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Jindal Saw to backward integrate fully by December

Pipe manufacturer Jindal Saw could see a huge jump in profitability from the next fiscal when the full impact of its captive iron ore mine and pellet plant reflects on its balance sheet.

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Pipe manufacturer Jindal Saw could see a huge jump in profitability from the next fiscal when the full impact of its captive iron ore mine and pellet plant reflects on its balance sheet.

“Our iron ore mine at Bhilwara, Rajasthan has started operations and once we ramp it up completely, we can see a saving of almost 40% in raw material cost,” Indresh Batra, managing director, told analysts during a conference call recently.

The mine is currently producing 500 tonne of iron ore per day, which would be ramped up to over 1,900 tonne per day, or over 7 lakh tonne a year, by December.

Once that is achieved and its proposed pellet plant gets going, the company would be saving Rs3,000 per tonne on sourcing iron ore. Currently, its landed cost of ore works out to Rs7,000 a tonne.
This, analysts believe, could boost its operating profit by almost Rs300 crore from the next fiscal.

For the quarter ended June, it reported revenues of Rs1,290 crore and operating profit of Rs178 crore. For the full year ended March, its revenues and operating profit stood at Rs5,190 crore and Rs727 crore, respectively.

Delhi-based Jindal Saw, which manufactures steel pipes in the large diameter, ductile iron and seamless segments, is one of the leading manufacturers of pipes for the oil and gas industry and competes with companies such as Welspun and Maharashtra Seamless.

“By December, the company will achieve 100% backward integration in iron ore and could also see margins increase 4-5% for the full year in FY14,” said an analyst with a domestic brokerage.

The analysts had a negative outlook on Jindal Saw till the last quarter, but has changed it to positive with a ‘buy’ rating from this quarter.

Batra also said that Jindal Saw’s most profitable segment – seamless pipes – is expected to see a revival in demand from North America, its primary market.

“There was some seasonal adjustment at the distributor level, because of which the sales were hit, but we expect significant demand build-up from the second half in seamless pipes, especially driven by the shale gas business in the US,” he said in the conference call.

The company has an order book of around $680 million, or Rs3,740 crore, comprising $460 million of large diameter, $190 million of ductile iron and $30 million of seamless pipes. Over 65% of this is export orders.

“All these are expected to be executed by the end of December 2012,” the company said in a note released on Friday.

 

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