...

Okay. Let's understand.
Vineet Maloo
Yeah.

Up to November, December is arrear for the last quarter.
Vineet Maloo
Right.
For, January and February, you get the salary and the increase values...
Vineet Maloo
Right.

So, if you compared with the September, last quarter which ended December, actually if I have got Rs. 100 salary in December quarter, if I could get 110. So, I will get the arrear for October, November, December and I'll get the salary at the rate of 110 for January, February, March also.
Vineet Maloo
Right, right. I understood. But as I am saying your absolute amount of staff cost in December '10 was roughly 46 crores.

That's right.
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?

Right. Okay.
Vineet Maloo
Right. So, I am unable to understand this 100 crores number.

No, no. It's 64 crores.
Vineet Maloo
Right.

I confused it was with 12 months result, which is 196 crores.
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.

I mean if we just subtract 47 out of 64, it's about 17 crores.
Vineet Maloo
Right, yeah.

And you are at 20, I am at 12. So, there is somewhere between, but definitely we would love to take it offside.
Vineet Maloo
Sure, sure. Thank you.

Right.
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.

Good evening.
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, you need the realization for this quarter?
Mihir Jhaveri
Yeah, this quarter. Separate breakup of the realization?

For all the products?
Mihir Jhaveri
Yeah.

Okay. See, in any case I think you could work out the realization formation from my note, because we have given the quantity and well you got in any case. You can take the longitudinal as we said we sold roughly 20,000 tonnes, the realization for around Rs. 67,000.
Mihir Jhaveri
Okay, sir.

Helical around 35,000, realization Rs. 42,000.
Mihir Jhaveri
Okay.

Inland to is around Rs. 73,000. Okay, and ductile is Rs. 45,000.
Mihir Jhaveri
And sir how it is standing currently this must be...

This is fourth quarter.
Mihir Jhaveri
Yeah. So, is it anything different, it is gone down or have been stable at current level currently?

Okay. In the third quarter, you are talking about vis--vis current quarter vis--vis let's say April, May, June.
Mihir Jhaveri
Yes, sir.

See April, May, June, I think it should be more or less in the similar meaning except that the seamless, I think it is he seam. So, ductile could also be, ductile might be 45 or 46, but everything would be in the same range.
Mihir Jhaveri
Okay, okay sir.

Yeah.
Mihir Jhaveri
And sir can you give us the CapEx for FY12, FY13?

See basically, I mean it is difficult to differentiate between the two years, but what, we can give, normally we give the theme is that we relevantly in ductile India which is taking Rs. 350 crore, we are standardizing close to 70, 75 crore by March and balance will come is '11 to '12. And then beneficiation and pellet put together will be in the range of Rs. 350, Rs. 375 crores will be, which we expand in '11, '12, '12, '13 mainly. And seamless around 100, 125, which will again '11, '12 and some portion will go to '12, '13.
Mihir Jhaveri
Okay, sir.

Yeah.
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.

Current price, the lended cost of iron ore from Bellary to Jindal SAW is about Rs. 7,000.
Analyst
Okay.

This wood should be available to us at half the cost. I mean the pricing is not something which is stable. But we have taken a conservative view and we think that this should allow us to save Rs. 3,500 per tonne.
Analyst
Okay. Which includes the logistical cost?

Yeah, yeah it does.
Analyst
Okay.

I mean from Bellary to Mundra is about twice the distance between, where our current mines are in Bhilwara to Mundra.
Analyst
Okay.

And Rs. 3,500 multiplied by Rs. 800,000 should give the EBITDA addition.
Analyst
Okay. So this 800,000 you are talking about for FY12 or FY13?

This is will be the availability, but this will be available only for one quarter. So, if there is 300 crore benefit, 75 crore should be available this financial year.
Analyst
This financial, and then remaining will be coming from the next financial year?

Next financial year, we should take full 300 crore benefit.
Analyst
Okay. What is the total approved capacity of this mine?

This about 6000 tonnes per day.
Analyst
6000 plus tonne day. Okay, that is...

So, this is about 3 million odd tonnes.
Analyst
3 million per annum.

Yeah. We want to use 2.2 million tonnes for pallet and we want to use 800,000 for feeding our blast furnace.
Analyst
Okay. And this year you are expecting, how much of production will come, this 800,000 tonnes

No, I said one quarter so that means about 150,000 tonnes, for financial number we have taken 150,000 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?

I would go product-wise, segment-wise. The oil and gas transportation business is reasonably robust in terms of expenditure. Our business is divided into exports and domestic selling. Domestic market is reasonably price constrained that's what is I was talking earlier about, which is reflecting in 3 to Rs. 4,000 EBITDA. I am not very hopeful that the domestic market would have a significant price increase, but export markets are getting more and more strong. Our order book primarily comprises of export, where our margins on the LSAW side are still Rs. 10,000 plus.
Analyst
Okay.

We would like to continue to enlarge that. There is a significant demand emerging from almost all parts of the world. We got significant orders from Far East including Australia, Burma. Our traditional markets of Iran, Iraq, Saudi Arabia are still very, very strong. And North America is emerging to be a very strong demand center, because of the shale gas, which is giving selling to both our seamless business as well as large diameter oil and gas transportation business.
Analyst
Okay.

Our seamless business is extremely strong that's what is reflected in our EBITDA margins as well. We are selling that product at an average realization of 73,000. We think that this has a potential to move up. We have commissioned a drilling for dwell pipe unit. We expect that we will be selling 10 to 12,000 tonnes of drilled pipes, which are currently selling at about $4,000. This should further be graded demand after we have established ourselves in North American market, would be a significant product because of the shale gas discovery. Our third business is ductile iron pipe, which is a domestic business for us. There the supply demand challenges are there, but the fundamental demand of creating urban infrastructure is still very much there. The capacity is completely sold out for last five year. We have no issue, the issue is the rising input prices and our capability to pass those stock pressure. They will get ease, because of our mine, as well as our new capacity coming in Abu Dhabi, which is as I said is a market of about 2 to 3 million tonnes of pipes and we would be the first player in that, manufacturing sector in that. So, I am quite confident in terms of partly achieving 1.1 million tonne plus pipes, with an EBITDA margin which will be slow as we execute some of the domestic spiral orders. Moving up significantly in third, fourth quarter because of mines and commissioning of Abu Dhabi plant.
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?

2.4 million.
Analyst
2.4. So, this will be purely for the captive consumption or are you going to sale merchant basis also?

We have no captive use for pallet, it's all for merchant trading.
Analyst
Okay. Thank you, sir. Thanks.

Thanks a lot.
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?

That's close to Rs. 8,500. You want in percentage terms?
Sanjay Satpathy
No, in terms of rupees per tonne. It was 8,500 in March quarter.

Yeah, that's right.
Sanjay Satpathy
And it has fallen from about Rs. 11,000 in the previous quarters. Am I right sir?

That's correct...
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?

Absolutely, longitudinal approximately 67,000, Helical is 42,000, seamless 73,000, ductile 45,000.
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?

The first point which we raise is about domestic market, what has happened was that in last about 12 or 18 months, there have been four of five players which have entered the market, which were primarily water sectors there like Ratnamani, like Pratibha. So, they needed to qualify. So, qualification is a very significant achievement for them, which set up the price trend in India. I believe that this is not sustainable for a long-term. That's one reason of pricing actually getting to a lower level. In terms of the pricing in the international market is again simply a concern of demand and supply. As of right now we are seeing a very significant demand ramp up, which is maintaining the prices. Within that LSAW, which is a preferred product in some geographies, where the supply is not very large. I mean in India except for Jindal Saw are significant player, most of the players.. This also allows us to alter our product mix in favor of LSAW, where our margins are still significant and increasing.
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?

We are away from India, but not necessarily the markets are North American. We have had as I was mentioning earlier, we have got about 300,000 tonnes order only from Australia and Burma kind of markets, where we are not a very regular supplier. Our other significant markets are Saudi Arabia, Iran and Iraq. We are doing business in North America by having the coating and double jointing operations. We think that in next six to nine months, we should be able to secure some order book from there as well.
Sanjay Satpathy
Thanks a lot sir. And wish you all the best for rest of the year.

Thanks a lot.
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.

Thanks a lot.
Operator
Thank you. The next question is from the line of Ruchi Vora from UBS. Please go ahead.

Hello?
Operator
The next question is from the line of Bharat Goraya from ICICI Bank. Please go ahead.
Analyst
Yeah. Good afternoon sir.

Good afternoon.
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?

Okay. Other expenditure, the other manufacturing expenses, administrative expenses, marketing and selling expenses it also includes the freight outward.
Analyst
Okay.

We have said that other expenditures have gone up on account of higher freight cost, typically this include few consignments, which have gone to Latin America and some other portion. There the freight cost was higher as compared to say Middle East plus the input cost other than the fee have also increased significantly in the last few months, which includes coating material and other things. Because couple of these things are related to petrochemicals also. So, these all prices have gone up in the last few months.
Analyst
So, going forward this will be the standard run rate. Is Latin America, a new geography for us? Or Is it...

No, we have a presence there. We have executed very significant orders in countries like Peru and all that. That's a significant market, but the logistics needs to be clearly understood as the pipe we sold, where you manufacture it. But there is a, I mean one of the largest E&P, spend increases have happened in Latin America specially in Brazil and other countries in Latin America. That's a very significant market for us. And we are looking at a, I mean we are present in those markets. We have executed significant orders probably the only Indian player who have brought an orders from Chile and Guatemala as well as Peru. We believe that that would also provide us a reasonable order book, but it has to be remunerative for us.
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?

The current prices of pallet is about Rs. 10,400, but it's delivered for something like you are able to realize Rs. 8,000. And EBITDA margin at this level is close to 70%. And all I said was that 2.4 million tonne, we should be able to realize the top-line of about 1,800 crores and an EBITDA margin of about 1,000 crores.
Analyst
That's fine sir. Brilliant. Thanks a lot.

Thanks.
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?

As of now we have no pending clearances to be obtain from any regulatory authority, be it state government, municipal authority or central government. The execution work is in reasonable pace, which is what we expect should let us meet our deadline. But given the nature of the capital expenditure in capital goods industry, we have taken a margin of not projecting the financials from October onwards, but January onwards. So, these are on track.
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?

It is one of the big rational for us to look for geographical diversification by putting up a plant in Abu Dhabi was that there was no production in that large market of the world. So, we wanted to move away a business which could experience a year or two years of over capacity. And I do not foresee any reason, because the pricing in Abu Dhabi or
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?

I will be very honest with you, any domestic player today in ductile business is losing money. If we are making Rs. 9,000 EBITDA, we are probably amongst the, probably one more player from the east which is making money. I am not too sure that after spending 5 or 600 crores in establishing capacity here and losing money. You are left with pretty much a lot of money to do other things.
Garima Mishra
Right

But I can't rule anything out. There is a very significant entry barriers into those markets.
Garima Mishra
Okay.

And my feeling is that we should, we can't say no to a competitor coming in, but say for next three years, would there be a competition, because our mill is going into production end of this calender year.
Garima Mishra
Right.

So, there is always a first mover advantage. You see in Jindal Saw, we have taken advantage of first mover on a multiple cases. We were the first player to enter into oil and gas pipe segment and it needs reasonable amount of cash flows. In ductile iron business, we made significant amount of cash flows and we get into mining, which probably as a pipe producer no other player has.
Garima Mishra
Right.

Which allows us to continue to sustain margins. But you have to be ahead of competition, not follow the competition.
Garima Mishra
Right.

But we can't rule out the competition per se. It's good for us, it keeps us on our toes.
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?

Our Abu Dhabi plant, planning started about three and a half years back.
Garima Mishra
Right.

And it takes that much amount of time to I mean seek it towards and put up a plant which is, I mean if you see the whole West Asia, there the plants could be put up have a very small land base type, just to obtain all the clearances sign. And I mean that market is wide open for last 50 years, I mean no European never went and set up plant there. It's not easy I mean to do manufacturing per se. Just the fact that we offer a significant industrial facilities like Shadeed Iron & Steel in Oman, which is a largest steel plant of Middle East. We have some amount of operational efficiency as well as linkages there.
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?

Today also we sell about 50% of our production in North American markets.
Garima Mishra
Right.

And we have all the clearances for last four years. What I talked about was a drill pipe, which have seeking and getting clearances for.
That's a significant value addition to just seamless pipes.
Garima Mishra
All right sir. Thank you so much.

Thank you.
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.

Hi.
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?

No, in this quarter it was only GAIL. Plane GAIL order.
Bhavin Chedda
Okay. And how much is pending now of GAIL? Because I believe you got some 110k right?

It is about 70,000, which is pending.
Bhavin Chedda
So, 70k will be pending, will be entirely executed in Q1 or it will get carry forward?

It's Q1 and Q2.
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?

That's correct.
Bhavin Chedda
And now, is this the reality for DI pipes or you think there will be recovery?

I would not like to presume that and build it into numbers. I would think that this is newly added.
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?

Okay. If you are referring to the buyers credit, which is a standard financing.
Bhavin Chedda
Right.

So, you add that which we mentioned. So, it is going to be in the range of 1600, 1700 crores all put together.
Bhavin Chedda
So, operational debt will be 16, 1700 crores.

Yes, yes. But that's a bias... We put it this time, because lot of people ask about it, and once they started we will exclude it also.
Bhavin Chedda
Okay. And sir what will be your CWIP on 31st March?

We are making the final balance sheet of course, because this balance sheet, the P&L and balance sheet was for the purpose of quarter results. So, final balance sheet is still under preparation. So, let me come up with this. It will take few weeks.
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?

December 12.
Bhavin Chedda
December 12. So, you are 18 months away, roughly 18 months away from the actual realization.

Right.
Bhavin Chedda
So, in the worst case scenario, if the yen stays currently, this will be the actual cash payout by December 12?

Okay. See, certainly we are engaged with the banks.
Bhavin Chedda
Right.

And we are trying to work out various possibilities and with various options, looking, also looking at the possibilities of longer payment schedule. Okay, without involving the inter-payment. So, not much of information can be shared, because that we are trying to see how we can pay the amount.
Bhavin Chedda
Okay.

Over a longer period of time.
Bhavin Chedda
Okay. And sir on the pipe order value terms you have given. Can you break it into volumes also?

Yeah, we just gave it that's let's say 600,000 tonne is LSAW, HSAW which is 400,000 longitudinal, 200,000 helical.
Bhavin Chedda
Okay.
150 to 190,000 tonne in ductile.
Bhavin Chedda
Okay.

Close to 20,000 tonne of seamless. So, everything put together approximately 800,000 tonnes.
Bhavin Chedda
Everything put together 800. Okay. And sir now other businesses can we ask the questions, or we are done with the points?

If other participants have no other questions, then we can enter in ITF.
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?

I think in terms of the financial for 31st March, we would rather like to wait for the consolidated number, because everyone in the compilation.
Bhavin Chedda
Right.

So, there is no difference in the numbers. But in general once people are done, we can discuss about the current status and the progress moving forward.
Bhavin Chedda
Okay. I am done on pipes.

Moderator can ask, if there is any other questions.
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.

Moderator.
Operator
Yes sir.

Yeah, it's almost 5:30, we go to JITM, because it is less than one hour.
Operator
Sure. Sir, we move to ITF discussion sir.

Yeah. Okay. All right. I will just brief you about the Jindal ITF. Our revenues for financial year '11 were about 250 crores with a positive EBITDA. And our expectation of FY11 in terms of our internal planning is about 1,000 to 1,100 crores with EBITDA of about 132 crores. Our all businesses are at this stage cash positive. Our water business which is going to be the largest part of this Jindal ITF has a order book of 1,192 crores as of today, which we expect to execute over next 18 months. There are three basic verticals of this business. The number one business is about the upstream EPC business, which is not the long-term goal of our company. We want to become an owner operator of water asset. So, significant portion of our business development activity goes on booked basis, where we are building water reuse facility. Water reuse is a very significant portion of our business. Our third business is concession business, which we are engaged with Jindal Manila Water, which is our joint venture partner, which we are trading as of now about six cities on water supply. Our goal is in next five years to be able to serve about 6 million customer, that is a very large, ambitious goal. But as of this year, we expect to close at least one water concession. We are also adding one more vertical to this water space which is desalination. As of today we are engaged in a process of becoming the only water company out of this part of Asia to have the technology of desalination. We are engaged with that process, but as of today we would not be in position to divulge the details. But that probably would be a significant step as the water continues to become a challenge for more number of industries in more number of countries and regions. We believe desalination would be a very significant solution along with water reuse. So, our focus continue to remain on building and owning the water asset, which we see a very significant opportunity for Jindal
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?

Sure.
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.

Hello?
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?

No, the Sitarganj plant should be operational by September. There was a delay because of the clearances by the ESIPL developers there with the Uttaranchal government, which has been resolved. The work is in full swing. We should be operational in month of September and the annuity should start coming from that month.
Puneet Gulati
What is the percentage of completion of project?

Yeah, I mean it's about, all the mechanical parts have been delivered, 99% of all civil construction is done. As of now we are just doing the instrumentation part.
Puneet Gulati
Okay. And what is the status on the Timarpur-Okhla Waste Management Company, is the power plant still sir?

No, as I said that this should be operational by June, we will be filing the first order in June.
Puneet Gulati
So, what has been the reason for this delay, I thought it should have been done in the previous financial year right?

Not at all. We said 31st March 2011 is the commissioning date.
Puneet Gulati
Okay.

And the contractual obligation is to do it by 30th September 2011. So, we are right there in the middle.
Puneet Gulati
Okay, fine. Thank you so much.

Thanks.
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?

In terms of EBITDA, we should be generating about 120 crore plus EBITDA.
Manish Bishnoi
Okay. If you don't mind, I just have some quick questions on core business of pipe.

Sure.
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?

I mean we have an order book of about 600,000 tonnes on the large diameter and we have rest of the order book which is more spot basis of another 200,000. So, we have an 800,000 order book in this year. All we need to do is execution, but in terms of first two quarters of last financial year, we didn't have as much significant order book. And these are large chunk orders, which allow us to have an operational efficiency compared to the last financial year, first two quarter. Our order sizes were small, which led to frequent size changes in terms of the mills. What we have right now is like a single order of 160,000 tonnes from say Australia. This allows us to have an operating efficiency.
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?

We think that the court should approve it by July of 2011. And after that it should start trading on Stock Exchange with notice and regulation process whatever that it is, Vinay what do you think what would be that time period.
Vinay Gupta, Vice President Finance

The first week, let's say court should get approved then on the Board meetings and then listing requirement, listing BSE whatever it says it's mandatory 30 to 45 days. So, may be by the end of July or earlier August. But let's target the first week of August, this share should be able to trade in the stock market.
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?

As of now, logistics which have been planned is on road basis, the distance is not very large. And there is a benefit of a reverse traffic going to Kandla because of the truck, which carries a imported goods the Hinterland. But we are in a process of engaging with railway government, government of India Railways for putting a prospect there, which should again bring down the cost of logistic significantly.
Manish Bishnoi
Okay. Thank you.

Thanks a lot.
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.
Kapil Bagaria, MF Global Sify Securities India Pvt. Ltd.

For giving us this opportunity to host this conference call, I would also like to thank all the participants for dialing into the call. Thanks.
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.

Thanks a lot.

Y 2011 Earnings Call - Jindal Saw Dt-13 May'11: Operator

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Y 2011 Earnings Call - Jindal Saw Dt-13 May'11: Operator

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Y 2011 Earnings Call - Jindal Saw

Kapil Bagaria, MF Global Sify Securities India Pvt. Ltd.

Indresh Batra, Managing Director

Questions And Answers

Indresh Batra, Managing Director

Indresh Batra, Managing Director

Indresh Batra, Managing Director

It's about 5 crores.

Indresh Batra, Managing Director

Indresh Batra, Managing Director

Indresh Batra, Managing Director

Indresh Batra, Managing Director

Indresh Batra, Managing Director

Indresh Batra, Managing Director

Indresh Batra, Managing Director

Indresh Batra, Managing Director

Indresh Batra, Managing Director

Indresh Batra, Managing Director

Indresh Batra, Managing Director

Indresh Batra, Managing Director

Indresh Batra, Managing Director

Indresh Batra, Managing Director

Indresh Batra, Managing Director

Indresh Batra, Managing Director

Indresh Batra, Managing Director

Indresh Batra, Managing Director

Sai Anjali Nair

Indresh Batra, Managing Director

Sai Anjali Nair

Indresh Batra, Managing Director

Sai Anjali Nair

Indresh Batra, Managing Director

Sai Anjali Nair

Indresh Batra, Managing Director

Indresh Batra, Managing Director

Indresh Batra, Managing Director

Indresh Batra, Managing Director

Indresh Batra, Managing Director

Indresh Batra, Managing Director

Indresh Batra, Managing Director

Indresh Batra, Managing Director

Indresh Batra, Managing Director

Indresh Batra, Managing Director

Indresh Batra, Managing Director

Indresh Batra, Managing Director

This is right. This is absolutely right.

Indresh Batra, Managing Director

Indresh Batra, Managing Director

Indresh Batra, Managing Director

Indresh Batra, Managing Director

Indresh Batra, Managing Director

Indresh Batra, Managing Director

Indresh Batra, Managing Director

Indresh Batra, Managing Director

Indresh Batra, Managing Director

Indresh Batra, Managing Director

Indresh Batra, Managing Director

Indresh Batra, Managing Director

Indresh Batra, Managing Director

Indresh Batra, Managing Director

Indresh Batra, Managing Director

Indresh Batra, Managing Director