Jindal Saw: Q2-25 Earnings Call Highlights
Clear focus on profitability & growth. Capacity expansion & new product development. While challenges exist in the domestic & export markets, confident in navigating uncertainities
jindalsaw.com | NSE: JINDALSAW
1. Key Takeaways
1.1 TLDR
Jindal Saw is in a strong financial position with a clear focus on profitability and strategic growth.
Investments in capacity expansion and new product development are laying the groundwork for future success.
The company's focus on higher margin products and strategic capacity expansion should drive profitability in the coming years.
While challenges exist in the domestic and export markets, the company appears confident in navigating these uncertainties.
Jindal Saw is well-positioned to benefit from the continued growth in infrastructure development and industrial activity in India.
The management is confident in navigating the dynamic market conditions and achieving its growth targets.
1.2 Key Themes:
Strong Financial Performance: Jindal Saw and its subsidiaries achieved a stable, high-performance platform following several quarters of strong growth. The company expects this trend to continue for the next few quarters.
Shift to Higher Margin Products: The company is focusing on increasing margins by shifting towards high-value added products and entering new segments like defence, nuclear and atomic energy.
Export Market Expansion: While export contributions dipped this quarter, the company aims to increase its export share to 20-25%, focusing on the Middle East, North Africa, and potentially North America with new seamless and stainless steel products.
Domestic Market Dynamics: While the Jal Jeevan Mission is experiencing a plateau, state-level water infrastructure projects are increasing, ensuring continued stable demand in the domestic market.
Capacity Expansion & Debottlenecking: Strategic capital expenditure is being undertaken to increase capacity and efficiency. This expansion will support future top-line growth. Key projects include:
New Coke Oven Battery at Mundra
Debottlenecking at Haresamudram
Capacity expansion at the Nashik seamless pipe plant
Positive Business Environment: The demand environment remains robust in both domestic and export markets, driven by infrastructure spending, oil & gas exploration, and industrial growth.
Focus on Core Business: The company has monetized its rail business to focus resources and management bandwidth on its core pipe business.
ROCE & EPS: Showing an improving trend
Important Quotes:
On financial performance:
"Jindal along with its subsidiaries have reached a stable platform which is high after quarters of few quarters of high growth. We expect it to stay there for the next quarter or two."
On margin improvement:
"The idea is to maintain and even take it higher…the net result is moving into 18-19 and to go even further."
On capacity expansion at Nashik:
"would be a 40 to 50% jump of the existing uh capacity." - Mr. Nirj Kumar
"This I would say marginal investment would give a significant rise in the capacity would also help us in the production planning and control…and the plant can run continuously for larger number of days in a year."
On Jal Jeevan Mission plateauing:
"To conclude in one line, no matter of concern, demand to stay stable, a mix of Jal Jeevan or center related projects and the state related projects continue to grow together."
"The plateauing of the Jal Jeevan mission we are seeing because Jal Jeevan mission was supposed to be jointly funded by states and the center. In many states we are seeing that they are falling a bit behind in providing their contribution."
On entering the US market:
"We are wanting to enter a new segment in US with a new product. Currently we are in the process of getting ourselves qualified by those vendors."
"Since it is not a commodity product, we expect that we will not get caught into this anti-dumping because so far whatever is export market is more on a uh normal grades, normal categories, normal applications."
1.3 Analyst Concerns:
Modest volume growth in recent quarters.
Impact of potential geopolitical instability in the Middle East on export plans.
Normalization of profits due to softening raw material prices.
1.4 Next Steps
Monitor the progress of the capacity expansion projects and their impact on production volumes and efficiency.
Track the company's success in securing export orders and expanding its presence in new markets like the US.
Pay attention to developments in the domestic market, particularly the funding for the Jal Jeevan Mission and state-level water infrastructure projects.
Jindal Saw Limited Q2 FY25 Earnings Conference Call FAQ
What were the key financial highlights for Jindal Saw Limited in Q2 FY25?
Jindal Saw Limited reported a standalone revenue of ₹4790 crores in Q2 FY25, showing a marginal increase compared to the previous quarter and the same quarter last year. EBITDA for the quarter stood at ₹875 crores, with a slight dip in the EBITDA margin due to increased steel prices and a change in the export-domestic sales mix. The company's debt position continued to improve, decreasing to ₹3411 crores from ₹3992 crores in the previous quarter. Consolidated financial results displayed similar trends, with subsidiaries showing stable performance and contributing positively to profitability.
What is the company's outlook on future revenue growth and profitability?
Jindal Saw expects to maintain its current stable performance for the next couple of quarters. However, the company anticipates a growth spurt in the future driven by an expanding export order book, introduction of new higher-margin products, and entry into new industry segments like defence, nuclear, and atomic energy. The management is confident in maintaining the current EBITDA margin range of 18-19% and aims to further improve it through strategic initiatives.
What are the key drivers of the improved EBITDA margin compared to previous years?
The improvement in EBITDA margin from the earlier 12-14% range to the current 18-19% range can be attributed to several factors:
Better capacity utilization: Increased order book and higher run rate have led to improved capacity utilization, contributing to lower production costs and better allocation of fixed costs.
Higher demand: Improved demand-supply balance has eased competitive pressure, allowing for better pricing.
Strategic shift towards high-value products: The company has focused on developing and selling higher-grade, value-added products, leading to higher margins.
What capacity expansion plans does Jindal Saw have, and what is the rationale behind them?
Jindal Saw is undertaking capacity expansion initiatives across its various facilities, including:
Coke Battery Renewal, Mundra: Investing ₹300-350 crores over the next few years to upgrade the Coke battery with environment-friendly technology, resulting in higher electricity generation and improved coke productivity.
Nashik Plant Expansion: Investing ₹200 crores to install a new piercer and rotary hearth furnace, effectively doubling the capacity of the Nashik plant to 3.5-4 lakh tons annually. This expansion aims to cater to the growing demand for seamless pipes and tubes, particularly in the premium segment addressed by the company's joint venture with Hunting.
Haresamudram Optimization: Investing ₹200 crores to optimize the blast furnace output and enhance spinning and finishing capabilities, increasing the overall capacity of the Haresamudram plant to 3 lakh tons annually.
These capacity expansions are strategically timed to avoid capex bunching and ensure a manageable debt level.
What is the company's strategy for its export business, and which markets are they targeting?
Jindal Saw aims to increase its export contribution from the current 12% back to the desired range of 20-25% and beyond. The company's primary focus for exports is the MENA (Middle East & North Africa) region, leveraging its geographic advantage from the Mundra plant. The company is also exploring opportunities in Africa and North America.
How is Jindal Saw addressing the plateauing demand in the domestic water segment?
While the Jal Jeevan Mission is experiencing a slowdown due to delays in funding from some states, Jindal Saw sees this being offset by increasing state-level water infrastructure projects. Many states are pursuing independent irrigation and water grid projects, often with support from multilateral funding agencies. This shift ensures a stable overall demand scenario in the water segment for the company.
What is the status of the joint venture with Hunting, and what are the future plans?
The joint venture with Hunting for premium connections has successfully completed its first full year of operations, achieving profitability and operating near full capacity. While initially focused on job work, the JV is transitioning towards independent market participation, leveraging its API certification for premium threading. Jindal Saw will supply pipes and coupling blanks to the JV, which will then thread and sell them in the market. Discussions are underway to potentially expand the JV's capacity to address the anticipated increase in demand for premium connections due to increased deep-sea drilling activities.
What is the company's approach to entering the US market with seamless and stainless steel products?
Jindal Saw plans to enter the US market with high-grade, specialized seamless and stainless steel products targeting niche applications. The company believes this approach will mitigate the risk of anti-dumping duties commonly imposed on commodity-grade products. Jindal Saw is currently in the process of obtaining the necessary vendor qualifications and approvals required for this market entry.
Source: Link to Earning Call Recording
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