India: Jindal SAW sees healthy order book over one year

Jindal Saw Limited, a leading global manufacturer and supplier of iron and steel pipe products, pipe accessories and pellets, reported a 30.43% year-on-year (y-o-y) growth in its consolidated revenues for the Mar '21 quarter (Q4FY'20) at INR 3,783.85 crore. On a sequential basis, total sales revenues were up 32.09% compared to INR 2,864.68 cr in the Dec '20 quarter(Q3). SteelMint learnt the following points via an investors' call by the company.

1.Production of SAW pipes-During Q4, the company produced 1,79,000 t of pipes against 1,57,000 t pipes in Q4. There were delays in order execution due to erratic supply of raw material. However, orders remained fully protected from the sharp global increase in steel and oil prices. The government's focus on infra spending helped boost domestic demand in oil, gas and water segments, which, in turn, acting in favour of the company.

2.Total pipe sales-During Q4, the company sold 1,097,500 t of pipes, down 12% y-o-y against 1,250,000 t in the year-ago period. Quantitative sales of large diameter SAW pipes, LSAW and HSAW, stood at 5,05,800 t in Q4 compared to 6,32,000 t in Q4 FY '20.Ductile iron pipe sales stood at 4,33,400 t and for seamless & stainless tubes at 158,300 t in Q4.

3.Pellets production, sales-The company produced 367,300 t of pellets in Q4, marking a growth of 54% y-o-y as against 238,000 t in Q4 FY '20. Pellet sales in Q4 stood at 353,900 t from 262,000 t in the same quarter last fiscal, up 35% y-o-y.

The segment saw improved profitability, backed by the increase in the iron ore and steel prices. It is expected that enhanced steel demand on the back of a revival in infra and construction support the margin momentum.

4.Institutional debt-During Q4 net institutional debt (at a standalone level) was around INR 2.98 crore compared to INR 3.35 crore in the year-ago period, including long-term loans and fund-based working capital.

On the other hand, financial expenses came down largely on account of correction in capital structure and tight credit control.

5.Rising steel prices-Despite Covid-19-led disruptions, the company has shown improvement in sales and order book in Q4 compared to Q4 FY '20. This quarter saw significant increase in prices of iron ore and steel which disrupted regular supply of steel, primarily from the domestic steel suppliers, impacting the company's operations in Q3 and Q4. A slowdown was witnessed in the water segment owing to high input costs despite the huge allocations in the sector.

However, JSAW is passing on the increased raw material costs to its customers. It feels steel prices will correct in the near-term and are thus, not really a concern.

6.Restructuring of subsidiaries-JSAW plans to structurally merge its three subsidiaries, Jindal Fittings Limited, Jindal JPGL and Jindal Tubular(India) Limited. The merger will see greater synergy and, operational efficiency due to optimal utilization of resources of the merged companies, reduction in administrative costs and lean organization with an objective of maximizing value for stakeholders.

7.UAE operations-The UAE operations have been profitable in FY '21 with sales of around 204,000 t(98,000 in FY '20) ductile iron(DI) pipes for the 12 months ended 31 Mar '21. The current order book is at around 1,27,000 t.

8.Robust demand from oil & gas, water sectors-

• As the country transitions towards a gas-based economy, a network of ~31,000 km has been planned nationwide.
  
  
• Assured supply of piped water across rural and urban India through flagship schemes will drive an annual outlay of INR 1.07 trillion in FY '22 for the Jal Jeevan Mission/National Rural Drinking Water Mission and Jal Jeevan Mission(Urban).
  
  
• Government initiatives like 'Make in India' and 'Atmanirbhar Bharat' will help improve domestic manufacturing and reduce imports, thereby supporting the pipe industry.
  
  

9.Healthy order book-In spite of the Covid-19 uncertainties, during Q4, the company booked new orders worth INR 1,400 crore, as against sales of INR 3,175 crore. Majority of these orders pertain to the water segment.

• With a volume of 1,000,000 t(pipes & pellets), the order book lends visibility to the next 9-12 months operations. Orders for large diameter pipes are expected to be executed in the next 9-12 months.
  
  
• DI pipes orders, are slated to be executed over the next 12-15 months. The company is working on new business opportunities and is expected to get additional orders, in phases.
  
  
• The current order book includes exports of 22%.
  
  

Outlook-

Jindal SAW anticipates a double-digit growth in the next three years. It expects longer-term consumption to gradually revert to pre-pandemic levels, in key end-user industries. India's requirement is likely to remain subdued owing to the unexpected severity of the second wave. In the immediate term, order booking in export markets may drive visibility for the company.