Ladies and gentlemen, good day, and welcome to the RHI Magnesita India Limited Q2 and H1 FY25 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode, and there'll be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star and then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Parmod Sagar, Managing Director and Chief Executive Officer from RHI Magnesita India. Thank you, and over to you, sir.
Thank you very much. Ladies and gentlemen, good afternoon, and thank you all for joining our earnings call. We greatly value this opportunity to further strengthen our relationship with you all. The Indian economy has shown satisfactory performance in the first half of the current fiscal year. However, we have seen many of the economic indicators testing a weaker environment. It is important to closely monitor the demand condition in the economy, as this will be a key driver for our customer's ambitious growth and commissioning plans. If we talk about market challenges and opportunities, the global steel industry has faced a decline in production due to reduced output in key markets. While India has seen growth driven by domestic consumption, increased import, and lower export has made India a net steel importer.
Steel customers have been facing a dynamic market impacting incremental capacity commissioning, affecting the overall demand for their factories. Meanwhile, the cement industry has seen a slowdown. However, the outlook for the later half of the fiscal year remains positive, with anticipated growth led by our customers' planned commissioning of their projects and infrastructure initiatives. I'm happy to share that the strategic initiatives that we have been undertaking are giving us fruits, building sustainable growth. We have a strong order book in the iron pellet DRI making business. In iron making, we have seen a good order momentum in blast furnace cast house, with four contracts and added six new customers in taphole clay. In pellet and DRI, we have received orders from one of the largest pellet plants in India and have increased our DRI market share on the back of inland orders and three new projects.
We are also in advanced discussion for long-term association with OEMs for coke oven and blast furnace stoves. We should strengthen our order book in the coming quarters as well. We are proud to announce that we are establishing our first Center of Excellence for iron making in Jamshedpur. This facility is strategically positioned to leverage growth in the rapidly expanding blast furnace segment. We'll incorporate advanced automation and tailored solutions. We expect this to be fully commissioned by 2027, with about 10,000 metric tons of expected capacity. By enhancing our capabilities, the center will position RHI Magnesita for sustained growth and long-term value creation in a dynamic industrial landscape. We view this as a major leap forward in process automation and operational efficiency. Our strategic initiatives have allowed us to navigate dynamic markets.
Coupled with our strong fundamentals and market leadership position, we have a solid foundation for sustainable, profitable growth. We remain committed to aligning our capability with evolving market conditions to strengthen our market leadership position and create long-term value for our shareholders. With our full product portfolio and good geographical reach, I believe we are well positioned to capitalize the anticipated demand scenario. As we move forward, we are optimistic about the opportunities ahead and the significant role we will continue to play in supporting India's manufacturing goals with a focus on sustainability and a circular economy. Thank you very much. Now, I will hand over to Mr. Azim Syed, our CFO, to talk about some numbers and all.
Thank you, Parmod ji. Hello, and thank you all for joining us. As we navigate a challenging market environment, with India becoming a net importer of steel this year, we face competition from lower-priced refractories entering the Indian market. These pressures and limited new commissioning have impacted revenue growth. We have seen a growth in shipments of 4.8% quarter-on-quarter. In Q2 FY25, RHI Magnesita India reported revenue from operations of INR 867 crores, a 1.3% decline quarter-on-quarter. The EBITDA for the quarter was at INR 122 crores, with margins at 14.1%. Increasing raw material costs, especially for alumina-based materials and chromite sand, exerted pressure on margins. In H1 FY25, revenue from operations reached INR 1,746 crores, a decline of 8.8% compared to H1 FY24. The product mix and the customer environment are leading to a lower realization rate, reflecting our current environment.
The EBITDA for the first half year was at INR 279 crores, while EBITDA margin improved to 16%, up from 14.9% in the previous corresponding period. The margins have been resilient, in line with our medium-term expectations, despite a rapid increase in raw materials, particularly in the alumina-based materials, as mentioned before. Together, these factors contributed to a profit after tax of INR 119 crores, with our PAT margins reflected 6.8% in HY FY25, up by 0.6% from the previous corresponding period. We are proud to inform that due to operational efficiencies in the first half of the year, we managed to reduce our net debt EBITDA ratio to 0.3x from 0.6x at the beginning of the year. In terms of volumes, we produced 86.2 kilotons in Q2 FY25 compared to 77.8 kilotons in Q1 FY25, higher by 10.8%.
Shipment volume was at 119.4 kilotons in Q2 FY25, vis-à-vis 113.9 kilotons in Q1 FY25. Notably, our Jamshedpur facilities saw an increased production driven by demand for certain products, reflecting our strategic alignment to evolving market needs. Capacity utilization also improved to 67% in Q2 FY25 from 61% in Q1 FY25, highlighting our ongoing operational enhancements and efficiencies in the acquired plants and the shipment growth that we did. Overall, RHIM's H1 FY25 performance reflects resilience in the face of market pressure and a strategic emphasis on operational efficiency. As we adapt to shifting dynamics, our cost management and production optimization will be vital for our growth in the coming periods. We remain committed to delivering value for our stakeholders and pursuing sustainable growth and better return ratio. Overall, as we adapt to shifting dynamics, our cost, yes. I will hand back to the operator for Q&A then.
Thank you, sir. We will now begin the question-and-answer session. Participants who wish to ask a question may press star and one on your touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. Participants who wish to ask a question may press star and one on your touch-tone telephone.
No questions.
We have the first question on the line of Jonas Bhutta from Birla Mutual Fund. Please go ahead.
Hi. Good afternoon, gentlemen. At the outset, wishing you guys a happy Diwali. A couple of questions. Firstly, if you can help us better understand the volume mix, how much percent of our sales in the Q2 and the first half was driven by iron making, which apparently is slightly lower realization. So how much of that impacted our realizations and margins? The second was we were on this journey to reduce imports of key raw materials. Where in the cycle are we currently in that process? Because what I saw was the purchase of traded goods was materially higher, both on a QoQ basis, and on a year-on-year basis in the Q2 this year. So that's the first question, and then I'll come back for the second once we're done with this.
Thank you very much, Jonas, for your question, and happy Diwali to you and your family as well. As you rightly said, yes, we are growing rapidly at a good pace in iron making, pellet, DRI business. And it is still a small business if we talk in totality, and it is about 6% growth. Okay. And there is also good volume in cement, which also has a lower realization. So this has impacted when we talk about realization, but overall realization or revenue at large because the selling price is low in high- alumina cement, etc. And what was the second question?
Please about the—
The imports, sir. Our strategic intent was that progressively reduce imports. While if I see the purchase of traded goods as a line item, that's materially increased this quarter.
This is one-time impact, I would say. There's a change of Incoterm, and we have a lot of material in the pipeline, I would say, but it doesn't have any long-term material impact. Yeah. Do you want to add anything?
Yes. I think you summarized it well. So, Jonas, this basically is we had a change in the accounting interpretation of our Incoterms, so which kind of have a one-time impact where we were able to recognize the volumes which were goods in transit. So this is a one-timer. I don't think so it's a long-term sustainable stuff. Our local for local production percentage remained constant.
And in future, as I said earlier, we want to increase our local for local production and reduce our reliability on imports. But as we keep on saying, it will not be, and it cannot be 100% local for local. We are reducing. Maybe two years back, it was 40%, 45% import. Now it has come down to 30%, 35%, and in coming days, it will further come down. And our target is to take it to roughly 80% for local for local production.
Just to clarify my comment, just to be sure that Incoterms is only on purchases and goods in transit, not on revenue. There is no revenue impact there on the volumes.
So could you quantify that one-off impact that was there?
Jonas, we don't give that kind of certain details, but we would probably say it's close to about six-digit numbers, you can say, from a value perspective. But we don't give this breakup because one-timer kind of allows that this thing. But to answer your question on the local for local capacity utilization percentage, we still remain the same. As I mentioned in my remarks, we had an increase in capacity rather than a decrease in capacity utilization. So I think that will form a good baseline from your modeling perspective.
Okay. Fair. The second point was to understand since we're calling out for recovery in the second half. And given that the order book also you mentioned is more iron making and cement heavy, what should we read through for that on the impact of that on margins? So while volumes may recover, how should we think about margins? Do we see margins in more or less the same band given the sales mix is going to be iron and cement heavy? That's the first part of the question. And then I just have one more subpart.
Okay. So, Jonas, I'm saying this iron making and cement, but at the same time, as I said in my speech also, there are some commissioning happening. So two steel plants are going to commission their expansions, SMS4 or XYZ. And one plant in December is also going to commission where we have almost 70%, 75% share, right? So our growth depends upon also growth in steel industry, expansion of steel capacity. So it's not only relying on iron making and cement, but in totality, steel will still be a major part of our growth story. So when I'm talking about this, so it will not have any adverse impact on our profitability at large. So whatever is my guidance to the market, my earlier statements also, I still maintain that we should be delivering around 15% margins on a sustainable basis.
Understood. And the last bit on the margins was the volatility of late that we've seen in alumina prices. If you can help us understand how the pass-through mechanism works, particularly when you have almost 40%, 50% of your sales coming from TRM, in such a scenario, how does the pass-through mechanism typically work? And what is the lag or lead time that allows you to sort of pass on these prices? Is it same quarter, or does that happen over like a three- to four-quarter period?
First of all, this is not 40%, 50%. If you talk about only steel, yes, but in totality, it is about 30%, right? So as you rightly said, yes, we have a long-term commitment, and it will always have a lag. We will negotiate. It will take two, three months, but when the raw material prices go down, it also takes two, three months to reduce the prices. So it is zero net impact, I would say, but it will take time, and as we keep on saying from the last few days, the market is really dynamic.
Steel plants are under pressure. If you remember, Mr. Narendran, CEO of Tata, is saying it is not justifiable to invest if the pricing will remain like this on long term, and we need to look at import from China and how we can have that deterrent to stop that or reduce that impact.
So you must understand if steel plants, cement plants are under pressure on pricing part, getting price increase will not be a cakewalk. It will happen, but we need to really put our efforts, and it will take time. So I cannot comment whether it will happen in the next four weeks' time, six weeks' time. It may take two, three months also. But it will have a long-term impact. We will also keep on having this pricing when the raw material prices come down. So it will be compensating that.
Sure. This is helpful. I have more questions, but I'll join the queue. Thank you, and all the best.
Thank you so much, Jonas.
Thank you. We have the next question from the line of Rajesh Majumdar from B&K Securities. Please go ahead.
Yeah. Good afternoon, Jonas. Good afternoon, Azim. First of all, let me laud you on the commendable job that you've done on the cash flow side because I think that there's been a substantial improvement in the cash flow from operations and debt as well as the net cash we have on the books. So that's a positive for me. But having said that, I had a couple of questions on the volumes. If you look at the volumes of 2Q versus the volumes of 2Q last year, there is a 7% decline on the shipments, whereas steel production is up about 6% to 7%. So while the margin factors are different, the overall volume would seem to suggest that we are losing market share in the steel business, or is there something that I'm missing out? That's the first question.
Okay. Let's answer your first question first. So first of all, this 6%, 7% is a fictitious number which is roaming around in the market. It doesn't have any substance, right? We have a calculation. If you check JSW's, even the announcement, it is 2.7% growth in steel in India. And we have our calculation, 2.9% growth, right? And out of this 2.9%, if 30% of my business is in TRM business, where the volumes are static, more or less, they can have an incremental growth of 0.5%, 1% because they are working at a capacity level. So I don't get that volume increase from those plants. So the rest is we are trying. As I said, the commissioning, which was supposed to happen from June, July, it is postponed to November, December. So that impacted us because our growth will come from steel growth.
There are many cement plants also. Everybody is talking about bringing new capacity, but it will happen in future. It doesn't happen in the last four, five months' time, and if you talk about last quarter, our volume has gone up by 5%, so we think we are on a right track. Yes, of course, when you are having a lot of pressure from neighboring country, China, on commodity business, particularly ladle business, and they are dumping like anything. They are selling at $650, $700 CIF, so either I reduce my margin and compete in that commodity market, then we will say, "Okay, the margin has come down." We are maintaining the margin at the cost of a little bit of volumes, and we are working on that.
In last call also, I said we are working on mitigating that risk or we can compete in that market also, bringing new technology or higher life of the ladles where we can have a per ton or per heat cost coming down, and we can compete. We are working on that, and you will see in coming days we will get this business which we intentionally did not go into price war to get those businesses just to maintain a standard margin, sustainable margin, which we gave the guidance to the market.
And on top of it, as you know, I'm sure it's public news that Jayaswal Neco had a couple of months' shutdown, and we had one-month shutdown of JSW Raigarh and Tata Long Products. So this also contributes quite a bit of the volume decline as well.
Yes, and these four plants, we were having a FLS contract. If Neco is shut down for two months and our revenue is, say, roughly INR one million per month, so INR four million plus 3,500 tons is gone only in one plant.
Right. And so my other question was, how do we read into the standalone revenue and margin fall? Because I can understand that cement was impacted, so consolidated results were impacted. But still, in Dalmia, you're having a 10% kind of margin, which is fine. Dalmia is recovering from very low utilization. But at the standalone level, we've seen a 4% kind of drop in margins and a 10%, sorry, 5% drop in the revenues and a price realization drop as well. How do we read into this? Will there be a commensurate price hike this quarter to compensate for the RM increase, or how?
Yeah. As I told you many times, we don't look at individual legal units because we bought this additional capacity product portfolios to serve our customer. We always look at from a customer perspective. In fact, we don't go to JSW and say that, "Hey, this is ex-Dalmia plant, ex-Jamshedpur plant," or existing. I just want you to look at the number holistically because what we do is quite a bit of production optimization so that we can manage our margins through better recipe optimization. This also creates kind of a good competition amongst our plants to be cost competitive. That's the first thing. Just a little bit of insight. Second, I'm sure you're aware that from a TRM percentage perspective, historically, we were stronger in the standalone one.
So we already explained that some of the TRM contracts, we kind of had a little bit of a headwind. That kind of caused the revenue drop. And I wouldn't read too much into realization rates because of our production optimization capacity, Rajesh. Hopefully, that kind of gave you some bit of a background.
And the margin, what you're talking about, 4% EBITDA gone down, it's not right. We have delivered 40.1% EBITDA. So we believe under the circumstances with headwind from raw materials and downtrend in general, the product mix was also tilted towards cement where the realization is less. I think we have done a commendable job. We are really satisfied with our results, I would say.
I concur with you, Parmod, because normally people always compare us with our peers. Now nobody's comparing, unfortunately, which is fair because we said we should try to compare the business. But from a volume, from a sustainable growth and margin perspective, I think our numbers would speak louder.
Yeah. Even if we talk about competition, which you people are referring to, they have this number. Now their number is much lower. If we also check our segment, and ours is still 18% in flow control. So we are on the right track, I think, and a sustainable track, I would say.
Right. So just to conclude this discussion, you are still giving a longer-term guidance of 15%-16%, right? That is sustainable.
Yeah. 15% is our guidance to the market.
Yeah. 15%. Definitely. We are not changing our guidance.
Would you give any revenue guidance as well, longer-term?
We never give revenue guidance, as you know, because if we start talking about that, we have such a large, broad portfolio, project-based business, and so on and so forth. We never give the distinct.
What Azim is saying is very valid, but you must understand when we gave last year revenue guidance and raw material prices tanked, 20% less raw material prices, selling price goes down, and then our guidance went haywire. So now the raw material prices are going up. So it is perceived that selling price will also go up. We will get price increases sooner or later. So revenue will go up for sure. But at this point of time, it is very difficult to quantify the numbers.
What we can say is that what we have told before, we will grow with the market. If those relative percentages are not correlating, then definitely you will have a cause for concern. But as you can see, we have continuously demonstrated that we are able to grow with the market.
Rajesh ji, you must keep it in mind. This is not only RHI Magnesita India. It is the refractory industry at large. So if the price increases of raw material is happening, it is impacting everyone. So you can see if I have a margin of 15%, 14%, 15%, the people who are having 10%, 12% margin, their margin will be in single- digit. So everybody will strive for price increase. So when the total industry will ask for price increase, it will happen sooner or later.
Right, sir. And if I could sneak in just one last question, is there any inflation in magnesite prices right now, and will that be beneficial for us?
Definitely. We can see the indication that basic raw material, magnesia raw material prices are also going up, not at a pace like the high-alumina, but sooner or later will also go, and it is good for the industry.
Right. Okay. Thank you. I'll join back in a bit.
Thank you.
Thank you.
Thank you. Participants who wish to ask a question may press star and one on your touch-tone telephone. We have the next question from the line of Saket Kapoor from Kapoor & Co. Please go ahead.
Namaskar, sir. Thank you for the opportunity. So firstly, on this alumina part of the story, if you could give us how our product mix will be there that required higher of alumina requirement. And going ahead, how will this content of alumina remain, or how much increased percentage is there since you have mentioned in your opening remark also higher percentage of alumina in the product mix?
All flow control products, maybe 80%, 85% flow control products are based on high- alumina raw material. Okay? And all cement bricks, alumina, high- alumina cement bricks are based on alumina-based raw materials. So this is quite a big chunk, and it will have a material impact on profitability if we were not able to pass on this to our customers.
Okay. Okay, sir. Sir, can you quantify it out of the box because it is difficult because of the product [crosstalk]
Very difficult. Very difficult. As of now, it is very difficult, but we can calculate the numbers and can get back to you in coming months.
What he can say is that he can look into London Metal Exchange. They have quite a bit of good commodity market information on alumina.
No, no. He is asking what is our percentage of high- alumina products. We can get back to you, but as of now, we don't have that number.
Because the range is so high.
So, you are articulating to the fact that the higher cement capacity that are being contemplated, being planned by cement manufacturers would lead to higher content of bricks, higher requirement for bricks, and having higher alumina content. So this story for the cement capacity going up will automatically lead to higher demand of this specialty type of brick and then the alumina. This is what the understanding is.
Yeah. To some extent, you are right. But at the same time, cement plant to cement plant, it's a variation. Some people are using basic bricks. Some people are using high-alumina bricks. So it is again a combination of both types of products. But to some extent, yes, if people will come up with a high-alumina-based cement plant, then definitely this demand will go up and more consumption of high-alumina products.
But just to conclude it, there must be the benefit that cement manufacturers will get when they move or shift to higher alumina-based bricks.
No, it is actually other way. People who want a longer life of their kiln, they go for basic refractory, magnesia-based refractory, not alumina-based refractory. For example, if magnesia-based brick is selling at a price of, say, INR 90,000 a ton, high-alumina brick is at INR 40,000 a ton. So there is a difference. So the life is also like that. So it depends upon their working capital, their projections, how much they want to spend on kiln upfront. Right? And volume, the capacity of the kiln, big kilns normally is a basic, smaller kiln is high- alumina. So it depends with various combinations.
So when you mentioned system flows, what are you referring to? Requirement into system flows?
Flow control. Flow control is basically what our peers, Vesuvius, etc., are producing. IFGL is producing isostatic-based products, slide gate refractories, purging refractories. Those are the products which we call functional products or flow control products.
Okay. So our mix is lower in that I missed your comment. What were you referring to, sir?
No, no. I'm saying we are also impacted by that because whether anybody, whether Vesuvius, IFGL, us, we will produce if it is 60% or 80%, 85% is alumina-based products. Of that 85%, 60% is raw material. So it has a material impact on our costing. If we are not to pass on the margins to price increases to our customers, it will have impact on our margins.
Right. And on the employee cost, sir, as a percentage of sales or on a fixed cost basis, what should this [crosstalk]
It is still very well under control, I would say. I don't want to comment on anybody. If you check with my peers, our competition, we are at the lowest level. We are still in single digit.
Thank you, sir, and looking forward and all the best to the team. Thank you.
Thank you.
Thank you. We have the next question from the line of Sahil Sanghvi from Monarch Networth Capital. Please go ahead. [Foreign language]
Yeah. Good afternoon, sir. And thank you for the opportunity. Am I audible?
Yes, you are.
We can hear you.
Yes, yes, yes. Thank you for the opportunity, sir. And good work on maintaining the numbers despite such challenging base industry. So my first question was, there were some volumes that were stopped from Dalmia Cement. Have we resumed that business now?
Yes, we have resumed. And this year, we are getting orders from Dalmia as well.
Okay. Okay. Secondly, sir, just wanted to understand, there are a couple of these new capacities which are coming on board, which are our current customers. What kind of which customers are we expecting to give us this incremental work, if you can name a few? And also, if you can help us understand that over and above the base industry growth, say, steel growing 6% or cement growing whatever, I mean, how much can we do over and above that due to these new capacities? How much can we grow over and above that?
You take the name of all big f our, whether it's the JSW Group, Tata Group, ArcelorMittal, JSPL, and SAIL. Everybody is planning to expand. There are some projects in the pipeline at almost final stage, which can commission two, three plants. As I said in the beginning, they'll be commissioned in the end of November, beginning of December. Some of the plants may commission in mid-October 2025 or so. Same with cement, whether it's UltraTech, Adani, Dalmia, everybody is adding capacity. If it materializes, it is a substantial growth in the market. Keeping my finger crossed, whether it will happen or not, because in the last four months, nothing has happened. Over and above, this monsoon season impacted it. Normally, it is a seasonality during monsoon construction where it goes down and consumption of steel and cement goes down.
So this has its seasonality impact also. But overall, I would say steel cement will grow at a pace which you are saying 6%, 7% for sure. If there's no change in global geopolitical situation, headwind, I don't want to sound political, but with Mr. Trump on the top in the U.S., if he puts some sanctions on China, more sanctions on Chinese refractory, then China will have overcapacity, more overcapacity. And then they will start dumping whatever they are dumping out more in India, which will have impact. So we have to see how the things are moving.
Right, sir. And sir, on the export front also, any kind of improvement you are seeing, any kind of recovery, or it still appears very weak for next two, three quarters?
No, it is really weak. Rather, in the last quarter also, it was a small dip in our percentage, I would say, and I don't see in the next two, three quarters, it will have any material impact or substantial increase in our exports.
Got it. Thank you, sir, and all the very best, sir.
Thank you. Thank you very much.
Thank you. We have the next question on the line of Mayank Bhandari from Asian Markets Securities. Please go ahead.
Thanks for the opportunity. Sir, I think the growth in the domestic market. I think it's been almost two years that we have not been able to outgrow the steel production in the country. And we have always maintained that we will grow +1% or 2% in the steel production. Sir, I mean, what exactly is wrong in terms of the growth in the domestic market for us?
You see, I already replied actually this question. What we perceive steel growth, actually, it is not happening that pace. JSW has given 2.7% steel growth in India in their communication. We believe it is less than 3%, r ight? So we have grown with it. And at the same time, as I commented earlier, we lost some business, commodity business, because of too low pricing from Chinese traders. If we venture into that market, our margin will go down, and we don't want to erode our margin drastically. So that was a considered decision. At the same time, we took some corrective action how we can enter into that market without reducing our prices or eroding our margins. So I still maintain that statement. We want to grow 1% or 2% more than the industry.
And again, next year, our budget, whatever discussion we are doing, we are doing on that particular line. And we have some strategic initiatives which will support us to get those numbers and volumes.
And on the flow control side, sir, we initially had some plans of exporting from India in a couple of products. How is that panning out?
We were actually having a very ambitious plan to increase our export in flow control. Unfortunately, because of this geopolitical situation, we still have a lot of resistance in Russia and Ukraine war. A lot is happening in the Middle East, Iran, Iraq, Gaza Strip, Israel, and Palestine, Jordan. This is a totally disturbed area. Right? So export has actually is static, I would say, and I can't see any uptick in the next two, three quarters. Unfortunately, this is not in our control, but we were having a very ambitious plan. Whenever the situation will improve, definitely, we will venture into it in a very aggressive way.
Okay, okay. And sir, lastly, we know that parent company is a leader in magnesia-based, and they've also acquired a few companies overseas in the alumina-based also. So despite being a leader in the raw material, I mean, you are perfectly backward integrated from a global level. How do you foresee this margin dilemma? Because the margin keeps fluctuating in quarters also and overall. I mean, would you be able to give some sense in terms of long-term margin expectation?
First, we are very strong when it comes to backward integration in basic magnesia-based mines we have in Brazil, in North America, and Europe. But we don't have very big mines in high- alumina. In spite of having too many acquisitions, we have not gone for high- alumina mines. Right? So historically, the raw material prices till three months back were lowest level. So our own even realization in our mines, the raw material was at the lowest level. So now the prices of raw material are going up. So we are buying anything and everything of alumina-based from the market. So we are getting impacted adversely because of this pricing, and we have to pass it on to our customers. But I cannot give you a long-term perspective.
I believe it is a temporary impact on the profitability, but it is good for the industry if raw material prices go up.
Okay. So basically, some of the business, some of the raw material that you are buying from the market, parent company does not have hold on that. That is a high cost for them.
Yeah. Absolutely.
Okay, o kay. Okay. That's it from my side.
Thank you, Bhandari ji.
Thank you. Participants, we wish to ask a question. You may press star and one on your touchtone telephone. We have the next question on the line of Chetan Doshi and Individual Investor. Please go ahead.
And good afternoon, gentlemen. In the current scenario, the performance and the cash flow what you have generated is really commendable. I have two questions. One, you have built up inventory in the Q1, and the percentage is quite high. It has gone up from 25%-31%. So first question is, how much time will require to liquidate this and this run-up? Because the raw material also, you have bought in huge quantity. So the price advantage you will get in the Q2, and how much percentage do you expect the margins to go up in the Q2 because of building up this inventory?
First of all, this inventory, we were assuming at that point of time that this commissioning, which I keep on talking, three, four plants will be commissioned, which unfortunately did not materialize, so this build-up, and we believe that our third and Q4 will be better than first and Q2. That also pushed us to increase the inventory, but at the same time, inventory is more of basic raw materials, which has not increased the prices, so high-alumina prices have gone up, as I said, from the last three months, and we are buying this at a higher price, so it will not give us a positive impact or incremental increase in our EBITDA percentage. As I said, on the contrary, we are under pressure, and we have to pass on this to our customer.
Do you want to add anything?
No, no, no. I think you perfectly summarized it.
Okay. And under the investors' presentation, you have highlighted that. Let's see the mining evaluation section. So you are the only player, or you have competition in this?
As of now, we are the only player leading this digitalization in the cement industry.
Congratulations. And secondly, you mentioned that large cement player became a repeat customer in 2024. So can you name the customer? Who is this?
We normally don't name the customers because it's not the right thing. We don't call out individual customers. These kind of. [crosstalk]
But when you are the only player.
But I can say all three, four big players are there. Yeah.
Gotcha. And regarding this OEM projects, how much margin do we expect from this division?
Which division?
OEM . [crosstalk]
OEM?
Yeah.
OEM, it's not margin. When the new projects come, OEM plays a very vital role. OEM recommends the end user, "You should use RHI Magnesita, or X or Y or Z company's material." So if you have a good relationship with them, if you have a proven track record of your consistent quality, they will recommend you. And based on that, we have a very constructive discussion with a few OEMs like SMS, Danieli, Primetal. So they believe in us. They believe that we can give a consistent product. The commissioning of new projects will be smooth without any hiccups and all. So that we are trying to build up that relationship based on our product performance, which will help us to get business at commissioning stage.
Okay. And one last question. Please, based on the discussions during the phone call, if all divisions start contributing and there is growth in cement, in steel, in the divisions where we are operating, then we can even expect 30%, 40% growth in top line and bottom line. Is that true?
No, I don't see. On the upper side, I would say the steel growth, which people are talking about, is in a staggered manner. It will not happen in 2025. All the production will not come up. So every year, it is a 6%, 7% growth, which they are projecting. Same way, cement is 9%, 10% growth if everything goes well. So I keep on saying, and I still maintain my statement that we will be growing more than 8% in volume. Revenue, I cannot comment. It depends totally on raw material pricing, freight, etc., etc., even energy cost.
Okay.
Thank you, Chetan ji.
Thank you very much.
Thank you, sir.
Thank you. We have the next question on the line of Chintan Modi from Haitong Securities. Please go ahead.
Yeah. Hi, sir. Thank you for the opportunity. Sir, I was referring to your Slide number 12 on the presentation where you mentioned about the FLS service that you provide to customers. I think that you must be providing such kind of digital and technological services to your customers. So I wanted to kind of understand the cost of these services are basically embedded into the cost of material that you supply, or these are more costs borne by us to retain or kind of win new customers?
It is mostly embedded in our contract. We did this; we are talking about PSU, but then JSW also. First, robotic solution. We signed agreement with them. It is INR 100 crore for the next five years. So it is embedded. Actually, we have a breakup with them, JSW. This is our product cost. This is our equipment cost, robotic cost, operational cost. So then there's a total cost. So it is mostly embedded in our offerings, and customers also know. In some cases, we also provide free of cost. But again, we add this value on a five-year contract, seven-year contract. How much is the depreciated value every year? Based on that, we do this. Otherwise, our margin will go really south to the south.
Right, ri ght. So I understand this would be more from creating efficiency for yourself and the customer. So that efficiency, the gain that you get from the efficiency or the savings that you achieve, now that are basically partly retained by us or kind of fully passed on to the customer. How do you kind of do this? Because customer would be easy for him to kind of see through the cost incurred and everything because prior to this kind of arrangement, how they were doing it now, how they are doing it?
Mostly, it is a customer's benefit. What we are getting is performance. Like we are mentioning here, 78-hour casting, and we are getting per heat cost or per ton of steel cost. If our product through this mechanism, through this automation, digitalization, the life goes up, we also get benefited because of a higher life, because of a safety point of also. It is very important. People are safe, and we are getting better life, and eventually, we are getting better realization. But it is upfront, if we will see, it is a customer benefit also.
Got it. Okay. Thank you, sir. That's it from my end. Thank you very much.
Thank you, sir.
Thank you. Participants, I request you to kindly restrict your questions to one per person. We have the next question from the line of Mr. Sahil Sanghvi from Monarch Networth Capital. Please go ahead.
Yeah. Thank you for the opportunity again. My question is related to Dalmia, Dalmia OCL. Sir, I wanted to understand that what all are those key pointers or key targets that we want to achieve to reach an optimum level of margins, good profitability, and how do we see the ramp-up on the revenue at Dalmia OCL? I mean, I understand, sir, the market is not supporting right now. But I mean, is there any other stone that we have left unturned to make the entity more resistant? And what would those be? If you can tell us, what will be your next two-year plan to optimally make this unit work out?
Sahil ji, thanks for your question. Firstly, as you said in the beginning, now we stop segmentizing whether it's Dalmia plant or Hi-T ech plant or RHI Magnesita India plant. We talk consolidation-based. But I can give you a high-level number. When we acquired, it was 6.9% EBITDA, with half of it was one-timer, right? So actually, it was less than 4%. We reached to 11.4% without putting much CapEx, right? And our guidance to the market, our ambition was to take it to 12%, 13% in long term, which we still believe we can do that, right? Capacity-wise, we have increased quite a lot, improved. A long way to go still. It all depends upon market conditions. But we want to really grow in those businesses which Dalmia brought along with RHI Magnesita. Now we have a total portfolio. So we will definitely be growing that business.
But now some product we ship from there to X to Y, Y to Z plant. We have eight plants. So we are more working on optimizing our product portfolio, production footprint, where it makes more sense to produce, irrespective whether it is Dalmia, Hi- Tech, ORL, any plant.
Right, sir. Sir, there was a time post-acquisition where you had also guided that your target would be and your try would be to reach a 15% margin level at Dalmia also. Would that be a [crosstalk]
That was not 15% margin. That was 15% growth. We were looking at 15% growth with a lot of export and everything, which died down very fast. So instead of 15%, we come down to 8%, 9%. But it was never a 15% margin. It is not feasible. I reiterate, it is not feasible with high-alumina mix bricks and all those things. It is with flow control, you can always imagine 16%, 17%, 18%. But 15% with brick and mixes business, it is almost impossible.
So 13% is sounding realistic for you?
Sahil ji, you are putting words in my mouth. I said.
Yeah. Let me repeat again. Please look at our business on a consolidated level and challenges on the margin percentage there. Let me also repeat that this consolidated level, it's not more of a polemical topic that we are trying to make here. The reason is that we want to do the right thing for our customers and our shareholders. And we can do that if you look at our business on a consolidated level because we want to optimize our products and optimize our margins, which wherein we can fend off any Chinese competition who's coming at a, let's say, remarkable price. We are able to optimize our recipes and blends in a manner that we are competitive. And this also creates, as I mentioned earlier, competition amongst our plants to be even more competitive.
If we go on a fixed network, I think we will create large volume plants which will create even more cost absorption. So we like the flexibility. And this is one of the reasons why we acquired this broad product portfolio. So please don't look at it individually. I hope it's clear now. Happy to clarify in detail one day.
No, this is helpful. Thank you. Thank you very much, Azim sir, and thank you very much. Thank you.
You're welcome.
Thank you. Thank you, Sahil ji.
Thank you. We have the next question on the line of Rajesh Majumdar from B&K Securities. Please go ahead.
Yeah. Thanks for the opportunity again, sir. Sir, I was just looking at the cash flows and the CapEx, and you seem to have been generating a lot of positive cash flows where the CapEx is only INR 62 crores. I think we were looking at CapEx generated of about INR 200 crores per annum. So wherever we in that space, and if you look at this kind of a conservative business model that you're adopting now, you'll be generating a lot of cash flows. So what do we do with the cash? We are going to expand, right? So we need to increase our CapEx capacities or modernize. How do we look at this?
By nature, we are a bit conservative when it comes to spending. So we will not keep on spending CapEx. If I give the guidance, "Okay, I'm going to spend INR 300 crore in the next three years' time," it is not mandatory. If it is real necessity wherever, we will do that. So we are doing something like INR 70, INR 80 crores every year from last two, three years. And this is the pace we assume next two, three years also. Okay. But this is need-based where we can get upfront payback, efficiency, reduction in rejections, improving productivity. So there are many parameters which will force us to decide any expense incurred in our plants. And cash flow, if you people will keep on supporting, we will have a hefty cash flow in our bank. We will look for opportunity to spend that money. Okay.
Right, so added question that we will not be sacrificing any growth opportunities in terms of being so conservative on our cash. That's what I mean [crosstalk]
Not at all. Not at all.
Definitely not. I mean, just to kind of reiterate, look at historically. We were the first to do acquisition. People are now putting greenfields. Second, we are not shying away from investing. For example, at the beginning of the year, we invested a lot in the operational efficiencies. Now we are focusing on modernizing, making our plants safe. And as you can see, if our capacity utilization is over-utilized, then definitely we should look for CapEx. Hence, we are looking I mean, we like to spend money where we think which can support our better returns ratio. We see this in the iron-making business where there's quite a bit of blast furnaces that are going to come online wherein we think that we can invest in iron-making. That's why we are very much excited about the investments, again, step-by-step investments that we are doing in our iron-making excellence center .
So that's the way we think about it. Okay. So we are not going to step away. We have a good risk appetite in terms of investments and so on and so forth. So you will not find us wanting there. And as you can see, our cash flow is good enough that we can do these kinds of investments as well.
Right. So thank you.
Thank you.
Thank you. That was the last question. I would now like to hand it over to Mr. Parmod Sagar for the closing comments.
Thank you very much. Thanks a lot, dear friends. We value your comments. We value your feedback, and we always strive to give right value to our shareholders. We always take each and every comment in a positive way, healthy way, and we try to improve. I think in the last two, three quarters, we improved a bit, and further, we will keep on improving very transparently with you as you are our partner, and you are the people who are guiding us, and we value your relationship. Thank you very much for your time, for your comments, for your support. Looking forward to have much more intense interaction in coming months. Thank you.
Thank you. And have a nice weekend.
Thank you. On behalf of RHI Magnesita India Limited that comes through this conference, thank you for joining us, and you may now disconnect your line.