Steel price dip, altered contract structure hit sales:Jindal Saw

Speaking on the planned spin-off of non-core businesses, he says, the company has received court order and hopes the demerger will be done before September 30.  

All non-core businesses would be spun off into a separate entity with one holding company which would be listed with 3 subsidiaries for rail wagon manufacturing, waste to energy and last for pipeline or EPC business.

Below is the verbatim transcript of Neeraj Kumar's interview to Prashant Nair and Reema Tendulkar on CNBC-TV18.Prashant: Could you explain the 30 percent plus drop that we have seen?A: For our first quarter results reported for this Q1, FY17, we had our board meeting on August 12 and we have reported a turnover of Rs 1,326 crore as compare to Rs 1,986 crore last year. This drop of close to 30 percent is primarily on account of (a) the prices of steel have softened, so the quantity even though it’s in the same benchmark, but the prices have gone down and (b) we also have come up with innovative contract structures, where the raw material prices are passed through, basically what gets accounted for is only the conversion cost on the top line and that is how once you see the bottom line once you go to the earnings before interest, taxes, depreciation, and amortization (EBITDA) or if you go the profit margin, you would see that there has been a significant improvement in the bottom line as a percentage of top line as compare to the same quarter that we are talking about.Reema: Could you tell us then off this 33 percent decline in revenues, what percentage was on account of the steel price softening and what percentage on account of the restructuring of contracts and do you believe this restructuring of contracts will further hurts the company’s revenues in the company quarters?A: First the restructuring of the contract it is not entirely to correct to say that it is going to hurt the company, because as I have already explained.Reema: But if you could tell us on the revenues what would be your estimate for FY17 revenues?A: The revenue would continue to a little on the lower side from what we had last year, but the profitability would improve and the softening of top line on account of fall in prices would constitute around 20 percent of the fall. So out of the 30 maybe 20 percent is because of the fall in prices.Prashant: The volume of steel that you sold went up in the quarter compare to Q1 of FY16?A: It is comparable. The volume of steel that we sold in terms of the quantity compared to the Q1 FY16 is comparable it is a little less than Q4. If you take the trailing quarter then Q4 FY16 and Q1 FY17 is a little less and that can also be explained because typically whenever you have a government contract in the last quarter of the financial year, because of the use of budgetary constraint etc, there is always a push, so Q4 typically has always been a quarter for us, but if you compare Q1 to Q1 the quantity has been compared.Prashant: What percentage of the total output in a quarter now is essentially pass through pricing and how much is fixed now, all of it I am assuming was fixed earlier, now it pass through as well?A: Yes, all of it was fixed earlier and as I told you now about close to 10 percent of our revenues come from this pass through pricing.Prashant: Would you push for more that would be a better outcome for you, right?A: Yes, wherever you have a project in the water sector, because in the water sector there are some duty benefits etc, which accrue, when you are able to structure the contract in a particular manner, so if those projects continue, then you may see a little more of these contracts, wherein the profit margin would definitely be improving.