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Ladies and gentlemen, good day, and welcome to the Q1 FY '24 Results Conference Call of Welspun Corp Limited, hosted by Emkay Global Financial Services. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Abhineet Anand from Emkay Global Financial Services. Thank you, and over to you, Anand.
Thanks, Michelle. Good morning, everyone. I'd first like to thank the management for giving us this opportunity to host the call. I would now like to hand over to Mr. Salil Bawa, Group Head, Investor Relations. Over to you, sir.
Thank you, Abhineet. Good morning to all of you. I welcome all of you to the Q1 FY '24 earnings call of Welspun Corp. Present along with me today on this forum is Mr. Vipul Mathur, Management Director and CEO. I'm also joined by Mr. Percy Birdy, Chief Financial Officer of Welspun Corp. Goutham Chakraborty has just joined the IR team and will lead Investor Relations for Welspun Corp and he's also along with me today here. You must have received the results and investor presentation of the company, which are available on the BSE and NSE as well as on the company's website. As usual, we will start the forum with some opening remarks by our leadership team. We will then open the floor for your questions. During this discussion, we may be making references to the presentation, which I just referred to. Please do take a moment to review the safe harbor statement in our presentation. Should you have any queries that remain unanswered after this earnings call, please feel free to reach any one of us.
With that, let me hand over the floor over to Mr. Vipul Mathur, MD and CEO of Welspun Corp. Over to you, Mr. Mathur.
Thanks, Salil. Thank you very much, and a very good morning to all of you who are joining this call for Q1 FY '24. At the very first, let me thank all of you for attending this call. And I hope you are [indiscernible]. I would first like to take you through some key highlights of our performance for this quarter in this financial -- at the start of this financial year FY '24. We have -- the quarter 1 has shown a very robust performance, and it has aptly set up the tone for a very strong FY '24 performance for the year. Some of the key highlights being, we have seen a consistent improvement in the sales volume of our line pipe business, both in India and in U.S. We have a very strong pending order book -- unexecuted order book of almost close to 645,000 tonnes valued at something like INR 8,600 crores. We have seen a very steady improvement in our DI production and sales. We have seen a very -- we have seen a strong operational and financial performance in our stainless steel pipes and bars business.
In our building material category, we -- this is the very first quarter when we have been operating our building material, which is primarily Sintex. And we have seen a very steady ramp-up in the Sintex segment in terms of sales. In terms of financials, our consolidated revenue from operations for FY -- for Q1 FY '24 rose 3x on Y-o-Y basis to INR 4,069 crores in comparison to INR 1,322. Our EBITDA for the quarter jumped 4x Y-o-Y to INR 418 from INR 102, PAT surged by 40x Y-o-Y to INR 165 crores from INR 4 crore. Our net debt was reduced by INR 303 crores and currently stand at INR 835 crores at the end of this coming quarter.
On the ESG side of it, we are progressing in line with our stated goals and targets. We have also published our BRSR report during Q1 FY '24 and which has also been vetted through a third-party assurance, PwC.
I'm sure you would like to know what are the key drivers, which are driving our businesses. As you know, that we are now operating in the two verticals. One happens to be about pipe vertical and the second happens to be our building material vertical. Let me first talk about the pipe vertical. In the pipe vertical, our first category is line pipes. For this quarter, line pipe sales volume for our India and U.S.A. operations was at 185,000 tonnes against 99,000 metric tonnes in the corresponding quarter of the previous year, registering a growth of 89%. For India operations, the sales volume was [ 804,000 ] tonnes as against 92,000 tonnes in Q1 of FY '23. And in U.S. operations, our sales volume was 81,000 tonnes as against 7,000 tonnes in Q1 of FY '23. So we have seen a significant jump in our U.S. execution. The overall environment for the oil and gas continues to remain very favorable across the world as global upstream oil and gas investment is set to increase by 11% to an estimated $530 billion in 2023, 2024.
In the latest publication, the IEA predicts that the world oil demand will grow by 2.4 million barrels per day to 102.3 bpt in 2023. It's a new record high. On the supply side, total oil supply is likely to reach a record high of 101.3 million barrels and 102.3 million barrels in 2024. So both the demand as well as the supply are seeing a very, very strong demand at this point in time. Also, the oil prices have been stable and range bound and they have been around between $70 to $90. The global market is likely to be in deficit in the second half of 2024, which can continue to support the prices. This overall oil and gas scenario will have its impact on our Indian operations as well.
With the strong -- let's talk about the key drivers in India. With strong GDP growth projections, India is likely to overtake China in terms of global demand growth in 2027. India's oil demand is expected to rise from 4.7 million barrels per day to 7.4 million barrels by 2040. The government targets to increase natural gas pipeline coverage by more than 54% to 34,500 kilometers of pipeline by '24, '25, and would like to connect all the states with the trunk natural gas pipeline by 2027. So far, around 33,600 kilometers of natural gas and [ 13,700 ] kilometers of petroleum product pipeline have been authorized. In order to further expand the reach of natural gas in the country the [indiscernible], which is PNGRB has finalized eight geographical areas, including Northeast and J&K.
India present refining capacity at 253 million barrels per day is projected to increase by almost 56 million tonnes per annum by the year 2028. So the oil pipelines, the gas pipelines and the city gas distribution network remains a key strong focus for our growth.
Apart from that, our export outlook also looks appears very strong with our key focus on markets like Australia, Europe, Southeast Asia and Middle East. Upcoming hydrogen health and carbon capture projects are likely to drive future demand for pipelines in H2 and CO2 applications.
U.S., the rising global demand for natural gas is a growth opportunity for the U.S. and it is projected to account for over half of the global supply increase in 2023, '24 to become the world's largest LNG exporter. Oil supply from the U.S. will continue to remain strong with its shares likely to be around 45% of the incremental rise to reach a global demand -- to be a global total of 105 million barrels per day by 2028. So U.S. will play a very strong growth in terms of both exporting oil as well as gas and would become one of the largest LNG exporters in the world. They are on track.
LNG, as you know, LNG exports from the U.S.A. will remain a vital source of energy for Europe and Southeast Asia market. Our plant in U.S. at this point in time is complete, fully booked till the first quarter of 2024, and we are seeing a very strong demand for HSAW products in the U.S. market with quite a few businesses lined up in terms of finalization at this point in time.
Coming to Saudi Arabia. The growth prospect of the country remains strong and has plans for a huge growth in the infrastructure project. Saudi Aramco raised its upstream spending by almost 24% to USD 29 billion and plan further increase to boost the crude oil capacity to 13 million barrels per day by 2027. They continue to believe that oil and gas will remain a critical component of the global energy mix for the foreseeable future. Apart from oil and gas segment, we expect a significant demand for line pipes will also be there from the investment made on water desalination projects. The desalinated water capacity of 13.9 million cubic meter per day is currently being increased by 56% and a further expansion of 54% is planned by 2030.
In order to support this expansion for this water desalination project, the government is likely to spend almost close to $15 billion for this. As we have mentioned earlier, our associated company, EPIC has signed -- recently signed a contract with Saudi Aramco for supply of a large diameter steel pipe totally valued at $1.8 billion. This order will start -- will get executed, will start in the execution in Q3 and Q4 of FY '25. As you are aware, the plant is having a capacity of approximately 300,000 tonnes per year and is now more or less booked with firm orders for next 1.5 to 2 years. In this quarter, they had executed an order, the sales for which will get recognized in Q2 looking at the delivery conditions and the terms of the contract. So while their production and operations were full go, but it is only the sales recognition, which is getting shifted to the second quarter.
Coming to the DI pipes. I am pleased to inform that there has been a consistent improvement both in production ramp-up and sales of DI pipes. The DI pipe market is expected to grow at a strong CAGR of 13% to 15% in India on the back of huge investment with the government of India intends to do in water infrastructure project. We are talking about the scheme called Nal se Jal which the government of India has already committed more than INR 70,000 crores in their union budget of 2023. In the next few years, the DI pipes is likely to account 1/4 of pipe market share in India. We are fully geared to become a key player in the domestic DI Pipe market and have been consistently ramping our production capacity. Our immediate focus market remains West, Central and North India. Also, we are strategically exploring export opportunities in the key markets of Middle East and Africa. We only have a strong order book, a strong order backlog of almost 150,000 tonnes which will keep our plants completely booked for the next three quarters. Out of the total projected demand for FY '23, '24, where the capacity -- the consumption could be close to 2.6 million tonnes, almost 1.5 million tonnes of the requirement of the demand will be coming into the market where we have the interest. So we see a huge growth potential for the next couple of years in the DIP market.
Let me also update you about our company, Welspun Specialty Steels Limited. The operational and the financial performance in WSSL continues to be strong up, and it's a complete turnaround story. We have been adding new customers and also have made foray into international markets like Philippines and U.S. We have also made successful inroads in Southeast Asia and NEA market. So we are expanding our customer base at this point in time. I'm glad to share that we have also successfully developed Super 304H grade steel as well as Boiler tubes, including creep testing, which has been done in this country for the very first time. We have booked the first order for super critical 6625 grade for instrumentation tubes. We are confident that successful delivery of critical grade will pave way for more opportunities in high value-added product segment. We expect our performance to significantly improve on the back of new grade development in critical category geographical expansion, territory expansion and our focus on sustainability and excellence initiatives. I'm happy to share that we are pursuing our goal in terms of sustainability and green steel and WSSL has now access to a green power, the supply for which has commenced in May of 2023.
The current order book stands at almost 3,800 tonnes, valued at INR 150 crores. So this company has been a complete turnaround story in the last two quarters, and we see a huge and great potential for this for the product what we are offering to the market.
Coming to the building materials vertical where we have our national iconic brand Sintex there. Coming to our Building Materials segment, let me first talk about Sintex, our national iconic brand, which has a market share of 23% to 25% at its peak level. Right now, we are in the driving seat for last one quarter, and our focus is to realize our market plan, we are re-energizing our market for our water storage tanks by aggressively bringing influence on retailers, distributors, plumbers and customers. We are also resetting our route to market or institutional products, focusing both on B2G and B2B.
Along with the existing product portfolio, including the water storage tanks, interior, liquid storage solutions and electrical boxes, we also plan to enhance our product basket to existing categories like pipes, fitting and adhesives. This will provide us a great opportunity for future growth. At this point in time, these are in discussion stage by WST market, which is the water storage tank market in India is likely to become double from the current market size of INR 9,000 crores INR 10,000 crores. The plastic pipe market size is likely to become INR 60,000 crores by 2025. On the back of this, along with our experienced team and strong focus, we are confident to increase our market share substantially from the current levels in times to come.
On the TMT bar, which is also tells us -- which is also as a product sitting in our building material category. Our new commissioned plant has been ramping up steadily and the utilization levels are improving on a sequential basis. Higher finish product volumes will gradually reduce our intermediary product sale, thereby improving the contribution for this segment. We are getting a strong traction of our brand, Welspun Shield as a Tier 1 supplier in the B2C segment in the Gujarat market. Our innovative initiative for creating the digital platform for which encompasses distributors, dealers, retailers and influencers have been helping us a deeper market penetration and to achieve our B2C goal. Just to let you know, our product has consistently been delivered and supplied. And right now, it is covering 27 districts out of 33 and 95 Talukas out of 252 Talukas across Gujarat through our dedicated 152 dealer and [ 7 ] distributors. This network is rapidly expanding and shall give us more deeper penetration in times to come making us a leading brand in the Gujarat market.
ABG shipyard. As I have mentioned earlier in my earlier calls as well, we have been disposing of metals and metal scrap, which will result into a steady cash flow. We are keeping our fixed cost at an absolutely minimum level. Further, we are iterating we are not exploring any capital-intensive investment options on this particular asset, we are confident of fully monetizing this asset by the year-end and without -- and thus leaving without having no stress on our balance sheet whatsoever.
On the ESG initiative, while we -- while our strong focus is both on the financial and the operational performance and customer centricity and technology, we also have been specifically focused on our ESG initiatives too. We have -- in Q1 of FY '24, we have published our BRSR report and also we have done a third-party assurance of ESG data in the BRSR report by PwC. Our log-term sustainability goals are to achieve carbon neutrality from 10% in 2024 to 100% by 2040, to achieve water neutrality. In this connection, we have already taken some significant steps in terms of tying up renewable power. And at this point in time, we only have almost close to 10 megawatts of renewal power distributed across our business segments.
From a balance sheet perspective, we have been very sharply focused in terms of our net debt and gross debt position. When we -- at the end of the last financial year, our net debt stood at INR 1,138 crore, which by the end of this quarter, has been reduced by INR 300 crore and stand INR 835 crores. If you see, we are absolutely looking at the business prospects and the free cash flow, we are more than confident that we will be able to achieve our guidance, which we have released to the market.
In [indiscernible], if we talk about, we are talking about two verticals, which is the pipe vertical and the building materials vertical. And both these verticals at this point in time are poised for a [ leap ] growth in times to come.
With this, I would like to end my commission and open the floor for any discussion. Thank you.
[Operator Instructions] The first question is from the line of Abhishek Ghosh from DSP Investment Managers.
Sir, just a couple of questions in the domestic line pipe segment. If you can just help us understand, while you've spoken about overall demand momentum to be strong between oil and gas and water segment, how you're seeing the overall traction and your present visibility of the order book?
I think so -- both the segments, both oil and gas and water are showing a very, very strong traction in the domestic segment at this point in time. Let's say, in our -- in India, our total order book currently stands at something like 315,000 tonnes. Out of that 315,000 tonnes, 110,000 tonnes is in the oil and gas segment and the balance happens to be in the water segment. I'm talking purely from a line pipe perspective.
Yes, yes. Okay. And sir, how should one look at the broadly execution time line for these orders, just to give a sense?
All of this -- if you're talking of this Indian order -- this order book will get completely get executed within this financial year.
Okay. So these are all less than 12 months?
Yes.
Okay, great. Sir, also in terms of the U.S. operations, you have seen that doing very well in the current quarter, and we have spoken about order book being there [ 334 ] '24. Can you also help us understand and articulate in terms of how should one look at the demand trajectory beyond that? What is happening at the U.S. oil and gas CapEx? Just some color there will be helpful to get confidence around the sustainability of this order book?
Correct. No, that's a good question, Abhishek. I think if you see U.S. has completely realized their position in the global oil and gas market. They are poised to become one of the largest LNG exporters in the world. They are -- have positioned themselves as one of the alternative of [indiscernible] . So from a geopolitical point of view, this is what the overarching vision is. Now in terms of activities on the ground, we are seeing a lot of traction which is happening in order to maintain this. We have the biggest largest basin is the Permian basin. I think the second they continue to drill heavily in those [ basins ] that and [indiscernible] they're collecting the care they are exporting to the world market. They are exporting that. I think so the -- this from [indiscernible] at least stocking of two major oil pipelines and at least four major oil and gas pipelines, which will come from the Permian Basin. Of course they're all going to come in a sequential manner. But that's the potential. At this point in time, we are clearly seeing when we are interacting with the various E&P as well as the midstream operators across U.S.
Okay. So the visibility beyond the next two, three quarters, I'm saying more from a 12 to 18 months perspective, it's kind of coming through for you guys for the U.S. operations. That's the way one could understand?
I would rather put it this way, that from the U.S. perspective, if we see, I think there is a clear visibility of next 5 to 7 years. How much we will be able to bring -- capitalize upon it is our ability. But from a market perspective, I think so there is a clear visibility of next 5 to 7 years, please.
Sir, in that context, what will be your market share in the U.S. now?
Due [indiscernible] like close to almost 20%, 22%, 23% of the market share.
Okay. So then it is fair to assume that if the market expands or if market demand momentum continues, you should be able to at least retain your market share. Is that a fair assumption? Or are there a lot of supplies coming in?
We are the largest player. We are absolutely -- we are one of the largest players in the U.S. We have one of the most which player which has a track record of executing large projects. If you look Permian Basin, out of the 4 pipelines, which are on 3.5 pipelines have been supplied by [ devise ] . So that puts us into a clear leadership position. And I'm sure this pattern should continue in times to come.
Sir, the other thing is around Sintex. Through the last 4, 5 years, we have seen a lot of competition having come into the segment where the core brand continues to be very, very strong. But how are you now looking to re-energize the entire brand in terms of execution touching base the distribution again. How should one look at it? And also an extension into the adjacent product using the same distribution. You spoke about plastic pipes and other things, how should one look at it?
So I'll give you a brief answer to that, and I will also leave the floor for my colleague, Salil to give you a more deeper insight to that. But having said that, I think this brand still enjoys that pool, number one. Number two, of course, there are multiple players who have come in to this segment when the company was in stress that is why market share went down from almost 25% -- 22% to 25% to 9% to 10% at this point in time. However, having said that, when we are -- for the last 90 days when our team have been on the road and they tracking with the business stakeholders, including dealers, retailers, influencers and all those people what we observed is significantly high. It is all about realizing the whole channel. It is all about doing everything correctly in terms of putting up the right systems, policies and the distribution network. And I think we are more than confident that we will see a significant ramp-up in our market share type. Is it going to happen in one year? The answer is no. we are not going to capture the market share or regain the market just 25% in one year time. But it will be definitely at a much faster pace than anticipated. For two reasons that the brand recall has been good and the quality has never get compromised in even during the [indiscernible]. So our sense at a [indiscernible] very sharp focus [indiscernible] the market, extend our product offerings, and that is where the whole -- the value creation will happen in this particular company.
Salil, will you like to add something to that, please?
So Vipul, you caught most of it, but I would probably add a few more pointers here. As you rightly said, the trust on the brand continues to remain very strong, which is evident from the pool as well as the price premium we still command in the market. The second thing is yes, there were certain damages to our route to market, our channels, channel partners, the way in which we are operating because the we had to take our position, which we are correcting now. In fact, last three months, we did engage and experts in this field with us to actually redesign entire program. And Q2 onwards, we are going to launch them most of the programs to try to start to be retailer, be distributors, be it influencers, be it certain systems, be it our team itself, team organization. So we are making those changes, which will start showing results in the Q3 onwards. And having said that, even if we look at Q1, we are on the improvement in the numbers.
Regarding your second question about adjacent category, yes, while we focus on execution in water tank, we do realize that there are opportunities concerning the strong brand in adjacent categories. So we are evaluating those categories, and we would probably concrete as our plans in next couple of quarters and come back to you.
Just one last question. In terms of the Saudi operations that has seen major disappointment in terms of both, I think, volumes and profitability. Any color there, sir, would be helpful.
Abhishek, disappointment is not appropriate word. I think so we have to clearly understand that Saudi, let's say, just to give you a over-arching situation, Saudi produces close to 300,000 tonnes of pipes on a year-on-year. So I'm talking on average. At this point in time with their order book, they almost book for close to 2 years. So that's a sort of a strong order book that they're enjoying at this point in time. Right now, in this particular quarter, they were executing one particular project while the production and everything happened. But from a contractual point of view, the sales could not have got recognized in this particular quarter. And that is getting reflected into the quarterly results. It is not by virtue of nonperformance. It is just by virtue of a contractual obligation by virtue of this, the sales is not getting recognized in this particular quarter. It is just a matter of time it is going to get recognized in Q2. But I think if you look at an overarching thing, the company, I think, is absolutely poised in one of the best situations it could have ever had been having almost close to order book of almost one or two years at this point in time our confirmed order book at this point in time. So I think for the next two or three years from a Saudi perspective, are going to be absolutely record breaking here, is that what I would suggest on the table.
Great. So that is very clear. It's just a timing issue. It's essentially what you're [indiscernible].
It's only a timing issue.
The next question is from the line of Vikash Singh from PhillipCapital.
So my first question concerns the Indian operation profitability. This is the second consecutive quarter.
Mr. Singh your voice is muffled. May we request you to kindly use your handset.
Is it better?
Yes, sir, please.
So my first question pertains to Indian operations. This is the second consecutive quarter where we see profit EBITDA per tonne close to almost INR 15,000. So just wanted to understand what are contributing to it? And if this trend would continue? What are your thought process?
And see, also, Vikash, we have always been saying EBITDA per tonne is a factor of the basket what we are executing in that particular quarter. In this particular quarter, I think so we had some orders which had very -- they were very niche orders, which got executed. And that is how this EBITDA per tonne happens. And historically, if you see we have always been maintaining an EBITDA per tonne of close to INR 10,000 per tonne on a year-on-year basis. Some quarters, it is high, some quarters, there's more, but on an average we've always been maintaining that. And I think moving forward, I think so this will -- this is only going to go not south from here because now we are getting into -- on the line pipe side of it, we are at this point in time discussing much more critical orders or more critical applications with more fortune 500 clients. So I'm very sure that this is only going to improve from here.
Understood, sir. Sir, my second question pertains to our DI and Sintex operations. Have we been able to reach EBITDA or PBT level breakeven? Or if not, then what is the time line our internal targets to reach that target?
So let's talk about the DI. DI, we are absolutely EBITDA positive at this point in time. We have reached to that. Just to give you -- I think we did close to some 29,000-odd thousand tonnes in the last quarter. And half of it, we have done it in the very first month of this second quarter. So that must give you the sense that how and at what speed we are ramping up our operations at this point in time. It is absolutely on track and in line with our expectations. And it is -- that is on the DI side of it. On the other side of it also, we are seeing a sort of a correction on the commodity side as well, which is with respect to coal and all that stuff. I think that benefit should also start coming into our P&L in quarter 2 and quarter 3.
Understood, Sir. And for Sintex?
Sintex is there the first quarter, Vikash. I think you -- my request would be to give a little more time and space for us to get into that. But in any case, they are EBITDA positive, either first to answer your question, they are EBITDA positive. But what sort of scalability we are talking in the subsequent quarter is something which is a work in progress. And I think we will be absolutely more than fair and transparent in our subsequent calls, giving you the clear headway, where is the company heading for.
Understood, sir. Sir, with pertain to the Saudi opportunity, you remarked that we have a 2 year of order book. So how we are managing the commodity rates there in terms of steel supply back-to-back booking? If you could give us some [ decided ] rate?
Vikash, as a policy, we never keep our steel open, number one. Now -- but it is also a fact that when you have almost 2 years an order book, it is not practically possible to book entire steel. So at our Board, we have done a complete risk analysis around it. And almost 70% of the steel we have strategically covered, 30% of the steel we have deliberately let it open knowing fully that we would have still four to six quarters in which we can take a call. So we have completely released our [indiscernible] point in time by blocking at least 70% of the steel.
The next question is from the line of Nafez Alabbas from Ajeej Capital.
Again, sorry to bother you about this, but is it possible to share the volume that was sold during Q1 for the Saudi operation? Also for the projects that have been awarded, I know you might not want to share the margin, but should we expect like an improvement over history or in line with the recent months -- recent quarter. Just a rough estimate would be really appreciated.
As you know, I think the largest chunk of the order, what we have at this point in time is from Saudi Aramco and that was almost close -- that numbers are all in public domain. I think so it was close to SAR 1.8 billion. So apart from that, we also have some residual orders, which we are currently executing that. And I think so that they should get over by the end of Q2. So these two things put together. The residual orders and the new Saudi orders gives us a very clear visibility of the next 1.5 to 2 years is what I'm talking about, number one. I think, from a profitability perspective, within the field, I think so we will come on a quarter-on-quarter basis because it is also the product mix as to what we are going to run in this particular quarter and how they're going to get executed and how much sales is going to get recognized and all that stuff. So it is a factor of various variables at this point in time. I think it will be best left that if we can discuss the profitability of that on a quarter-on-quarter basis.
Great. But just for the volume in the just amount like the Q1 of this financial year, I mean just the estimate of the volume that was executed that was reported?
Mr. Nafez, I think we will have to respect the [ Takamul ] exchange because all that I can speak at this point in time, which is in public disclosure in the [ Saudi ] [indiscernible]. And that as a policy there, we have not disclosed the volume side of it does not that it is a very proprietary information, but I would like to be absolutely in compliance [indiscernible] please.
No, I understand. But I mean, last year, you said like, let's say, in Q1 last year, you said in the call that the volume was roughly about 58,000 tonnes I just want to see like what did they do this year so far. not for the projects that are for like 1.5 years to what was already booked in Q1 results.
Mr. Nafez, I would suggest that we can discuss that a little bit offline around it, and I think I will be more than happy to give you all relevant information, which will -- which might satisfy you, please.
[Operator Instructions] We'll take the next question from the line of Sailesh Raja from B&K Securities.
MY call got disconnected [indiscernible] questions are repeated. So my first question is on Sintex. So last year Sintex, it reported INR 57 crores EBITDA. So we could say the volumes reported in FY '20? And also, can you give us guidance for FY '24, sir?
So in terms of -- I think so from a volume perspective, I think so my colleague, Salil, will be in a much better position to answer that question. What was the volume achieved in FY 2023. But let's also state that we are -- as Welspun, Welspun took over, we are just -- we are only one quarter into it, and we will be more than happy to talk about this particular quarter and the subsequent quarters. So in terms of this particular quarter, I think that we are -- they have done almost close to 3,500 tonnes of water storage tanks. And this number, and as you must have heard on the call earlier, as we are all focusing in terms of market expansion, we are more than confident that these numbers on a quarter-on-quarter basis will only eventually grow.
Okay. Okay, sir. Sir, my second question on U.S. So historically, if you see an election here the order booking will be lower, people will start protesting that in playing of sites. So how do you see next year in terms of new order intake?
I think they are good questions, Sailesh. But one thing which we also have to understand at this point in time, that earlier that used to be the case where an electoral year would slow down the thing. But now that's not a trend we are seeing at this point in time. there seems to be a reasonable understanding between the E&P companies, the midstream companies and the investors out there that irrespective of the political spectrum. The oil and gas will continue to be a priority sector, and there would not be any political disruptions created around it. That's the sense we are getting. So at this point in time, when we speak, we are not seeing any slowdown per se. But of course, it is all subjected, things have to be watched around. But when we look at the inquiry flow, when we look at the discussions what we are happening with the various customers, we are not getting this feeling at this point in time.
If you see the active rig counts in the U.S., it has come down to 650 from 750 in total four months back. So what could be the reason?
See, today, one of the reasons for that rig count coming down is also that they do not have capacities to evacuate gas right? So they will have to -- on one side, while they would have sufficient capacity on the oil transportation or oil to move the oil, but they still have a lot of work to do in terms of developing the evacuation of the gas. Today, if you keep on drilling and you keep on producing oil and then when you have no scope to flare the gas, what do you do? It only slows down the whole process. And that is what it brings on the table that this process will further accelerate more gas pipeline, which will come up from the Permian basin to the Gulf Coast.
Sir, the participant has left the queue. We will move on to the next question, which is from the line of Naysar Parikh from Native Capital.
Can you give a sense of the revenue breakup, including how much was from scrap sale in this quarter?
How much was from the scrap sale?
Sir, ABG Shipyard.
See, I like to just answer that here. See, the total value of the scrap that we would be disposing of could be anywhere around INR 700 crores, INR 800 crores. And this is getting spread over roughly about five quarters. So I think you could be faced -- it will be fair to assume that around 1/5 of that value would be getting disposed off every quarter. And we are reasonably confident that by March '24 we will completely monetize the entire scrap at the location.
So this quarter would have around INR 150 crores. Is that fair?
Around that, yes.
INR 100 crores to INR 150 crores would be the way, I would say. That's the part.
Got it. And second question is on the stainless steel side, you're obviously expecting a huge ramp up over the next couple of years. Can you just talk about that segment? What are the areas that we are focusing on? And in particular, what kind of traction are we seeing?
So as I say, the WSSL which is our stainless steel is a complete turnaround story. And I think so this has -- the fact of -- it is driven on two principles. Number one, a, the domestic market is very buoyant, number one. Number two, there is a lot of efforts which have been done in terms of curbing the imports, the cheaper imports which were coming, I think so that the making India initiatives and all that stuff has significantly helped. Number three, because of the energy crisis, the European market demand has gone up and a lot of Indian products are now going into the European market. And number four is all about how much you are going up in the value chain. So I think that we are focusing on all these four pillars at this point in time. Today, almost 50% of our product is hitting the European market, number one. Number two, of course, the government of India initiative make in India is helping us a lot. But number three, more the more important is a value-added chain, and we are trying to develop the value-added grade, which is helping us, and it is going to help us significantly in the future. And on top of it, we are the only integrated pair. We have our own steel and our own pipe and that gives me a complete flexibility to speed up my value-added proposal. So I think of these four factors put together has completely turned around this company, and this is what will be the basis and the fundamentals for the growing it in subsequent quarters in ESP.
Got it. And just the last question is from the profitability perspective, what percentage of EBITDA will be from line pipes and DI Pipes. Can you disclose summed up break up of the profitability?
Outcome -- you are talking about the Q1 profitability, the EBITDA growth?
Yes, Q1.
Yes. So [indiscernible], basically, the DI side for this quarter is at a breakeven level. So at an EBITDA line, there's not a significant amount. So majority of the profits are coming from the India and the U.S. pipe business. Obviously, as we go forward, the DI is ramping up rapidly, and they will start contributing in a very sizable way to the consolidated EBITDA of the company.
Okay. So I mean [indiscernible] around INR 418 crores EBITDA if you look at the quarter. would include the scrap EBITDA at as well as the pipe. So [indiscernible] of scrap and the INR 300 crores line pipes. Is that fair?
Yes. See, WSSL, it's already in the public domain. So they have already announced the results. WSSL EBITDA for this quarter was INR 23 crores. So out of our INR 418 crores, INR 23 crores is already known to you. Then there are a few smaller numbers, which are there around INR 20 crores, INR 30 crores, which come from other income. But the pipe business is more than INR 300 crores.
We'll take the next question from the line of Miraj Shah from Arian Capital.
This is Abhishek Jain from Arian Capital. I have a two questions. Congratulation on good set of numbers. I want to understand, sir, on the speciality stainless business right now, what is your target EBITDA? Because last two quarters, you have [indiscernible] what is our next three years? How do you see -- what kind of numbers we are aspiring going forward? And also on the EBITDA per tonne, I'll be looking for your guidance on the same, sir. Second thing, sir, on the DI pipe side right now, what exactly is because most of the companies are posting a decent thing right now. Do you think there is a possibility we can -- we may see a 2 lakh tonne number which you have talked earlier on the call? Can be on a higher side, can we do -- we can do much better in those numbers?
So answering your question on DIP first, I think so the way things are progressing at this point in time, Abhisek. We should be close to the guidance what we have given in terms of achieving the production and the sales. In terms of order book, there is no issue of an order book. There is an order book of almost three more quarters between -- for the full of the financial year, you have to order [indiscernible] . It is all about execution. And the way we are ramping up, I think so we should be able to touch, exceed or close, we should be close to the guidance, which we have been, that is something like anything between 175,000 to 200,000 tonnes. So we are pretty much there. We should be there in terms of DIP.
Coming to this new WSSL. WSSL is, let's say, for the last two quarters, we have seen the way -- in the steady manner it is growing. The potential for the next two or three years, I think that we have -- our internal assessments very clearly tells us that this is a business which can potentially grow at a CAGR of almost 20-odd percent. That's the way we are looking at it. And also complied with that, is our stainless steel bars business also because we are producing steel as well, which is [ bars ] . And that also has a significant potential at this point in time. And there is a significant requirement which is coming up from the European market and the domestic consumption and all that stuff. And that also has a potential to grow almost at almost 70% to 80% CAGR business. So this is what our income and estimates are currently telling us and which is what we are tracking and this is what we aspire to achieve in times to come over two to three years.
Sir EBITDA per tonne guidance, if you can do, sir?
We'll have to work that out Abhishek. At this point in time, it is all about the product mix again, EBITDA per tonne guidance will depend on as to what is my geography what are my product mix. And as we are now inching more towards value-added grades, I think that this is constantly going to get changed. So once -- we are yet to -- we get into a sort of a very steady state business model which I'm sure over the next one or two years' time, when we will get them, then it will be much more prudent to give you that what we are guiding. However, at this point in time, I think we should see only from a growth perspective, and a profitability perspective. And I can assure you that both growth and the profitability is going to be there on quarter-on-quarter now.
The next question is from the line of Vignesh Iyer from Sequent Investments.
My question is on the Saudi side of the business. Sir, on the CapEx that they are going to -- I mean countries planning on the water desalination project. If you can just give us an idea, we are trying to tap into and get some business from there as well. Does it require any certification? I mean prerequisite to get some orders from the same business? And how is our competition like for the same, I mean?
So yes, I think so in the Saudi market, we have been very active, both in the oil and gas and the water side of it. If you see for the past two years, we have been doing primarily almost 85% or 90% of our business was on the water side of it. So all the criteria which are supposed to be met, we have already met them and we are one of the largest players at this point in time in that particular market, serving both oil and gas and water. So for us, there is nothing for prerequisite, we tick all the boxes and we have enough bold players. In terms of water investment, you are absolutely right. They intend to invest it $14 billion to $15 billion over a period of time. And we will definitely get our market share out of that. Today, we definitely enjoy more than almost 25% of the market share in that particular country. And I think so being into the pole position, we will -- there's no reason why we should not be getting that. Having said that, yes, there is -- the competitive landscape is wide. There are three or four equally good producing facilities, and they also get their own market share. So -- but among all of them, I think if we have to summarize, we have got the largest share, the most profitable share, and I'm sure this trend will continue in future as well.
Sir, if you could give me an estimation as to what would business size be from this upcoming CapEx for the next few years?
So there's no additional CapEx. No, we're not doing any CapEx there.
No, no. I mean, the company that is -- the country that is investing in water, what is the estimated size of the business that could come over the next few years?
Okay. Okay. So understood so I think the way we see that almost the water which is coming from SWCC or SWPC, looks like that they might be doing close to 1 million tonnes on a year-on-year basis. And there is sufficient capacity which is now there in Saudi Arabia, which is competent and capable enough to enter this particular demand. Of course, we being one of the largest debt, so we will also have our market share around that.
Okay. Sir, one last question from my side. I'm [indiscernible] presentation and the 18th slide in the presentation of our guidance when you guide for EPS estimated EPS at INR 26.8, does it include the contribution that is coming from Saudi?
It does.
The next question is from the line of [ Tanay ] Ghandi from Green Portfolio.
Sir I just wanted to briefly understand what are the business plans with ABG shipyard? Are we looking to make any further investment? And what kind of revenues do we plan to generate from this division?
Tanay, in my opening statement, we made it very, very clear that at this point in time, our focus with respect to ABG shipyard is simple, that we want to liquidate all the assets what is there at this point in time. So that we are absolutely cost agnostic. That's the only focus at the point in time we are working with. We are maintaining a very minimal cost at this point in time, the fixed cost. And number three, we are not at all -- we are not putting any investment capital investment in that shipyard at this point in time. We are not doing that. We have -- on the other side, we are looking at various optional plans this and that, but they are all more in the exploratory state in terms of what are we committing any money in the next foreseeable future, the answer is no.
And sir, can you just -- I know you gave that amount but somehow I happen to miss it. What is the scrap value and by -- when can we expect it or to be discarded?
Salil?
I think by -- so it's spread over about 4 to 5 quarters. So I think the...
I think the quarter 1 of the next financial year, we should be pretty much done almost most of it will be done in this financial year. There could be some spillover, which can go to the quarter on other [indiscernible].
And sir, could you share the amount again, please?
So it was like close to INR 700 crores to INR 800 crores. That's a generation which is likely to happen.
The next question is from the line of Bhavik Shah from MK Ventures. Sir, please use your handset, if possible? Thank you, Sir, please proceed.
Just one question. So what -- how much have you sold the scrap in ABG shipyard and where do you recognize the revenue for that? How do you do it?
So it goes under the operating revenue only bhavik. And roughly, it will be anywhere between about INR 120 crores to INR 150 crores per quarter.
And it flows into EBITDA. You don't have any costs on account of that, right?
No, of course, we had purchased it also at the cost from the liquidators. So that is the top line sale value. [indiscernible] and the cost. We are selling a bit higher than the cost only. So there will be a bottom line contribution also coming out.
Okay. And sir, how much inventory do we have in the left of these scrap?
See, we started disposing it from March, March '23, okay? So we've been moving at a very fast pace. And though we have officially said it will take five quarters and that is June '24 quarter. But we are internally targeting to finish everything by March '24.
Okay, by March '24. So sir, how much EBITDA contribution can we expect coming this in this year and FY '24 from that the remaining one?
You are saying how much EBITDA from disposal of scrap?
Yes.
It will be maybe close to 100.
INR 100 crores for FY '24, right?
Yes, yes.
The next question is from the line of Saket Kapoor from Kapoor Company.
Firstly, coming to the EBITDA part of the story. So you guided for INR 1,500 crores EBITDA in your presentation earlier also in this quarter also. So is this from the operational part only from the line pipe segment that you are factoring in and not for the scrap and the other income that we booked on account of Sintex and other [indiscernible] going ahead?
Mr. Kapoor, this is consolidated. When we are presenting a consolidated number, everything even the guidance is consolidated. So this INR 1,500 crores of this EBITDA guidance which has been given is based on a consolidated basis.
Okay. So we are factoring in the EBITDA from the scrap, we are acting in the other income component, everything?
Everything.
Okay. And if you're in the presentation going like course could provide us the EBITDA, especially from the pipe segment separately, that would supply a lot of our query since the number of foreign [indiscernible] not optimum to the pipe segment in totality. So going ahead that could be segregated so that would be very efficient with. Sir, other than that, sir, in the other expenses line item we found an increase from INR 486 crores to INR 647 crores. So if you could explain what is the reason for the Q-on-Q jump in the other expense line item?
Yes, Saket. So the current Q1 Saket, is that all the operations are ramping up in a big way. As you know, U.S. has ramped up in a big way. And all the new operations, DI, TMT, we have got numbers of Sintex, everything has come in. So obviously, all the numbers will show a sharp jump. As you correctly said in other expenditures, there's a sharp jump. But so is there a sharp jump in the top line as well. So I think that's why, because of all the new businesses and ramp-up, all the numbers will be sharply higher than the previous quarter.
At the Q-on-Q, how will you explain it Q-on-Q, the jump from March quarter that revenue ended was INR 1,070 crores. So vis-a-vis this is flat on the Q-on-Q. But then I'm comparing these numbers on a Q-on-Q basis.
Yes, yes. So we have got new operations there. For example, Sintex has also got added from this quarter onwards. And remember, ultimately, it's a project business, Saket. So every quarter will not be uniform. It little bit different.
I was just referring to any one-off items that has been booked in other expenses, one-off --
there's no one-off item. It's a pure function of two items. One is the project mix that keeps changing every quarter. And secondly, now the new businesses are all ramping up. So they will all start adding larger numbers to the consolidated part.
Sir, on the loan point, Congratulations to the team on reduction in debt to INR 35 crores. So what is currently our working capital requirement and what is the cost of fund for the term loan? And if you could just provide the breakup between term loan and the working capital requirements.
I will give that to you off-line Saket. The cost of capital, the borrowing cost is somewhere close to 8%. It ranges between 8% to 8.5%. Sometimes short-term funds are even lesser than that. Otherwise, you can take an average of 8% as the cost of funds.
And the blended cost of funds?
Yes, yes, correct.
There was also one update from the income tax department about some demand rates from Sintex. And I think so we have categorically mentioned in the reply also that what steps are we going to take and writing down the reply to CPC. So any update on the same? Has the issue being addressed adequately?
No, I think there is no further update from our press release. We are very confident that we are absolutely okay and we don't expect any impact to come on our financials.
And on the [indiscernible] initial [indiscernible]. So out of this order book we have, what is the executable period the pending order book of 645 KMT. What should be the execution for the current year like?
Mostly to -- Mr. Kapoor, most of it will be executed within this year. There could be a minor spillover which will go to the quarter of the next year. But I think the more than 85%, 90% will get executed within this [ year ] .
During this year itself. So if we annualize the number for INR 185 that worked out to around [ 140 ]. So the execution scale is so we will have the lower execution take lower execution going ahead or [indiscernible] factor because if you get the current quarter run rate 185 [ KT ] translates into 740 remember. But we -- our order book is there for 645 KMT then there will be other also that we'll be in an expecting?
Absolutely. Absolutely.
So you are guiding for -- so is it on a conservative basis 645 number and [indiscernible] EBITDA? That is my question.
It's a realistic one. I mean it's a cyclical business, it's a project business. It is a blend what guidance what we have given is a blend out of our experience. We are sure that Mr. Kapoor we should be able to do that. Our of course, endeavor would always be to improve upon it. And I think so -- in any case, the first quarter generally in India, a little muted quarter. I think so the production ramp up and the dispatch ramp-up will also happen in the subsequent quarter. So -- but all in all, overall, if you look at it, I think, so whatever guidance what we have given we should be able to do that. And if you look from a first quarter perspective, we have been able to meet the expectations of what we have for the guidance what we have given please.
And one more point, the tax related if could give some understanding what why are the [ book ] been higher? And at what rate are we exactly the tax incident is going to be? And then on this presentation and the expenses line item, we generally find that the other expenses are generally marked at the lowest, lower end and finance costs are just below the depreciation. So if it is not for any particular reason. Try to [ reject ] the columns on depreciation and then the line item being finance cost and other expenses as the last line item if it is not for any other purpose being done.
Yes. Point taken. Mr. Kapoor, point taken. Let evaluate the merit of it and we'll discuss.
And sir, for the tax part. [Foreign Language]
Mr. Saket, our effective tax rate is about 25%. It, of course, keeps varying from quarter-to-quarter. We have to also be mindful that there are some operations like WSSL, but we don't create a deferred tax asset yet. So -- and also, there are some operations like the new DI business, which are in separate legal entities, which are in the lower tax rate also. So to that extent, you will have quarter-to-quarter fluctuations. But if you were to look for a long-term guidance for a tax rate, I would say somewhere between 25 to 28 percentage will be on our effective tax rate.
And sir, what is the advanced tax number for this quarter? How much actual tax we've paid?
I think we can take those numbers off-line. Those are not in the public domain anyway, Mr. Saket, I think.
And just for Note #7 also if you could understand the rationale for this major part of March that was past interest [ BAPL ] . And Sintex with NCD issue, what was the total gross we have got other income of INR 54 crores. So what has been the gross received from the sale of the NCD. And the other income posted in the consolidated number is INR 49.5 crores. There in the notes you have mentioned 54 crores.
Mr. Kapoor, what I will suggest that Goutham -- I will ask Goutham, who is listening to this conversation. He will get connected with you offline, and he will be in a better position to address all your queries, what you would have with respect to the balance sheet. Will that be okay?
The next -- ladies and gentlemen, this would be the last question for today, which is from the line of Abhishek Jain from Arian Capital.
Sir. I just have a couple of quick questions. First is that I think this might have been repeated already, but I just wanted some clarity on this that if I speak with the order book and the bid book quarter-on-quarter, there is a dip in both. So I just wanted to understand that I believe there -- obviously, there's no structural change in the long-term story, but any other reason? Any reason for this to happen in Q1 is Q1 just a bit weak in terms of order bookings, I just wanted to understand that first.
Abhishek, these are all -- most of these businesses are project-based businesses. They are -- you will see that cyclical part of it in any case. I think so what we will have to stick around is the fundamental part of [indiscernible]. Are we seeing any fundamental softening down in the market. Is that I think that's the moot question on the table. And probably that's not the case, what we are at this point in time looking at. All if you look at all the growth plans, all the economic trends, all of that, the market authorities. I think they are all very clear indicators that both the oil and gas market and the water market which is -- which are all sitting into pipe vertical. I mean, absolutely, they're showing -- the demand seems to be fairly robust in times to come. I don't think so there's any -- should not be any undue concern around that, please.
Understood, sir. Sir, another question on the U.S. side, the carbon capture project that we had earlier, has it started yet or is it yet to start?
There are some land acquisition issues going around that at this point in time. They are under discussions there. And so it is yet not started. So once that -- once those acquisitions will be completed, then the time that the process will start.
Okay. Sir, in the earlier question, you had mentioned that in U.S., there are some pipelines expected to come. So is there any of that reflecting in our grade book right now or they're late to come, we are yet to build also for that?
So they're all getting reflected in the bid book at least in the bid book, they're getting reflected.
Okay. And sir, sir, my final question, sir, inventory levels currently, could you give us what are the inventory levels on the books right now because last quarter, we had a big [indiscernible] shot up to [indiscernible] crores. Could you give us some view of what is it right now?
I can give a view, but it has significantly improved from that point of the time. As we said that inventory was against the order, which was getting built up in America. And now when we are into an execution phase that inventory is getting depleted. So we can get you the numbers, please. Let's take in [indiscernible], Abhishek.
Okay. And sir, just one point I wanted to ask that in the stainless steel business, you say earlier give the breakup of bars and pipes of order book. So could we get that again? Or are we not disclosing those figures now?
We have not -- I mean right now, we have here for the presentation purpose, we have put it in a consolidated basis, but that's something which we can always share. I think so from a bar perspective, we have close to 2,500 tonnes and pipes is quite close to 1,200 tonnes, we all put together close to 3,800 tonnes as what I mentioned.
Thank you. As that was the last question for today. I would now like to hand the conference over to the management for closing comments. Over to you, sir.
Thank you. Thank you, ladies and gentlemen for joining us over Q1 FY '24 call today morning, I am sure that me and my team would have been able to answer most of the questions. But having said that, if there are certain questions which remain unanswered, you really want to have some more details, and then you can definitely reach out to Salil and Goutham around that. On the other side, I just want to reassure that the company is standing on effects for growth at this point in time. We are seeing both oil and gas. We are seeing water, domestic. We are seeing Saudi, we are seeing Americas, we are seeing stainless steel and also our DI business apart from Sintex. All these 6, 7 verticals, 6, 7 products in which we are working. I think so there is no debate or dispute or any ambiguity that all of them are seeing a significant amount of tailwind and your company is absolutely favorably positioned at this point in time to capture around that. And we are sure that in subsequent quarters, you will see a much improved and better performance than what you have seen in this particular quarter, and we will be able to deliver on the guidance what we have released to the market. Thank you very much for joining, and stay safe. Thank you.
Thank you very much, sir. Ladies and gentlemen, on behalf of Emkay Global Financial Services, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.