Simnu Jindal looks back at the last one year with mixed feelings. The 36-year-old managing director Jindal Saw, the Rs 7,500-crore company, could only watch as global crude oil prices, which been rising since late 2007, peaked on July 11, 2008, at $147 (Rs 7,056) per barrel (159 l). Commodity prices rose in tandem.
Its total raw material costs shot up from Rs 625.8 crore during the quarter ended March, 2008 to Rs 1,079.9 crore at the end of March, 2009.
Result: margins suffered, falling from a high of 14.39 per cent in 2008 (the company follows a January-December financial year, instead of the more common April-March financial year) to 12.61 per cent in the January-March 2009 quarter.
Though the figures are strictly not comparable, it does show a dilution of margins.
Then, high oil rig hire charges meant fewer new ones were being hired. Then, several customers were already sitting on large inventories of the special pipes, called seamless pipes, which Jindal Saw makes. As a result, sales growth was very sluggish.
This easing of demand and a fall in economic activity had its consequences.
Jindal Saw stocks, which closed at Rs 574.25 on September 1, 2008, went into a tailspin, falling more than 75 per cent to a low of Rs 136.85 on March 9 this year.
“Downturns can really wake you up,” says Jindal, an MBA from the Fore School of Management and an alumnus of Shri Ram College of Commerce, Delhi, who is trained in Hindustani classical music, reads Bengali literature and paints modern art. And wake up, she did. “We took some drastic steps to cut wastage and improved our management of scrap,” she says.
A hands-on entrepreneur-manager, Jindal and her senior management team also invested considerable time and attention to the nitty gritty of Jindal Saw’s day-to-day operations.
“We discovered lots of little flaws in the system and systematically de-bottlenecked then,” she says.
She readily admits that things could have been worse.
“We are a project-based company, and were, therefore, somewhat cushioned from the downturn. Then, we had a healthy order book before the downturn kicked in,” she says. Read between the lines, this translates to: we got away cheaply.
Now that the commodity cycle has turned, crude oil prices are trading at $70 (Rs 3,360) per barrel. Prices of metals have decline by more than 40 per cent and, as a logical corollary, the prices of many finished metal products including steel pipes have come down significantly.
Demand, naturally, is picking up.
According to Edelweiss Securities, Reliance Gas Transportation Infrastructure (RGTIL) and Gail will invest more than Rs 30,000 crore in oil and gas pipelines over the next three-to-five years.
“There is massive potential for growth in the large diameter pipe business in India,” says a bullish Jindal, now that the downturn is firmly behind her. “Though it may take some time for the buyers to speed up project implementation, one can expect new orders to flow over the next couple of months,” she says.
Besides steel pipes the company has interests in waste water projects, shipyards and rail infrastructure. It is betting big on government stimuli across the world and focus on infrastructure.
The good times are beginning to return. For the June quarter, Jindal Saw’s operating margin stood at 15.87 per cent.
Investors are happy as well. The company’s share price has bounced back from its March lows, and is again trading at Rs 550-levels.
There are, however, risks that the company needs to be cautious about. “A slowdown in capital expenditure, low availability of raw materials, sharp increases in freight rates and foreign exchange volatility are some things that the company needs to watch out for,” says an analyst tracking the sector, who did not wish to be identified.
But for now, Jindal is sitting pretty.