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Edited Transcript of WELCORP.NSE earnings conference call or presentation 23-Oct-19 5:30am GMT

Q2 2020 Welspun Corp Ltd Earnings Call

Oct 26, 2019 (Thomson StreetEvents) -- Edited Transcript of Welspun Corp Ltd earnings conference call or presentation Wednesday, October 23, 2019 at 5:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Percy Birdy

Welspun Corp Limited - CFO

* Vipul Mathur

Welspun Corp Limited - MD, CEO, BR Head & Director

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Conference Call Participants

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* Amit Zade

Emkay Global Financial Services Ltd., Research Division - Analyst

* Amit Dangi;Mentor Capital;Analyst

* Bhavin Chheda

Enam Holdings Pvt. Ltd - Analyst

* Dhananjay Mishra;Sunidhi Securities;Analyst

* Govind Saboo

IndiaNivesh Limited - Head of Merchant Banking

* Nirav Shah;GeeCee Holdings;Analyst

* Sangameshwar Iyer

Consilium Investment Management LLC - Senior Consultant for Investments in South Asia

* Sangeeta Purushottam;Cogito Advisors;Analyst

* Sanjay H. Parekh

Reliance Nippon Life Asset Management Limited - Senior Fund Manager of Equity Investments

* Sudhir Bheda;Right Time Consultancy;Analyst

* Tushar Pendharkar;Ventura Securities;Analyst

* Vikash Singh

PhillipCapital (India) Pvt. Ltd., Research Division - VP of Metals & Mining

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Q2 FY '20 Results Call of Welspun Corp Limited, hosted by Emkay Global Financial Services. We have with us today on the call, Mr. Vipul Mathur, Managing Director and CEO; and Mr. Percy Birdy, Chief Financial Officer at Welspun Corp Limited.

(Operator Instructions)

Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Amit Zade of Emkay Global. Thank you, and over to you, sir.

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Amit Zade, Emkay Global Financial Services Ltd., Research Division - Analyst [2]

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Good morning, everyone. I would like to welcome the management and thank them for giving us this opportunity. I will now hand over the call to the management for their opening remarks. Over to you, gentlemen.

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Percy Birdy, Welspun Corp Limited - CFO [3]

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Good morning, everyone. This is Percy here. Welcome to our Q2 FY 2020 conference call.

Before I go into the details, I'm very pleased to share with you some of the highlights of our operational and financial performance during the quarter and the half year ended September 2019.

We had the highest quarterly production in the company's history at 443,000 tonnes. For the half year, production was at 739,000 tonnes. Our half year operating EBITDA stood at INR 575 crores, up by 36% Y-o-Y. Our Q2 EBITDA crossed the INR 300 crores milestone and stood at INR 317 crores, up 27% Y-o-Y.

Our half year PAT stood at INR 299 crores, up by 120% Y-o-Y, which is even after taking the impact of INR 42 crores pertaining to tax on dividend from the overseas subsidiary.

The H1 EPS stood at INR 11.27 per share, up by 120% Y-o-Y. Our H1 pretax ROCE, return on capital employed, stood at 29.1%. Our order book stands at 1.357 million tonnes valued at USD 1.6 billion.

Coming to the details. On the volumes front, for the quarter, for our total operations, including Saudi, our sales volume was 337,000 tonnes, up by 11% Y-o-Y; and production was 443,000 tonnes, up 41% Y-o-Y. You will notice that the difference is -- high difference between sales and production are largely due to some of the large export orders from India, which as per the contract, had to be delivered at the client's side. Some of these orders did not reach the client's side before the end of the quarter, and hence, we could not book the sales. This will obviously now be booked in the current quarter, that is in the December quarter.

U.S. operations for this period recorded sales of 102,000 tonnes. Saudi joint venture recorded quarterly sales of 116,000 tonnes. There was a substantial improvement in India sales volumes on a sequential basis compared to the previous June quarter, and the sales volumes reached 119,000 tonnes.

Total income from operations stood at INR 2,263 crores, which is up by 5% Y-o-Y. Operating EBITDA, after adjusting for Treasury income and the mark-to-market and fair valuation impact on the bonds, stood at INR 317 crores, up 27% Y-o-Y. Consolidated reported EBITDA stood at INR 331 crores, up by 37% Y-o-Y. Other income stands at INR 39 crores, which includes INR 20 crores of transactional ForEx gain mainly on forward contracts for hedging.

Other expenses totaling to INR 369 crores in the current quarter, has a corresponding transactional ForEx loss of INR 29 crores, resulting in a net ForEx loss of INR 9 crores. Other expenses also has a minor mark-to-market adverse impact of about INR 2 crores arising from fair valuation of bonds.

Profit before tax and share of joint ventures stood at INR 236 crores, up 81% Y-o-Y. Profit after tax, including share from -- (inaudible) And removing the noncontrolling interest, stood at INR 173 crores, up by 108% Y-o-Y. As mentioned earlier, the profit after tax was impacted by tax expense, which is higher by INR 42 crores on account of tax on dividend received from our overseas subsidiary to the parent entity in India. We can offset this against dividend distribution tax if the Indian parent entity declares an equal or higher amount of dividend to its Indian shareholders in this current financial year.

The cash PAT for the quarter stood at INR 239 crores.

Then we come to the order book position. Current global order book stands at 1.357 million tonnes valued at INR 11,600 crores. In dollar terms, $1.64 billion. Apart from this, our global bid book stands at 2.5 million tonnes, and upcoming orders added another 20.5 million tonnes. This provides strong visibility for the coming few quarters.

Now coming to the balance sheet side. Net debt, as of September 30 2019, stood at INR 197 crores, with gross debt at INR 1,092 crores, while cash and cash equivalents stood at INR 896 crores. Our cash conversion cycle is at a comfortable level of 25 days. The number looks higher than the last quarter due to an increase in inventory. This is because of high production volume, which we discussed earlier and is expected to normalize in the next 2 quarters.

Now we come to the Saudi joint venture. As you recall, our Saudi figures are brought in consolidated financial numbers at a single line level after PBT as per the Ind AS. The Saudi business has significantly turned around. EBITDA during this second quarter of September stood at USD 27 million and PBT at USD 21 million.

And we come to the status of buyback options. As you would know, the company is proposing to buy back up to 28.89 million shares at a price of INR 135 per share. We completed dispatch of the Letter of Offer to our equity shareholders on 15th of October. The buyback window has opened yesterday from 22nd October and it will be closing on 5th of November.

Then an update on our PCMD business transfer agreement that was signed in March 2019. So the parties to the agreement are in the advanced stage of seeking statutory and regulatory approvals, which are customary to such transactions.

And we come to the market overview. U.S. is now the largest producer of oil and gas, primarily driven by fracking in the Permian basin. Major pipeline operators are working on significantly raising pipeline capacity over the next few years to overcome the constraints associated with transporting the oil as well as gas. We are also seeing increased interest from customers in the Bakken basin, where development activities are picking up. Further, robust outlook for export of gas is also expediting the need for pipeline infrastructure. Local U.S. manufacturing entities such as Welspun's U.S. plant are expected to command higher volumes, both for HSAW and HFIW operations.

For the Indian oil and gas market, the large-diameter pipe demand for oil and gas projects is primarily driven by gas grid development by GAIL and oil pipeline network by IOCL. Recent decision by the government to pitch in for viability gap funding for Northeast region pipeline network is another positive news. The small diameter segment is expected to witness significant demand from City Gas Distribution projects.

With oil prices remaining stable and range-bound, the LSAW demand continues to be strong across geographies. The company has already commenced exporting pipes to North America for the world's highest operating pressure pipeline.

Demand in the Middle East, Northeast -- North and East Africa as well as Australasia looks extremely promising and with our approvals and accreditations, we see a great potential emerging in these markets.

In the domestic water segment, the entire pipe industry is expected to benefit from Jal se Nal scheme to provide drinking water access to all by 2024. Activity in the irrigation segment is expected to further pick up in the coming quarters.

The JV in Saudi Arabia continues to have strong order backlog as well as visibility of around 18 to 24 months. While the current order book is driven mainly by water orders from SWCC, we are also seeing strong traction from Saudi Aramco on the oil and gas side.

With this, we conclude our opening remarks. We'll be happy to take any questions. You can please open the floor for the Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from the line of Sudhir Bheda from Right Time Consultancy.

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Sudhir Bheda;Right Time Consultancy;Analyst, [2]

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Congratulations for a super duper set of numbers and a [robust quarter]. So my question would be like, what is the outlook for U.S. market in coming 2 to 3 quarters and whether we are bidding for the large projects in the coming quarters and chances of winning those kinds of projects?

So there are probably -- what will be the outlook for U.S. markets for next 2 to 3 quarters and kind of EBITDA that we have declared that we'll be [minting] on?

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [3]

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So thank you very much for this compliment. But as regards to U.S. market, if you see, we still have an order book of almost close to 200,000 tonnes, which is yet to be executed at the end of this -- at the end of September quarter, number one. So that will -- I am sure that will take us through for the balance part of the year.

Having said that, I think so the demand in U.S. is still looking fairly robust at this point of time. We -- as we speak, we have participated in a couple of projects there. And they are currently under evaluation and in few of them, and we are also very favorably placed. So I mean, we are not seeing any sort of a decline in the U.S. market.

On the contrary, we are seeing that the market and the demand for the pipeline is still very, very robust. And we are the largest player there, and we have -- we are already do the prep in [indiscernible] in the bidding of some particular contracts. And I think so it's a matter of time, I am sure that we would be able to secure some more contracts out there. That will definitely take us through for the next 3 to -- at least 3 to 4 quarters.

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Sudhir Bheda;Right Time Consultancy;Analyst, [4]

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And margin outlook there?

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [5]

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The margin outlook, we -- if you look at it, we would still try to maintain that on a very conservative side. We should be -- we should have -- we should be having an EBITDA of close to 250-odd dollars. That's what we think.

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Operator [6]

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We'll take our next question from the line of Nirav Shah from GeeCee Holdings.

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Nirav Shah;GeeCee Holdings;Analyst, [7]

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Congrats on very strong set of numbers. So few questions. Firstly, if I'm looking at the Saudi numbers, EBITDA per tonne comes to somewhere around $230. That should be despite there being some portion of execution of low-margin Saudi orders. So on this, what is the execution of low-margin orders? And secondly, the residual EBITDA per tonne, how long is it sustainable because I agree that steel prices are moving in favor of -- even on a sequential basis, but just on a sustainable number for the next 3, 4 quarters, some view on that, please?

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [8]

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So as we said, our order book in Saudi still stand very robust. We have more than 0.5 million tonne of an order to be executed at the end of September quarter, and that will definitely take us for the next 3 to 4 quarters, if not more.

Now on top of it, from an outlook perspective, I think, so again, the Saudi market is looking very robust and very buoyant. And as we speak, we have, again, participated in the Saudi market also in some of the key projects. And in 1 or 2 of them, we are very, very favorably placed. So Saudi market per se, you have a confirmed order book for almost 4 quarters. [And I mean,] the way the market looks to me, I think so, we will only be improving upon our order book in times to come, one.

Two, as regards to the margins, we have typically given you a guidance of something close to $100 per tonne in the past. We have been -- and we also have been telling that we have taken a very conscious call on keeping the steel open because we are very, very confident that we would get an upside on the steel. And you see that we have got that upside and that is how harmonized EBITDA has come around 150, let's say, 150-odd dollars.

I think so moving forward, we still feel that this is a typical number, I think so we should be able to match and to deliver on the EBITDA side of it. And as we do not forecast, at this point of time, that there's going to be any major shift or paradigm shift into the steel market. So it is with that assumption, and we are reasonably confident about this assumption, please.

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Nirav Shah;GeeCee Holdings;Analyst, [9]

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But if I look at this current quarter, at least, were there any one-offs in this 250, 300 -- I mean $27 million EBITDA?

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [10]

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It is all about the product mix, what we had in this quarter, we have 3 contracts which we are running. So as the product mix changes, the EBITDA goes up. The EBITDA goes high in this particular quarter. One particular order, which was highly profitable, which was [there and come through] from a throughput perspective, it was one of the -- it's very productive order. So a large component of that was sitting in this particular quarter. So that is how you are seeing this number in this particular quarter.

We still have that order pending. We will see the traces of that coming in subsequent quarters also, but the blend will keep on changing. So it is also related to the blend side of it.

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Nirav Shah;GeeCee Holdings;Analyst, [11]

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The sustainable number you are guiding is $150 (inaudible)

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [12]

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It would be a fair number to assume at this point of time on a conservative side.

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Nirav Shah;GeeCee Holdings;Analyst, [13]

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On a conservative side. Perfect.

So second question is on the U.S., I mean, our coverage on (inaudible). Is it, I mean, order book is somewhere 10 February. So we are confident that the -- [for a couple of cities that we safely] placed in and should be -- the tenders should be awarded, say, in the next couple of months?

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [14]

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They are there -- I mean, we are the largest player. We are the most active player. We are one of the most sought out player in that particular market. There are a couple of opportunities which are there on the radar. We have participated in most of them. As I had said earlier also, we also want to cherry-pick our opportunities. And that's what we are working on.

I think so, it is a fair assumption to make that in short time, we should be able to have a visibility beyond February for sure.

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Nirav Shah;GeeCee Holdings;Analyst, [15]

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Okay. And sir, the next question is on the PCMD transaction. Like when is the closure expected and what approvals are we awaiting?

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [16]

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So on the PCMD side of it, I think so -- it's a process. The process is currently undergoing all the regulatory approvals and everything which the documentations have already been filed. We are waiting for that. The moment it comes. So all that -- when that statutory and regulation approvals are in place, I think so then, this transaction will go ahead.

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Nirav Shah;GeeCee Holdings;Analyst, [17]

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Okay. And the 43 megawatts sale of power plant has happened? Or that is also in some final stages?

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [18]

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That is concluded. That is all over. [indiscernible]

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Nirav Shah;GeeCee Holdings;Analyst, [19]

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That has concluded?

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Percy Birdy, Welspun Corp Limited - CFO [20]

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Yes.

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Nirav Shah;GeeCee Holdings;Analyst, [21]

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So just last question, on the Saudi operations again, till where -- when are we -- till [when steel] covered for that order?

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [22]

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We're covered for literally, let's say, for this full financial year, literally, let's say -- We will -- I would say that until March of the next year. Let's say, we are covered for the full financial year now.

And as I said that we always try to keep a sort of a [feel] for the 2 quarters with us. And that's how we are focusing. So at the start of the third quarter, we are covered for the third and the fourth quarter.

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Nirav Shah;GeeCee Holdings;Analyst, [23]

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Congrats also again on good set of numbers.

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [24]

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Thank you very much. Appreciate it.

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Operator [25]

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Our next question is from the line of Vikash Singh from PhillipCapital.

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Vikash Singh, PhillipCapital (India) Pvt. Ltd., Research Division - VP of Metals & Mining [26]

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Congratulations on very good set of numbers. Sir, I just want to understand, if I look at the last 2 quarters, our order book addition has been pretty slow, somewhere around 120, 130 KT. So any particular reason behind this?

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [27]

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I would say it's more of a timing issue. I mean, at the end of the day, in terms of you -- if you look at the indicators of our bid book and the upcoming bids, I think so we are not seeing any slowdown there. Our active bid book still stays at 2 million tonnes, within the last quarter was also 2 million tonnes. Our -- the prospective bid book also stands at 20 million tonnes in both the quarters. So if these are 2 indicators, we have to look at it. I think so, I mean, they are pretty [indiscernible] It's just a matter of timing that in this particular quarter, that the decision-making on certain projects have not happened, then probably, it's a matter of time that some more orders will come in to play.

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Vikash Singh, PhillipCapital (India) Pvt. Ltd., Research Division - VP of Metals & Mining [28]

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Okay. And then, sir, out of this prospective bid book of 20 million tonnes, how much is basically relied on U.S., sir? Or if you have the numbers right now?

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [29]

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We do have it. So it's a prospective order book is a global bid book. It's our [indiscernible]

So the prospective bid book comprises of Middle East, Latin America, North America, Southeast Asia, indiscernible and it is fairly evenly spread out -- splitted out. So I mean, so if you have to see that, has there been a limit -- any major change in a prospective bid book on a quarter-on-quarter basis? No, I think so, not really, not major shift has happened, what it was in the last quarter. I think so for those reasons, it is pretty much in the same in this quarter as well.

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Vikash Singh, PhillipCapital (India) Pvt. Ltd., Research Division - VP of Metals & Mining [30]

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So you are saying it's not very much skewed towards U.S.? It's evenly spread out across these geographies, right?

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [31]

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Absolutely.

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Vikash Singh, PhillipCapital (India) Pvt. Ltd., Research Division - VP of Metals & Mining [32]

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Yes. So sir, just one more thing. Just a little bit probing on the U.S. Next year November, there is an election in U.S., right? So usually, what we have seen at the election year is the decision-making goes for a little bit halt. So how do we see our performance of the mill going into the next year when they -- into the election year when majority of the CapEx [program] might be stalled for certain reason until the clarity [indiscernible] the winner?

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [33]

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It's -- you may have a view to that, but our -- what we are seeing on the ground, I don't think so that the CapEx cycle [indiscernible] the E&P companies, the ones we deal with is any way -- anywhere related to that aspect of it.

I think it is more related when someone from Canada has to do a job in America. Probably, he should be a little more worried about things. But if it is a U.S. interstate pipeline or interstate pipeline. I don't think so these things do -- they matter a lot there. People, people are going ahead. People understand the need for putting of these pipelines. And I think so they have understood that the U.S. has become a sort of a net exporter of both oil and gas at this point of time. And I think so that need -- they have understood the benefits of that irrespective of anyone who is there. I think so that, that policies, in my personal opinion, should continue. So that is what we are seeing on the ground. We are not seeing any slowdown because of that aspect of it.

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Vikash Singh, PhillipCapital (India) Pvt. Ltd., Research Division - VP of Metals & Mining [34]

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Okay. Sir, last time, also we haven't seen anything like that, right, in 2016?

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [35]

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We did not.

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Vikash Singh, PhillipCapital (India) Pvt. Ltd., Research Division - VP of Metals & Mining [36]

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Okay, okay. And sir, just one more question, if I may ask. So at this time, you haven't given the regional breakup of the order book of U.S., India and Saudi. So if you can provide the same?

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [37]

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Yes, yes. So let's say, we still have a pending order book of more than 0.5 million tonnes in Saudi, and it's around more than 600,000 tonnes in India and close to 200,000 tonnes in America. So that's what our order book currently says.

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Vikash Singh, PhillipCapital (India) Pvt. Ltd., Research Division - VP of Metals & Mining [38]

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Okay. And sir, lastly, you have paid the tax on the dividend, let's say, from the subsidiary. But even if I look at the standalone numbers, I don't see the other income jumping by that much. So where we have reported that dividend actually?

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Percy Birdy, Welspun Corp Limited - CFO [39]

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So the dividend has come from U.S.A. in the -- this first 6 months of the year, so you'll see the numbers in 6 months.

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Vikash Singh, PhillipCapital (India) Pvt. Ltd., Research Division - VP of Metals & Mining [40]

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Okay. Because other income on a standalone basis has jumped significantly in the first quarter, but the second quarter has been -- nothing has happened, only INR 39 crores, which is less than then the tax we have paid.

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Percy Birdy, Welspun Corp Limited - CFO [41]

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You are correct. Correct.

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Vikash Singh, PhillipCapital (India) Pvt. Ltd., Research Division - VP of Metals & Mining [42]

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So that is the first quarter we have received (inaudible) and we have paid the tax this quarter.

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Percy Birdy, Welspun Corp Limited - CFO [43]

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So September is the half year lease. So that's why the balance sheet has been prepared for September. And the impact on that tax has also been taken, tax on the dividend.

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Operator [44]

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Our next question is from the line of Sanjay Parekh from Nippon Life Insurance.

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Sanjay H. Parekh, Reliance Nippon Life Asset Management Limited - Senior Fund Manager of Equity Investments [45]

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Yes. Congratulations to the entire team, a great execution and great deleveraging and a good, clear payout policy. So really congratulations.

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [46]

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Thank you.

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Sanjay H. Parekh, Reliance Nippon Life Asset Management Limited - Senior Fund Manager of Equity Investments [47]

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One question. Yes, one question, while we lock in the [commodity price,] when we pick up the orders in U.S. and do we do the same in India also. But in Saudi, now that the raw material cost is much lower, would we consider risk management in terms of locking the raw material prices? Or you think that would not be the right thing? What would be your view on that?

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [48]

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I think that we would still like to continue with our existing policy of only locking the steel for 2 quarters, for a simple reason because one aspect, what we are also seeing despite all the restrictions, what has happened, China steel production has gone up by another 5%, number one. So which means that availability of steel in China is going to be much more than it was the last year. And that will continue to see a sort of a trend in which the likelihood of price going up is very unlikely, the price going down or prices remain stable is most likely.

So looking at that aspect of thing, I think so for the timing, we will still continue to with this particular policy. Having said that, as we have earlier told also that we keep a very, very hawk-eye on this aspect of it, and if we see anything changing around that. That -- that is a time we would like to calibrate our position.

But at this point of time, as we speak, I think so this will be a right policy to move ahead.

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Sanjay H. Parekh, Reliance Nippon Life Asset Management Limited - Senior Fund Manager of Equity Investments [49]

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This is helpful. The second question is the other thing, is this 20 million prospective bids -- can you just explain this? I mean, this, what would this be? This would be all the projects which are visible and for which we are already bid? How does the [indiscernible] very good long number, which experience the longetivity of the outlook for our business? So if you can give us more understanding of this 20 million prospective that will help us.

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [50]

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So 20 million bid book, Sanjay, typically is a consolidation of all the projects which have been announced or which are discussed or which are on the table, right? So we keep a complete track on that because that helps us in terms of looking at a large picture.

If we see a major, let's say, we look at 4 geographies and let's say, U.S., MENA, Europe, India and Southeast Asia. Let's say, we are looking at this top 5 geographies that we are looking at it, and we plot our bid book around that. If we see a major trend emerging out of that, that helps us in terms of calibrating our sales and the business development team to focus on that region.

So 20 million tonnes is basically is the combination of the projects which have been announced. [Or with the] company's intent -- they have shown their intention to agreement. So that is one part of it.

I think the most relevant and short-term relevant part of it, that's the active bid book, which is 2 million where we have participated, we have submitted a bid and bids under consideration. Our -- either the projects are into the FID or in the FEED state. So these are 2 optics we look at in terms of determining our way forward.

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Sanjay H. Parekh, Reliance Nippon Life Asset Management Limited - Senior Fund Manager of Equity Investments [51]

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Yes, this helps. And the last one is on the domestic part. What was -- like a steady business on a yearly basis. Now we have opportunities while City Gas is going through, are there a lot of new bids, which are going to come and we're going to invest? And also water in terms of Jal se Nal. So how do you see -- I mean, when do you see we should actually take off in terms of the volumes coming up, our [repletion] levels are still low, so we can significantly increase. I mean, what should be the time frame by which we can see meaningful growth in the domestic business because of these government projects?

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [52]

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See, the way it looks to us that domestic, while there are a lot of domestic projects which are announced. But I think that they are -- they would come in a very stable manner. Let's say -- let's talk one by one.

Let's talk, that currently, the focus is more on the development of gas grid by GAIL. So we are seeing -- for the last 2 years, we are seeing a consistent requirement of their projects coming up on the table, and we anticipate and we expect that a similar trend is going to be continuing for the next 2 years' time.

We look at the -- we are looking at IOCL for the oil grid. We are -- there, we are seeing a little increase for a simple reason because they are -- at this time, they have also gone ahead and they want to integrate the Northeast. And this government of India viability gap funding for the Northeast is also going to accelerate that program. So we see a growth in the expanding of higher cylinder requirement for pipeline coming up in a little more number than what it was in comparison to the last year.

Nal se Jal is under a design stage at this point of time. Eventually, it is going to happen, it's just a matter of time. I think so the government metrics around that probably what we understand is being [built] out. But I'm sure that everyone understands that this is going to be a game changer.

But by the time the Nal se Jal things comes up, you know the steady demand for irrigation. The pipes of water sector for irrigation purpose is consistent. It is growing at a normal pace, and we have a large [presence] there.

So all in all, if you look at India, I think so the growth has been -- there has been a growth. It has not been a very significant growth, but it has been a slowly -- slow incremental growth which is happening, and that's what we are seeing that it will continue to happen for the next 2 or 3 years time.

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Sanjay H. Parekh, Reliance Nippon Life Asset Management Limited - Senior Fund Manager of Equity Investments [53]

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Again, congratulations to the entire team for great set of numbers.

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [54]

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Thank you, Sanjay.

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Operator [55]

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Our next question is from the line of Sangam Iyer from Consilium Investment.

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Sangameshwar Iyer, Consilium Investment Management LLC - Senior Consultant for Investments in South Asia [56]

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Yes. I just wanted to -- a small clarification. Last quarter, we did say that there were a couple of one-offs in the U.S. reported EBITDA per tonne, resulting in the EBITDA going north of 220 million, 20 per tonne. This quarter, also it's at a similar kind of a level. So could you help us out? Whether there's any one-off this quarter as well in the U.S.? Or is it purely the product mix that has helped the EBITDA to be north of $300 per tonne?

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Percy Birdy, Welspun Corp Limited - CFO [57]

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So I think it's largely to do with the project mix. And then each quarter, obviously, there are some projects which are more profitable, relatively speaking. Also, there have been some logistics revenue, which has been booked in the past also. So we are saying that for the second half of the year, it's more like $250 a tonne is what is looking more probable to us.

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Sangameshwar Iyer, Consilium Investment Management LLC - Senior Consultant for Investments in South Asia [58]

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Okay. And India this quarter, I mean, as compared to last quarter, where we were just about maybe breakeven at the EBITDA level. This quarter, we have seen quite a bit of jump on the -- at the EBITDA level. So is this because of the change in mix? And also to the fact that we have started supplying to the North American -- exports to the North American countries? Or what exactly is the contributors here for the expansion of the EBITDA per tonne for the Indian operations.

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Percy Birdy, Welspun Corp Limited - CFO [59]

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The first reason is, of course, the volume growth in Q2 compared to Q1. So the volume was very low in Q1 because of the -- this economic scenario that was prevailing in the country in that April to June period. So volumes have now started picking up from Q2 onwards. And we have large export orders also which are production has happened, and we'll be booking the sales starting from Q3 onwards.

So you will see that India, the second half of the year is going to be significantly better than the first half of the year.

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Sangameshwar Iyer, Consilium Investment Management LLC - Senior Consultant for Investments in South Asia [60]

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Okay. So [indiscernible] assume a similar kind of an EBITDA per tonne like what we are looking at for the Saudi operations. So from India, given that the mix is changing more towards exports and also the fact that a lot of this production is already done, and it's just the billing part is pending here in the second half?

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Percy Birdy, Welspun Corp Limited - CFO [61]

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So you'll see a substantial volume improvement also in India in the second quarter, and which will have a part of export business as well. So you will see India numbers benefiting from both sides, the volume numbers as well as the EBITDA per tonne.

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Sangameshwar Iyer, Consilium Investment Management LLC - Senior Consultant for Investments in South Asia [62]

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Got it. Got it. And a couple of important points that came out during the call today were that you have upgraded both the visibility on EBITDA per tonne for all the 3 operations basically, India, U.S. and Saudi. So what could be the risk here to this upgrade that we have provided in terms of outlook for the EBITDA per tonne?

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Percy Birdy, Welspun Corp Limited - CFO [63]

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Your question is for Saudi? Or...

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Sangameshwar Iyer, Consilium Investment Management LLC - Senior Consultant for Investments in South Asia [64]

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For all the 3, given that earlier we use to talk about U.S. being closer to $200 per tonne, now it's moved to $250 per tonne. Saudi used to be closer to $90 per tonne to $100 per tonne, now it's around $150 per tonne. India has also moved up significantly.

And so I understand that there's plenty of visibility that's available now, which is giving us the confidence for the second half. But any outside chance of risk that one should keep in mind, just in case?

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Percy Birdy, Welspun Corp Limited - CFO [65]

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I think so -- all...

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [66]

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This is Vipul Mathur. I'll take this. Let's say from a guidance perspective, what you've factored, whatever we have revised our guidance -- a slight revision in the guidance. This is because what we have seen. And this is all coming [out] because of the confirmed order book what we have.

So from a risk perspective, I don't see that too big a challenge around that. I think so it is all about our operational performance, if we continue to perform and we continue to produce and deliver. I think these are fairly achievable and achievable numbers.

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Sangameshwar Iyer, Consilium Investment Management LLC - Senior Consultant for Investments in South Asia [67]

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Got it. And so finally, as one of the participants did ask about the large orders that are there in the U.S., be it from the Kinder Morgan or the Liberty Pipelines, et cetera, how would you -- any time line in terms of by when we will expect it?

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [68]

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See, we -- it is not only the 1 or 2 projects, what you are referring to at this point of time. They also happen to be one of the projects there. And -- but I think so we are engaging much more projects than what has been referred to. I think so at this point of time, it is close to 6, 7 projects we are looking at and working around that. It would -- and they are at a different stage of being under consideration and under finalization.

The fact of the matter remains, we do not want to put on ourselves any stress in terms of giving us sort of a time line because our objective is not to book an order. Our objective is to book a -- cherry-pick an order which can come -- or which can bring a sort of a qualitative input into our order book. So that's what we are looking at, at this point of time.

So defining a time line that will (inaudible) something, it's not that what we are looking at.

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Operator [69]

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Our next question is from the line of Dhananjay Mishra from Sunidhi Securities.

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Dhananjay Mishra;Sunidhi Securities;Analyst, [70]

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Congratulations on a very strong operating performance. Sir, what was the actual dividend amount we have received on which we have paid for [indiscernible] tax on the U.S. [operation.]

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Percy Birdy, Welspun Corp Limited - CFO [71]

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So that was USD 35 million.

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Dhananjay Mishra;Sunidhi Securities;Analyst, [72]

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$35 million...

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Percy Birdy, Welspun Corp Limited - CFO [73]

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35, 3-5.

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Dhananjay Mishra;Sunidhi Securities;Analyst, [74]

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Okay. So close to INR 210 crores, right?

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Percy Birdy, Welspun Corp Limited - CFO [75]

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If you take it at the rate of 70, then that comes to about INR 245 crores.

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Dhananjay Mishra;Sunidhi Securities;Analyst, [76]

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And -- okay, INR 245 crores. And how we have booked it in Q1 and Q2, a break up of it?

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Percy Birdy, Welspun Corp Limited - CFO [77]

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So in consolidation we are -- dividend coming from subsidiaries doesn't come at all anywhere. However, the tax on dividend appears on the consolidated financials also. So that's why the effective tax rate, if you notice for this H1, effective tax rate is almost at 42 percentage as a percentage of PBT and the impact is of this tax on dividend.

So if you remove the INR 42 crores of tax on dividend, then our effective tax rate for H1 is about 30 percentage, which is what you would say 28 to 30 percentage is what the normalized tax rate would be for our consolidated numbers.

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Dhananjay Mishra;Sunidhi Securities;Analyst, [78]

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And so are we moving towards a new tax regime of [25.12]%? Or we are turning to...

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Percy Birdy, Welspun Corp Limited - CFO [79]

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So as of now, see there are -- we have [net] credits which are carried forward. So we don't see that immediately affecting us until we are able to utilize these net credits. After which, of course, we can look at the concessional new regime.

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Dhananjay Mishra;Sunidhi Securities;Analyst, [80]

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And so this is large export order, which we could not bill, what was the quantum of that export order and for which country it was [indiscernible]

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Percy Birdy, Welspun Corp Limited - CFO [81]

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So it's to North America, and we will start seeing the sales ramping up from December quarter onwards. So you will see a 20,000, 25,000 tonnes coming up in Q3 and then higher volumes coming up in Q4. So gradually it will ramp up, and the full execution, of course, it goes into -- well into next fiscal year as well.

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Dhananjay Mishra;Sunidhi Securities;Analyst, [82]

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Okay. So I mean, if you close to 1 lakh in inventory addition, 1 lakh tonne of inventory addition in this quarter. So I'm just asking what was the contribution from this -- because of (inaudible) which could not materialize in this quarter.

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Percy Birdy, Welspun Corp Limited - CFO [83]

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So you're right. Substantial inventory is for this production of this export order. However, the one thing we should highlight is that this has been self-funding also. So our terms with the customer has been such that we also receive advances from customers. So while the inventory number has gone up, similarly, you'll notice that the advances from customers has also gone up. So in that sense, the net working capital impact has been mitigated.

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Dhananjay Mishra;Sunidhi Securities;Analyst, [84]

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Okay. And sir, lastly, regarding our -- this EBITDA margin guidance, which earlier we used to talk about $200 from the U.S. operation or about $100 from our joint venture and close to INR 5,000 for -- in India operations.

So but this quarter, we see, even if I take $250 EBITDA for U.S. operation, it gives me about 9,000 [indiscernible] EBITDA for India operations. So it -- because of this export bump up or we have the [peak] from domestic operation or (inaudible) sustainable in longer term?

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Percy Birdy, Welspun Corp Limited - CFO [85]

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So if you look at the H1 numbers, and we prefer to look at H1 because there are some quarterly fluctuations which keep happening due to project mix.

So if you look at our H1 numbers, then our EBITDA in U.S. has been substantially strong. You're right. For the second half of the year, we are guiding conservatively at about $250 a tonne for U.S.

As far as India is concerned, for the second quarter -- sorry for the second half of the year, you're looking at about $80 to $85 per tonne. And for Saudi, we can say that it's close to about $150 per tonne for the H2.

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Dhananjay Mishra;Sunidhi Securities;Analyst, [86]

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Because what you have reported in the [indiscernible] that is 14,308. So if I take...

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Percy Birdy, Welspun Corp Limited - CFO [87]

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That's the blended EBITDA?

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Dhananjay Mishra;Sunidhi Securities;Analyst, [88]

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Yes, the blended EBITDA for U.S. and India put together, right?

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Percy Birdy, Welspun Corp Limited - CFO [89]

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That's right. That's right.

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Dhananjay Mishra;Sunidhi Securities;Analyst, [90]

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And if you take $250, that is close to 17,000 we are doing from U.S. operations. And we are doing similar -- slightly bigger volume for India operations, like 1.2 lakh tonne we have done. So it comes around 9,000 -- close to 9,000 [indiscernible] [500] tonne India -- from India operations. So is it sustainable in longer term, because we have been guiding about 5,000, 6,000 tonne EBITDA?

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Percy Birdy, Welspun Corp Limited - CFO [91]

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So in India, as we said, that we are looking at $80 to $85 a tonne. And this is mainly due to the export orders, which are getting executed in second half of the year. So in Q3 and Q4, we spoke about a minute ago also the large export orders which are getting executed. So that will help the India EBITDA to shore up to $80 to $85 per tonne for the second half.

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Dhananjay Mishra;Sunidhi Securities;Analyst, [92]

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Can we have some growth in volume term in India operations? Because last year, we did about 630 KMT. And this first 2 -- first half numbers are like we have already growth, 20% in this quarter and almost 50% in last quarter. So can we expect a flattish kind of volume growth? Or there will be some decline in there in this?

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [93]

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We are broadly looking around the same -- broadly looking at the same growth level what we were there. As I said, that the India operations are more or less stable. It's growth and everything has been fairly -- very marginally incremental here, because of the mix of the projects, what we see here.

So it is -- so we feel confident that we should be able to maintain the same growth, if not more.

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Operator [94]

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We'll take our next question from the line of Tushar Pendharkar from Ventura Securities.

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Tushar Pendharkar;Ventura Securities;Analyst, [95]

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Congrats for the good set of numbers. My question is related to that write-off which you took a couple of quarters back on [indiscernible] So any progress in that? Because you mentioned that any recovery from that will be the exceptional gain for the company.

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Percy Birdy, Welspun Corp Limited - CFO [96]

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Yes, you're right. Any gain will be an exceptional gain, but I think, as you all know from [indiscernible] presentation made to the (inaudible) and to the management, the process is still on. They have received some bid for the road projects, which are likely to be opened very, very shortly. And we understand that the project that we hold, which is (inaudible), the bid is decent enough, although we haven't still got the numbers from IL&FS. Initial indication is that they should cover the secured lender, and we are a secured lender.

So once the bid would be out and once the CoC meeting takes place and the bid gets accepted, then of course, there would be a write-back.

As far as Reliance is concerned, we have got all of our interest and everything serviced till date. There has been no default, although the rating has been downgraded. So we are watching the situation very closely. Reliance has already exited their AMC business. They're also in the process of exiting their insurance business.

So all in all, I would guess that we'll have to wait till the end of the financial year, not before March '20, till we see the resolution of some of these outstanding positions.

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Tushar Pendharkar;Ventura Securities;Analyst, [97]

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Okay, okay. So by end of this year, we will get some clarity how much funds we can recover from these 2?

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Percy Birdy, Welspun Corp Limited - CFO [98]

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Yes. Based on the actions that these companies might be taking, we would be in a position to make the necessary write-back into the books.

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Operator [99]

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We'll take our next question from the line of [Sachin Kasera] from [Swan Investment].

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Unidentified Analyst, [100]

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Congrats for the good set of numbers. So first question on the debt. You mentioned that the debt reduction was a little lower because of some of the working capital issues regarding the [indiscernible] So how much we should take as the impact for the first half on the debt reduction because of this -- some (inaudible)?

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Percy Birdy, Welspun Corp Limited - CFO [101]

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So net debt has been almost at the same level of June. So we are at about INR 196 crores, INR 197 crores. But of course, compared with March, our debt has come down. And our target, that by March '20, we want to be a zero net debt company. So that target remains for us.

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Unidentified Analyst, [102]

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Okay. No, but if we are going by whatever you're estimating in terms of volumes and EBITDA, then unless until we are seeing some significant increase in working capital, our cash flow [indiscernible] shouldn't be far stronger than what we are guiding as of now?

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Percy Birdy, Welspun Corp Limited - CFO [103]

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Exactly. So what will happen is now in Q3, Q4, the export order from India will also start getting executed. So we will see that improvement in the working capital. And that will help us in reduction of debt also.

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Unidentified Analyst, [104]

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Okay. Secondly, sir, on the India operations, what was the EBITDA for the first half, since you said first half would be a better way to look at the numbers?

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Percy Birdy, Welspun Corp Limited - CFO [105]

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So the EBITDA for India in the first half, we are looking at about INR 60 crores to INR 70 crores, which was our first half EBITDA number, which is, of course, are available to you in the standalone numbers also. So it will be visible there.

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Unidentified Analyst, [106]

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Sure. And what was the India volume for the first half here?

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Percy Birdy, Welspun Corp Limited - CFO [107]

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India was 191,000 tonnes.

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Unidentified Analyst, [108]

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191,000, okay. So second one is the dividend thing. So you mentioned that we got $35 million from dividends from the subsidiary. And which means -- and you said that if you give us interim dividend then we'd get a set-off. So basically, the parent company should declare a $35 million dividend to get the entire set-off?

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Percy Birdy, Welspun Corp Limited - CFO [109]

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So the set-off would be available versus the dividend distribution tax. So you're right. If we declare instead of entire, say half, 50% of the amount, then we'll get set-off to the 50% of the extent.

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Unidentified Analyst, [110]

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Yes. But I think supposed technically, you want to get the 100% benefit, then we have to declare $35 million of dividend.

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Percy Birdy, Welspun Corp Limited - CFO [111]

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Yes. That's right. That's right.

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Unidentified Analyst, [112]

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And the $35 million is including the dividend distribution tax.

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Percy Birdy, Welspun Corp Limited - CFO [113]

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No. So $35 million is a gross figure. So the way it works is that there's a withholding tax in U.S.A. of 15%. So $35 million, less 15% withholding tax is the money, that net amount comes to India.

Then in India, under the specific section under tax [indiscernible] the rate is applicable at 17.5%. So the differential, 2.5%, we have to pay the tax in India. So on a consolidated basis, we have paid 17.5% tax on the $35 million of gross dividend.

Now as and when we declare dividend to Indian shareholders, we'll be able to get the set-off of this 17.5% tax, which is the amount is INR 42 crores, we'll be able to a set-off against the dividend distribution tax.

In other words, we don't have to pay twice. We don't have to pay income tax, plus dividend distribution tax. We need to pay only once.

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Unidentified Analyst, [114]

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Got it. Got it. And this [indiscernible] you mentioned that because of exports, margins are starting to improve and second half will be a little better. So this is like a one-off phenomena? Or now the way we are looking at India operations, exports will continue to be a decent portion, and that's why the trajectory for India operation next 2, 3 years should be higher EBITDA margin?

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Percy Birdy, Welspun Corp Limited - CFO [115]

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Well, we are very hopeful.

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [116]

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There's a blend of export and then domestic will continue in the future. As I said, that the demand, both for the domestic and the export, is looking fairly consistent. So we are very hopeful that we should be able to maintain -- obviously, our endeavor would be to maintain this product mix in going forward as well.

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Unidentified Analyst, [117]

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So this year, around [600] trajectory you intend to do in India, exports should be like 20%, 25% of that sir?

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [118]

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Close to that. Yes, you're right.

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Operator [119]

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Our next question is from the line of [Amit Jain] from (inaudible).

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Unidentified Analyst, [120]

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Congratulations on an outstanding set of numbers. I have a couple of questions. First is regarding the trade receivables on a consolidated basis. It decreased almost 50%. So what was the main reason for that?

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Percy Birdy, Welspun Corp Limited - CFO [121]

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To some extent, we have also received the advances from customers. And as these sales get executed, to that extent, the advance received from customers, which is a liability, gets adjusted with the receivable figure also.

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Unidentified Analyst, [122]

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Okay. So going forward, are trade receivables going to be at this level? Or it will be at a previous level? Because from FY '19 balance sheet, we can see that trade receivables has been like around INR [1,400] crores and currently also it's around INR [1,800] crores. So it has increased from FY '18 levels because of Ind AS maybe. So going forward are trade receivables going to be at this level, around INR 600 crores or INR 700 crores only, as compared to previous?

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Percy Birdy, Welspun Corp Limited - CFO [123]

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Yes. So on the whole, we are looking at about 25 days of working capital cycle, which is a mix of, of course, debtors and inventory put together. From a quarter-to-quarter, it will keep fluctuating depending on when the sale has happened. So if the sale is happening towards the end of the quarter, you would find that much to that extent, the debtors going up and inventory coming down. So we would guide you better to look at the cash conversion cycle. So the net cash conversion cycle you can look at is about 25 days on a sustainable basis.

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Unidentified Analyst, [124]

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Sustainable basis?

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Percy Birdy, Welspun Corp Limited - CFO [125]

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Yes.

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Unidentified Analyst, [126]

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Okay. And I wonder, can I -- can you provide me the capacity, how much we have in the Saudi?

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [127]

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So our capacity in Saudi is close to 375,000 tonnes.

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Unidentified Analyst, [128]

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375,000 tonnes?

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [129]

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[indiscernible] And -- but these are -- and there's also always a caveat. These capacities are on a particular size and a particular diameter and thicknesses, but they have a possibility of jumping, because if you use a bigger diameter and a heavy wall thickness, these capacities can go up and down as well accordingly. But yes, on a theoretical basis, it's close to 375,000 tonnes.

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Unidentified Analyst, [130]

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375. Because for the past 2 quarters, you are doing more than 100% of the capacity in [indiscernible] And going forward also, our guidance or something, is it around more than that itself?

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [131]

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We are very hopeful of that.

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Unidentified Analyst, [132]

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Okay. And last thing is in India. The CGD, the City Gas Distribution, are you seeing any bidding or traction coming in from that? Or the bidding has been started for the last 9, 10 rounds?

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [133]

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We are seeing significant traction. In the last quarter, we were in an active engagement. In this particular quarter, when we are talking, I think we have some orders coming under the CGD as well. And as we move forward, I think so this portfolio is only going to increase. That we are very confident around that.

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Operator [134]

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We'll take our next question from the line of Bhavin Chheda from Enam Holdings.

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Bhavin Chheda, Enam Holdings Pvt. Ltd - Analyst [135]

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Congrats on a good set of numbers. So few questions. One is on the withholding tax, which is paid on U.S. So what is the time line within which you are to offset? Is it in the fiscal? Or you get a full 12 months from the tax amount paid, if you can update on the regulation regarding there?

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Percy Birdy, Welspun Corp Limited - CFO [136]

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So Bhavin, we believe it is in the same fiscal year.

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Bhavin Chheda, Enam Holdings Pvt. Ltd - Analyst [137]

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So it's in the same fiscal year.

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Percy Birdy, Welspun Corp Limited - CFO [138]

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Yes.

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Bhavin Chheda, Enam Holdings Pvt. Ltd - Analyst [139]

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Okay. Next is what I believe is that the -- if I see your standalone and consolidated numbers, the dividend income from U.S. was booked in Q1, but the tax is paid in Q2. So there will be just a timing difference, that you have taken a tax in the current quarter, while dividend income was taken in Q1?

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Percy Birdy, Welspun Corp Limited - CFO [140]

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So what happens is in Q1, this has gone through results. While now balance sheet has been made, only half yearly as per the requirement. So now when the balance sheet is being made, that's when it is coming up in September.

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Bhavin Chheda, Enam Holdings Pvt. Ltd - Analyst [141]

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Okay. And this is not just a provision. INR 42 crores is actually the cash tax which has been paid in the U.S.? And you said [they even] withhold 15%. So actual money has moved, cash tax payment is paid in U.S. and actual money has moved from U.S. to India, right?

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Percy Birdy, Welspun Corp Limited - CFO [142]

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That's right.

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Bhavin Chheda, Enam Holdings Pvt. Ltd - Analyst [143]

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Okay. Second thing, what would be the debt gross borrowing numbers in Saudi, one? And how much would be the external debt there? And how much is payable to India standalone operations? And since now Saudi has been making a lot of money, so any update on the shareholder loans from Welspun standalone getting repaid from Saudi operations? And if any tax impact at all on how to distribute the Saudi cash flows?

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Percy Birdy, Welspun Corp Limited - CFO [144]

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Yes. So the external debt in Saudi as of September is just maybe SAR 490 million. And then there are shareholders' loans which are there from both the partners. So we are looking at various alternatives and options, so that as the debt starts coming down, we get the shareholders' loans also paid back.

And of course, the Saudi's performance, as you can see, is doing phenomenally well. So I think we should be on track to achieve this.

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Bhavin Chheda, Enam Holdings Pvt. Ltd - Analyst [145]

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Sure. Any number on shareholder loans. From partners, is how much?

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Percy Birdy, Welspun Corp Limited - CFO [146]

--------------------------------------------------------------------------------

Yes. It's approximately about SAR 180 million.

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Bhavin Chheda, Enam Holdings Pvt. Ltd - Analyst [147]

--------------------------------------------------------------------------------

Combined of both partners, right?

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Percy Birdy, Welspun Corp Limited - CFO [148]

--------------------------------------------------------------------------------

Yes.

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Bhavin Chheda, Enam Holdings Pvt. Ltd - Analyst [149]

--------------------------------------------------------------------------------

So SAR 90 million, SAR 90 million would be the...

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Percy Birdy, Welspun Corp Limited - CFO [150]

--------------------------------------------------------------------------------

Correct. Yes, right.

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Bhavin Chheda, Enam Holdings Pvt. Ltd - Analyst [151]

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Okay. And any chances of dividend distribution from Saudi operations? And if any, what's the tax impact if Saudi starts paying dividend? What are the tax laws there?

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Percy Birdy, Welspun Corp Limited - CFO [152]

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So there will be a withholding tax in Saudi also of about 5 percentage. And then the Saudi dividend would go first to our holding company in Mauritius. But we would first prefer to do the withdrawal by repayment of shareholders [indiscernible]

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Bhavin Chheda, Enam Holdings Pvt. Ltd - Analyst [153]

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Shareholder [indiscernible] Basically, Saudi cash flows has to first go for the repayment of shareholder loans, right?

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Percy Birdy, Welspun Corp Limited - CFO [154]

--------------------------------------------------------------------------------

That would be more tax efficient.

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Bhavin Chheda, Enam Holdings Pvt. Ltd - Analyst [155]

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Okay. And this SAR 490 million, the external debt, how much is the term loan there and working capital there?

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Percy Birdy, Welspun Corp Limited - CFO [156]

--------------------------------------------------------------------------------

So the term loan is about SAR 90 million and remaining is the working capital.

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Bhavin Chheda, Enam Holdings Pvt. Ltd - Analyst [157]

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Remaining is working capital. Okay. And just on the one number, is just how much was the IL&FS number we had written off? And how much is the Reliance Capital number we had already written off? There may be some chances of repayment before the end of the fiscal?

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Percy Birdy, Welspun Corp Limited - CFO [158]

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So total of around INR 280-odd crores is the capital gain provision that we have -- capital loss provision that we have created, including the M2M. So IL&FS alone was around 130, 40 plus...

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Unidentified Company Representative, [159]

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(inaudible)

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Percy Birdy, Welspun Corp Limited - CFO [160]

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Yes, (inaudible), including (inaudible) I'm just adding...

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Unidentified Company Representative, [161]

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116.

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Percy Birdy, Welspun Corp Limited - CFO [162]

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116 is IL&FS.

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Bhavin Chheda, Enam Holdings Pvt. Ltd - Analyst [163]

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116 is IL&FS.

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Percy Birdy, Welspun Corp Limited - CFO [164]

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Yes, IL&FS family, [indiscernible]

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Bhavin Chheda, Enam Holdings Pvt. Ltd - Analyst [165]

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Total IL&FS was 116 and how much was [Zorba]?

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Percy Birdy, Welspun Corp Limited - CFO [166]

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[Zorba] was 47.

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Bhavin Chheda, Enam Holdings Pvt. Ltd - Analyst [167]

--------------------------------------------------------------------------------

47, and this was the 100% exposure to that, which was written off, right?

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Percy Birdy, Welspun Corp Limited - CFO [168]

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Yes. So 100% exposure, which was written off.

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Bhavin Chheda, Enam Holdings Pvt. Ltd - Analyst [169]

--------------------------------------------------------------------------------

Okay. And Reliance was...?

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Percy Birdy, Welspun Corp Limited - CFO [170]

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Reliance is another 93 plus 26. So you can say almost 120 crores for Reliance.

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Bhavin Chheda, Enam Holdings Pvt. Ltd - Analyst [171]

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This also 100% exposure.

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Percy Birdy, Welspun Corp Limited - CFO [172]

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100% it is off -- exposure written off, yes.

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Operator [173]

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Our next question is from the line of Sangeeta Purushottam from Cogito Advisors.

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Sangeeta Purushottam;Cogito Advisors;Analyst, [174]

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Congratulations for a great set of numbers. My question was that could you give us a guidance in terms of what is the CapEx that you are likely to incur in the next 2 years? That's one. The second is a housekeeping question. The revenue growth was a little less than the total volume growth. Is that because of a mix effect in the product?

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [175]

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So on the CapEx side of it, the only CapEx what we are currently committed to is the one, which is on our Bhopal side, we have done the Phase 1 of our CapEx. Currently, we are doing the Phase 2, which is the coating plant, and that would be also up and running by the end of -- within this financial year.

Barring that, CapEx -- all that CapEx, what we are forecasting at least in the next year is all maintenance CapEx. At this point of time, we have no other plans to make any significant CapEx investment other than this maintenance CapEx, which is close to INR 100-odd crores on a year-on-year basis across geographies. So that's on the CapEx side of it.

On the revenue side of it, can you just (inaudible)?

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Percy Birdy, Welspun Corp Limited - CFO [176]

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I think it's a mix of geographies that is just playing over here. So if you look at the revenue numbers, then for the half year, we have a 14% growth in the top line.

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Sangeeta Purushottam;Cogito Advisors;Analyst, [177]

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Yes. No, I was talking about the quarter. You have a 5% growth in revenue and I think an 11% growth in volume.

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Percy Birdy, Welspun Corp Limited - CFO [178]

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Yes. But this is driven by the geography mix, project mix. So I think it's -- again, at the end of day it's a project business. So you'll find this type of things.

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Sangeeta Purushottam;Cogito Advisors;Analyst, [179]

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Okay. And given that, just coming back to my first question. Given that the CapEx is going to be fairly muted, does that mean that the existing capacities that you have are more than enough for any volume growth that you will see going forward?

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [180]

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I think so. For the timing, we are still at -- if you look at our sort of a broad -- average capacity utilization, our U.S. facility is around 85%, 90% utilization. Saudi is around 90% utilization. India is a little low, but if we do a sort of a blend. I think so we are almost around 60 -- 60%, 65% capacity utilization. So there's still a sufficient upside for us to do more volume and volume growth is possible.

So I mean, that's one of the reasons that we are not very keen or particular in any subsequent CapEx in this -- in the coming year.

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Sangeeta Purushottam;Cogito Advisors;Analyst, [181]

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Right. So will you be generating a fair amount of free cash, particularly once the sale proceeds come in and the debt has been repaid. So you'll see an interest cost reduction as well. What is your thinking right now in terms of the dividend policy?

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [182]

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Our direction from the Board is very, very clear, that a -- whatever free cash flow is getting generated in the order of priority, first, the debt has to be reduced. Secondly, then it will -- that it has to wait -- it may not be brought into any immediate CapEx. And third, is the most important is it has to go back to the shareholders.

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Percy Birdy, Welspun Corp Limited - CFO [183]

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And the buyback is a...

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [184]

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The buyback, if you see the buyback is what we have opened yesterday. This is (inaudible).

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Operator [185]

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Our next question is from the line of [Kesha Gurk] from [Equity Mechanic].

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Unidentified Analyst, [186]

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Sir, I wanted to understand is that way back in 2011, in 2010, so we did almost INR 1,300 crores of operating profit. And now our sales level is at an all-time high. But our operating profit is like 1/3 of what we did, or 1/2 of what we did way back like 9 years back. So what's the reason for the decline in margins?

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [187]

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At that point in time, I think that a large quantity of business we were doing with U.S. It was more exports and we were supplying extensively to U.S. at that point of time. So that is what, those days, we were seeing those types of margins. So over a period of time, definitely it has declined. Now we can't supply to U.S. [either way, so here.]

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Percy Birdy, Welspun Corp Limited - CFO [188]

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But we are almost coming back to the similar situation. The H1 EBITDA was around INR 5,572 crores. (sic) [INR 5,754 crores.]

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [189]

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(inaudible)

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Percy Birdy, Welspun Corp Limited - CFO [190]

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Which is quite high looking at the preceding number of years. So I think slowly slowly we are inching towards that.

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Unidentified Analyst, [191]

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Okay, the answer also I wanted to understand so that globally, so how is the demand-supply situation looking like? Are there any big plants coming up, like let's say for example in China, which might lead in future to a (inaudible) in the market and then a pressure on realization?

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [192]

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We are not seeing any such thing. We don't see that any major -- they have some plants which have come up. There has been a new plant, which has come up in Middle East. But they are small, like they are 200,000 tonnes capacity.

So to that extent, there would be a little bit of a disruption. But I mean, are we looking at something major, which is happening in China, and it is going to disturb or move the needle significantly? At least we are not seeing anything of that sort.

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Unidentified Analyst, [193]

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And sir, (inaudible) pipe manufacturing companies. So how do we differentiate ourselves? So basically, what is our USP? What is our main strength there?

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [194]

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We -- our biggest USP is our approvals and accreditations. If you see that we are approved and accredited by who's who of the world. And I think so this is -- this positions us in 1 of the top 3 or 4 players in the world. And that's our biggest USP.

And if you see, importantly, any project anywhere in the world, which is of any critical importance, I think, so I'm very proud to say that Welspun is always discussed there. Whether we are successful or not, that's a different issue, but we are definitely on the table participating.

I don't think so not so many companies in the world can boast around that.

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Operator [195]

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We'll move to our next question. That's from the line of Sangam Iyer from Consilium Investments.

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Sangameshwar Iyer, Consilium Investment Management LLC - Senior Consultant for Investments in South Asia [196]

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Sorry, I just wanted a clarification on the dividend part (inaudible).

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Operator [197]

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I am sorry to interrupt. Could you please use the handset and speak? We are not able to hear you clearly.

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Sangameshwar Iyer, Consilium Investment Management LLC - Senior Consultant for Investments in South Asia [198]

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Yes. I just wanted a clarification on the dividend part, which I think (inaudible) last time you have clarified. So thank you. My questions are answered.

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [199]

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Thank you.

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Operator [200]

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Our next question is from the line of [Sachin Kasera] from [Swan Investments].

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Unidentified Analyst, [201]

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So just one question on Saudi. You said that the first preference would be to take out the loans that is there from the promoter. Now sometimes, there are covenants that the promoters cannot take out the loan until external debt is repaid. So do you have any such covenants in the Saudi operations where you first need to repay the [term loans] and then only we can [withdraw] the loans from the promoters? Or there is no such covenants?

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Percy Birdy, Welspun Corp Limited - CFO [202]

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Yes. So to be fair, we are still examining this issue, and we are working at it. So I think it will take us some time to come to an answer. But our objective is to do it in the most tax efficient manner, and that's what we will do.

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Unidentified Analyst, [203]

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No. That sir, one is the [tax financing] purely from a covenant point of view? Is there a covenant that the promoters cannot [withdraw] the loans in the [term loans] of the banks?

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Percy Birdy, Welspun Corp Limited - CFO [204]

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All these things have to be discussed and negotiated with the banks. So we are in the process of discussing with the banks.

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Unidentified Analyst, [205]

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Sure. And just lastly, so now there's no more provisions left as far as the treasury is concerned, right, for this quarter, we have seen no provisions?

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [206]

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That's right. So it's all -- all covered, all done, all covered here. And (inaudible) that may come up, it will be in [future] rather than any large number.

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Unidentified Analyst, [207]

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And so last call, you had mentioned that one of the things that we are looking is to not have a large debt and large [treasury] rather than have a much lower gross rate itself. So in that case, while you are reporting that net debt is very comfortable, are we looking in terms of prepaying some of the gross debt also in the second half?

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Percy Birdy, Welspun Corp Limited - CFO [208]

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Yes, yes. We are putting first to reduce our debt as much as we can, and we are into discussion with all the lenders also where there could be a (inaudible) for prepayment penalty to be waived.

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Unidentified Analyst, [209]

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Okay. And lastly, how is the bid pipeline in India on the water side? Are you starting to see some large tenders being floating? Or still some time away?

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [210]

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No, we are seeing, as you know, water is a basically a state business. And as Welspun, we are present in the West and we are now present in the South and now we are also present in Central India. I think so we are seeing a very consistent flow of inquiries coming into in all the 3 regions.

And let's say, our Bhopal plant is almost booked for the -- the plant in Central India in Bhopal is almost booked for the full of this financial year. Our plant even in South, which is in Mandya, is also booked for this financial year.

So we are seeing consistent flow of inquiries coming there. So water seems to be doing the way as we predicted.

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Unidentified Analyst, [211]

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The full benefit of the Bhopal [indiscernible] should be visible in second half or in FY '20?

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [212]

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Full benefit in a way means?

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Unidentified Analyst, [213]

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The plant that we put up in Bhopal. The full benefit of that we should see in the second half of the year or FY '20?

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [214]

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Yes, yes. That will -- we should see that.

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Operator [215]

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Our next question is from the line of Amit Dangi from Mentor Capital.

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Amit Dangi;Mentor Capital;Analyst, [216]

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Congratulations for such a good set of performance. Just one thing is needed. Just wanted to understand that where we see that coming 2, 3 years from Indian operations?

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [217]

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The India operation is 2 components. Number one, India operations for which production and supplies are made within India, I think so there, our view is very -- that it is going to be fairly constant. I don't think that there's going to be a significant upside, but is there going to be a downside to it, the answer is no. So Indian operations to be executed within India looks very positive to us. That's our personal view around the Indian market.

Having said that, the second part of the India operation is also export, right? And that is where we see that there are great opportunities for Welspun, because of our approval and accreditations and our past track records and our relationship with all the major E&Ps. So our focus will -- the growth volume probably will come out of exports.

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Amit Dangi;Mentor Capital;Analyst, [218]

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So is it fair to assume for the coming years, that 10% to 15% from here volume growth on an annual basis, say 7 lakh tonnes or 7 to 7.5 lakh tonnes in coming years?

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [219]

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I would love to do that. I mean, but you have to understand that it's a project business and timing -- it's all about timing. It is all about being present. So our (inaudible).

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Amit Dangi;Mentor Capital;Analyst, [220]

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[indiscernible] Bhopal, I think we are going to start operations in H2 and all.

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [221]

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Bhopal has already started. Bhopal operations have already started, and it is ramping up at this point of time. I think so in the last question we answered, that the benefit of that would start coming -- you will see the benefits coming in H2. But from an operation point of view, it has already started.

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Amit Dangi;Mentor Capital;Analyst, [222]

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Okay. And [indiscernible] asking, sir, but how much conversion we're seeing in the bid book, that is 2.5 million tonnes, how much conversion we see that in converting into order book of Welspun (inaudible) from the past experience?

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [223]

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Let's say, I think to the answer to that lies that what is our good book -- order book at any point of time. If you see historically, we have in the last 6 quarters, we have been able to maintain a sort of an order book between 1.3 million to 1.7 million tonnes. So this is largely what we are able to convert from the active bid book. And I'm sure that we will be able to maintain similar levels, if not exceeding them.

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Operator [224]

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Our next question is from the line of Govind Saboo from IndiaNivesh.

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Govind Saboo, IndiaNivesh Limited - Head of Merchant Banking [225]

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A couple of questions. First is when do we expect our steel mill sale to be concluded?

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Percy Birdy, Welspun Corp Limited - CFO [226]

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For the regulatory approvals, to secure the approvals that are required to conclude this transaction is being sought by the -- by both parties. Our contract says by 31st of December. But I think based on the approval that may come up, we might have to revise this time line. So I think I would be in a better position to give you the time line once that approval comes, which is the, I would say, halfway through. Because there is a [CoC] approval, there are other regulatory approvals, and that's being sought while we talk, while we are talking just now.

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Govind Saboo, IndiaNivesh Limited - Head of Merchant Banking [227]

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So are we looking at some delay in the time line? So maybe we may have to extend it from 31st December, how much delay should we assume?

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Percy Birdy, Welspun Corp Limited - CFO [228]

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As I mentioned, this is difficult to give any number or any time line on this. Once we have the regulatory approval, we will quickly assess how much time would it further take to complete the other conditions [precedent,] which would not -- should not take much time.

So I think once our regulatory approval comes, we will immediately intimate the shareholders, and then we can share the revised time line. But otherwise, the lenders' approvals and other things, they're all in place. So I can tell you, major [cities] are being complied while we are talking.

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Govind Saboo, IndiaNivesh Limited - Head of Merchant Banking [229]

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Okay. So I mean, just to -- just a last [word.] So our BPA has a provision for revision in the closer time line?

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Percy Birdy, Welspun Corp Limited - CFO [230]

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Yes, the time line can always be mutually extended based on the delays, which are beyond the control of parties.

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Govind Saboo, IndiaNivesh Limited - Head of Merchant Banking [231]

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Got it. Sir, second question is that we have increased our EBITDA per tonne guidelines or guidance from -- by around $50 since we spoke last quarter. So is this $50 increase -- or this incremental EBITDA is mainly because of reduction in steel prices, because not substantial -- no substantial orders have been booked during the quarter? So largely, we are running the same order book which we were running in the last quarter. And there has been an incremental $50 EBITDA improvement. So is it largely attributable to the steel prices, drop in steel prices?

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [232]

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There are a couple of factors. One of them also happens to be steel. The other significant contributing factors are our throughput and reduction in our costs. So all this put together is helping us to revise this guidance.

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Govind Saboo, IndiaNivesh Limited - Head of Merchant Banking [233]

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Okay. So basically, better efficiency, operational efficiency.

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [234]

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Absolutely. Better operational efficiency, Reduction in costs and, of course, the steel pricing corrections, all put together, yes.

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Govind Saboo, IndiaNivesh Limited - Head of Merchant Banking [235]

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Got it. Sir, last question is regarding our inventory. So during the 6 months, our inventory have gone up by around INR 1,100 crores or so. So just to ask one reason, which is attributable is the export order, which remains unfulfilled as of cutoff date. So how much would it be attributable to that? And what's the reason of the higher inventory levels?

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [236]

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Inventory, this has 2 components. One is, of course, the export order and which Percy explained in the earlier part of the call, that debt is almost (inaudible) because of the payment terms what we have. But other part of inventory buildup is also ramp-up of operations. There has been a significant ramp-up. As a company we have done 443,000 tonnes of operation, ever highest in the history of the -- in the history of the company. So there has been a significant ramp-up which has happened, and that is also backed up -- and that has to be backed up by inventory buildup. You're seeing a reflection of that as well coming into that.

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Govind Saboo, IndiaNivesh Limited - Head of Merchant Banking [237]

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Okay, okay. So do we expect, because of this ramp-up, H2 sales volume to be substantially higher than H1?

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [238]

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The sales volume?

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Govind Saboo, IndiaNivesh Limited - Head of Merchant Banking [239]

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Yes.

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [240]

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So our volumes in terms of U.S. are known to you, our volumes in India are known to you. Our volumes in terms of Saudi are known to you. So I think that all will -- now we have already given guidance around the volumes and the margins around all the 3 geographies. I'm sure you will be able to (inaudible) on that.

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Govind Saboo, IndiaNivesh Limited - Head of Merchant Banking [241]

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So I mean, just a clarification that the sales volumes have not increased that much as compared to our inventory volumes. So part of it, rightly you have said because of the unfulfilled export order. But the balance, if it is attributable to the ramp-up of production, then the sales volume should follow up logically in the H2, [indiscernible] that's what.

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [242]

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(inaudible)

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Operator [243]

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Ladies and gentlemen, due to time constraints, we'll take our last question now from the line of [Kaisha Gard] from [Counter Cyclical Investments].

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Unidentified Analyst, [244]

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My call got disconnected. I was asking you, how do we differentiate (inaudible)? Like what is our basic strength [indiscernible] over our competitors? Like is our cost of production lower? Or do we have some technology? So what exactly is our strength?

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [245]

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I answered that question. Unfortunately, you did not hear that. I mean, the biggest, see, one of the basic -- again, just to repeat my answer, the basic differentiating factor is Welspun's track record, its pedigree of executing critical order and its approval and accreditations. So today, today, Welspun has approval and accreditations from all the world, major who's who of the world.

I think that gives us a sort of a leadership position. Just to let you know that we have a -- we got an approval from an [energy] company in Europe and it took us 9 -- it took us almost, what, 18 years of solid persistence to get that order, to get that approval.

So I mean, today, today, with the type of approval and accreditations we have, that's a big differentiating factor. That and our past track record of servicing very, very critical orders, which is the deepest offshore pipeline in the world, the heaviest pipeline in the world. Working extensively into power service application exclusively -- working exclusively into the power service application, actively participating in the R&D projects with world leaders. I think so this is what gives Welspun the leadership position, and this is what we leverage.

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Unidentified Analyst, [246]

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Okay. So answer basically how many competitors do we have, which also have the same approvals and accreditors that we have?

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [247]

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Sure. I mean, there will be 2 or 3 of them.

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Unidentified Analyst, [248]

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So (inaudible).

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Vipul Mathur, Welspun Corp Limited - MD, CEO, BR Head & Director [249]

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(inaudible) European.

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Operator [250]

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Ladies and gentlemen, that was the last question. I now hand the floor back to the management for closing comments. Over to you, sir.

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Percy Birdy, Welspun Corp Limited - CFO [251]

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Well, thank you very much for participating on the call. And if any of you have any additional questions, we will be glad to answer those for you. Thank you.

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Operator [252]

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Thank you, members of the management. 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.