JINDAL SAW LIMITED
Secured NCD Programme (Series I & II)
Redeemable Cum. Preference Shares of Rs. 100cr
STD (incl. CP) /NCD
Rating
CARE reaffirmed ‘CARE AA -’ [double A (minus)] rating
to the non-convertible debentures (NCDs) aggregating
Rs.100cr and ‘CARE AA-(RPS)’ [double A (minus)
redeemable preference share] to cumulative
redeemable preference share capital aggregating
Rs.100cr of Jindal SAW Ltd. (JSL). Instruments with this
rating are considered to offer high safety for timely
servicing of debt obligations. Such instruments carry
very low credit risk.
Also, CARE reaffirmed ‘PR1+ [PR One Plus]’ rating to the
short-term debt (including Commercial Paper) / non-
convertible debenture programme aggregating Rs.100 crore
of Jindal SAW Ltd. The short term debt (including
commercial paper) would be outside the overall working
capital limits (fund based) of the company. Instruments with
this rating would have strong capacity for timely payment
of short-term debt obligations and carry lowest credit risk.
The rating reflects JSL’s dominant position in Submerged
Arc Welded (SAW) steel pipe segment, continuous growth
in operating income, diversified product range, strong order
book position and encouraging prospects for the sector.
The rating also factors in the recent divestment in its US
affiliates (as the US operations were less profitable),
required higher working capital requirement and proceeds
are expected to reduce debt levels. The rating is constrained
by high working capital requirement and volatility in the
prices of raw materials. The successful implementation of
on-going and infrastructure related diversifications would
be key rating sensitivities.
Background
JSL was incorporated in 1984 as SAW Pipes Ltd. It was
promoted by the O.P. Jindal group in association with
Dilip Bhargava, an NRI. The company commenced
commercial production at Kosi Kalan in U.P. in 1986.
Jindals, the co-promoters of JSL are actively involved
in the management. Shri. P.R.Jindal is Vice Chairman
of the company and Smt Sminu Jindal (daughter of Shri.
P.R.Jindal) is Managing Director.
CREDIT ANALYSIS & RESEARCH LIMITED
CARE AA-
CARE AA- (RPS)
PR1+
Operations of the Company
The company has dominant position in longitudinal and
helical SAW steel pipe segment owing to large capacities
and established domestic and international clientele.
JSL’s product portfolio is strengthened by its presence
across all segments of the pipe industry. JSL also
manufactures ductile iron pipes, seamless tubes, spiral
saw pipes, anti corrosion coated pipes, hot pulled
induction bends and connector casings.
The products manufactured by the company find
application in transportation and exploration of oil & gas,
transportation of fluids and in infrastructure projects. The
company has state-of-the-art manufacturing facilities at
Kosi Kalan (UP), Mundra (Gujarat) and Nashik
(Maharashtra) with aggregate capacity of 950,000 t.p.a.
of SAW pipes, 100,000 t.p.a. of seamless tubes, 200,000
t.p.a. of ductile iron pipes, 250,000 t.p.a. of DI/pig iron
and 1,50,000 t.p.a. of spiral SAW pipes. One of the
manufacturing units of JSL at Mundra is 100% EOU.
Apart from the Indian operations, the company also
had equity investment in an affiliate in USA. JSL used
thi s pl ant of U S A affi l i ate to get the pr oduct
manufactured on tolling basis. These operations were
started in November 2003 and contributed significantly
towards the operational income of the company. JSL
catered to the needs of the US market for the
transportation of oil and gas and benefits from the
synergies available from other associate companies
vi z. S AW P i pes U S A and Ji ndal U ni ted St eel
Corporation (JUSC), with facilities to manufacture SAW
pipes and steel plates in the US. JSL, in FY08, has
divested its equity in the US affiliates to JSW Steel as
the former had minority stake and also involved huge
working capital and capital expenditure requirement.
An amount of approx. US$ 150 mn was received by
Jindal SAW Ltd., India against sales of Jindal
Enterprises, LLC, USA (including the portion of JUSC,
the plate mill). Its 100% off shore subsidiary received
US$ 110 mn against divestment of shareholding in Saw
Pipes USA Inc., (pipe mill). JSL also sold its stocks
1
(finished goods, raw material, WIP etc.), held by JSL,
USA branch to JSW Steel, USA at a total consideration
of US$ 159 mn. The money has been received / being
received and part of the funds have been utilized to
repay the L/C (letter of credit) obligations with the
consortium banks.
JSL completed technical upgradation and
debottlenecking for DI Plant in Feb 2007 to improve
productivity at Mundra.
The major raw material used by JSL is steel plates and
slabs which together form around 84% of the raw
material costs. The higher grade steel plates (above
X70 including NACE grade) required for production of
SAW pipes are mainly imported from Ukraine and
Russia. JSL has been depending on imports for their
good quality plates.
Major domestic clients for the company include oil PSUs
such as IOCL, BPCL, HPCL, ONGC and GAIL as well
as EPC (engineering procurement & construction)
contractors such as Punj Lloyd, Gammon and L&T. The
company mainly exports SAW pipes to Middle East,
Libya and SE Asia, besides sales through US office.
Some of JSL’s reputed international clients include
British Gas, Bechtel, Kuwait Oil Co., Snamprogetti and
Saudi Arabian Oil Co.
While the sale of US operations (constituted around 40%
of turnover), is expected to reduce the topline of the
company, the impact on margin is not expected to be
significant as they were low margin businesses.
The company currently has a healthy order book position
of approximately Rs.4,000cr. These orders, spread
across SAW pipes, seamless tubes and DI pipes, are to
be executed over the next one year.
On going and proposed projects
JSL is enhancing capacity and carrying out
debottlenecking to improve productivity of seamless
plant, Nashik at an estimated cost of Rs.300cr. to
increase capacity from 1,00,000 m.t.p.a. to
2,50,000m.t.p.a.
JSL is setting up an additional longitudinal saw 200000
m.t.p.a. facility at Mundra at an outlay of approx. Rs 120 cr.
and is expected to be operational by October 2008.
Considering the increasing demand of H Saw pipe in
hydrocarbon and water sector, company is installing two
new facilities aggregating 3,50,000 mtpa at a cost of Rs
180cr. One facility with 2,00,000 mtpa is being
2 CAREVIEW
commissioned at Mundra and is expected to be
operational by May 2008. The other facility is being set
up at Bellary (Karnataka) with 1,50,000 mtpa and is
expected to be operational by October 2008.
JSL is spending approx. Rs.300cr. on the DI complex
which includes Sinter plant (commissioned), Slag Plant
(ready) and 15 MW power plant. These expansions and
modernisations would be funded through already raised
ECBs (external commercial borrowings) & FCCBs
(foreign currency convertible bonds), proceeds of sale
of US operations and fresh equity infusion.
Besides, the company intends to invest in expansion/
modernization in new infrastructure business
opportunities. With this objective in mind, Jindal ITF Ltd
(‘JITF’), a wholly owned subsidiary, has been
established by JSL with the main object to carry out
infrastructure-related businesses in India, including
activities in the domestic shipping, shipbuilding, water
infrastructure construction industries and other
infrastructure related business opportunities. An amount
of Rs 61cr. has been invested by JSL in JITF recently.
Financial performance
JSL, divested equity stake in USA affiliate during FY07.
Consequently, the accounting year FY07 has been
extended to December ending (15 months).
The operational income of JSL exhibited high growth
and increased by 40% (annualized basis) during FY07
over the previous year. The substantial rise in the total
income was on account of the additional business
generated due higher volumes and also on account of
the robust sales made by the company from its existing
operations. The contribution from US operations was
substantial and stood at Rs.2,644cr in FY07 contributing
around 38% to total operational income. Exports also
increased substantially to Rs 2,343 cr. compared to Rs
960cr. during the previous year and were primarily to
regions like, Middle-East, Asia and Africa.
Backed by increase in the operational income, PBILDT
and PAT reported improvement over FY06. The PBILDT
margin has improved marginally on account of
operational efficiencies and higher scale of operations.
PAT margin in FY07 jumped to 12.90% in FY07 on
account of profit from divestment of equity in USA
affiliate (Rs.594cr.).
The long-term debt equity ratio improved to 0.58 times
as on Dec 31, 2007, while overall gearing of the
company declined to 0.72 times as on that date on
Financial Results planned for distribution and transportation of gas & oil
(Rs. cr) by oil & gas marketing companies in India. Major players
who would benefit from such plans would include JSL,
As on Sep 05 Sep 06 Dec 07 Welspun-Gujarat, Man Industries and PSL Ltd.
Months 12 12 15
The industry is raw material intensive, with raw material
Total income 2,333 3,878 6,792 accounting for 65-70% of the total income. The major
PBILDT 287 432 817 raw material used for manufacture of SAW pipes are
Depreciation 35 52 72 steel plates which are sourced locally and are also
Interest 100 145 195 imported in order to avail of duty concessions available
Operating profit 151 235 551 from export of SAW pipes.
PAT 101 176 876 Ductile iron pipes
NCA 128 208 916
Equity share capital 47 48 51 DI pipe find application in water transportation
Networth 726 915 1,872 infrastructure and sanitation projects. Owing to its
superior characteristics with respect to tensile strength,
Key ratios ductility, impact resistance, longer life, etc. DI pipe
PBILDT margin (%) 12.28 11.15 12.03 replaced cast iron pipe in developed countries in the
Operating profit margin (%) 6.49 6.07 8.11 field of water supply and sanitation and a similar trend
PAT margin (%) 4.32 4.54 12.90 is being observed in India. DI pipe is being preferred for
ROCE (%) 21.13 19.48 31.09 new projects due to its superior performance and
negligible price difference.
Long term debt equity ratio 1.26 1.37 0.58
Overall gearing (times) 1.59 1.70 0.72 The main customers for DI pipes are PWDs (public
Interest coverage (times) 2.52 2.62 3.83 works department) of State governments, municipal
Current ratio(times) 1.77 1.79 1.99 bodies, companies implementing irrigation projects and
major contractors. Currently, the major suppliers of DI
account of repayment of loans and increase in networth. pipes are JSL and Electrosteel Castings Ltd.
The interest coverage improved to 3.83 times for FY07
Seamless tubes
on account of higher PBIT.
Seamless tubes are used in the oil related as well as non
Industry review and outlook
oil related industries. In oil and gas sectors they are used
SAW pipes in applications such as line pipes, casing pipe production
tubing and drill pipes in oil refineries, petrochemical plants.
Pipelines are the most cost effective means for In non oil sector, seamless tubes are used for various
transporting fluids and are cheaper than rail and roads. mechanical, structural, chemical and automobile
SAW pipes are used primarily in the oil & gas sectors applications. Demand of seamless tubes is mainly
and accordingly the prospects depend on the pipeline dependent on the oil and gas exploration activities. With
projects in India and abroad. New gas finds from RIL at GOI focus on the self reliance in oil and gas sector,
Krishna Godavari Basin, Cairn Energy at Rajasthan and exploration activities have increased many folds. With
ONGC would create a huge demand for transportation participation of private players in exploration activities the
of these to plant locations. Major investments are demand of seamless tubes has also increased significantly.

For Further details please contact at : March 2008

CREDIT ANALYSIS & RESEARCH LIMITED

4th floor, Godrej Coliseum, Somaiya Hospital Road, Off Eastern Express Highway, Sion (E), Mumbai - 400 022.
Tel.: (022) 6754 3456 Fax : (022) 6754 3457 E-mail : care@careratings.com

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based its ratings on information obtained from sources believed by it to be accurate and reliable. CARE does not,
however, guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or
omissions or for the results obtained from the use of such information. Most issuers of securities rated by CARE have
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CREDIT ANALYSIS & RESEARCH LIMITED 3