Jindal Saw Ltd

MR. VIKASH SINGH – PHILLIPCAPITAL (INDIA) PRIVATE LIMITED

Page 2 of 12 Ladies and gentlemen, good day and welcome to Jindal Saw Limited Q4 FY24 Earnings Conference Call hosted by PhillipCapital (India) Private Limited.

Please note that this conference is being recorded.

I now hand the conference over to Mr. Vikash Singh from PhillipCapital (India) Private Limited. Thank you and over to you sir.

Good afternoon, everyone. Welcome to Jindal Saw con-call.

Today from the management side we have with us Mr. Neeraj Kumar – Group CEO and Whole- Time Director, Mr. Vinay Gupta – President and Head (Treasury) and Mr. Narendra Mantri – President, Head (Commercial) and CFO.

Without taking any more time, I will hand over the dais to Mr. Neeraj Kumar for his opening results. Over to you sir.

Good afternoon, friends. Mr. Rajeev Goyal, who is the Assistant Treasurer in Vinay’s team, he is also joining us and assisting us over the call.

Welcome friends to our annual investor call. This year is one more time a best result over the last year’s which was then the best ever results. So, we have now done twice in a row the best ever last year to top it up our best ever this year and on a few parameters, this year the result has been significant.

I am sure all of you would have seen the detailed note which has been circulated by all. To start with standalone first; top line 18,233 crores, EBITDA 3,226 crores, PBT 2,188 crores and PAT 1,614 crores compared to last year top line 15,704, EBITDA 1,630, PBT 938, PAT 715. So everywhere if you see it's a breakaway, it's a significant improvement. Likewise, if you look at the consol; top line 21,126 this year as compared to last year 18,061, EBITDA 3,489 as compared to 1,857 last year, PBT 2,216 this year as compared to 745 last year, PAT 1,593 this year as compared to 452 last year. Similar significant trend.

One thing important to point out; Jindal Saw contributes around 85% of revenue in the consol, 7% EBITDA, 7% EBITDA is by subsidiaries, so 92% and 2.5% EBITDA and subsidiaries contribute 1.26% of profit. So pretty much 98.75% consolidated profit comes actually from Jindal Saw. So, this gives us two clear indications. (A). The subsidiaries are all now positively

Page 3 of 12 contributing but in comparison to Jindal Saw they are still a relatively smaller player. Also, you would have seen, after the merger and the restructuring reorganization that we have done, we are pretty much left with now three major subsidiaries one JITF which is for the NTPC region.

Otherwise, there are hardly any operations there. But we are just keeping the barges alive running. At breakeven we have an Abu Dhabi which is 100% now as allowed by the UAE government and we have US which is also 100%, so US, Abu Dhabi, JITF. JITF for legal reasons, these two being part of our core business, all known core businesses are out.

Also, if you look at the subsidiaries’ contribution 15% on top line, 7.5% of EBITDA and 1.25% of the profit indicates that the subsidiaries’ profitability is still lagging behind what we have in Jindal Saw. Jindal Saw actually if you look at the EBITDA margin, if you look at the PBT to sales, they all are now a breakaway. It is a breakaway from the trend that typically Jindal Saw was in a band. So, you can say now it is a reset Jindal Saw where we expect the EBITDA to be—earlier were expecting it in the range of 15, now we expect it will be in the range of—16- 17 because there are a lot of initiatives that is being taken on cost control, on cost reduction, on innovation, on improvement, productivity. They are all now beginning to bear results. For example, now we have improved coke oven, we have improved the PCI which is a performance improvement in the blast furnace. And all these tit-bits are adding to the improvement in EBITDA.

Stainless steel is slowly moving towards more value add. So, it helps improve again the margin.

So, the margin Jindal Saw now it looks like has moved away from its original brand of 14-15 into 16-17. Another significant development that has happened and it has happened in spite of NTPC still to reach its fruition. The ROCE has improved. The ROCE is now in the range of 20.

That is primarily because there has been a lot of management attention on managing the capital structure, the balance sheet items, the investments and all of those. Now if we look at the scenario where NTPC goes the way we are thinking it should go, once that comes then again, a very large chunk of investment from the balance sheet of Jindal Saw will go out. Plus, Jindal Saw will have a lot of cash. So that would further improve the profitability, the quality and the health of the Jindal Saw balance sheet. So, all in all it looks like we have entered a sweet spot. This should continue for some time.

The order book is a robust $1.5 billion, out of which export is 30%, domestic 70%. Industry distribution if you look at, oil and gas roughly 30% and water sector 64%-65%, Industrial 4%.

We expect the industrial sector to catch up and grow further as our stainless business grows. I am very happy to let you know that in our stainless, we have now successfully extruded 13 Chrome Inconel which are very exotic, and we would be the only one in the country who would be able to do that.

So, order book very healthy. We have a clear visibility of first order book execution capability, higher capacity utilization, improving on our yield and productivity. Plus, we have a very healthy

Page 4 of 12 sales funnel. We do see a lot of opportunities coming in because we also are a firm believer that the government is going to continue. So, there would be a continuity of government and we expect that the momentum of infra development where water sector is one of the key areas where the government is focusing that focus will continue. So next now 3 to 5 years we do have certain confidence, we have certain visibility of good performance moving forward.

The other area where a lot of attention has been given and I have been talking about it, quarter- on-quarter is our debt. If you see that debt seems to go down. March ‘24, we closed the total debt means working capital plus term loan 4,688 crores which included 1,000 crores that we had taken for the acquisition of Sathavahana. I am very happy to announce that this year, we are prepaying the entire loan of that 1,000 crores even though it was an acquisition funding long term. But now we have a strategy in place where we want to prepay, already the prepayment has started April onwards and during this calendar year we would prepay the entire 1,000 crores, so this 4,600 would come down to 5,600, out of which the working capital would be say close to 2,000. So, debt is one thing and that is why if you see, yesterday when we declared our dividend, proportionately yes, there was an increase in dividend to 200%. But if you look at in terms of the proportion to profit, it was not there, primarily because as a company we believe that now is the time to conserve some cash, bring our debt down, bring down our interest costs and improve the image and the credibility with the banks, so that the organization is absolutely in good shape, good form, fantastic relationship with all our banks, financial institutions cost competitive as I said, improved ROCE, improved EBITDA margin. So basically, now we are readying the company for the next big leap in terms of market capture, in terms of growth and in terms of strategy.

One thing that I must point out is that and we have briefly touched about, now the subsidiaries even though now they have turned profitable, there is some catch up that they still have to do.

And also, there have been some extraneous factors. For example, if you look at the Abu Dhabi or for that matter US, the Q4 performance versus Q3 performance there is a dip. The primary reason being you see the Israel area has become a hotspot which is kind of impacting Saudi, Iraq and others. So, the sentiment in that area plus this time Ramzan was in the month of March plus a few of our major projects in some of the countries, they had a delayed start. In US, a similar situation Q4 results being less than Q3. But these are all temporary trends. We are seeing a trend reversal in Abu Dhabi and USA. So now we are confident this year, the subsidiaries even though they would continue to remain small in terms of the percentages but would begin to contribute more. The raw material prices if you see we expect them to move in a current band, iron ore between 100 to 120 but we don't import any. Domestically we are able to source iron ore at $80, 5,000 to 6,000 which is a good thing for us and we expect we'll continue to do that. Coal will remain around 250 and that should continue at least for the next 6 to 8 months is what our understanding.

One thing that I wish to clear now to all my investors, if you see we had taken up enabling provision of a QIP of 1,000 crores. I had even said then that all our investors who take keen interest in Jindal Saw, please look at our management style in multiple layers. Getting an

Page 5 of 12 enabling resolution is only preparing for different scenarios. That doesn't necessarily mean that we have a transaction on the cards. So, I had also said then it is only enabling, now we have surplus cash, we are prepaying even the debt of State Bank of India 1,000 crores and I can let you know that now it looks like the QIP may not happen. On the contrary yesterday we have taken again an enabling resolution from the board and we are going to take it to the shareholders 1,000 crores of a debt instrument. Now again please read it as the management thinking ahead, thinking in multiple directions, multiple dimensions to orient itself, adjust itself, have an elbow room, to move into different directions very quickly. Because in a developing market where now India is asserting itself to become a manufacturing hub. We have to be agile; we have to be ready for plan A, plan B, plan C. So again, I am letting you know we have taken board approval. But again, please don't jump to the conclusion that we are going to raise that money. It is an enabling resolution that we have kept. We are looking at how things are shaping up. We have been active in M&A, we have been active in capacity expansion, new markets, new products. So, we continue to remain focused, remain very vigilant and remain committed to doing good business, improving the fundamental health of the company all the time.

Moving forward; if you look at the industry outlook I have already said, we only expect the Israel conflict should not spill over and should not disrupt the Middle East. It should not disrupt the Red Sea because that would impact our shipping to that part of the world. But for that at least India we see very healthy demand, in industrial, in water as well as in oil and gas. All three are doing very well. In industrial we are making a lot of effort to enter areas like space through our stainless and chrome, oil and gas through our premium connections throughout the JV JHESL.

The JHESL, JV is performing well. It's almost having its plate full capacity utilization.

Water as I have already said, it is on top of the agenda as far as the Government of India is concerned which is likely to continue. We do see that now with the new government where there should be continuity, we do expect a lot more alignment of thoughts, faster economic growth, a consistent economic growth and an all-round economic growth. Because the way the governments are coming up with the policy, the way they have set the target for 2047 even short- term targets, it looks like the government is going to be a bit more serious and come up with the economic policies which are much more aligned to growth. And that's all the good news for us because we are at the core of infrastructure development, and we will continue to be there. I think I have covered most of the high-level things that I needed to. Before I take questions, I would request some of the analysts’ participants, if you have a very granular nitty gritty question Mr. Rajeev Goyal is here. He is taking notes. Just identify yourself and he would send you a mail because I may not have all the nitty-gritty questions readily available and we would rather like to answer you in full than to rely on my memory.

With that let me thank you all once again. Thank you for being with us. Thank you for being patient and I hope that now the capital market should be more aligned to the growth in our fundamental strength. We still believe that there is a lot of headroom because if you look at any of the other parameters which drives the market there is a lot of upside still available. That is what we believe. Even when we look at our peers, we do feel that fundamentally we are much

Page 6 of 12 stronger, and the market has yet to give us the full reward for what we have achieved over the last few years.

With that let me stop. Thank you all very much. I will be happy to take a few questions.

Thank you very much. We will now begin the question-and-answer session. The first question is from the line of Riya from Equitas.

My first question is pertaining to the Abu Dhabi facility. So, I was asking in terms of a UAE sales volumes for the quarter. So, you're seeing a little decline and as per your opening remarks.

I have already explained, yes, the last quarter the sales volume declined.

However, in terms of order booking we are seeing some good growth there. So where is the demand coming in from there and when do we see the situation getting better?

I have already covered all those three questions in my opening remark but still let me repeat it again. Fourth quarter in UAE was lower than third quarter, the reason being Israel, Ramadan, some projects getting delayed. I have already said, Q1 there is a trend reversal and it should go back to where it belongs. This year again we do see that the overall volume should be higher than what we have achieved last year.

And in terms of other civil companies, they are saying that in terms of water projects, basically for DI, they're seeing decline in the. So, are you seeing any such decline in the ordering activity in India specifically?

I don't know which companies you are talking about but anyway that's not important. On DI now we have Samaghogha, we have Haresamudram, we are running full capacity both, we are optimizing our capacity by adding the balancing equipments where the capacity will be enhanced by about 10% or so and we have our hands full. We are booked for most of the year.

In terms of expansion, in terms of peers we are seeing a lot of expansion plans announced by the companies and in FY25 or the start of FY26, new capacities are coming on stream. So, do you think that would be a situation of overcapacity?

No. The way we see it is they are all good news. The more the merrier because in an oligopoly where if there are only few players, sometimes the market can get skewed. So, if you have more people coming into the market, it is always good news because anybody who makes an investment makes a very genuine assessment of a demand and that reconfirms our faith in our assessment of the future and the demand. Second, a late comer always has a huge disadvantage in terms of entry barriers. This is not an easy market. So, entry barriers, cost based advantage, already they have to deal with a build relationship that we have. So welcome competition but we are confident of ourselves and we don't see that as a threat anymore. I told you we are carrying

Page 7 of 12 out a lot of initiatives where we are optimizing our cost of production which is already low even further.

In terms of cost, coking coal prices have gone down significantly. So, are we going to pass on the decreased raw material prices?

See, coking coal in our case will go down further because we are starting our new battery. If you have been following us, the last 2 years we have been working on getting absolutely brand-new coke-oven batteries. It is getting tested; it will get operational this year. That will have a further impact on the improvement of the power that we generate which will have a cost saving because we don't sell power. But it does impact on the cost side. The cost of production will definitely go down. So, it is going to have an impulsive impact. Now how much to pass on to the market is a market strategy, what is the price that is available in the market. But we definitely are making much more capable. We are making ourselves much more capable to deal with any new capacities coming in terms of our cost structure. Otherwise, as you have already seen, our EBITDA margin has moved into a higher band and shall remain there.

We have our next question from the line of Shweta Dikshit from Systematix Group.

My first question is, could you provide any details of contributions from the Hunting JV since it began commercial production last quarter? So, could you provide any number and outlook from the Hunting JV?

No, I think JV is a separate entity. When the results get published, consolidated you can get to see that. Now as far as we are concerned, as far as Jindal Saw is concerned, we have to have an arm’s length transaction. So, the price at which we sell our pipes to the market would be the same price at which we will have to give the pipes to the JV. The only benefit that we would have, it will be a large order, it will be an order next door and it will be an order where we will have consistency. So, we will have a portion of Jindal Saw’s Nashik capacity on a very certain footing because of the JV. So, we have an advantage in terms of certainty, quantity, blockage and in terms of price it will have to be the same price. it has to be an arm’s length price only.

So, you have previously mentioned that because this is a complete import substitution product and that would benefit you in terms of increase in seamless pipe volumes as well since that will be like everything under one roof kind of benefit. So, are we seeing that happening and could you throw some light how the seamless pipe sales have moved?

The seamless, if you compare the previous year and the last year, last year there was a marginal dip but again this year we hope that it is going to pick up. But again, it will stabilize at a higher platform. What we are seeing is, Jindal Saw, 3 years back and Jindal Saw today, everything has moved to a higher platform where it looks like this is going to be the new real for Jindal Saw.

Page 8 of 12 My next question is, if we compare Y-on-Y basis we've seen a significant jump in volumes of around 34% this year. But going forward on the basis of better capacity utilization, what kind of volume growth are we expecting next year?

This 34% is primarily one of the reasons has been addition of Haresamudram that is M&A. So, you don't expect 34% year-on-year every year. It would be more modest; it will be more in the range of 10% to 15%.

My next question is on the debt side; as you said that compared to peers, when we look at general saw there's a lot of headroom for growth in terms of shareholder returns etc. But what would be your take on the short-term debt composition because if we look at the overall debt, is our working capital requirement relatively higher than our peers and what could be the reasons behind that?

If you really look at a like to like comparison which we do, on a very granular basis my working capital cycle is the best in the industry. So, when you say like-to-like compare I don't know how you are able to do a like-to-like comparison because who is my peer with whom you are comparing my working capital? When I do my individual working capital cycle segment wise which we do it for our internal benchmarking, we find it to be among the best. But I have repeated many times, I have explained many times, working capital the way our industry is structured, trade finance runs parallel to our operations and would be a function of the turnover.

So, we have little control over how much of working capital that we need except for managing the efficiency of the working capital managing the working capital cycle. Because the more the turnover, the more the export, the more raw material I have to block, the more LCs I will open, the more working capital I will use. So that's pretty much given. Term loan we are going to bring it down. Already if you see, my term loan today is less than 2,000. My EBITDA for the year is 3,200. So again, test it not just on aggregate amounts, test it on some of the performance parameters and then you would see that we are very well within any kind of norm. We will pass any test on our debt control. You take either any ratio, take moving average, take debt coverage, you choose a parameter national, international whatever and on debt side, we will cross all benchmarks.

We have our next question from the line of Darshil Jhaveri from Crown Capital.

My first question is, any other new M&A activity that's on our outlook currently that you know we are looking at? That was my first question. With terms of we are guiding maybe a volume growth of 10% to 15%, so any revenue guidance for maybe FY25 that you would like to give?

First M&A, nothing in the near future. Volume growth, I have told you. Price is purely market driven. I have already given you an indication that we expect the raw material prices to move in a band. That being the case, the top line also should move in a band subject to demand supply and opportunity. Beyond that it cannot be possible for me to give you any guidance on the revenue side.

Just wanted to you know maybe ask you a bit more regarding like domestic, we are seeing a lot of growth happening and exports also, do we see the conflict escalating or you know maybe you know US also has its elections, so something that side we are seeing international we might have more pressure from the western part or any color on that, that would be great?

So, US election has zero impact on Jindal Saw India. It may impact Jindal Saw US subsidiary.

But that is so small in nature that overall, the impact would be marginal. The war escalating very difficult for me to take a second guess. Looks like Israel and Iran good sense have prevailed. But when it goes out of control probably your guess would better than mine.

We have our next question from the line of Pradeep Rawat from Yogya Capital.

My question is regarding seamless pipe division. Do we see any significant demand ramp up from the OCTG customers and what would be our outlook for the segment in the seamless division, particularly with respect to capacity addition from the competitors?

Let me explain. You have asked a lot of questions but just looks like it's modular. Let's start first with OCTG. Yes, there is a lot of demand. India, the emphasis on domestic oil production it looks like has gone up significantly. So, India is getting deeper into the wealth that they have and exploring a lot more. All this gives rise to OCTG demand. We are seeing a lot of demand increase even in the premium segment. So OCTG premium segment is going to lead the demand for pipes. There because of the Hunting JV we are the only one in this format in India. Some of the peers are trying to catch up by coming up with some structured solution but they still are far away from where we have arrived, where the JV is fully operational, it is next door and is supplying now premium connection OCTG pipes, tubes, casings. Very soon we will also start producing connectors. Connectors, essentially are what a coupling does to a lower diameter connector does to a higher diameter. So, the kind of product range that we will now this JV would be capable of doing, we stand a very good opportunity in the market.

My next question is, what is our seamless tube production capacity and by which method do we produce it, by extrusion or piercing?

We have both. Nagothane is extrusion but that is largely used for stainless steel and for the 13 chrome and all CRA grades. For mild steel in Nashik, we do penetration, so it is the piercing route that we follow. And then we also have in Nashik a piercing come expansion route which takes it to a diameter of up to 16 inches.

And what is the production capacity of our seamless divisions?

In Nashik, we have approximately 2.5 to 3 which we are optimizing and taking it up to 4. Nagothane is about 1.

We have our next question from the line of Radha from B&K Securities.

Page 10 of 12 My question was regarding the Abu Dhabi execution. So, this quarter our execution has been lower because of the reasons that you have mentioned. So how much finished goods inventory we have in our Abu Dhabi and what is the left-out orders in tonnage terms do you expect it to happen in 1Q and do you expect that the current quarter execution to be higher than 3Q FY24?

Q1 this year would definitely be significantly better than the Q4 last year. The last year our total dispatch was approximately 2 lakh tons. This year we hope to beat that. We hope it will exceed.

We have a full order book; we have fully booked for this year as far as our DI facility is concerned in Abu Dhabi. Same is the case in India. In fact, in India and Abu Dhabi put together, we have roughly 1 million ton of capacity and an order book where we are booked for 12 months.

Secondly, we are seeing a lot of demand traction in the Helical Saw pipe in the overseas market, particularly for the water segment. So, can you please talk about the total opportunity size in the Gulf and MENA region with respect to these HSAW pipes and what is the total supply in that market and how much is imported in those regions? Out of that what is the opportunity size available for Jindal Saw?

Lot of questions you have packed in one. Let me try and simplify it for you. When you said LSAW helical pipes, you need to correct that. LSAW is longitudinal submerged arc welded pipes. Helically submerged are welded pipes is called HSAW, if you use that acronym or it is called spiral pipes. Now spiral pipes are essentially large diameter pipes which are as the name suggests helically first formed and then welded along the seam. That's why it's called HSAW.

Being large diameter, it is transported to and it is largely used for water sector. In some cases, it can also be used for oil and gas sector because now we also have the API grade helical pipes.

That is possible. But you are right, largely it is used for the water sectors. Countries like Saudi, countries like Iraq, Jordan, they are a huge market for these helical pipes. Helical pipes have an inherent disadvantage that it cannot be transported over a very long distance because of the weight to volume ratio. And therefore, for us the export market on which we focus our spiral pipes, our Middle East and we go up to Spain etc. but not beyond that. Whereas our DI pipes from Abu Dhabi can go or goes up to Finland, up to Australia, up to Brazil all at the same time.

So, this market is doing very well. Saudi as you all know is developing very fast and it is not just developing. Saudi is going through a transformation. A new capital city is being built, infrastructure is being built, the country is opening up. So those are all good news because then they want water line, they want desalination plant. So essentially in these areas, the spiral pipe demand is good. Only point of concern is a Middle East conflict if it gets blown into a full- fledged war then there could be disruptions in the area.

What is the demand and supply in the Gulf and MENA region for these extra pipes, in terms of metrics tons…?

Spiral capacity in the region is hardly there. We and some of our Indian friends are the major suppliers of spiral pipe in the region.

Page 11 of 12 Any Chinese supply in that region?

China slowly but surely it is getting isolated. The Europeans have started blocking their market to them. So far, we have not seen it happen in a very overt fashion. But slowly we are seeing that Chinese goods are not liked by most of the big clients. And I must tell you that the Chinese pipes, there's a lot to be desired on the quality. And our pipelines, they have a life of 30-40-50 years. So, the moment you create even an iota of doubt and quality then just being the cheapest is not the best, doesn't necessarily make you the supplier of choice. We are beginning to see that happening in the market.

We have our next question from the line of Gokul Maheshwari from Awriga Capital Advisors.

I have a couple of questions. So, you mentioned very strong demand outlook in India as well as in the Middle East region. Can you comment on the US and the European regions demand conditions and whether we are in a position to address that market?

US is a very limited market for us. We don't sell any large diameter pipes; we don't sell any DI.

We do sell some stainless and we do sell some seamless but that too, it's a good export market to have. But overall, in percentages term it is small. Europe because of its sluggish growth, Europe can be a very good market for seamless again and DI. But because of the sluggish growth in the European economy at this point of time is not a booming or a growing market or a market with a lot of demand. So, our focus is primarily on India and in export market Middle East.

What would be the expected CAPEX budget for FY25?

We have not announced any major projects as yet. So, it will be normal CAPEX. In fact, most of our major projects that we had announced like the Coke Oven Battery and all that is nearing completion. So, we expect the CAPEX spends to be a modest 500-600 crores this year.

Lastly just on the case against the NTPC while I understand the matter is sub judice but is it the just that it just keeps getting delayed or is there a resolution which is expected in the near term?

If you could just give in a qualitative comment on, when do you expect this to get resolved?

There is some development and some insight that I can share with all of you. Now the matter is partly heard means the arguments have started. The opposite side has more or less completed all its arguments and the matter is partly heard with the judge. So now we can expect it to finish in the near future because once the matter is partly heard, then you cannot change the judge, you cannot change the roster and then there is a pressure that it must finish in a little time. So, this is a development that gives us some hope that during this calendar year we should see some movement.

We have our next question from the line of AM Lodha from Sanmati PMS.

My first question is regarding the numbers only, usually in the march if I look at this quarter December to March, your operating profit. I am talking about operating profit. In the month of December, it was 988 and in the month of March it is 920 crores only. Whereas in March (54.04) We have the line for the participant disconnected. Due to time constraint, this was the last question for today and I now hand the conference over to Mr. Vikash Singh for closing comments.

On behalf of PhillipCapital, I would like to thank Jindal Saw management for giving us the opportunity to host a con-call for you. I will hand it over to Mr. Neeraj Kumar for any closing remarks. Over to you sir.

I wish to thank all our investors for taking keen interest. Please continue to remain connected. If you have any other questions send it on a mail to Rajeev Goyal. We will be happy to respond.

We do assure you that we will continue our good effort to create value for all our shareholders, stakeholders. Thank you very much.

Thank you. On behalf of PhillipCapital (India) Private Limited. that concludes this conference.

Thank you for joining us and you may now disconnect your lines.