Good evening, ladies and gentlemen. Thank you for standing by. This is Nirav, the Moderator for your call today. Welcome to the post-results conference call of AIA Engineering Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I would now like to turn the conference over to the AIA Engineering management team. Please go ahead, sir.
Yeah. Thank you, Nirav. A good evening to all of you, and thank you for joining our call. This is Kunal. We also have Sanjay bhai on the call with us. As always, I'll get into, you know, a summary for the quarter, and we can quickly get on to question and answers thereafter. Finally, you know, this year, over nine months, you know, we've grown materially from nine months in the last, in the previous period. You know, we've seen a few years where we had different types of, you know, headwinds, different headwinds of different nature and, you know, which there was some amount of, growth-related question.
So I'm happy to report from about 187,000 tons from eight, nine months previous period, we've done 217,000 tons and about 30,000 tons more for the nine-month period. We've done 71,500 tons for the quarter. For the whole year we should be between 295,000-300,000 tons. You know, hopefully crossing the 300 mark finally. We are happy to report that. That sale of 71,500 tons translates into sales of about INR 1,200 crore, INR 1,209 crore. You know, on EBITDA of 39.42%, which is... You know, that's, this quarter has been very interesting, like last three, four years for us have been.
Every single variable, every single, you know, assumption, you know, got tested. You know, we, you know, there are several wheels in motion. We are in a business where the customer depends on us for keeping his wheels in motion, right? Our product, you know, feeds into a supply chain where, you know, the end user industry, which is cement and mining, they've been humming, you know, in many cases growing, our product becomes an important replacement part of their supply chain, of their consumption, of their production. You know, from a growth standpoint, from a consumption standpoint, while that continued, we saw a lot of changes in terms of raw material, currency, freight costs, right? Availability of containers.
Finally it looks like that, you know, a lot of those cost pressures are ebbing away. When I, when I look at an EBITDA of 39.42, and of course there's a Treasury income in that, you know, of about INR 40 crore or INR 42 crore. You know, the rest of that being operating in nature. There's about 5%, you know, in Treasury gains. You know, end of December the rupee was at INR 82+ levels, and a lot of our invoicing for that quarter was paid to a lower amount, right? The rupee had weakened in that small period rapidly. There's an other income, there's a operating other income related to currency. We also had a very favorable product mix, you know, just in terms of this period.
About a 2%-3% margin that got, you know, added on that account. Those two put together is about 7%-8%. You know, there's a margin that's sitting on currency and product mix. On the cost side, you know, we've seen raw materials, you know, correct from between 8% and 10%. There is some ease off. Most of our contracts now have a price pass-through mechanism, so my pricing this quarter would reflect the raw material cost in the previous quarter, right? When the pricing kept going up, there was a paying lag and now there is a small period where, you know, the price reduction will follow by a lag.
There is, you know, 3%-4% of that sitting, you know, which is all costs related to raw material and freight costs. Some amount of freight costs has also started coming in. From a margin standpoint, of course, the next question, you know, would be what our guidance on margin going forward. I think we'll continue with our policy. I think we look at our business over many decades, at least, you know, many years in front of us. When you're building such a franchise, it's very futile, you know, for us internally to look at every quarter after the other. While we continue maintaining a 20%-22%, you know, operating EBITDA margin, it is more directional, more indicative.
There are quarters, especially last few quarters, we've done better than that, and there have been quarters in the past where we're worse than that. I think that continues to remain. I think maybe next quarter we can share a little more sharpened margin guidance for the next year. For now in the volatility continues. You know, while some raw material prices have reduced, we've seen a bounce back in those rates. The amount of volatility that we are sitting on is uncharted. In that case, trying to, you know, predict variables and then give a margin continues to be a challenge for us.
I think all we are trying to say is that over last three, four years, our business has demonstrated the ability to work with the clients, work with customers, and progressively be able to improve most costs, you know, on the way up. Now, obviously with an fair and square basis, it will be adjusted down. That's what makes us proud that there's a three years of franchise we've built where, you know, we are not dependent on the whims of, you know, how the market moves. Okay. Moving forward, so EBITDA at INR 483 crore. Of course, highest ever EBITDA, absolute EBITDA margin, I mean, EBITDA amount absolute value ever. Profit before tax of INR 453 crore and profit after tax of INR 350 crore, it's been a record year as far as profit is concerned, record quarter.
Nine-month profit remains at INR 787 crore, which is up from INR 425 crore nine months last year. Our export benefits, which is the road tax scheme, Remission of Duties and Taxes, that is at about INR 16.90 crore, largely in line with the previous two quarters. Treasury income is a little higher this quarter compared to previous. There's INR 42 crore. There's a large foreign exchange gain of INR 75 crore. Some part of this foreign exchange also related to cross currency, not just rupee dollar, but we do, you know, we have some exposure in other cross currency. This largely reflects a dollar coming not just against the Indian rupee, but also, you know, cross currency that we have an exposure to.
Our raw working capital continues, you know, at par. Raw material is at INR 138 crore at 30 days. Working capital, all our stock, WIP and finished goods is at about INR 1,000 crore, 991 to be precise. Receivables is about 63 days, INR 853 crore. I think all working capital numbers are largely in line. This quarter of the 71,500 tons, there's a little higher portion that's come from other sector, which is cement, at 27,100. Of course, and we keep maintaining that. So, nine months, if you look at it, 73,000 tons versus 61,000 tons. You know, full year will be closer to say 95,000 tons.
On a full year basis, non-mining did about 90,000 tons. This year maybe 10,000 tons more. I don't think we should read a lot into the quarterly changes. Mining is at 44,000 tons for the quarter and 144 for full year, you know, nine months. Sorry, for nine months. 144,000 tons for nine months and 73,000 tons for non-mining, which is cement and, you know, thermal utility. Okay. Some key numbers before, you know, we, a lot of you have those questions. Ferrochrome was around INR 117, INR 120 a kilo at the start of the year. That's between INR 105 and INR 100 a kilo, about 10% more. Likewise, scrap.
We're sitting on net cash of INR 22,308 crore, INR 2,300 crore. Full year we've already, you know, I've already mentioned, we look at about 295,000-300,000 tons for this year. Going forward, 2024. About 30,000-35,000 tons is something that I think looks doable for now. Of course, that includes mill liners. This year, full year, FY 2023, we think we'll do about 6,000 tons of production and sales from that plant. About 24,000-25,000 tons of total sales coming from mining mill liners. That should grow by another 15,000, 10,000-15,000 tons next year. Based on that, about a 30%-35% overall growth, you know, for fiscal year 2024.
Lastly, as far as CapEx is concerned, for next year we'll do about INR 300 crore. This year we've done about INR 135 crore. We have another INR 70-INR 75 odd to spend. We'll do about INR 200 crore of CapEx this year. Next year it should be about INR 300, which is INR 200 for the grinding media expansion for 80,000 tons that we are doing, which will take our capacity from 440 to 520. Some land of INR 30 crore, balancing CapEx, you know, and some other enhancements that we're doing at about another INR 60-80 crore. That put together is about INR 300 crore of CapEx for the next year.
Broadly, I think, while a lot of sectors, you know, are worried about what global, you know, winds look like, I think, our focus on the core industries of cement and mining, I think continue to give us confidence that, you know, irrespective of what happens on global markets, at least the coming 12 months, you know, there isn't any macro worry, you know, at least as far as what we are hearing from the customers.
We continue to do our work on many fronts, you know, as far as our customers in mining are concerned, which is, you know, the down process benefits, you know, the whole solution that we are bringing in with our mill mining offering, right? Ultimately becoming a partner to the mining customers. We're enhancing, you know, all benefits that they can accrue by partnering with us and using our products. No other major, you know, highlight to speak of. I think it'll be business as usual, next 12 months. I'll request Sanjay, if he wants to, you know, share a few insights, and then we'll take to Q&A.
Thank you, and thanks everyone for your interest. It was a very interesting quarter, very excellent set of numbers. As Kunal clarified, quite a bit of it can be regarded as one-off. Having said that, the basic business outlook remains the same. The opportunity remains equally exciting.
All the efforts are on to take a significant share slowly and gradually away from the forged into High Chrome. Directionally everything else remains the same. From a business strategic point, opportunity point, our earlier target, we should be able to do at least around 30,000 plus year-over-year addition incremental volume. I think all that remains, and we believe that, as we go ahead, we should be able to share more exciting news. I think with this, let the house open for Q&A.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone and await your turn to ask the question when guided by the facilitator. If your question has been answered before your turn and you wish to withdraw your request, you may do so by pressing star and two key. You are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the questions. The first question is from the line of Ashutosh Tiwari from Equirus Securities. Please go ahead.
Yeah, hi, Kunal and Sanjay. Congrats on very good numbers.
Thanks.
Firstly, on the volume front, obviously after a very long time, you're delivering very strong numbers. In the mining side, it's still driven by copper and gold only. These are the two bigger vendors contributing to the growth.
Yeah. copper and gold, and of course, we're doing little bit work, some work in iron ore that also continues to be an area of interest and Mill Lining, which is not just gold and copper. I think, it's a mixed bag, at least as far as there is no single ore driving disproportionate volumes.
You also mentioned about this 6,000 tons of production and sales from the new plant. This is a full year, right?
Yeah. We've done about 2,500 tons till now, this quarter we'll do another 3,000 tons. Total about 5,000-6,000 tons is what we'll do from the new plant.
Okay. Okay. The cement volumes, like, obviously nine months figure is probably one of the highest that we've done in last, four, five years in the mining period. Is there something to read over there in terms of, any new additions?
We've done about 12,000 tons more, but there's little bit volume that we've done with in the thermal bit in India, you know. I think broadly 90,000 tons is 90,000-100,000 tons. 80, 85 is not gonna become 150. Still the materiality is not there.
Yeah. After a long time we are seeing some growth over there.
Correct.
Thermal is something that is excluded.
We're happy about that, but none of those are factors that will give us, you know, material growth going forward.
This forest gain that is part of other income, is it a different channel due to depreciation of INR versus Australian currency?
INR. Yeah. INR rupee would be about 50%-60%. Almost say 60%-65% would be Indian rupee, but that is realized, unrealized, both put together, and the rest would be cross currencies or exposure outside of India.
Okay. Okay. While we discuss about freight cost coming down, but if you look at the freight cost number, outflow freight cost number that we reported now in as part of profit loss, that amount is almost similar in this quarter as well.
You will have to look at. Link it with our export because we're not reporting our exported figures, right? We are shipping things out and it gets invoiced the following month or the following quarter, right? We know that the freight cost is going down on.
This is that actual freight cost incurred, not the underlying export volume. This does not show that. Okay. As there's some reduction in freight cost which has also come through.
Part of it is not very material, but it is coming down, right? The freight costs, you know. Okay, some of the lanes that we operate in are, you know, have seen consolidation and which is where we have not seen the kind of reduction, few other, you know, shipping lanes have seen, the trans-traffic lanes that are there. We are hoping that will happen. I mean, shipping across the board has a weak outlook, right? I think over the next 12 months, that is, that's one cost aspect that will reduce.
Realization should come down from next quarter as the past year happens.
Yeah. Absolutely. Yes. Yes. Slowly. Yes.
Like you said that our total liner, mining liner will be around 24,000 for the full year. What was the number last year?
About INR 17, INR 18, INR 17,000, I think.
INR 17,000, yeah.
This another addition, this new liner plant is contributing.
Correct.
Okay. Okay. That's all from my side. All the best.
Thank you.
Thank you. Next question is from the line of G. Goyal, a Chartered Accountant. Please go ahead.
Hello. Good evening, sir.
Good evening.
Sir, my question is on the EBITDA per ton side. Basically it is consistently increasing for the last three quarters, right? One year before, these were around 26,000 per ton. If I talk about 2021, these were only 24,000. In this FY 2023, in first nine months, these are almost double to 47,000. My question is basically, exactly what is happening? Is there any change in business economics that I'm not getting? Because I understand, sir, part of the reason could be the raw material pass on is happening and pulling off the raw prices. The thing is, your absolute EBITDA is increasing, sir. That can only happen if you are able to increase your prices in addition to the cost increase.
I understand your question, let me first and foremost, Mr. Goyal, tell you that you should not look at EBITDA per ton because it is not a correct, reliable yardstick for two, three reasons. One, we don't operate with a standard product. We have a very wide diversity of products ranging from grinding media, then liners for cement, liners for mining, then we have VSM, that is vertical single mill tabs, where the price range is very high. My point is that volume and pricing, they do not go in parity and hand in hand. Because of that, if you don't have a standard unit of measurement, you can't view it as a unit of EBITDA per ton. There are multiple. There is a product mix, then there are different geographies, different product economics.
We should always look at EBITDA in a percentage term. That way Kunal explained there are, again, on an operating EBITDA side, there are certain one-off sort of benefits that they throw. We always do a pass-through. For example, freight is 100% pass-through as a, the additional, the add a direct add-on item with the sales. On the other end, raw material variation is also pass-through on both positive as well as negative side, with of course a lag. When there are so many variables, EBITDA per ton will be a misnomer. Having said that, we have already clarified what are the reasons why this year you see a very sharp, this quarter very sharp increase in EBITDA. We've explained that there is a effect of Treasury.
Even if you remove Forex, if you look at pure operations, there also we have a benefit of raw material pass-through not affected, or rather the selling price adjustment not made exactly in tandem with the raw material reduction. You know, there are multiple factors which you have to take. As we explained, an operating EBITDA of around 22 % odd , pure operating EBITDA is what is a very base case, and there are chances it will go up. At this point in time, we are not giving any guidance on the margin. This is the scenario, sir. I can't answer why my EBITDA pattern is going up or down because I'm not internally evaluating based on that.
Okay. understood, sir. understood. The second thing, you mentioned, your volume will be around INR 3 lakh, the kind of, for entire year.
It's not INR 3 lakh this year. Yes.
Okay. Yes. For that complete, for the complete year also, you are guiding this 20%-23% EBITDA margins or you are guiding nothing?
We are not guiding.
High level.
What we are saying is this is the base case with which we will be working. Why we are not guiding? We have been in the past saying that our current entire focus is market share and conversion from forged into High Chrome. There are therefore very, very different challenges that we are facing. Having said that, we have a business model is robust to deliver higher margins than this 22 odd % we are talking about. Having said that, at this point in time, we are not saying that we will do it. We are saying this is 100% feasible, but right now there is no guidance on the EBITDA side or on the margin side.
Okay. That, that was one point. Second thing is, how you look at your topline, sir, after financial 2023 in terms of volume, if you can guide.
See what happens, we can only give you an indication about the volume which we have been very consistent. We are saying that at least a 30,000 odd ton per year incremental volume growth. Having said that, if you see my average realization in this quarter and the previous quarter is around INR 165 or so per kilo. That is a function of product mix, that's a function of the raw material pass-through and the freight pass-through, which has been reflected in a higher realization.
Having said that, if the raw material prices can come down quarter-over-quarter in a consistent manner, and if freight goes down, my realization per ton can definitely go down. It is not possible to let you know today because even we don't know. Therefore, a volume growth and a very consistent margin is what we are internally looking at rather than, you know, an absolute. Otherwise, you know, this absolute number in tandem, I can say there will be a 10% top line growth, but that may not happen. You get my point?
Understood, sir. Understood. Understood. Thank you very much, sir. That is all my side.
Thank you.
Thank you. Next question is from the line of Pujan Shah from Congruence Advisers. Please go ahead.
Hi, sir. First question would be on the first of all, the production for metric ton and the sales metric ton. In this quarter, we have total production is 64,000 and our sales is 71. I think from last, let's say from seven, eight quarters, we are low at production. Are we seeing any difficulty in the production side or like due to installing new facility, it has been like with the low production and it is, it can take some jump to 75,000, 77,000 in next quarter?
I think it was only a working capital optimization. I mean, that's something that we keep doing. As there was a higher amount of stock, if you go back to our commentary over whole of last year. Because of containers not being available, we were keeping more stock in transit, right? Against an order to make sure that customers, there is no situation when the customer is without, you know, supply. I think progressively as things improve, today we are not, you know. Speculating on how much improvement can happen, but we've been able to do so because there is visibility of containers and shipping lines, you know, and delivery times. There is some amount of adjustment that we are trying to do at this time. I think it's just a optimization exercise right now.
Just to add, when you say difficulty in production, there is no technical difficulty. It's just an average operating capacity utilization of around 65% that we are currently having. It will inch up as the volumes go up, but we can't go beyond 75% or 80% theoretically because this capacity is also calculated based on a assumption about a particular product mix. So, you know, Also Sanjay Majmudar, are the plants that we are setting up are higher capacity, right?
50,000 ton Mill Lining plant, we cannot utilize that in the first year. As we grow and our minimum size of plant is a little higher, is where, you know, utilization levels appear a little low. That is why we're trying to give some guidance on sales volume each year, you know, for that visibility.
Okay, sir. Okay. Sir, the INR 300 crore CapEx, I have actually not get that point, so I missed that point on that one. Is that INR 300 crore plus INR 200 crore grinding media?
No. Total INR 300 crore CapEx for next year, FY 2024, as we speak, you know, of which majority is towards the grinding media expansion that we are doing. About INR 200 crore goes towards that. That is INR 200. Yeah.
INR 100 crore?
INR 100 crore, there is we need to buy, you know, land. There's a lot of. We are setting up plant, yeah, internal optimization efforts are going on. INR 30 crore towards buying land and INR 70 crore towards maintenance CapEx, some other, you know, capacity rationalization, et cetera, automation, other projects that we have taken up internally.
Ok ay, sir. My third question would be on the INR 2,300 crore cash. I assume that INR 300 crore would be deployed on the CapEx part for the next year. Still we hold INR 2,000 crore of cash, any cash and equivalents. What are the plans of, we are planning to getting into? Are we looking at inorganic opportunities or, we are, rewarding shareholders for some portion for that?
No. I'll tell you, we have been very consistent on this. We are, A, very conscious that, yes, we are carrying a significant volume of cash or liquidity with us. Having said that, it's very strategic because, A, as we explained year-over-year, we'll have to do CapEx. B, we will also have to invest significantly in our working capital because we are concentrated in India in all our production related efforts, and the sales happens across 125 countries of the world through a network of more than 20, 25 warehouses that we maintain, and we'll have to ensure that we are able to give just-in-time deliveries to customers.
There could be some opportunity, but at this point in time, we believe that till we reach a reasonable level of sales in mining and we acquire a decent market share and we reach a stable, internally stable situation, we want to have that luxury of carrying a little bit of extra cash and liquidity. Yes, we are conscious that the current payout ratios are not high. Having said that, we are reviewing it and we will definitely evaluate that if there is a surplus cash available and there is no such opportunity in sight, we will take an appropriate call. At this point in time, at least for next one year, we don't want to take any such call.
Okay. Can I squeeze one question more, please?
Yeah, yeah, sure. Go ahead. Yeah, yeah. Yeah, yeah.
Sir, on the mining and other issues, if we have been great improvement, like let's suppose from FY 2021, we can see from 20,000, from 16,000 to let's suppose we have reached at 27,000 others. Are we saying the others have been more margin-lucrative compared to mining media or like the margin have been all dependent to the commodity cycle and how the actually the rationalization goes on?
No, no, sir. I don't think so. Cement and mining largely have a material margin difference. I mean, these are all products for us, and pricing for it is a combination of a lot of things. But margin, the expansion of margin that has happened is of course, you know, there is some amount of commodity pass-through that is there. You know, that remains, and some part of that we'll see a, you know, easing going forward.
Okay, okay. That is from my side. Thank you, sir. Thank you.
Thank you. Next question is from t he line of Priyankar Biswas from Nomura Securities. Please go ahead.
Congratulations Kunal bhai and Sanjay Majmudar for very good result, I would say.
Thank you.
Thank you.
My first question is, like, when I see your numbers for the nine months, it seems that for this year you are very much on track to do possibly INR 100 plus EPS. That is what it seems like, I mean, based on the nine months. Next fiscal year FY 2024, I believe that there would be some price pass-through to customers. I mean, as the things cool off the freight and the commodities. As you said that, like a 22% margin broadly. In the next year, how do we grow our profitability or PAT? Because it seems that this year is so high that it even with a, let's say, 35, 40 KT growth next year, it becomes kind of a tough. That's the first question. What are your thoughts on that?
Priyankar, thank you for telling us that, yes, our EPS will be 100 this year.
My point is, as a management, we really, really don't look at the numbers from a narrow standpoint. What we know, we know what is the opportunity, what is the challenge, and what we have to achieve. We know that if the opportunity is, say, 2 million tons or 2.5 million tons, and I'm presently still scratching the surface, so to say, I have to ensure that I keep on going and converting maximum number of mines and reach a position where I become a dominant player in the space where I'm operating. We know that technically, technologically, we are unquestionably a leader today in the world. Whether from a market share standpoint, what is it that I want to achieve? The whole focus is how do we convert mines?
Of course, make it profitable, of course, ensuring that once we convert, generally the customer stickiness will ensure that I keep on growing my business with them. As Kunal explained, and as we are very clear, a one-off can always happen, one-off on the positive side, one-off on the negative side. What is very important is that is my business model robust enough that year over year, if I gain, say, 10%, 15% market share or top line and I continuously increase my sales, can I maintain or even grow my basic core operating EBITDA from what is it my current level? My answer internally is yes. Yes, we can do that. My business model is strong enough. Having said that, therefore, we are not worried that if this year, say, my tax breaches what is nearly INR 1,000 crore or, say, anything closer than that.
There are years where, you know, we had shown that there were dips. This is a very different year. Of course, our internal endeavor will be to see that we continue to deliver similar decent numbers. There is no internal comparison that if this year I've done 1,000, I have to do 1,200 next year. What is important for us is what is it that I'm gaining? How many new mines I'm gaining, which are the new markets I'm surmounting, and how my traction continue. This is the entire focus. I'm sorry I'm this candid, but this is the fact.
That's quite a nice answer. Since you talked about the markets and all, so actually two related questions on that. Since you are exploring out new markets, so what are the geographies that we are seeing a very strong traction right now? Parallelly, within this strong results for the last three quarters... Sorry, for this quarter, was there some benefits from the SAL acquisition that you had done to vertically integrate into the raw material space that you have done, I think three, four months back? Was there any benefits of that, I think?
There is-
No, I'll take that. Sorry, I'll take that. First question, I think when Sanjay new markets, I mean, there is enough work that's already done. We just have to harvest those efforts, Priyankar. There is not one new mine that we are going to where we expect a lot of work to come. We have been dogged in our perseverance, in our efforts to keep engaging, keep, you know, ensure, keep demonstrating that we can be a valuable partner. It's a longer lead cycle, as we've continuously tried to explain. The, the benefit of this long lead effort is that once we are in, it will remain for a longer period. We don't go through the vagaries of, you know, subsequent economic cycle. I think from the market standpoint, business as usual, that was in my initial commentary.
There's nothing material that, you know, we haven't mentioned or talked about. The ferrochrome part, the agreement that we have done, I think is on track. I mean, we are slowly ramping up, progressively. We are also a listed company. I don't think we want to speak much about it. I think it will just remain as one of our supply partners along with other purchase vendors that we buy from for our raw materials.
Kunal, I actually meant like, whether there were some benefits from this agreement this quarter, like?
We said it was not benefit linked, right? It was more trying to protect the supply chain. More than anything else, ferrochrome is an important raw material for us. There is a plant in Gujarat which is getting the raw material. You know, it just gives us comfort that, you know, if something were to happen to the large one or two other sort of vendors we are buying from, there is supply chain visibility.
Kunal, just last one question from my side. It is a bit ESG related. What is happening is, like investors nowadays are often asking this question, like of the Carbon Border Adjustment Mechanism that the Europeans are proposing, and maybe it becomes more prevalent in the whole world. What are our thoughts regarding reducing the carbon footprint? Any steps that you are planning to take, let's say.
We are very proactive. We are very conscious, Priyankar. Last year, I think 23%, 18% or 23%, I've not thought of the head, but a reasonable amount of power came from our own renewable sources, right? I think we'll take it to the max possible, which is 30% or 30%. Given we are a foundry where our loads are variable, we cannot go to 100%, right?
Mm-hmm.
The base load that we consume, you know, based on current policies, you know, in states where we are present, we can go up to 30% or 35%. I think 30% broadly is what we will surely go to. It, you know, it also saves us cost, so there's no reason for us to not, you know, pursue that. Over and above that, there's a large carbon footprint saving that we do or reduction that we do on the customer side, right? If you are helping to produce more, if you're helping to recover more metals from the waste ore that goes out or reduce power consumption at their end, right? That's a material. Or reduce the toxic, you know, waste at the mining side. Mining companies, you know, reduction of footprint at their end is what a large part of our business is.
I mean, we are doing work to, you know, quantify and put numbers around that. It's not easy because we don't get a lot of that data back from the customers, right? Or rather, endorsed data from the customers. They don't want to share their numbers. We know it's a very material, you know. Power is one of the biggest, carbon footprint from our standpoint. If you can, you know, we are only at 20%-23%. If we go to 30%-35%, that itself is a material step forward for us.
Okay. Thanks. That's all from my side, Kunal.
Thank you, Priyankar.
Thank you. Next question is from the line of Abhilasha, Individual Investor. Please go ahead.
Hello.
Go ahead.
Yes.
Yes. Can you explain the warehouse establishment strategy? Like we have our current nine warehouse globally, so how do you decide it? Is it volume dependent? Can you elaborate on that?
I think warehouses are not in the sense that other companies have, where you have a stock of material, then whoever comes, you replenish or fulfill from that location. Most of our warehouses, barring I think two or three locations, are customer specific stocks. When a customer places an order on us, given that we are not based in those countries, right? We are based in India. We're producing and exporting out of India. You know, they get comfort if there is stock on the ground closer to them. We are doing a door delivery supply. We are not using the third party intermediary doing the fulfillment or the last mile sale to the customer, right?
It's under our own agents. A lot of these stock point locations are stock meant for a customer against an order which is already placed, right? The strategy is that if there's a customer placing 10,000 or 15,000 tons of product from us, which is 1,000 tons a month, we are very happy to stock two or three months of stock closer to his location so that he gets a visibility for, you know, between four and six months. That, you know, absolves the need for a local plant for us. It's built, you know, it's more customer specific and depending on the, you know, the ocean lines, you know, et cetera around that country.
Okay. The understanding is that we have nine warehouses, right? Considering that you said that the stocks are customer specific, now we are in various customer across cement and mining specifically. In turn it is, it would be one warehouse would be carrying, you know, different kind of stocks for different kind of customers, right?
A warehouse would be specific to a customer, but it could be a same point where other... What are you coming to? What's your end question?
I don't understand.
Get a bit of context of what you're trying to get. Maybe the answer is different when what you're trying to do. What, what are you coming to?
There are more. We are talking about 18-20, not 9. I don't know how-
Nine are.
From where you got this number. Maybe you are referring to
No, no. Sanjay, I'm just saying that what is nine... It keeps changing, right? Today a customer changes, he may agree for a direct supply. The number of warehouses has got material. What is your question? What's the context that you're trying to understand? You know, maybe.
The context is interesting trying to understand is, you know, how are modus operandi of the businesses in terms of supply. When you say it's a direct supply.
More than 70% supply is direct. It is more than 65%, 70% of my supply is direct. The balance in that customer specific, there is no rule of thumb, you know, within that, where, you know, depending on customer circumstance, between one and three months of stock is kept for their comfort when we start off. As we go forward, they get more comfort, we try and reduce that stock. There is no rule of thumb. There is no specific overarching generalized, you know, statement I can make about our strategy for that.
Okay. Okay. Understood. Understood. Can you explain that where is the application of a forged media, which is still better than a High Chrome?
I think, can we take that question offline? There are, you know, many other investors who probably understand this difference. We'll be talking about it. Sanjay or I can, if you don't mind, we can spend half an hour and maybe explain a little bit more under how forged and what our strategy is.
That's a fundamental question, because everything is a grinding application. Only thing is our media reduces the wear rates and makes the whole process efficient. Otherwise, it's the same.
Yeah, it will require a little more context. I think just for the benefit of everyone else on the call, if you don't mind, we can have an offline chat and explain a little more of what we're trying to do with this.
Sure. Because I'll just mention where I was coming from, and then I'll go to the next question. Is that in the Canadian International Trade Tribunal order, it was mentioned that SAG Mills only use forged and not High Chrome. That was just the context where I'm coming from.
There is no criminal action there. It is just Magotteaux. We compete with Magotteaux, and as a competition, they do various, you know, they try various means to keep, you know, as a defense mechanism, right? They have a local plant over there. They're going to a body where they're, you know, alleging that there is a competition related issue. We are fully cooperating. It is a sub judice matter. I may not be able to speak more about it, but it is a market where we are already supplying High Chrome, and they are also supplying High Chrome.
Yeah, I understand. I didn't mention anything criminal. I just mentioned what was mentioned in the tribunal order, sir.
The tribunal order mentions criminal.
You're right, yeah. We mentioned criminal, yeah.
Tribunal, sir, not criminal.
Sorry. My bad. Yeah. It is more the market is High Chrome, where we are, us and Magotteaux are supplying, and it's related to those supplies.
Okay, understood. In the R&D expenses, where do they get reflected in the annual report, sir? Under which head do they get reflected?
R&D expenses are not in nature of where we invent a new alloy. A lot of work that we do is cause-and-effect linked. Whether doing a new design, whether doing a new alloy. We were trying different combinations of chemistries and metallurgy and microstructure related to heat treatment on top of that. Most of that work is where we doing a supply, right? Depending on end user conditions. You know, we design a product, we design the shape of the part or if they are a casting. The alloy of this grinding media, the alloy or what size to use, depending on that end user conditions. A lot of our innovation comes from giving a solution to a set of end user conditions.
Unfortunately, it's very difficult to carve out expenses across the value stream and park those under R&D expenses, because a lot of R&D that gets classified is more related to innovation and, you know, which you've got a lab or you've got a bunch of people whose costs get allocated over there. Most of these are costs that are operational in nature and are accounted as such.
Okay. That will be a part of costs basically, right?
Yeah, absolutely. Part of operating expenses. Correct.
Okay. Sir, sir, can you explain what % of our receivables are parked as retention money?
Nothing. There is no retention in my business. We are not EPC contractors.
Okay. Because there was some mentioning of retention in the annual report. That's where I came from, sir. Okay, no problem, sir.
Huh? Hardly. Hardly anything. Not a material amount. I mean, there could be some customers, you know, where there is some performance, if we have given a new product and some amount, but it's not a material amount, you know. Maybe it's an accounting classification, but nothing material that, as a concept, we don't supply, you know, where our money is tied to any end goal, right? It's led to, except if it's a trial or if we've given some new guarantees to get in or do additional work.
Thank you. Abhilash, I'll request you to come back in the question queue for a follow-up question.
Thank you.
The next question is from the line of Dhananjay from ASK Investment Managers. Please go ahead.
Hi, sir. Maybe you mentioned this, but what volumes were you targeting this year, and what were you targeting next year?
Around 30,000 tons additional. Incremental additions. We're talking about close to 300,000 tons this year and about 330,000 around that about next year.
Okay. 330,000 next year. This includes, you mentioned, 24,000 tons from the mill liners for next year.
No, no. Even is a part of my total volume. We are talking of incremental volume.
Okay, fine. You said INR 300 crore CapEx in FY 2024, INR 200 crore before grinding media, land INR 30 crore and other INR 60-INR 70 crore. Is that right?
Correct.
Okay. Sure. Thank you, sir.
Thank you.
Thank you. Next question is from the line of Charanjit Singh from DSP Mutual Fund. Please go ahead.
Yeah. Hello, sir.
Yeah, hi.
Congratulations, Kunal bhai and Sanjay Ji for very good set of numbers.
Thank you, sir.
You know, in a very tough environment with so many challenges, we have been able to achieve very good volumes for the first nine months. Sir, my first question is in terms of, when we look at, you know, despite the duties which got imposed in, you know, three different regions, we have been able to achieve, you know, a good set of volumes and have been able to make up for that 25,000-30,000 tons of shortfall in volumes. Can you just touch upon, you know, has it been a new customer, you know, acquisition which got accelerated, which helped us or any specific region or customer which helped us achieve this, you know, in a very tough environment? That's my first question, sir.
I think it is, it's just that those four years, three years, we didn't grow because of those reversals. The whole thesis, sir, was that, you know, there is enough market for us, right? We've been talking about a market in excess of 2 million tons, two and a half million tons, 3 million tons, even for forged material, you know, where chrome is only half a million tons. There is this, you know, reasonably large runway for us to continue to grow. It's just that we talked about it, and these reversals meant that our growth was not visible, right? Here, I mean, so we've made good some of that and continued to grow.
The idea is that, you know, if our thesis is correct, if our understanding of the market is, you know, reasonably on cue, we believe that chrome is a better solution than forged in material working conditions, in material number of mines, you know, where it will allow us for that growth runway. As we grow, this is all uncharted for us, even for an Indian company to be selling directly to consumers in 120 countries. This is not a commodity product. It's a solution-driven, where we engage. There are consequences of using our product, right? To that extent, that's the time it takes.
Which is what we've not been able to, you know, really plug and say, "I'll grow, you know, X amount this year versus next," just because of the decision-making cycle there is. Yeah, I think this growth has, is a mixed bag. It's existing customers having grown. Clearly these are new customers, you know, where we've migrated from forged into chrome. I think it's the whole thesis that we've been talking about, you know, coming forth, you know, in this volume addition that has come along.
Okay, sir. The other aspect is now again for the next year, we are very positive in terms of doing 30,000-35,000 tons of incremental volume. Here, will you be able to, you know, help us in terms of the incremental, how much will be from new customers, how much from existing customers? How is the new customer pipeline looking like, you know, from number of mines you would be targeting?
Sir, for in our case, even if it's the same customer, if I'm getting more volume, it's like a new customer for us because the whole effort is different, right? It's not where the customer is growing or giving us half and saying next year I'll give you more, right? You know, we if it's a different site of the same customer, the effort is completely independent of work that we've done before. The whole effort to, you know, do proof of concept to make sure we are doing enough trials to give comfort, discussion on pricing, you know. Okay, there'll be some relief that there is reference from a related mine site, large part of the effort remains the same. The new 30,000 tons is, you know, the 30,000 tons you're talking of, I would say at least 85% would be new customers.
Okay. Great, sir. Sir, we also talked about, you know, liners now picking up pace in terms of overall volume next year. We have been doing, you know, a fair bit of testing with the customers. Do you think that, you know, next year as our solution gets implemented, there could be, you know, positive surprise to that in terms of EBITDA margin or the profitability profile you have touched it also earlier. Has there been any kind of, you know, increase in the overall, you know, profitability what we see on the liner side?
The liner is still 25,000 tons of 300,000 tons, you know, less than only 8%, 9%. Like we explained, mill liner, liners are part of the non-casting, non-grinding media piece of, you know, what we do, which anyways had a higher margin compared to grinding media because the cost effort, everything is not comparable. I don't think so. It is more mining liner related margin. Clearly I think there is a... As we go forward, as the world realizes that, you know, as today, you don't get people to do menial tasks let alone engineering and high-end work in the Western world. It's starting to reflect in China. It's come, it will happen in India, right?
I think for a type of business that we are in, where you need hands to do work, you need skilled hands wanting to work on the shop floor. Going forward, we just remain optimistic about it, that there are enough moats in the business that a fair margin would, you know, continue. Now, that fair margin is a very, you know, complex subject. To that extent, we've coming from Bajaj by the whole philosophy is that we want to keep this business for many more decades. Our 2022 is a robust margin. We've done 25%, we've done 28% in quarters, we've done 18% in others, that's linked to a lot of other things. We've stopped, you know, spending our time and effort to postulate what will it be next year or this quarter.
From a margin standpoint, please allow us that, you know, we are not able to give more color on, you know, beyond what I've just said. From a tonnage standpoint, I think mill liner is exciting for us. Just the whole competencies coming together. It's a very, it's a product aligned to everything else that we are otherwise doing. We've seen many, many years where we've talked about it, not delivered or the growth has been slower. I think 30,000 is a good place for us to start and stabilize from. Maybe a better guidance in another 12 months, right? Mining liner is also fairly new for us. As a philosophy, we would not want to extrapolate one or two good quarters into a guidance going forward. I think 30,000 tons is a fair guidance to leave with, you know, for now.
Got it, Kunal bhai. Thanks for taking my questions and giving detailed responses. That was all from my side. All the best.
Thank you.
Thank you.
Thank you, sir. Thank you.
Thank you. Next question is from the line of Bhoomika Nair from DAM Capital Advisors. Please go ahead.
Yes, sir. Greetings, sir, and congratulations on a good set of numbers.
Thank you.
Yeah. Most of my questions have been answered. Just one or two things. You mentioned that, you know, there's, we've started now kind of, the pass-through is much more easier with the clients. If I could just take a step back, how has the nature of the contracts in terms of raw material pass-through or freight pass-through, any other co-cost pass-through, how has that changed over the last two to three years, in general times?
I think the struggle was so when the raw material costs were going up, I think the pass-through was coming along, but by the time you pass through... See, first of all, it's the discussion on pricing is very dicey, right? It goes up, but you know, when you're, when it's going up, you always feel this is the top and chances are it's coming back. You don't want to waste your conversation with the customer on a pricing discussion unless it's inevitable and required, because there are plenty other things that we do with them, right? I want a higher price because of a better value addition and not because my raw material price went up. It started with saying maybe here is the top, we'll come along to it.
But obviously the formula, the pass-through and all of that is there. Cost, raw material cost, you know, there is a fair bit of pass-through. Even if there's a pass-through, customers are always coming back and saying, you know, can we do 80% of this, 70% of this, all of it, you know, they're large customers, right?
Sure.
Raw material pass, and by the time the pass-through came up, the prices, raw material cost went up higher even, right. That cycle was there for two years. We never went to fair margin. You know, I recovered, but by the time my cost went up again.
Right.
The big thing was passing through of the shipping cost. That was never part of the contract, and it's still not part of the contract. It's just that, you know, here's my shipping cost and here's because I can't contractually, you know, there's a lot of volatility. There's a little bit of complex science behind shipping. I think the big win for us was to be able to pass through that, right? That was a, that was a direct question on my model where I'm producing in India and supplying to the rest of the world. Shipping rates go up, and there are local incumbents, right? Maybe these forging guys and others. Thankfully, all of it came through. All of my shipping cost has been passed through. I don't think many companies can lay claim to this statement, right?
To that extent, there is a. This reinforces that everything that we're doing, the cost structure that we have, the talent that we have in India, right? The place that we have built in and the global footprint, you know, and the structure that we have, it's it over a three-year period, I think it. That's what the endorsement, you know, that comes through. I think the contract is still a pass-through for costs.
Right.
Shipping is something that, you know, is something is being discussed on a spot basis.
I'll just quickly add. I think most of the contracts are long-term, three years or above, and the purchase orders are typically for a quarter. You know, these adjustments, they happen quarter-over-quarter. It doesn't happen every month.
Got it.
Yeah.
Now on the way down, right, when commodity prices are starting to slightly correct, though there is some bit of volatility, freight is obviously falling down quite a bit. Would that also get passed on with a decent lag now where it is again?
Bhoomika, by the way. Raw material is a quarterly adjustment in a fair number of contracts. Raw material is not something that we wanna sit with and keep talking about each time. Where raw material pass-throughs are coded into a large number of contracts, and that'll happen as is. Wherever the price is at the end of the quarter, that becomes the basis for the subsequent quarter.
Fair point. The rest of it will be based on discussions of how much they want to take a price hike.
Exactly. There's a thin line between coding everything and, you know... For example, auto component companies where, you know, their customers are tying them every nut, bolt into cost, and a structure is there, right? And that's something that whether that's a you know, structure you want versus where we are, where there is we would like to keep discussing because there's a value add which we are bringing along, right? We are not a replaceable vendor because there is always a conversation. My sales guy is always at the site to discuss new opportunities to add value, right? The discussion on pricing should be the last conversation, right? That's where-
Right.
You know, Yes?
Yeah. Got it. Got it. The other thing was just, what has been the price trends in ferrochrome of late, in terms of December, January? Because there was some up move in commodities. Are we seeing-
Exactly. It, it reduced, but it went down, say, by 15%, went up by another 60%, but bounced back. I think it'll be about 10% lower than about nine months ago, 10%-12%.
Okay. On the volume trajectory, clearly it's very heartening to see the kind of up move that we are seeing, you know, close to 300,000 this year, next year about another 30,000-40,000 tons. If I look at mining within that, it will be about 200,000 tons. Now in terms of the overall market, obviously it's much larger. What can possibly help accelerate this additional volume to, you know, maybe a 40,000-50,000 ton kind of a range or higher? What additional steps do we need to do kind of to grow at a faster pace? Where does that tipping point come where we see a faster acceptance or faster turnaround with new clientele or.
I think the emphasis is, Bhoomika, it's been a three-year wild ride. I think it's just to stabilize, continue to grow. Our customers are not such that we are not an e-commerce business where, you know, there is hyper emphasis on high growth, right? The idea is that we want to grow, but we have to grow making sure we're not doing anything inadvertent at the customer's end, right? We don't wanna go give out guarantees or give out benefits that may not accrue and leave, you know, tha t conversation with a heartburn.
I think 30,000 tons for now is a fair amount of growth. Of course, we can do better and more. I think given the variables, given what we've seen over the last five, seven years, we would rather wait and watch. There could be opportunities to do more, but for now, as we learn about the world, you know, and growth within this environment, I think we'll be happy with the 30,000 tons for now.
Okay. Okay. Great. This helps. Wishing you all the very best.
Thank you.
Thanks.
The next question is from the line of Bhavin from SBI Mutual Fund. Please go ahead.
Yeah. Congratulations, Kunal bhai and team, for a great set of numbers.
Thanks. Thank you.
The question is, the EBITDA margins that you've reported in this quarter of about 30%, excluding the non-operational income and foreign exchange gain, if you were to take business as usual, we understand it's not never the case, but given the lead lag in pricing on, what would have been a normalized margin in this quarter if you take off those lead lags into consideration?
We've not done that exercise. I mean, we can do it, but I don't think it helps us, you know, any better, doing the bridge, you know. We have to work on it, what that margin would have been.
Okay.
Just putting it the other way around, you know, we have been saying that our normal operating EBITDA under normal set of circumstances could be anything in the region of 22% or thereabouts, a little higher also. Yes, we have been supporting better operating margins. You know, as we have been repeatedly saying, we are not giving consciously any guidance. I think a very base case scenario of 22% would be a better number to work with on a long-term average basis. It can move up year-over-year, but at this point in time, we're not giving any guidance on that.
Sure. The second question again, which is a sub-part of this. If I look at your employee cost over the last three years, I mean, the quarterly average has been in that INR 36, INR 38 crore a quarter. Over the last three years where we have seen significant amount of inflation, you have increased capacities and volumes. If you could give us a perspective, how has this been managed? Is it through increased automation, lesser manpower working with incremental? That it'd be useful to understand as we see that at least a percent and a half has come from the operating leverage benefit from it only from the employee basis.
Yeah, I think, but that will catch up over a period. I think employee inflation in India is, you know, already picking up. Over the last three years, you are absolutely right. We've done a lot of optimization. We used the COVID period. We were already lean, right? We have already. We don't have a fancy head office. There weren't costs in my P&L, which were outlandish. There weren't any. There is no fat in my overhead. Nevertheless, we went through the plants. We optimized, tried to optimize whatever, right? During those three years, we tried to keep the same absolute number, which is by some optimization at the plant level. All the capacity in the production we added, we tried to do it without additional staff.
I think broadly that was what we started with. But this figure means, you know, you'll start seeing some amount of increase there. Also, our manpower costs, some amount of contractual manpower costs which would have gone up are sitting in other costs. You will have to add both to see the real impact, you know. At an employee level, I think it is, I don't know what it was last year or the year before that, but we've done some amount of optimization, and the balance is in my other expenses, other expenses.
Just one thing to add, Kunal. As a percentage, it might appear to be dropping, but if you compare absolute numbers, this is about 10% increase year-over-year as a normal increase, about 7%-10%. Yeah. That's what it is. Percentage would appear to be a little-
Manpower is an absolute. We try to do manage growth with the same manpower, I think. Exactly.
Yeah.
Okay. The other question is on the realization. We have seen about almost INR 172 a kg this quarter, you mentioned about softening of the input prices, which will now come in. What we want to understand is in your pricing, how have the structure like, because freight is a large element, what part of your pricing or the contracts that you have are CIF link pricing? Given that the volatility that we have seen in freight is also negated, and if you were to take these one-off element, the volatility out, this INR 172, what directionally would we see it like 10% lower in the subsequent quarters?
Very difficult to put a number to it, gradually, yes, it can go down a little bit. What exactly, how it is going to go down, frankly, it's very difficult to decipher. Very difficult. See, everything is not automatic. Like, it's always subject to some negotiation. If it goes up fast, it may not go down in the same proportion or with the same speed. Around over a long term, our average commodity cycle goes down, there would be a reduction, maybe 5%-10%. Again, it's a guess. There is no arithmetic which we have put to it yet.
Sure. As things stands today, given the current freight and the input prices, what would this 172 be? Will it be like... As you mentioned, there is a lag impact.
No, I explained. No, we have not done any maths to explain that Q4 or Q1 next year. We may maintain over a longer period, if not strictly quarter-over-quarter. If this trend continues, it could be 5% to 10%. Yeah.
Understood. Fair. The other question is on when we had the question on the Canada, one of the explanation that you highlighted that, okay, now all is not gone, but given the way the freight had gone up from $3,000 per container to $8,000-$9,000, it's become economically questionable because of the freight. Now that freight has reversed completely. Could we expect that 50% is not lost? Can you see that reversing, or are we already seeing that reversing because the freight normalization has already happened?
I think as a decision as far as Canada is concerned, given it's subjugated because they are investigating again, there is a large market for us, you know, across the world. We would rather not keep talking about Canada as a specific point. I think it may come, it may not come, some may come, some may not come. I don't. We are working in a way where that's incidental, right? Just like cement is today, right? If it happens, tomorrow something else may happen, right? Now there is a conversation, there's a local plant and there's an authority involved, you know, looking into it.
You know, to that extent, we would rather be, you know, in a free market situation and do our bit. If, if it's okay, we would rather we have decided not to speak about the Canada business, and we consider it not a material part of our operations.
Sure. Appreciate that. Last question. There was a lot of effort being put across on some of the South American markets which are large copper producing mines, but our share here is much lower. Could you talk about, you know, the progress that we have had since a year or so that we've renewed focus in that part of the world?
I think, you know, again, that the whole effort there, we are making a lot of effort in those markets. There was a large pushback on account of freight costs, right? Because it just became the highest freight cost from India were to South America. You know, there was no commercial conversation or viability given that high cost. Now that shipping rates look to be on their way down, they're still not corrected as much. I think it's just becoming an interesting time. We are doubling our efforts over there. It remains a very important market for us, and we hope that we have something interesting to share in next few quarters.
Sure. In our guidance of incremental volumes of 30,000-35,000 for the next financial year, have we built in something coming from incrementally from the South American, Latin American market, or it's agnostic of that?
Again, it is agnostic of that. I mean, yes. Today we are saying there will be some... Our plans are very different. You know, we want to do much more. There's a lot of effort already done, right? If something from South America may come and something else may not come, I think 30 is what where we are comfortable that this much should happen. I mean, it's not contingent on one or two or three mines coming up or not. You know, we have assumed some portion of our considered market not coming. Now, whether that does not come from South America or another market, I mean, it is a question today.
Great. Thank you so much, and wish you all the best.
Thank you.
Thank you. sir, we still have many questions. Would you like to go ahead? We have exceeded the time.
Yeah, yeah. We can. How much more questions you have? How many more questions?
Sir, you have around seven questions in the queue.
Let's quickly finish them. It's okay.
Yeah. A request to all the participants, please restrict to two questions per participant. If time permits, please come back in the question queue. Next question is from the line of Anupam Gupta from India Infoline. Please go ahead.
Yeah. Hi, Kunal. It's Anupam. Good set of numbers. Just quickly harping on the realization subject. Do you have a sense of what the exit rate of realization was versus the INR 169 for the quarter which you have reported?
Sorry, say again?
The exit rate of realization, let's say what you repriced in December versus for the average of the quarter. Was there a material difference?
Second quarter was 167, third quarter was 169.
Let's say, what I'm asking, let's say what was it in December, if you have that sort of a sense versus average of a quarter?
I don't have that number, no. Which is the, you're talking of a particular month?
Yeah. Whatever signs you looked at, what sort of reduction has happened in December, although November, October, November.
No, it is not monthly. Generally the pricing is for a quarter when which is based on the previous quarter's cost. We don't have a monthly adjustment, Anupam, there.
Fine. Okay. Second question, just want the export split. As a revenue, we know that 80% is exports. Let's say if you look at in terms of volumes, what is the export mix? Again, within mining and non-mining, what is your export mix, if you can broadly tell us that?
I don't think it will help the underlying question that you may have. I think we'll leave it to this macro figure.
Okay. Okay. Understood. That's all from my side. Thank you.
Thank you, Anupam. Yeah.
Thank you. Next question is from the line of Amar Maurya from AlfAccurate Advisors. Please go ahead.
Yeah. Thanks a lot for the opportunity. Two questions. Sir, you indicated that, you know, 3,000 was from the new plant. Basically, 6,000 is from the old capacity for the Mill Lining, right? 3,000 additional we did this quarter, correct?
No. I was only saying that there is a general question on what's the update with the new plant. I preempted that by saying whole year we'll do about 5,000-6,000 tons from the new plant, which, you know, is part of the total approximate 24,000 tons that we'll do full year for mining mill liners.
Okay. Sir, capacity doubled, right?
Capacity is 50,000 tons for the new plant.
Correct. When you say 6,000 tons from the old plant.
No, no. 18 came from the existing plant and 6 from the new plant. That's broadly what I'm saying.
Okay. Okay. Then year- to- date.
Okay, year- to- date. That's where. Not year- to- dat e. For fiscal year 2023, that's the guidance. That's the guidance. Okay. But then we expect the utilization of the new plant, let's say, what would be the utilization for 2024 then? 2024 we'll do about 50,000 tons. Our guidance was adding 10,000 tons approximately each year to be fully utilized between 4 and 5 years, right? In 4 to 5 years. That we are on pace for that.
Okay, perfect. Perfect.
Hopefully do better than that, but at least that much.
Sure, sure. Secondly, sir, this power cost, I mean, even in this quarter reduced significantly. Should we see that further going ahead in the quarters, the power cost will reduce further?
Power cost reduction is, I think, not really material. There's also this cost savings that we accrue from our captive power sources, plus the little bit of efficiency that kicks in. Otherwise, I don't think cost will reduce. It, in fact, it will only increase because of, you know, the state electricity board where we buy from, we don't expect a reduction there going forward.
In this quarter per ton power cost has reduced. That is why I'm asking.
Per ton, I've not done the math, but that's also product mix and other things, right?
See, power cost is a function of two, three things. How much WTG credit we got, how much production was more or less. you know, there is a variance analysis we do quarter-over-quarter. this quarter, one of the key reasons is that there is actually a reduction in production.
Okay. No, exactly. Because per ton should not impact, right?
No. Again, that's exactly what I'm saying. Don't go on per ton basis because we don't do internal per ton calculations at all. It is very, very misleading. A large volume plant operating at a higher capacity, which are with a semi-automatic or a manual large casting plant operating as a different metric. you know, therefore it's very difficult. We don't do per ton. It's not possible. Per ton power cost is not possible.
Actually, it will not give you the correct yardstick. Our cost has. In fact, if I just do the math, we've produced 80,000 tons at a cost of INR 102 crore last year. Last quarter it was about INR 1.27, and that's about INR 1.03. I don't know where you got the reduction, actually. Kunal, therefore it's very difficult. No, it has not reduced. Let me clarify. Cost has not reduced per ton of production. It has in fact gone up slightly. We can take this offline, for 80,000 tons there's INR 103 crore. For 65,000, 64,000 plus it's about INR 84 crore. That cost has not reduced. You can just do the math again and connect with us offline if you still want to unpack that further.
Thank you. Mr. Maurya, I'll request you to come back in the question queue for a follow-up question. The next question is from the line of Sajen Kumar, individual investor. Please go ahead.
Yeah, thanks for the opportunity. Well, congrats, Sanjay and Kunal bhai, for the great set of numbers. You know, while you continue to, usually cricket parlance, you know, while you continue to guide like Dravid, but you, your actuals are, you know, like Sehwag hitting the ball out of the park. You know, I just want to know why you have remained so conservative in your guidance.
Sir, when you run a business like ours, you'll realize the amount of variables that we work with. We honestly, the idea is, and again, I'll give a short half a minute answer, is we actually focus on the long term. A lot of our customers are there for a long period, right? There's a lot of solution-driven conversations happening. It is as long as I'm doing that job well, the outcome is going to be okay, right? That's where all our effort goes into. The outcome, currency changes, raw materials change, shipping costs change. The competitive scenario changes. Some duties in, you know, position comes in. The idea is that despite all of that, how can we continue to grow and keep a decent margin and keep the market for a few decades going forward, right?
When we look at it, I think 20, 22% is a fair margin to keep. You look at us on a 10-year period, we may not be very far off from there, right? When costs are going down and previous quarter raw material savings are still there, we've not passed through that. There will be some amount of extra margin sitting over there, right? That's what we have explained. You know, our guidance does not adjust for, you know, timeline related differences that may come along. I think that's the only difference to that, you know, in our guidance.
No, no, I completely understand. No, no, I just wanted to congratulate for the great performance. Sir, just to elaborate on the same point, you know, I just want to know how much of Forex movement you need to pass to the customers, or is it something that will be retained by the company?
We build-
The reason why I'm asking is this year rupee has depreciated almost 10%, vis-a-vis the dollar.
Sure.
That could have also contributed to your EBITDA, you know, like what are the constant 20%-24% guidance.
So that, you know, absolutely. It does not flow. We are not a... It's not like an IT company, you know, selling to a U.S. market where Indian costs affects margins, because even though I'm selling in $ or, you know, or large part of our business in $, we are there is actually 120 countries on the other side in which they're importing in their local currency. You know, when the... India in rupee has weakened, the fact is dollar has strengthened, right? Across a basket of currencies. You know, when Indian currency is weakened by 10%, my dollar pricing may have to be reduced, you know, to adjust for their local currency increase. It's not a one-way street for us.
Generally speaking, directionally a weaker rupee is better than a stronger rupee, right? Because if the rupee is strengthened, I have to go ask for a higher dollar price. When I have to reduce my dollar pricing, it's a happier place to be than the otherwise. Directionally, yes, it helps us, but in reality, a lot of that has to be passed through just for us to remain competitive, you know, for the customer in their importing currency.
Got it, sir. Thanks a lot. Sir, the next second question is, you have almost INR 2,300 crore of cash. Just want to know any plans on the usage. Are we looking at any backward integration strategies or-
No, nothing to that extent. We just believe and like we keep saying, our best is still ahead of us, and we are excited of what's presented in terms of the landscape. AI can actually become, you know, a very different business going forward in three, four years. Cash allows us to have that wider vision. As of now, nothing outside our core business. You know, there is no fund use plan outside of what we are doing, which is working capital or factories, you know, for our business.
Great, sir. All the very best, sir.
Thank you.
Thank you. A request to all the participants, please restrict to two questions per participant. Next question is from the line of Aditya Khandelwal from SIMPL. Please go ahead.
Yeah. Hi, sir, thanks for the opportunity. I just wanted to get a better understanding.
Sorry to interrupt, your voice is not coming very loud. May I request you to speak little louder?
Am I audible now?
Better.
Slightly better. Okay, continue, please.
Yeah. I wanted to get a better understanding of the mill liner market. Like in grinding media, where chrome is gaining market share over forge. Just wanted to know if that is also happening in the mill liner segment where chrome is gaining market share over-
It's not really, Mill Linings has a different alloy base, and we are trying to introduce new alloys, but it is not forge versus chrome. The existing incumbents are low chrome product and we are in that same alloy range, if I were to use that word. The differentiation for us comes in terms of design of the liners and of course with the metallurgy that we are offering, ultimately resulting in benefits for using our product versus, you know, the competition in the Mill Lining space.
Yeah. The reason why I'm asking was because there's another player which claims that its hybrid mill liner, you know, which is made of steel and rubber, has got the same benefits which we have with the chrome mill liners. Just wanted to know your views on it.
I'm not sure, we've understood, you know, what their claim is. Rubber and steel are generally mutually exclusive. You know, there are operating conditions where steel is a better solution, and then there are operating conditions where rubber is the de facto. There will be overlap conditions where either can work depending on, on some other variables. But that's our understanding of the market. I don't think I can reflect or respond to someone else's view on th at. That's for you to verify.
Whatever is a steel market, in our opinion is and will continue largely see to be a steel market. Of course, with the caveat of some overlap operating conditions where rubber could be a solution, and likewise where rubber can be replaced by steel on the other side. So, w ith the caveat of that overlap, we believe, steel, you know, steel as a material will continue, you know, in the market that they're serving.
Just one last question. You mentioned that we should look at the company on an EBITDA margin basis. If your realization comes down and the margins remains the same, the EBITDA on absolute basis would be a little lower, but with volume growth, our EBITDA would be on an absolute basis remain the same or show some some kind of growth in the next year. Would that be a correct understanding?
Technically. Theoretically, what happens that when my margin remains constant, sales theoretically comes down a little bit. In terms of %, actually it will grow a little bit as a % of sales, correct? Having said that, there are multiple variables with which we work. One is product mix, second is the status of passthrough, which is a particular product at certain times. You know, we do multiple products like castings, liners, grinding media. Depending on product mix also plays a very major role in pushing the EBITDA needle, either which way. Having said that, technically and theoretically, if I work with a basic understanding that I want to earn and maintain my margins, then in % terms, in a falling pricing scenario, actually the margins will go up as a %. That is a theoretical answer.
Thank you. Aditya, I'll request you to come back in the question queue for a follow-up question. My next question is from the line of Sajid Jain from ASK Investment Managers. Please go ahead.
Yeah, thanks. Congratulations. Did I hear it correctly that every year mill liner volume can go up 10,000? Let's say in FY 2024 it could be 34,000 tons.
You see, we are talking of a consolidated volume this year, which Kunal explained about 20,000-23,000 odd tons. Our rated capacity of the new plant is about 50,000. We are also doing some liners from our existing plant. We believe that over next 2 to 3 years we should achieve optimum, near optimum capacity utilization. An exact number of 10,000 is not what we are talking about. We are talking of a directional opportunity, or the opportunity is good, our efforts are on, let us see. We're talking of a blended volume incremental growth of 30,000. We are not saying No, we don't do that.
Second question is on Brazil, that I think was to come up five years, you know, after the initial duty, which was in December 2017. It should have and could have come up for hearing in Brazil. If you can quickly give an update on that. December 17 was when it was imposed and this period was for five years.
It will be. We'll see next year. As of now, currently we have already, as I explained in the earlier call, we already started supplying on a decent basis to Brazil, and they are paying the duty. Very honestly, we have become agnostic to the anti-dumping duty scenario in Brazil.
It should have come up for hearing, again with the government in five years, December 2022. That was the last understanding that we had.
Yeah, it will come up. It will come up. As of now, we have not heard anything.
Sajid, I have not dropped off. Can you hear me?
Yeah.
Yeah, we can hear you.
Yeah. Aditya, it will come up for reassessment, middle of next year. Middle of this year, 2023.
Currently 11.8% duty.
Correct. Yeah.
One last question is on SAL. How much of your raw material is basically ferrochrome and how much would be scrap?
Our ferrochrome.
Ferrochrome broadly.
25% of my purchase, of my consumption, of my production.
SAL would be 25% of your ferrochrome consumption?
No, no. SAL would be how much? SAL would be just one of the five vendors that we keep buying from, Rajesh. I don't think 1, there'll be materiality to their supply immediately. Ultimately, we'll see how they clean up and what happens.
Sure. You said 25% is ferrochrome of your RM.
Yeah.
In volume terms.
Yeah, yeah. Typically for 100 tons, you'll require 110 tons of RM.
Correct.
Sure, sir. Thank you. All the best.
Thank you.
Thank you. As there are no further questions, I now hand the conference call to the management for closing comments.
Thank you, Nirav, for taking this. Thank you all, for joining the call. As always, Sanjay Majmudar and I remain available for your questions, follow-up questions offline. We look forward to engaging again, for the fourth quarter numbers. Thank you. Have a good evening.
Thank you. Thank you all.
Thank you very much. On behalf of AIA Engineering Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.