Good evening, ladies and gentlemen. Thank you for standing by. This is Tanvi, the moderator for your call today. Welcome to the post-results conference call of AIA Engineering Limited. We have with us today the management team of AIA Engineering Limited. At this moment, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. At that time, if you have a question, please press star and one. I would now like to turn the conference over to AIA Engineering management team. Please go ahead now.
Yeah, thank you so much. Good evening to everyone, and thank you for joining our call. Sanjay and me here, you know, we are happy to take this call for the third quarter of this year for the period ending December 2021. I will just quickly run. We have no major updates for this quarter. All our commentary remains, you know, in line with what we've done the previous two quarters. I think the major highlights remain around headwinds with the supply chain linked interruptions with containerized cargo. I think sea trade continues to be hampered and continuous interruptions in terms of global developments are keeping that trade related pricing afloat and buoyant.
It could be, you know, a quarter or two more before we may get relief on that account. I think the last lockdown in China on account of COVID has again, you know, brought back the situation to where it was. It had started improving, but the lockdowns on many ports has ensured that cargo is still sitting either in ships awaiting clearances or in their ports. It has led to jams, you know, in the second, third order. Shipping continues, sea freight continues to be a headwind, not just from a cost standpoint, but also we'd have to reorganize our supply chain. Customers want more visibility, more stock on the ground on one side.
On the other side, you know, when we are going in and offering a solution to replace a forged incumbent, you know, that extra cost is becoming a challenge in as far as our conversation is concerned. Nevertheless, our work around downstream process benefits, our development with mill linings, they continue, you know, at a great pace. Hopefully, you know, as things settle down, we would have good news to share in terms of we are very excited, you know, in terms of, you know, where the global mining industry is. You know, metals like copper have a structural tailwind behind them in terms of their end use in lots of applications around electric vehicles and the distribution around it.
It looks like that new capacity is tough to come by. You know, our solutions that help miners, you know, recover more copper as well as produce or process more ore, you know, through our solutions of mill linings, you know, look to be a great fit with that industry situation. You know, that comes with a caveat around the shipping rates. The other headwind that we had over last three quarters was around the galloping raw material costs. They finally seem to have stabilized, of course, at a very high rate. Again, that's in sync with the global commodity, you know, the way they have moved. We've been...
The whole pass-through process, you know, has been the biggest effort as far as our sales team is concerned, and I'm happy to report that we've been able to pass through, you know, sizable amount of these cost increases. Cost increase on account of commodity price increase, also cost increase on account of shipping. Both of those have to come through. This quarter, we saw some amount of that come through. We hope, you know, this continues, you know, in next quarter or two also. From a headline number standpoint, we sold 58,000 tons. It was below our expectation of about 65,000 tons-67,000 tons, but we added about 15,000 tons-17,000 tons to stock, you know, on account of these longer transit times and the clearances at different ports.
A lot of our cargo is actually sitting as transit inventory. Hopefully, that will someday convert into sales next year. For six months, nine months, we are at par with what we did a period of what we'll be doing about 186,000 tons for nine months, or 187,000 tons, and that compares with a similar amount we've done in nine months last year. This is after losing 23,000 tons of volume that we've done last nine months to our customers in South Africa and Canada. Unfortunate that, you know, that event happened.
In real time, you know, we would have been otherwise happy to have reported at least a 25,000 ton growth in nine months, you know, compared to the previous nine months. You all must have had a chance to look at the numbers, but I'll still run through a quick snapshot. Our pass-throughs, you know, every quarter are reflected in our realization per kilo. If you will, it was INR 105, you know, for the full fiscal year 2021, was INR 121 in the first quarter. That went up to INR 126 in the second quarter, and that's INR 143 a kilo in the third quarter.
That reflects the increase in the pass-throughs. You know, from INR 105- INR 143, there's almost a 45% pass-through in absolute terms. You know, when our cost—our raw materials was 45% of sales. Almost a 100% pass-through in raw material has come through in last two, three quarters. You know, ferrochrome continues to be high. That's at about INR 115-INR 120 rupee price range versus about INR 60-INR 70 for the full year 2021, INR 70-INR 75 . And likewise, scrap is again at an all-time high, around INR 40 a kilo up from INR 25-INR 30 in the previous fiscal year.
We're happy that, you know, our teams have come through and the whole proposition of pass-through has not been a difficult conversation. Our top line. We produced 75,700 tons, and we sold 58,000 tons. Our top line, our revenue figure is at INR 833 crores, and that's also reflecting the increased realization. Our other operating income, which is duty drawback, you know, is at INR 15 crores. We've lost about equivalent amount on MEIS. We would have earned approximately INR 15-INR 17 crores on MEIS, which is not there in our income, you know, at this time.
The non-operating income includes ForEx gain of about INR 13 crore and our treasury income, the balance of about INR 28 crores of treasury income. The rest of the numbers I think are in line. Sequential, if you compare to second quarter, our raw material after adjusting for inventory to sales has gone down from 45% to 38%, and that's reflecting the pass-throughs, you know, that have come in. I think in the other expense, we've got about INR 15 crore-INR 20 crore of additional freight, you know, that we've incurred compared to the sequential second quarter. I think that was. That's what took away an additional 2-3% that could have accrued to us this quarter. Hopefully, those pass-throughs will come, you know, come through in next few quarters.
Our EBITDA is at 23.99%, about 1.5% more than the previous quarter. Profit after tax is INR 138 crore, similar to what we did in the second quarter, and INR 425 crore for the full year.
Nine months.
Nine months, sorry. INR 425 crores for nine months profit after tax. From a CapEx standpoint, we'll continue to do about INR 200 crores is what we have budgeted for this year. The actual amount may be a little lower than that, but that can spill over. Broadly, the CapEx for next year, we're estimating at about INR 200 crores. INR 50 crores for the mill liner project. You know, money that has to be, you know, put into capitalization. The plant's expected to come on board, which was March, has moved to April. We expect to commission or start the trials for the plant in April 2022, this year. We plan to add a hybrid wind solar power plant, captive power plant over 5.4 MW.
That should be about INR 40 crore of investment. We're budgeting about INR 100 crore for land and other general CapEx. Broadly, about INR 200 crore of CapEx, you know, for next year. Our net cash, our total cash is about INR 1,988 crore. We've got borrowing of INR 125 crore with a net cash figure of INR 1,862 crore. That's down from 2,019 crore end of March. A large part of that besides dividend and, you know, fixed asset investment, there's an addition of about INR 375 crore of working capital. A material part of that coming in terms of transit stock that I talked about earlier, you know.
The customers' need for more stock on ground. I think the current working capital reflects that situation. It may not go up materially from here, but we've used INR 375 crores in working capital in this nine months. To that extent, our net cash balance remains at INR 1,862 crores. I think that brings me from a numbers standpoint. I think those are the material figures. From a business standpoint, I think, besides the sea ocean freight situation, we are much more comfortable with the raw material cost increase and the pass-throughs that have come through.
We're building our organization in terms of, you know, developing the market that we are strongly looking at, which is, you know, the Americas and Africa and Australia. We continue to make investments in resources and leaders to make sure that, you know, we can cater to this growth that we are anticipating once the ocean freight situation normalizes. Like I was explaining before, we continue to remain excited about our capabilities for downstream process benefits as far as chrome grinding media is concerned, and mill liners solution whereby we can improve throughput and power consumption. That's the same commentary that we had made the previous quarter. We'll be happy to take questions, you know, from there on.
Thank you.
Very quickly add a couple of points which are of very relevance according to the internal strategies with which the company is working. First, Kunal explained, the redeeming feature is that a significant amount of pass-through is happening both for the raw material as well as for the freight costs. The operating, pure operating EBITDA, if all of you guys, if you exclude other income, is slightly better in Q3 at around 19%+ as compared to a little lower figure in the previous quarter. Second important feature, while as we speak last month, that is, December, was looking a little green globally because of the Omicron effect. As we speak, as on today, things look to be much more relaxed.
Even worldwide, while initial knee-jerk was that some of the travel restrictions or some of the countries reacted negatively, but I think most of the countries have now understood that the effect of Omicron is more temporary or not really serious, and therefore things should not be shut down. Hopefully, even in India, we see the reported number of cases going down dramatically in the key metros. Hopefully this should pass much more quickly than what was initially looking to be a threat, and that's a very great relief. Directionally, we are bang on in terms of all the developmental efforts and the fact that notwithstanding losing about 23,000 tons between Canada and South Africa, we're still more or less at par shows that there are gains in all critical important countries which are under focus.
Therefore, directionally, our medium to long-term goals, focus, opportunity profile, everything remains the same. I think it's just a matter of maybe a few more months, and we should be on a much more firmer wicket in terms of how quickly we can start converting the customers so as to give a consistent, significant volume growth year over year. I think with this moderator, you can open the house for Q&A.
Sure, sir. Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you have a question, please press star and one on your touchtone telephone and await your turn to ask a question when guided by the facilitator. If your question has been answered before your turn and you wish to withdraw yourself, you may do so by pressing the star and two key. You are requested to use handsets while asking your question. First question is from the line of Ravi Swaminathan from Spark Capital. Please go ahead.
Hi. Good afternoon, Kunal sir and Sanjay sir. My first question is with respect to the volume. Nine months volumes have kind of been flattish for this first nine months compared to last year. You had said about some amount of developmental efforts that we are taking across the globe. If you can give some more clarity on kind of are they coming out of new mines that are getting open, new customers getting added, or there is a possibility of existing customers giving higher volumes? What kind of volumes we can expect over the next, in the next fiscal year or probably over a two to three years basis, it'll be really great, sir.
Ravi, next fiscal year is difficult to give a guidance on simply because it may take, you know, at least two quarters for the freights to normalize, right? There is nothing that we can do about it. You know, let's talk about fiscal 2024 onwards. I think adding 25,000, 30,000, 35,000 tons a year should be possible. All our efforts are geared towards that. That's a combination of everything. We've discussed this enough, how it takes time. It's not right for us to say these four mines will give us so much because we're doing much more hoping that at least 25,000, 30,000, 35,000 tons of customers convert.
Just to add what Kunal says, even we are not saying next year is not going to happen. What we are saying is that we'll be able to give you a little better prediction.
No, despite the worst nine months, Ravi, we've grown 23,000 tons, over 187,000 tons of volume, right? It's just we lost that market for reasons outside our control.
Got it.
Which is South Africa and Canada, right?
Next year can happen.
Next year we are very focused on growth in FY 2023. To give a guidance is a tough one. I mean, we are not able to go out wholeheartedly simply because we know there's, you know, headwinds in terms of lower hanging fruit, you know, types of tonnage also may take a little longer to convert given the cost difference right now with the sea freight.
Got it. That 23,000-odd tons, is it like a temporary loss or it can come back, say?
No, no. 23,000 tons is Canada and South Africa with the duties that came in.
Yeah. Correct, sir. Basically, I mean, is it going to be a kind of a medium-term lost opportunity? Can it come back, say, two, three years from now?
There's a lot of variables at play over there. I mean, both markets also have a sea freight issue today. You know, we will address those as you know things as the sea freight situation improves.
Got it, sir. Got it. In terms of margins, basically, I mean, at one end, input costs have gone up. We are trying to pass on to customers, and ocean freights have also gone up, so our margins are more in the range of 18%-19%. Can it climb back to, say, more than 20%, in the next two years? Basically, or is it likely to remain in the range of 18% range?
Ravi, there's enough history for you to model this, but we will continue with the parented response of, you know, 22% is a comfort margin, and we hope to be there. It's difficult to say that when we are in this cycle of, you know.
Through cycle, right?
Got it.
It happened in the past, we would hope it will happen going forward as well.
Got it. Thanks a lot, sir.
Thank you, Ravi.
Thank you. The next question is from the line of Ashutosh Tiwari from Equirus Securities. Please go ahead.
Yeah, hi, good morning, Sanjay bhai. Firstly, on this margin part, I think this quarter, I think we should not look at the percentage margin because if we see almost like 40% realization growth, we cannot look at percentage margin. If you look at probably if at INR 105 you are making 25% margin, you're making INR 25,000 per ton. Now, I'd say even 20, 18%, 19% margin, we are making almost like 27,000 tons. I'm really surprised this margin performance in this quarter if you look at EBITDA per ton basis. My question is that, is there any element of basically pass through of previous quarter as well this quarter or this is just normalized pricing for the quarter?
No, there is a pass-through from the previous quarter. No, it, the price variation formula works pegged to, you know, with a lag.
No, no. My question is that, is there any pass-through which was retrospective basis also effect is there, like say for the previous quarter, you got it in this quarter?
No, no. You're saying any credits we accrued.
Yeah.
No, no, no. This is current period, current pricing.
Okay. If the full pass-through has not happened, and also this quarter volume was lower because of the slowdown you said that stocking happened. When the volumes improve and the pass-through happens further, there's a possibility of margin improving further from here. Is that correct assessment?
We'll see exactly. The pass-through cycle is in the process. We'll see over next two quarters. That's directionally where it's headed.
There are multiple customers where, you know, different price points, different formulas for pricing and passing through. It's not...
Yeah, also different components. You know, the freight pass-through, the increase in freight for this quarter was not something that was budgeted, right? Exactly. So it's not just raw material, it's other...
Also input.
You know, power costs have gone up. You know, other costs have also gone up. It's not just a one-to-one commodity price increase. There are other costs that are also required to be passed through. That's the effort, you know, to try and pass through as much as we can.
No, but I am saying that despite all that non-pass-through, still the profitability in percent, this is very high compared to what we have done historically. I'm really surprised with that. It's a really good number in my view.
Yeah.
Secondly, in terms of volumes that we have garnered in this year nine months, like you said, 23,000 tons lost from Canada and South Africa. Which miners are contributing this to this growth this year and which are the critical miners?
Oh, yeah. One more clarification regarding your margin. You see, we have always maintained it's also a function of the product mix in a given particular quarter. Between the castings and grinding media, if the product mix is more tilted towards bigger castings then the profitability or per ton could become higher arithmetically. You will not read everything based on just one quarter. That I am very clear, otherwise, you know. You are right. See, there are two things. One is the capability that both in grinding media as well as in castings, whether we have been able to pass through all the costs, I mean, most of the cases, therefore, the answer is yes. This particular quarter, again, castings versus grinding media, there was a little more tilting in favor of castings.
Next quarter, again, there could be a little more tilting in favor of grinding media. Maybe a annual kind of a or a nine-month kind of a averaging would give you a little better idea. That's all I wanted to add.
No, got it. That's okay. I think, yeah, it full pass-through has not happened. In that context, we saw actually fall in the cement and utility volumes versus last year. Is this a bigger fall than what we saw in mining? Over there, is it because of freight element, stock which is stuck at port or is this? What are the reasons there? Like we saw...
No, no. It is stuck, it's awaiting boats. It is on the ship, but it's transshipped and it's taking longer or the customer is looking for more stock on the ground. It's a combination of all of that.
Okay. Sir, my second question was that on this volume side, in this say what we added, any color you can provide which miners we have added more in this year, like that 20,000 extra that you...
Yeah. Added gold, copper and iron, all three.
Okay. Gold. On this copper front, you also mentioned about, I think, a new strategy or focus for American market. Can you throw some more color on what is happening in, say, a country like Chile, how we are faring basically or what we will do differently to increase share over there?
I think we don't want to speak too much publicly about our strategy there. I think it's up to us to actually go out and, you know, work on some of that. It's also a little premature because shipping rates are against us for those markets today, right? Allow us some time to, you know, talk about it while we firm up, you know, and convert some customers in those regions.
Okay. Lastly, on the liner side, the plant will come up by March, April. We should see the maximum impact from there in only FY 2024.
Sorry, your voice broke, Ashutosh. Can you repeat?
I was saying that the liner plant will come up by March and April this year. Maximum any given the volume we should assume only in FY 2024.
Exactly. We should get some volume out of that new plant. We're already doing mill liners from our existing plant, which will move to the new plant.
Up and about. Hopefully we are able to take some volume. You know, the mill liners conversation is linked to travel. If people are able to travel, I think the sea freight is not as much a deterrent in the mill liners bit. You know, it's a question of selling the solution. Now that the plant is up and about, I think we'll be, you know, kick-starting our efforts, hoping travel is a little more freer in next two months, you know.
Okay, thanks a lot.
Okay, thanks, Ashutosh.
Thank you. The next question is from the line of Senthil Kamaraj from ithought. Please go ahead.
Hi. Thanks for taking the question. First is on the medium term time period, like three to five years, what kind of volume growth that the company is saying, like you have said like FY 2024 will be adding. If you take three, five years and you can give a growth aspiration that the company's targeting.
I think if you talk of a three to five-year horizon, I think volumes should be comfortably at least double than what we are currently having.
Great. Any particular mineral you want to targeting or...
This is the vision, and this is the efforts with which directionally people are working. That is the opportunity and that is the confidence. These are all the factors to be taken in a broader sense.
Okay, thanks. Second question is on the capital allocation side. As you mentioned, we have net cash close to around INR 2,000 crore. Going forward, on the dividend payout side, can you see a much higher payout ratio going forward? Is the company going to focus much on the growth side?
Currently, the focus continues to be on the growth. Dividend payout or returning surplus cash in one or the other way has always been a question that we have faced. I think internally we have taken a call, the management has taken a call that till we reach 300,000-350,000 tons, volumes and a little bit of more consistent growth visibility, we should have a little more comfort in keeping or carrying higher amounts of cash either for you know, in case if we come across any opportunity or in case if we have to do some aggressive CapEx or suddenly there is a little more demanding working capital. All these three factors, I think at least for another one year, say till 2023-2024, more aggressive payout is not something which is on cards, to be very honest with you.
At least 2020-2023 end. We will take a call after six to 12 months, and then we can and we will become aggressive if required. There's not a problem.
Okay, sir. That was helpful. Thanks.
Current payout is 20%, we maintain that.
Okay, sir. Yeah, thanks for the clarification.
Thank you. The next question is from the line of Sandeep Tulsian from JM Financial. Please go ahead.
Yeah, good evening, sir.
Good evening.
My first question is pertaining to this 36% increase in realizations, gone from INR 105 to INR 143. If we were to break the same, say into price pass-through as well as mix change, because you said you're doing more cast sales or, you know, volumes in some of the countries which had lower realizations, the sales had gone off.
Right.
How much would be-
Sandeep, majority is a raw material price pass through. What Sanjay was trying to answer was with the context that you know, don't look at it sequentially quarter to quarter. So even for nine months, the realization is INR 129, right? So it's moved from INR 105 to INR 129, you know, is more reflective of the raw material increase than just looking at one quarter. That's all he was clarifying.
Okay.
Material portion of this increase is raw material.
Okay.
Freight, raw material.
INR 38 increase, majority would be price pass through that you have taken, right?
Yeah. I meant freight. Raw material and freight.
Freight. Got it. Second question was on freight costs. You highlighted there's a INR 20 crore increase on a sequential basis. Last quarter you had guided it was somewhere about between INR 90-INR 95 crore. Is it such a big jump that about INR 110 crore in this quarter is the freight cost because then that's a...
Yes.
Is that number correct?
Correct. INR 110 crores.
No, no. One sec. Sorry, Sandeep, one sec. You wanted only the last two?
INR 97-INR 114 crores.
For the quarter, no?
Quarter.
110 is correct thereabout. You're right, sir.
Got it. Okay. Third question was on these Canada and South Africa volumes. You had earlier guided us that last year we did combined volumes of about 23,000-24,000 tons in these two geographies. We did some small volumes in this year also because cement volumes are still on. If you can guide what will be the like-to-like number we can do from these two geographies in this year. Given now you would have had some conversations because Brazil also what we saw initially, there was a dip and then some volumes came, started coming up from that geography. What is your sense where this number can stabilize, say over FY 2023-2024 on an annual basis?
FY 2023, I don't think we'll see, maybe because it's linked to freight, sea freight as well, right? Canada has... In addition to du ty, t here's a sea freight that's just large, you know, for the volume that we are looking to sell in that market. I think FY 2023 may not be much. FY 2024, at least, you know, we'll attempt to get back 30% of the volume, you know. That will be our attempt for towards the later part of FY 2023, second half of FY 2023 and FY 2024.
Got it. Also, another question is on, you made a comment during the opening remarks that the customer conversion cost has gone up to some extent during the recession.
Customer conversion cost? I didn't understand. I'm maybe...
As in when we are trying to pitch a new product to a customer, you said,
Because of the freight cost. No, no. The delta is higher, no? Because of the freight cost.
Okay.
The cost is 100. Forget raw material, right? On 100 my normalized freight was 10. If it's become 30 or 40, it's become a material part of my costs now, right? Something that looks to be transient. You know, the world has not seen sustained sea freight levels at current pricing, you know, for a long time. So it is not a supply-demand issue, it is a supply chain issue. The interruption that we are having in supply chain, and we are hoping that that should correct. I mean, we are nevertheless working, because we believe our value addition is actually more than the incremental cost of freight. When you are having a conversation, it's just an irritant, right?
That now the incumbent is that much less cheaper. Not just the price between chrome and iron, but also the differential of the sea freight that we'll have to pay now, you know, in the current price regime.
Understood. Last question is on the growth. You know, you obviously lost volumes in these two geographies, but we are still flat on a YoY basis. Which are the major countries where you are seeing higher growth which have compensated for the volume loss in these two regions?
Americas has done well. You know, somebody asked us about Chile. We've started doing volume in Chile. This whole year we should do reasonable volume, you know, for copper mines over there. We're doing...
Australia.
Yeah, we're doing Australia, South Africa. Sorry, Africa as a continent is interesting for us. All of it, you know, a little bit of cement, you know, output that was there last year was a little bit of a dip, you know. A combination actually. There's no one country or ore type that's led to the increase.
Right. Lastly, just on bookkeeping on the tax rate that seems to have come off significantly. What should be the assumption that we should go by?
Tax will be 22% to profit before tax.
Got it. Okay. Thank you so much.
Thank you.
Thank you. The next question is from the line of Priyankar Biswas from Nomura. Please go ahead.
Good afternoon, Sanjay bhai and Kunal.
Hi.
My first question is regarding to the mill liners. Can you just tell me the first part is like of the INR 250 crore that was budgeted for the mill liners expansion, how much would we have already spent in this?
We've spent already one, about INR 150 crore. About INR 140-INR 150 crore. I don't have the figure off the top of my head. We still have INR 50 crore to go from here on, you know, till we commission the plant.
Okay. It's almost like done.
Commission this...
Yes, please.
...to get installed, right? The heart of the plant where we can start trials, you know, will happen in April. The spend may continue beyond that, you know.
Here, related question. Like it seems one of your Indian peers in the mill liners segment. They have kind of highlighted that composite mill liners are gaining a lot of traction and market share versus metal mill liners due to some technological development. What is our value proposition here that from, let's say FY 2023 or even onwards, in next three, four years that we should be able to sell our volumes and maybe reach a 60%-70% capacity utilization?
No, no. In four years, reaching 80%-90% is a clear plan. There's no question of it. First point, right? I think we believe that there's a point. The point is that we've been working on a metal rubber composite, polymer composite for more than five, seven years, okay? I mean, there are places where, you know, that composite can work. I don't think it's a proprietary technology that's not unavailable. The point is different, Priyankar. The point is, where does an improvement in the metal come? It can only help you with the wear rate, right?
Mm-hmm.
What does the composite do? It'll help reduce the wear rate. We are not playing on that pitch at all, right? What we are saying is we'll if you move to our designed metal liner, we'll improve throughput by 20%. If you're a plant producing 1 million tons, would you be interested in producing 0.2 million tons more or reduce cost which is equal to one tenth or one twentieth of the additional contribution you can make?
Our value proposition is mill optimization, right?
Exactly. We are doing a design intervention with the mill linings on the metal side, where we can improve throughput by 15%-20%, we can save power by 15%-20% and to i ncrease, improve recovery because of the grind size distribution and all that improves. Forget that, just the throughput improvement. Why throughput improvement is important on a technical basis is because how else does a plant improve its throughput? If it wants to produce more, it has to set up a new line. With our mill linings, you can give them a 15%, 10%, 20% more throughput, which means mine more metal to that extent.
Mm-hmm.
There is no choice available to increase that today in the existing scheme of things at the mining company.
Okay.
Right? One is to be able to produce more, second is to be able to, you know, add more contribution, third is to reduce cost on account of power. The combination of all these three is 50 times more or 100 times more than a potential wear cost benefit that a metal to composite can bring. Metal to composite is an incidental thing. Like I said, we've been working. Our proposal on a composite was made seven years back to our client. It's not a hot rage that everybody's talking about it. If there is a niche area where there could be an opportunity for it, we'll see. I mean, that's incidental to our, to where we are at, which is a design-led intervention.
Kunal bhai, my second question. See, your production numbers are significantly higher than the sales. Like assuming some bit of normalization in, let's say, the freight situation that we have. Would it be, like, fairly reasonable to assume that in the last quarter we may do something north of INR 75, INR 80 ? I mean, is it possible?
That is so difficult. I mean, we are working with so many variables, Priyankar INR, or what we'll do in April is unknown. I mean, there are plenty of things in front of us. I think we should do well, but what number it is, I think we would not want to hazard a guess on it. It does not matter 5,000. If INR 65 or INR 75, does not change this whole commentary that we have about our business, right?
Yes, yes. If you do something like 75%, you are actually growing. I mean, YoY despite losing some volumes in Canada.
That is cosmetic, right? Growing 2% is not where we've invested all this effort on. We want to grow by 50,000 tons. Those are tonnage we can claim we've grown, but that does not move the needle, no. Whatever it is in next quarter, I think directionally sea freight you know normalizes is a big inflection for us to start our growth journey. I think that's how we look at it. Next quarter at 70,000 or 65,000 or 75,000 notwithstanding, you know.
Okay. That's all from my side, Kunal bhai.
Thank you.
Thank you. The next question is from the line of Aditya Khandelwal from Securities Investment Management. Please go ahead.
Hi sir. Thanks for the opportunity. I recently started tracking your company, so pardon me if my questions are a little basic. I just wanted to understand if it is possible for forged media manufacturers to enter high chrome market, or is there some technology that you have or the way you produce that only you and other players who are currently present. Is it possible for forged media players to enter?
No, no. Okay. I mean, you asked a very fundamental question. Let me just clarify one thing. See, what we are doing today, essentially, we are now directly focused on converting customers away from forged grinding media to our high chrome grinding media. That's the entire core of our focus. It's very obvious that what we are doing, a forging player cannot do. One, what we are doing is technically we are manufacturing alloys, so which is a castings process. All we have is therefore a foundry technology, whereas a forging guy doesn't produce alloys. He uses 100% pure metal, which is then hardened.
Yes, sir. Yes, sir, you're audible. Please.
There was some mix up. Technically, whatever we are doing is completely different than what a forging guy is doing. We have not seen any other forging player even coming close to the solution that we are offering through a combination of either, as Kunal explained, the mill liners based approach or another very important approach is the DP or the downstream process benefits that we believe that our high chrome media can offer, through reduction in the cost of these very expensive reagents like cyanide, et cetera, and improving the recovery. Improvement of recovery, particularly in metals like gold and copper, plays a very significant role. Therefore, we believe that eventually initial resistance is always there, but eventually the customers, they do see the significant benefit that we offer on the table, and they start converting. That process is absolutely on.
One or two quarters here and there doesn't matter because it's not directional. It's just a temporary blip. We believe that there is a huge market, at least a 2 million-2.5 million ton opportunity. Between the two ores, that is copper and gold and plus of course iron, it's a very, very significant opportunity. We think that the customers have started seeing the great benefit due to the combination of all the factors and conversion has already started to happen and it will gain pace as we go forward.
Yes, sir. Just to follow up to that. I understand there are benefits of converting from forged to high chrome. I just wanted to understand the production. Is there any difference in the production manufacturing from a high chrome and forged media peers, just hypothetically?
Yeah. It's completely different. They are, you know, they just happen to be the similar spherical metal ball. At the end of the day, the production process is completely different, you know, not comparable.
One is using impact to force it into a shape. The other is actually using scrap and liquid metal and then, you know, it's a cast product versus a forged product for the other incumbent.
Okay. Okay, got it. One more question. Can you just give me a ballpark figure of the percentage of sales from grinding media, mill internals and castings, just a ballpark figure. And what's the trend been like over the last four, five years?
What is the percentage? I mean, we've not been sharing that, you know, or disclosing that particular number. It's got other connotations with that. You'll have to treat it as a mix right now. You know, 280, 187,000 tons that we've done on a all are high chrome products for us. You know, we're just sharing, talked about grinding media other than grinding media to share that the price realization could be different. That's all.
What's been the trend? Just can you just give me a trend like if there has been increase in sales of mill internals or castings?
No, they normally grow in tandem. It is, you don't have a problem. You may have sequential quarterly plus and minus, but over a few years, if you look at it's comparable. The mix is not changing drastically.
Okay, fine. Just one more question. In your annual report, there is consumption of stores and spares, which forms almost 8%-10% of your costs. What are these and are they linked to your scrap steel and ferrochrome prices only?
No. Stores and spares are all production consumables. When you do make mold, for example, you have sand that gets used, right? These are production consumables, and then there are these maintenance parts that gets used. A combination of two gets accounted under stores and spares.
Okay. They're not linked or related to scrap steel and-
No. Raw material is under raw material. No, stores and spares is not raw material. I think that's not more than 5%. I would not imagine it's 8%-10%.
Okay, fine. Thank you, sir.
Thank you.
Thank you. The next question is from the line of Aashna Manaktala from ICICI Securities. Please go ahead.
Yes. Hi, sir. Sir, my question is related to the, as you mentioned in the starting that inventory buildup has been happening, largely due to the supply chain challenges that you've been facing. Is this a trend that we should be looking at going forward?
Not really. This is specific to this quarter. I mean, till now things looked okay, but with the Omicron, with the Chinese situation coming in, you know, we saw some interruption, where it's just taking longer. I don't think this can be generalized. We may not add much more stock now. I mean, this is already a stretched supply chain. We would be surprised if it goes beyond this. For now, you can consider current working capital levels.
Okay, sir. Sir, I also wanted to understand one thing, like, in our other income for standalone, it has gone up significantly in this quarter. Sir, the standalone PBT is higher than the consolidated PBT. Would you be able to explain the reason for that?
This quarter includes dividend received in standalone company. We have a step-down wholly-owned subsidiary outside of India called Vega Middle East , which distributes all our products outside of India. That company passed on dividend to the parent company, which is AIA. In a standalone AIA, that appears as a dividend income. That's why the other income looks disproportionately high. That normalizes when you look at the consolidated number. That gets knocked off.
Oh, okay. That entirely is a dividend company.
Yeah, yeah.
One more, in terms of the volume, especially the non-mining, volumes for this year, on a quarterly basis, it is trending slightly downward. Again, is that something we should be looking into as a trend?
Not really. It's just incidental to this quarter.
Okay. You had guided around the 80,000 metric ton for the entire year in the previous call. Would you
Yes. That should continue. Yeah.
Okay. Okay, fine. That's it from my side. Thanks.
Thank you.
Thank you. The next question is from the line of Abhishek Vora from Ambit Capital. Please go ahead.
Hi. Thanks for taking my question. My first question would be on the volume growth that you have guided on three to five years, which are expected to double. I wanted to know what steps the company is taking. I understand apart from the market forces and the company to do well. If you could just talk on what we as a company are taking steps there, that would be helpful.
Yeah. I mean, we've to the extent of duplicating ourselves for the rest of the audience, the grinding media market is in excess of 2 million tons in the incumbent type, which is the forged grinding media, right? We believe we have a superior product, which is the chrome product. You know, it's akin to a normal rubber tire versus a radial tire, right? Or a 4G versus a 3G.
Mm-hmm.
This is a better technology product which has inherent benefits, you know, along with that, come along with it for a certain section of the application. If we have total chrome is under 400-450,000 tons, you know, there's at least another 1.5 million-2 million tons that's using chrome. We believe there's another at least 500,000 tons that can be converted to chrome. You know, we believe we are in the right place in terms of available capacity, et cetera, to, you know, take advantage of that opportunity. Where chrome brings all these benefits of being able to improve recovery of copper and gold, you know, reduce toxic reagent consumption and combine that with our mill liners solution, where we can offer a complete integrated, you know, offering to the customer.
Where they're not just buying parts, they're buying a solution. What is the solution? Of being able to improve throughput, reduce power consumption, reduce wear costs of our parts, improve recovery of the ore, you know, the metal from the ore.
Yes.
That step up from being a part supplier to a solution provider, that's where we are focused on, and we hope that at least another 500,000 tons should get migrated to chrome. That's the bet that we are making.
Right.
You know, at least half of that should come to us then.
Sir. No, Kunal bhai, I understand the opportunity is huge here.
From an effort standpoint, actually. That's the opportunity.
Right.
We're making sure that we are talking to as many customers as we can, right? We've discussed this before, that customers are conservative, you know, they are not really keen to change status quo. That's the whole journey, where we're going to customers, you know, explaining them about the solution, talking about work that we've done with other clients, right? All these benefits that have accrued to them. We do 265,000, our, you know, competitor does at least another 300,000 tons in the chrome space. Chrome was not existing 30 years back or 25 years back, right?
Right.
All that we've done, all that AIA has done over these many years, has come on account of exactly what we are required to do going forward, which is approaching a customer, demonstrating a solution, doing trials, doing proof of concept, right, ultimately getting into a commercial sale thereafter. That same process continues. You know, we're doing a lot of work in terms of developing the market in Australia, Africa and Americas. That's where last part of our market resides. Right from getting the right people on the ground, reaching out and creating relationships with customers, you know, getting trial opportunities and so on and so forth.
Sure. I get this. My second question was, in line with this, part where you said that we are trying to convert the clients. My question is: what is actually holding the customers back? I understand the initial upfront cost is high, but later on, the efficiencies are high. But apart from the upfront cost, if you could mention what is the on-ground feedback, what's holding them back?
It's a very, very complex ecosystem a mining company runs, right? They are all in rural setup. They're away from city centers. They're used to a certain way of doing. They're just a very conservative bunch. You know, they're used to a status quo, right? Mining is not a sunrise sector. A lot of work has been already done. So there is a lot of, you know, anxiety when a customer talks to us about really whether we'll develop all these efficiencies that we talk about. They're not used to a parts supplier going and talking about a solution, right? It's like saying I'm a tire supplier. If you buy my tire, I'll optimize your engine, right? That's not generally expected.
Mm-hmm.
that is where it starts from this general, you know, conservatism that, you know, whether all these benefits will accrue. What if I go and change something negative happens, right?
Mm-hmm.
You're talking about improving throughputs by 10%. What if it worsens by 5%? At some point in time, it's that fear that you know of changing the status quo. It's not a homogeneous customer. If I'm an Infosys, I'm selling financial to a U.S. financial sector, it's a homogeneous crowd I'm selling to, right? I can optimize for that geography, for that culture, for that spoken instruction, et cetera. In our case, it's across the world and across ore types, right? People are different, their expectations are different, you know. Across the board, we run into a conservative mindset, and that works well for us, right? Because whatever we take, it's a sticky business.
Mm-hmm.
We've gone through every single imaginable tragedy in our business, and yet we've come through, right? All these price pass-throughs have come through. That's the point is our business is sticky. It takes time, but it's sticky after that. It's sticky because the same conservative nature helps us to keep that business thereafter.
Right. Sure, sure. Got it. Thanks a lot, Kunal bhai, and all the best.
Thank you.
Thanks.
Hello?
Yeah, I'm done with my question. Thank you.
Thank you.
Thank you.
The next question is from the line of Pratibh Agarwal from ITI Mutual Fund. Please go ahead.
Hi, sir. I have just one question, regarding your comment on doubling of the volumes, which you had just answered. Just to extend a little further on that, doubling in five years is equivalent to kind of 15% CAGR growth. As I remember, 2 or 3 calls back, you had mentioned that, on a regular basis organically, 6%-7% or 7%-8% is the growth number, volume growth number that you can do very well easily. Just to reconfirm these two pieces of information, that 7%-8% growth versus 15% growth, means 15% to double up, but earlier comment was 7%-8%. Just asking you whether it includes something else which I'm missing.
No, no. First of all, Mr. Agarwal, I must clarify, I was very clear. Somebody asked me a question: Where do you see after five years? Where can you go? As to just give the idea that there is indeed an opportunity on which the company is working very hard, we said, if it's a vision statement, then in five years I should double. Now, that does not mean that there will be a CAGR which you will calculate. I made it clear that it is not a guidance, but
Look at it from a broader perspective that if I am saying that the market is about 2 millions-2.5 million tons, and mining is growing, and our entire focus is on these three or four ores, more particularly the three ores, where the opportunity itself between the three is more than 1.5 million or 2 million tons, where the level of penetration is hardly 10%, 15%, 20% today. We believe that the solutions that we have is that they have extraordinary capability of conversion. That was a directional statement I made to ensure that people continue to get the same sense with which the company remains excited and we are working hard. Again, I repeat, there is no such guidance that I want to give. I am saying that is the opportunity. I am saying that's a vision.
Therefore, there is no question of reconciliation. The figure of 25,000, 30,000, 40,000 tons annual normalized incremental volume is the minimum volume growth, which we believe we should achieve once the macroeconomic and the supply chain system becomes a little more predictable and a little more normal. That is why we said that for next year, we don't want to give any guidance, but we will wait and watch. As supposing after this year or maybe in the first quarter, situation looks better and the way we want the things to move, they start moving, we can give a specific guidance. There is. Please, sir, don't try to reconcile. That's our humble request.
Sure, sir. No. Understood, sir. No, that was helpful. Thank you, sir. Thanks a lot.
Thanks.
Thank you. As there are no more questions, I would now like to hand over the conference to AIA Engineering management team for closing comments.
Thank you. Thank you, everyone. I hope you all are safe. As usual, Sanjay and I are available for any offline calls. Thank you. Have a great evening. Bye.
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