Good evening, ladies and gentlemen. Thank you for standing by. This is Michelle, the moderator of 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 time, all participants are in the 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, sir.
Yeah. Thank you know, for the introduction. Well, a very good evening to everyone. This is Kunal, and I also have Sanjay with me here. Pardon my voice today. I think Sanjay will do most of the talking. We are very happy to report probably one of our best quarters ever, in this quarter with, you know, 78,500 tons of sales. We had a production of 80,000 tons, and that's up from about 69,000 tons of sales Q2 last year. It's also up from 68,000 tons in the Q1 of this year. Most of the past due, you know, in terms of cost inflation has now been factored into these numbers.
With a weighted average realization, you know, for the quarter coming at about INR 167. You know, that's where a lot of this pass through in terms of shipping costs, raw material, is now reflected in these numbers. That procurement number is INR 1,300 crores for 21.159 crores, and which is also another INR 871 crores in the Q2 last year. I think the rest of the numbers are broadly in line. Our raw material consumption, you know, now has reduced from the Q2 last year, largely reflecting the past due that have come in. Our EBITDA is at INR 344 crores, which is up 25.9%.
Profit after tax at INR 344.81 crores, up from INR 137.59 in the Q2 last year. I think just finishing off a few housekeeping numbers, extra benefits we gave and reflecting the other operating income in the Q2, largely in line and a bit higher than first because of the higher extra. Treasury incomes about INR 59.72 crores, and then balance is foreign exchange adjustments. The net other income in this year, in this quarter is INR 42 crores, up from INR 13 in the Q1 this year, and INR 35 crores down from INR 35.72 in the Q2 last year. I think you know, working capital has you know, is largely in line. Our receivables days, our inventory days look a little lower than before.
We try to not add to inventory. We look at the higher revenue figures. You know, from a plant standpoint, it's reduced slightly. Because of the value of the goods, you know, the number of days has reduced a bit. Our inventory days are down from 53 to 75. I think our guidance will be closer to 78-80 going forward. Our receivable days are at about 64, but they will also normalize around 70-72. Most of this growth in this quarter has come from mining. We did about 54,000 tons in this quarter and almost clocking at 100,000 tons for the half year, compared to 85,000 tons we did in first half last year.
Non-mining has remained, you know, largely flat at 52,000 tons for the last year against 46,500 half year, you know, this year. From a half year numbers, we've gone from 129,000 tons to about 146,000 tons, you know, for AIA this year. Our net cash at the end of quarter is about INR 2,050 crores. There's a level of funded debt and some extra cash that we have. Gross cash is higher, but there's also some debt, working capital against that. Net cash is at INR 2,050 crores, and we probably expect that, you know, that to stabilize.
There's a lot of working capital, you know, deployment over last two years given the inflation, you know, that's been and just a higher value of working capital of our stock. I think all of that will also stabilize going forward. The three announcements that we made this year, one was a supply arrangement that we've done with a company in Ahmedabad, out of Ahmedabad, you know, Shashi Industries. They are producers of silicon. You know, it's basically job work arrangement, you know, on a supply commercially under a supplier agreement. All it does is help us with a diversified, you know, upstream of supply chain for us. As you all know, silicon is an important raw material.
They have a plant in Gujarat, and they are all set up for efficient logistics with our port, you know, from the east of India, as well as captive power plant, allowing for an efficient cost in conversion from CO to, you know, silicon format. It allows us, you know, comfort of having almost a captive arrangement for production to this extent. You know, at the peak of this agreement, arrangement, we expect to, you know, get between 3,000 and 4,000 tons a month from them. At this time it will be about 50-60% of our requirements, you know, that we will be starting next. Maybe a little more. Again, that will be determined by a host of factors. We have a lot of questions asking us more about it.
Actually, they needed cash infusion in that business to stabilize their operations, and they get visibility on sales of that product, and we get almost a captive producer. This being a critical strategic raw material, you know, we just felt more comfortable having a partner who is doing it for us. We've extended INR 124 crore secured loans to them and at a 10.5% yield. To that extent, we are well protected, not just on the coupon on that, but also on the security against their assets. It will be more than adequately compensated in terms of the supply, you know, arrangements that we are looking at.
In addition to that, we are very, very excited about the new mining plant that we commissioned, you know, after the close of the quarter. It's a fully automated plant or significantly automated plant for the casting. As far as castings other than grinding media production, I think one of its best type of plant in the world for these type of castings, which are large custom-made. You know, these are not repetitive parts. These are custom-made to our application. You know, with designs that, you know, we create for the customer. We are very hopeful that we'll be fully utilizing this plant over the next two to four years. We welcome all of you to come visit Ahmedabad and, you know, have a look at the plant whenever you come visiting this side.
Also, there was an amount we disclosed about Canadian Border Services Agency, you know, doing assessment of the duties that got assessed last year in 2020, end of 2020. This assessment is triggered when costs change materially. It is on their prerogative. Because raw material costs and other costs have changed significantly from the time that this was passed, this is an administrative procedure to go revisit and, you know, assess that structure. We'll be fully cooperating with that. We will not be able to share more information except that, you know, the materiality of this market today is that we done about 3,000 tons first half of this year. Maybe we'll do 5,000-6,000 tons full year.
To that extent, you know, we are in the market. We may not be able to update this matter again. It's business as usual for us. Duties, you know, may change, may get, may be in a different format. We, you know, our business model has a spark probably beyond that, you know. We will not be able to take more questions on what it means beyond that, regular assessment. There may be more such, you know, cost change. That's something that as a business, you know, as a company, we'll be well organized to support and gear ourselves. From the CapEx standpoint, total this year and next will be about INR 480-INR 500 crores. Half of that comes from our grinding media plant, about INR 250 crores.
There's about INR 20 crore spent on the liner plant, which is, you know, which happened this year. There's another INR 50 crore that we plan to spend on the liner plant for supporting infrastructure, release pattern storage, et cetera. We're investing about INR 60 crore for associated power, and about INR 70-INR 100 crore on balancing other infrastructure support in the next two years. Broadly, we've got a CapEx plan of INR 480-INR 500 crore in this year and next. We spent about INR 112 crore in September this year. The plan should be another INR 150-INR 170 crore, you know, for the rest of the year or, you know, some may spill over to the next year.
Broadly next, 1.5, 6-7 quarters, you know, going forward in three quarters past, you know, over a three-year period starting with March, between March and June 2024, we'll do about INR 500 crores of overall CapEx. I think with that said, I'll have Sanjay Majmudar just give you a brief about the markets and, you know, what we are seeing way forward. It looks like that ferrochrome scrap, you know, are at a peak pricing. Ferrochrome seen some downward adjustment, you know, over last 2, 1 quarter. If anybody is seriously doing scrap-based companies, you know, it will keep some time back. Shipping costs are very high, but clearly changing downwards.
I think that's a good sign for us that, you know, finally, you know, we passed literally stable like, but then seem to go higher from there. It's too early to say if it's going one way or the other. I think we are on a wait-and-see mode and be ready to absorb and adapt as costs and the situation changes. I think in most of the product descriptions that our colleagues have gone, you know, people are, you know, traveling all over the place, you know, trying to get clear backdrop for, you know, the strategies that we are trying to roll out. Between mining liners and grinding media, you know, we hope to add 2,000 tons, you know, I think, going forward.
We will not be able to guide on exact numbers and how far and wide that number looks like, you know, as you are aware. One last point before I hand over to Sanjay Majmudar is that these, you know, as costs will, you know, inch down, there will be a pass through on those costs. I think long-term margin guidance will, you know, not worsen and possibly be able to offer beyond 2022-year operating margins. These are the areas we focus on that when the quarters will be better and start to be better. There are too many variables as well, you know, that we work on, and it's difficult for us to, you know, exactly pinpoint where this, you know, margin will ultimately arrive. Okay, I'll just hand over to Sanjay Majmudar, and then we'll go on to Q&A.
Thanks, Kunal, and good evening to all of you. As you can all see, it was a fairly satisfactory quarter in terms of the volume growth as well as the overall margin. As Kunal has cautioned, yes, going forward, we believe that the fixed level pricing has already reached probably the peak a little bit of the hammering of the raw material prices. The rate has already gone down, started going down. We believe that going forward, we should be able to. We might see a little bit of decline in terms of average realization, though it is a bit difficult for us right now to predict exactly how much it should be.
I think the average price realization in first six months is around INR 162 per kilo in terms of sales, which could be regarded to be high since peak, and it may go down a little bit. As we have always mentioned, it is our endeavor to ensure that the margins are protected and our absolute margins will be protected. Possibility that while there could be a little bit of downward trend on the realization, margins will be maintained. We'll see margins in second six months also should be maintained. Currently, the second six months margins are at around 23%-24%, and we are quite happy about it. Overall, the volume growth has started picking as it is evident from the first six months numbers. We believe that we should be on track. We are on track.
We feel that for about 50%-30% increase from the comparable prior year. Overall traction is appearing to be good. Although geopolitical issues are there, but so far I think we have taken care of them, and we should be able to go ahead. As Kunal explained, this Commission authorities reinvestigation is more procedural rather than anything substantial getting to it. We will keep all of you posted as we cross the bridges. Broadly, we are quite on track. We are very comfortable. I think with this slide start the Q&A moderator. Thank you so much.
Thank you very much, sir. We will begin the question and answer session now. Anyone who wishes to ask a question now please press star and one on your touchtone phone. If you wish to remove yourself from the question queue, you may press star and two. I request that you use hands-free while asking your question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. You may please press star and one to ask a question. We have the first question from the line of Ashutosh Tiwari from Equirus Securities. Please go ahead.
Hi, Kunal and Sanjay. Congratulations on very strong numbers.
Thank you.
Firstly, on the volume side, we almost have done 100,000 tons in the first half in mining. Is the growth driven by new mine additions or ramp up at the existing mines only? How should one look at it?
No, it's new mines. It is coming from new mines.
Okay. Any particular minerals which doing very well for any other, like gold or copper or something which is doing very well for us in the first half?
No. 16,000 tons. Its growth is not that large to really, you know, talk strongly, but mainly gold and copper remain metals of interest.
Gold.
Copper and gold.
Finally, I think, now that you've probably done 177 tons in the first half, you probably are on track of delivering 30,000 tons increment in this year, right?
Yeah.
You also mentioned like realizations have gone up because of this whole annuity platform and plus shipping costs as well. Is there a benefit in this quarter that probably cost pressure is already coming down and probably the pass through happened with a lag, so that's why we probably had higher margin this time. Is that?
Absolutely. You are right. You know, so better performance, you know, these are a lot of things are formula driven. Which is where I was saying that, you know, if costs reduce, there will be a downward, you know, adjustment which we'll see in the next quarter.
Okay. Okay. On the liner side, we expect major volume picking from next year only because with the plant is commissioned, so it'll probably take some time to get customers and showcase them and all those things will happen.
No. We have orders, but execution. What happens in the line is once you get the order, there's a design phase, this pattern making approvals, you know. With that lag, you will see volume coming in next year. I think orders, from an order standpoint, we are actually seeing growth, good growth. We've taken orders in anticipation of before the plant is commissioned, right?
Okay.
What may happen, you know, next year onwards. The idea and plan to have at least 10,000 tons a year starting this year. One should maybe a little more.
You think 10,000 tons increment of volume on an FY basis?
Yeah, yeah.
Okay. Wow. Then probably, like I said, it's probably want to size the plant so that growth should be extra then.
Report here is fully utilized. I don't think that's supposed to be much of a challenge anymore.
Okay. This is also a mix of domestic as well as export customers?
Largely it's good. Okay. Yeah. Lastly, on the realization, just one second. It is 1.3. Okay, thank you. That was so much. Fantastic question.
Thank you. We have the next question from the line of Dhavan Shah from AlfAccurate Advisors. Please go ahead.
Hi, sir. Just to get clarification from the last question. You said the mill liner volume will be 10,000 metric tons this year.
No. I think our quarter will be 10,000. Billing may be invoice. We are just trying to give him an answer directionally that he asked a question that because the mill got started, now you will go out and take orders. I said we've already started to get orders of more than 10,000 tons. Invoicing may not happen this year. Some of it will spill into the next year. Dhavan, just to elaborate, we are already selling mill liners. Now we have shifted to this dedicated plant, and volume should go up. It will be definitely higher than annual what we did last year.
Exact numbers may be difficult, but definitely higher than what we did last year. Okay. I think on an average, annually, we are already selling 10,000-12,000 metric ton, right?
Exactly.
We are selling 18,000-20,000 tons mill liners last year or 18,000 tons last year.
Okay. Mining. This is mining mill liners. It is over and above cement mill liners.
Correct. Correct.
Mining mill liners, right?
Yeah.
Okay. When you say cement mill liner, this is 18,000 plus you will be selling whatever will be the cement mill liner. Correct?
Correct.
That would be another 5,000 tons?
Sorry?
That would be how much? That cement mill liner would be how much?
I don't think we are not. The idea of sharing these liner tonnage is only to give a perspective that, you know, the setup of plant is just for comfort that, you know, that product will be fully utilized. We'd be as a practice not sharing, you know, segment this product line data. Does not add to the overall understanding of the business, right? It just becomes a.
I got it. Basically, I think now the total capacity is 50,000 metric tons.
For the mill liners, yes. Yeah. Basically when we are already doing more than 10,000, this capacity will be about 60, 70. We've got existing casting plants where also we can make some quantity, no? This is a new one. Let me summarize this. We have a dedicated plant for mining mill liners of about 50,000 tons, which has been commissioned.
As we explained last year, we still did about 18,000 tons from our existing plant. Correct. Now that volume will obviously be shifted to this dedicated plant, point number one. Correct. In what? Partly. See, we have that flexibility of using the dedicated mill liner is 50 dedicated plus another 15-20 will come from the shared plant. Okay. What I'm saying is don't again, don't get bogged down by that. This capacity will fully utilize in three to four years.
Okay. Finally, sir, realization, like normally we had budget for actually it will be at the level of INR 150. Basically, this quarter is obviously exceptionally high. Actually we will maintain that INR 150 realization or it will come down below?
It is a function of our costs, you know, I mean, cost, shipping, currency. Because average selling price is a function of a lot of other input variables, and it will move in line with that.
Absolutely. Basically, you know, since the last quarter, you were saying that we were not able to pass on exactly the whole thing, right?
Obviously, we have partially passed on.
I'm just saying, is there going to be a lag effect?
No, no. I think, Dhavan, I am sorry I'm interrupting you. There is a little bit of a misconception here. First let us understand our model. Our model is that we are 100% in a position to pass on the cost increases in the input cost. Again, when they happen, with a lag of about one quarter in most of the cases.
Many times it may go quicker than that. Correct. Now, so your statement that we are not able to pass on is not a correct statement. We have said we are able to pass on even the freight cost on a full basis. Cost on a full basis and raw material, mainly ferrochrome and scrap. Now what we are talking therefore is current realization of about INR 150 average for first half. It looks to be the peak because, A, the shipping costs have started coming down. B, the raw material costs do not look like going up from this level. They're only going down a bit. With a lag, a price reduction will also happen. The way it happens, increase happens with a lag, reduction happens with a lag. It's a transition process which is continuous. Correct.
Our price realization is a function of therefore the costs which are going in the input, the freight plus the product mix. What is more important for you is that what is my margin? My margin has to remain competitive. Therefore, we believe that we will be able to maintain a decent margin of 22%-23% without any problem. On a operating profit level my range is after tax.
Correct, sir. Well done.
That should happen. I think the better way is that you track it as a percentage more rather than a realization. Realization is just to explain what are the benefits we are having.
Okay.
Mm-hmm.
Well done. Perfect, sir. Thank you.
Thank you.
Thank you. Reminder to all the participants, anyone who wishes to ask a question may please press star and one now. We have the next question from the line of Bhoomika Nair from DAM Capital. Please go ahead.
Yeah. Good evening, sir, and congratulations on a good set of numbers. Sir, sorry to just harp on this realization, but very accurately you said that, you know, we are really seeing the benefit in terms of the better pass-throughs reflected in our realizations, while now of late we started seeing a correction in commodities and trade costs, et cetera. Would it be possible to get a, you know, obviously in the second half there will be a decline in realizations because of the same aspect. As things stand today on spot basis, what would be the gap in terms of, you know, the pass-through versus what it is in terms of ferrochrome or in terms of scrap or logistics costs, et cetera?
Bhoomika, it is where, you know, we've already shared our long-term targeting of 20%-22%, and it will absolutely even out at that level, right? It doesn't serve any purpose to tell you this quarter I got 15% extra or in our next quarter we could. Actually, I mean, we can hope, but it does not help us because in any case our pricing is going to be a function of the cost, right? We aspire and we work to make sure we keep the margin at target, say a 20%-22% margin. It does us no good to know whether next quarter will be INR 155 or INR 170. Yes, absolute margin can change with that, but it's eight companies, right?
I'm not gonna change anything in our business to know that business because that requires us to estimate what it will be. The way volatility has worked out, you know, it we realize it's an endless, you know, loop of trying to estimate. We still have to consider that we'll get 22% long-term margin and we may be a few quarters above that, a few quarters much above that, and a few below that. Then, you know, it'll all normalize at that level, even unfortunately all I can share.
The other thing is in terms of volume. We've seen a pickup in terms of volume trajectory in the current quarter. If you can talk about, you know, the next, you know, one or two years, how we are seeing the volume scale up. Where are we in terms of trial runs, new customer acquisitions, how is it kind of moving, which gives us visibility for and confidence about the volume growth trajectory as we move ahead.
First and foremost, Bhoomika, as we have seen, there is a definite increase in the level of volume growth is visible now. Therefore it validates our statement that annually around 30,000 tons to as per the incremental volume growth is something that we are working on and it appears that things are falling in place. We are very, very cautiously optimistic because that is the way we always are. We want to be as close to the reality. The good part is that now. Forget about these geopolitical issues, but overall it seems that we are on track for that incremental 30,000-35,000 odd tons minimum volume growth that we are expecting year-over-year. That is point number one. We have three major focus areas.
One is the core chrome ore cost advantage that we can offer because of the ferrochrome reserve is core. That part is clear that many endeavors towards the conversion of mines is happening on that. Plus we are working very hard on VT front. We have been always cautious about this, but in our business it always takes more time for us to convert the customer because the mine is more concerned with the cost control rather than the benefit alone that it can come to the table. And therefore it is taking time. Having said that, we are very strongly working on VT and equally strongly working on the mine liner advantage that we are offering both for the purpose of improvement of throughput, improvement of yields and reduction of cost. We believe that with the three-pronged approach, we should now see a fairly consistent trajectory.
The growth can at times in one quarter it may appear to be a little low. In another quarter it may appear to be a little high. Our humble request is please track us year to year on a long-term basis, medium three to five years, and I think we are very comfortable. There's absolutely no change in any of the business propositions. All opportunities remain the same. Now we are able to demonstrate something on the balance sheet, and this is what we are happy about. Let us see. We'll wait and watch.
Sure, sir. No, definitely feasible. Sir, but the thing is, you know, can you go ahead of that 30,000 incremental.
It can.
Okay.
It can, but we are not giving you any guidance on that. As and when we have more clarity, numbers will speak and we will also speak. It definitely can, but when? we don't know. Let us see.
Okay. Sure, sir, I'll come back on the question. Wishing you all the best. Thank you.
Thank you, Bhoomika. Thank you.
Thank you. We have the next question from the line of Amarnath from Ministry of Finance of Oman. Please go ahead.
Hi, Amarnath, congrats. It's a very good set of numbers ahead of what we expected from you. Thank you. Of course, the market condition has helped you, as you explained. I have two quick questions. First of all, you said that you aspire to grow 30,000 Mm-hmm. year-to-year basis. For the next two, three years, if we assume that this is going to be the case, do you have the adequate capacity to execute that kind of a growth for next two, three, four years?
Absolutely, Amarnath. That is your first question. Should I answer that or we will take question by question? Okay, let me answer. Yeah. Okay. First, as you would have seen, the rated capacity today, installed capacity today is 450,000 tons. I'm operating roughly at about 70%-72% average potential utilization as we speak. We are also adding another 80,000 tons of greenfield expansion for grinding media, which is our core volume-based product at the same location. That is at GIDC Dahej, which is close to Ahmedabad, and that will take me to about 520,000 tons. Today, assuming that today I reach somewhere around 490 or thereabout, and if I keep on adding 30-35 thousand tons year-over-year for next two, three years, I'm good to go for next two to three years without any problem.
Secondly, historically, we have been very conscious of the fact that our capacity addition does take time because we have to first get the site clearance from an environmental standpoint, and then we can do the CapEx as such. We also keep on doing the infrastructure, like the required land, et cetera, we have to buy well in advance, apply for all the permissions well in advance from an environmental or compliance perspective, which is now very standardized for us because we have been doing these kinds of brownfield expansions and greenfield within the same area quite regularly. We are very conscious about the fact that we can't go beyond 80%-85% of the rated capacity, and we have to keep on adding capacity at regular intervals. Yeah.
In that case, your current cash accruals will be adequate enough to fund all those future CapEx requirements you are thinking about, right?
Absolutely. I have about INR 2,000 crores plus liquid or cash investments available. I have decent cash accrual position, so we should be able to take care of that.
Can you clarify what is your current ROCE?
Our current ROCE, without considering our investment, is higher, but on a balance sheet basis, about 22%. If I exclude the investment or the surplus which we parked in the financial securities, then, you know, because that is typically lower ROCE business, then I would be around 27%-28%.
Okay.
Now, if I connect the dots, here we are talking about a volume growth of 10%-12%. I have a control about my margin, which we are talking about 20%-22%, with an operational ROCE between 25%-28%. That's right. Most of all, CapEx is going to be flowing back to the business. Every incremental money I am putting into my CapEx is going to give me an ROCE above 25%, and based on the cash business, almost no debt. That is the way you are looking into the future cash generations from your company for the next two, three years. Am I right?
You are right. Absolutely. Okay. This is a very healthy situation in the current scenario, I must say. Now I just have one more question relating to the cash. As you also know that the investments you're keeping in your book and your future prediction of the cash, and you are in a position to fund most of your CapEx using your internal accrual, and you yourself also know that extra cash investment is lowering down your overall ROCE. Do you have a plan to deal with this extra cash to return to the shareholders in different way? Or how do you deal with that? Because overall ROCE is getting crushed if that cash accumulation trend increases.
Another very pertinent question, and a question which we have been very regularly facing. One, as a company, we remain a bit conservative, and we keep continuing with our same old dividend distribution policy about 20%.
We know that we do have surplus cash generation, free cash also coming in. However, there are two situations which we are envisaging. One, see, as we have been repeatedly telling the volume growth opportunities will be coming. We are working on several mine conversion projects in various geographies all over the world. While we are very conservative and we are very realistic, I may use this word, in giving a growth trajectory overall indication of 30,000-35,000 tons annually, there is a possibility as one of the previous participant did put a question was a more aggressive growth. In our sort of situation, therefore, there is a possibility of some significantly heavy involvement in working capital because most of our sales happen through warehouses which are located all over the world, where we maintain a significant inventory.
It's tending to be accretive a little bit more working capital accretive with the growth progressively, shy of what will become steep and will start growing at a faster pace. The problem is we have not reached our optimum level of mining, which we believe should be anywhere between 300,000-400,000 tons. We're still talking about 200,000-odd tons with the mining. It could be talking of at least a couple of years where we believe that we may consider having reached a different level of plateau and the penetration that we want. As a management, we want to continue remain a bit conservative in cash distribution, at least for the next one or two years in the maximum situation.
Having said that, in every board meeting we are conscious discussing this, we are very alert about this and that as soon as we get the right opportunity, we will be taking a conscious view of taking our distribution a bit more aggressive. This is the music to our ears, sir, to hear this explanation. As a shareholder, we don't want the cash back in any form, especially when a business like a plowing horse can give me 25% return on capital employed. The thing you just now said is business hint that there is an opportunity to increase the growth trajectory and utilization of the extra cash within the business will give me more return than getting the cash back.
We don't invest in a company to get the cash back. We invest in a company where the company really takes this cash and utilize and give back more ROCE.
Thank you. Thank you, sir. Thank you for this. One more option, sir. Yes. Just now the cement part of your business. As we all know, last few years, cement industry has undergone very difficult time and, as well as it is cyclical business as well. What we are hearing from different cement companies' concall, that the business outlook is going to be very good in the next one or two years. Demand is improving, pricing power is little bit coming back. So from that side of the business, the grinding media business for cement, how is your outlook seeing? Is that going to be beneficial, please?
To simply put, my growth in cement will be coterminous with the industry growth, which still with all said and done, is only in a decent rate of the single digit type of a growth for the very simple reason that we have said the cement industry worldwide is already converted to a very large extent to the product that I'm supplying, which is high chrome. Second, if you look at the consumption, overall consumption of these wear parts in cement is significantly lower. You know, we have been talking about the overall replacement market worldwide of approximately about 335,000 tons, most of which is already converted.
Therefore, when I have an overall 35% market share in this industry except China, whatever the industry growth in India or anywhere else in the world, we operate in more than 125 countries, and we service all the cement mill key plants all over the world. The consumption ratios are very low and it is already converted. Therefore, the growth will be only secondary if I may use that expression. As far as that's concerned. Exactly. We go with the market, I repeat now. We go with the market and it's anyway not material in the scheme of things now, right? When our non-mining business will be about 80,000 tons, 75,000-80,000 tons. Even if we grow 10%, that's 8,000 tons, right?
In the scheme of things, if we're growing to 3 to 300,000 tons this year, that's still not material, right? All our growth coming from or all our efforts for growth comes from the mining market. Cement will stay the same. If it grows, we'll automatically grow. Are you getting something in China plus advantage on your premium because you are anywhere of the globe? Are you getting to that anywhere? Thankfully, both our industries we operate in, which is cement and mining, are local industries, so our customers never migrated to China, right? They were anyways located all over the world. You know, chrome nevertheless came from ex-China suppliers, right? Us and, you know, Magotteaux and a few others. To that extent, we are not exposed to all that has happened in China. Thank you very much. Excellent, sir.
I mean, a very healthy reply you have given us a very fantastic info. Thank you very much.
Thank you.
Thank you. We have the next question from the line of Uday Shah from Credence Advisors. Please go ahead.
Hi, sir. One of my queries would be, can you just I think I have missed out the point. Can you just repeat that, the figure line INR 122 crore of the Shah thing which we have been discussing on. It is INR 3,000 crore of 3,000 tons to be implemented, right? From the Shah, which we have been doing ourselves.
Yeah. I'll just quickly explain. One, this company is manufacturing ferrochrome in Gujarat. They have a plant where their peak capacity can go up to 4,000 tons. What we have done, we have entered into a contract with them whereby the entire capacity they are reserving for us with a minimum period of three years. Therefore, for us it's a raw material security.
It's a raw material security, and it's a very comfortable kind of an arrangement that we are entering into. Since they have dedicated their entire mine, we have paid them a secured security deposit which is interest-bearing of INR 125 crores at 10%, where we have taken first charge on their entire block of fixed assets of ferrochrome in the power plant.
Okay. Let me just add to this question. If you wanted to sell this ferrochrome plant, so what would be the total profit if you like? Because we have a total of 2,000 tons of plant currently. Could we say that the cost would be around INR 250 crore or.
Minimum. More actually. Okay.
That is a very winning situation for us because we are paying just INR 125 crores at a yield of 10%, and we are getting a secure raw material. That's a good situation from our side.
Right. Congratulations. Thank you. Thank you.
Thank you, sir. Thank you.
Thank you. We have the next question from the line of Gopal Nawandhar from SBI Life. Please go ahead.
Hi, sir. Thanks a lot for the opportunity. A few questions. One, you know, the post-COVID opening up, we saw very limited traveling and all, which was restricting our long-term, you know, volume growth outlook.
Sir. Sorry to interrupt, sir. You're sounding too low. Can you please increase the volume little bit?
Sure.
Yes. This is better, sir. Please proceed.
Just on the, you know, post opening up, the travel restrictions were still there and the client conversions were delayed and all. If you can just highlight how are the things on the new client conversions, travels, and all?
Things are very much back to normal. Frankly, we have all forgotten about COVID. Traveling, there is no restriction. Our people are able to travel to most of the mining locations without any problem. That is the reason why, you know, over last six months, we have been sounding a little more confident about going back to the growth. We have very incremental volume from that study.
Sure, sir. One of the other elements was, like, on a competitive landscape because of this higher shipping cost and all, we might have lost some volume to the competition, with this current reduction in the shipping cost and all. Are you winning back on the competition, on the pricing and all?
Frankly, I don't think we have lost anything significant to any competition. It's the first statement I want to make. Secondly, the endeavor is always to gain market share and to convert mines from the current focus of competition is more on the four big players, and we are focusing on converting people from forged media to branded media and other mining. There our whole equation and our whole business strategy is very different. As explained earlier that we are talking of significant cost savings, and we are also talking of reducing the cost of ownership and making the mining operations more efficient. That way I think we have a superior solution. Of course, we have one major competitor worldwide that is Magotteaux. Up to that remains. That situation very much remains.
In terms of pricing, now will we have a better competitive pricing with the reduction in the logistics cost and iron ore, right?
You know, from a margin standpoint, this is why giving a guidance of 20%-22%, right? It will be higher or lower depending on the past performance specific quarters to pass through. That will even out over the period.
Sure, sir. This current volume running of 78,000, like, you know, out of which almost 54,000 is on mining, should be a sustainable earning?
Yes.
Sure, sir.
And.
Thanks a lot, sir.
Thank you.
Thank you. We have the next question that is a follow-up question from the line of Dhavan Shah from Alf Accurate Advisors. Please go ahead.
It's a similar question. Like, you know, this arrangement is there for, I think, you know, with the, for ferrochrome. Will we be having some benefit because of this on the gross margin also like let's say we get some discount on the market pricing and all those things?
I think this is the agreement. The purpose of the agreement is supply chain stability. You know, we'll have to get it from that standpoint.
Okay. The annual capacity with this plant is 48,000 units per year.
I think with sharing more information, not material to, you know, a scheme of things, right? I think all we're trying to say is that we've taken the supply chain and, you know, offering a fixed lot load. 3,000, 4,000, 2,000, I mean, these are all, there are a lot of variables linked to that. You know, as a practice now, we are not sharing more information around it.
Yeah. Okay. Secondly, coming to the other income, as you know, the current trend rate of other income, what would be the Forex part into the other income in this quarter?
There is about INR 3 crore this year. Less than INR 3 crore. The growth in this quarter. Yes.
I see. Got you.
The growth in this quarter.
Basically, if we exclude pre-close, rest all is kind of a sustainable other income.
There is a treasury income of about INR 24 crores.
Okay.
Sorry, your voice is breaking.
Yeah, there is treasury income of INR 28 crores in the quarter.
Okay. The tax rate would be around 20%, 30%?
Yeah. Yeah. The tax rate, effective tax rate is about 20%-22%. Effective tax, overall tax rate. Okay?
Okay. 20%. Thank you. Thank you.
Thank you. We have the next question from the line of Raja Kumar V, an individual investor. Please go ahead.
Yeah, good evening. Thanks for the opportunity, sir. I have three questions. Should I ask all at one go or?
Yeah. You whatever makes you comfortable. No rush. Yeah.
Yes. The first question is on the margin. Sorry to loop around that point. What I understand from the call is, you are maxed out on the silicon. But how about the upstream capital intensity more so, but instead as we go forward, the margin expansion become more in terms of, volume and efficiencies. Is that a fair understanding, sir?
Yes, of course. I am making a clear disclaimer that as a matter of policy, we are not giving any guidance about the margins, but your understanding is broadly correct.
Okay, great, sir. Sir, the second question is, you have a subsidiary called Welcast Steels. I was just looking at the numbers for this quarter, which has come down significantly compared to the previous quarter. Just wanted to know, are we not fully utilizing the capacity in this subsidiary and what is the kind of plan for this to come?
In the overall scheme of things, Welcast Steels is sort of our contract manufacturing support subsidiary, which has a facility in Bangalore. We, as you know, we are putting up significant capacities here, so it's more to be looked at not in isolation, but in the overall scheme of things. Therefore, you know, Welcast Steels, therefore from that point has a very limited role to play. But it's important because it's a facility in India. Okay.
Do you plan to utilize, you know, kind of hopefully in the future come or it will be more in the.
Again, it will depend on which type of product, where, markets, et cetera. On totality basis. Exactly. Share current going into that.
Yeah. Okay, sir. Sir, lastly, one housekeeping question. I saw a INR 460 crore borrowing on the balance sheet side. Just wanted to, you know, what is that given that you have a high cash balance?
It's a treasury borrowing. The borrowing is actually. No, no. I'll explain. The borrowing is in the nature of export credit, which we are getting at a very, very competitive rate. Therefore, as an export finance, we are utilizing it because it is to our advantage.
Okay. Got it, sir. Yes. Perfect. Thank you, sir. Thanks.
Thank you. We have the next question. This is a follow-up question from the line of Amarnath from Ministry of Finance of Oman. Please go ahead.
Thank you for giving this opportunity for the follow-up. Actually, I missed one question last time.
Please go ahead.
You said that you are going for an investment for this power plant and for your, I think renewable energy. Can you just elaborate little on that by doing that, are you going to save some of your electricity and energy cost? And second related question is, how is your outlook as a company towards the ESG side, means, regarding decarbonization related targets and how much investment or something you are planning for that? Because the industry you are operating at the international level, the foreign investors, because they all look at that ESG compliance part very seriously nowadays. So if you can give little more outlook on that side please.
Yeah. Amarnath, good afternoon. Absolutely very conscious on the ESG front that the company has. It's a regular feature and conversation at the board level, and which is where we started our journey to renewable power. As of 2022, about 20%, March 2022, about 20%-23% of our power, or 23% of our power came from renewable sources. The idea is to make it up to 30%-35%. That's how, you know, the policy allows today. If it was our choice, we would have done all possible. There's a limitation on how much captive renewable, you know, off-site one can pick up. We will do all that is possible within the current regulation to migrate to the other renewable side.
In addition to that, you know, we move to cleaner fuel sources like CNG for our heat treatment, which we move away from electricity, from fired electricity. That's as far as fuel is concerned. Outside of that, you know, we are by and large not just compliant. We are looking to do green plantations, et cetera. The large part of multi other, you know, value is what we bring on the customer side, right? We are helping customer reduce their power cost and overall reduce the amount of power, you know, that goes into their overall system.
Some of these things are in ESG and building components where we are high-chrome grinding media potentially reduce the consumption of reagents which has an effect, you know, or improve the recovery of gold and metal, you know, gold and copper. These are the impacts that we have as far as ESG is concerned is significantly higher at the customer end, but also mindfully doing all possible as far as our doing things at our operational level is concerned.
Yeah, nicely. During that process, are you going to have some financial strain to the business due to phasing out your traditional power inputs to 30%-35% of the renewable power? Yes. Will there be any financial savings in that?
Yeah. There will be. Captive power is always cheaper. Instead of using that and setting up our own coal-fired captive, we've chosen renewable, you know, which could be higher cost, but ultimately, obviously there is a cost saving into it, right? Because we're getting an offset from RE power which is more expensive than a captive source.
If I may add, because it's all leading to one final question to you. Now, if I link all the things you said, that we can increase our capacity, we can increase our capacity utilization, we increase our volumes, we're using the renewable power. As the capacity utilization increases, the economies of scale must be kicked into it. If I put all those things together, I'm supposed to get a higher EBITDA margin as all those things progress. Why we always keep that EBITDA margin range between 20%-22%? Because, okay, as a small volume it is okay, but as you're increasing everything and, economics of scale kickstart, it should reflect in a higher EBITDA margin. Does it so?
No. Amarnath, thanks for this question. This is Sanjay again. Actually, you see, if you look at our history, we have grown from a very small company. We were a joint venture earlier. Our whole mindset is to always remain conservative and, be mindful of what we are talking. You see, our whole game today is market share gaining. This is my biggest range of, I mean, the biggest targeted range of customers, they're all mines. These mines are extremely, decentralized, if I may use this word from a power or a budgeting standpoint.
Mine manager is the boss. He works with a very close budget. Instead of all the benefits, we have to take a lot of time and efforts to convert that mine and start getting orders. Therefore we also many times have to become very competitive in order to ensure that the mine manager remains comfortable. You know, sum total of all these factors, we may be a little conservative when we talk about achievable operating margin range of 20%-22%. Having said that, again, I'm talking of pure operating. You remove other income, you remove FX, you remove everything. Okay.
My point is, yes, there is a potential for increasing margin, but since our entire focus today is gaining higher market share, we are very consciously sort of giving this kind of a guidance that yes, this looks to be a long-term sustainable margin, given the fact that all these imponderables or all these variable factors we have to always face. Sir, now you are giving a look that, okay, even if there is an opportunity to increase the margin, I will preferably rein it in within a range and use that as a weapon to gain more market share by increasing our competitiveness in the international market, which is very competitive there.
I will gain through the volume and market share, and probably I will maintain my EBITDA at the current level and use that economies of scale to gain my more market share. That is the strategy? Well, broadly, without taking it as a guidance, yes, that is the strategy. We remain, you know, we want to remain conservative. That's very important.
Thank you. Definitely. Thank you, sir. Thank you. Thank you.
Thank you. We have our next follow-up question from the line of Raja Kumar V., an individual investor. Please go ahead.
Sir, thanks for the call. Just one question. Sir, there is a news article that the government is trying to revive the Kolar Gold Fields in Karnataka. Just wanted to know is that a needed opportunity for AIA or, you know, it's like a long term? Also what is the potential here?
Mr. Raja Kumar V, frankly, our market is actually worldwide. The volumes outside India are much, much larger. All our efforts are actually for mining concentrated outside India. Having said that, if any such opportunity does in fact come, we will look at it. Thank you, sir. Thank you, sir. Thank you.
Thank you.
Operator, moderator, there's no further question, we can conclude the call.
Okay, sir. As there are no more questions, I would now like to hand over the conference to AIA Engineering management team. Please go ahead, sir.
Yeah. Thank you all once again, and Madhav and I will be available offline for any further client relations. Thank you so much, and have a great evening.
Thank you. Ladies and gentlemen, this concludes your conference for today. We thank you for your participation and for using Chorus Call conferencing services. You may please disconnect your lines now. Thank you. Have a great evening.