Good evening, ladies and gentlemen, and thank you for standing by. This is Neera, the moderator for your call today. Welcome to the post-results conference call of AIA Engineering Limited. We have with us today the management team of AIA Engineering Limited. At this moment, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. At that time, if you have a question, please press star and one. 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.
Hi, good, good afternoon, good evening to everyone. This is Kunal, and we also have Sanjay here on the call with us. We've-- It's not been long since we last interacted for the fourth quarter numbers, and we hope, you know, we'll make a quick wrap up on numbers and get into Q&A for this call. We don't have a lot of updates, but nevertheless, we'll be happy to answer those. We've done 73,000 tons, 74,000 tons of sales, and I think it's after many years, we've broken the number barrier of 70,000 in the first quarter. We generally were between 62,000 and 65,000, 67,000.
74,000 tons and roughly equivalent production for this quarter, which translated to about INR 220 croress of product sales, EBITDA of INR 402 croress and profit after tax of INR 272 croress. They are, you know, materially higher than first quarter last year, and mostly comparable with the fourth quarter of last year. From an other income standpoint, we've done INR 19 crores of, you know, operational other income, which is largely incentives for export. Our other, other income, most of which comes from treasury, that's about INR 56 crores, and that compares to about INR 4,800 crores, fourth quarter last end of March. There's a small exchange gain, about INR 2.86 crores, for a total other income of INR 59.51 crores.
Total other, other income, non-operational other income, 19.29% of operational other income. Our treasury, our net cash is about INR 2,750 crores, with an average yield of, you know, about 7%, you know, on that total corpus. Which is where there is some M2M loss we had in the first quarter last year, and of course, a smaller corpus, and which is where there is a much smaller treasury income in the first quarter of last year, when you look at it sequentially. Moving on, our working capital days, you know, are around 100 and significantly lower than, materially lower, rather than 118, 120 days that we had for a long period.
Some part of that coming from the reduction in overall stock that we are carrying finished goods, all earmarked for our customer. You know, on account of supply chain easing up, there's some amount of respite that we have over there. I think the peak finished goods stock that we had was about, you know, INR 1,000 crores+, which is about INR 890 crores now. There's about an INR 100 crores reduction in just on that account. Raw material is largely at about 30 days. Total 100-day working capital cycle. Broadly, 74,000 tons, we've got 53,000 tons coming from mining and, say, you know, the balance, about 20,000 tons, 21,000 tons coming from non-mining, which is cement and some amount of thermal power in India.
Our order book, continues, you know, part of INR 600 crores, you know, and, and we've, we've reported some amount of, foreign exchange, contracts. As you all know, the spread has reduced, the premia on foreign exchange derivatives has reduced as the interest rate differentials reduce. That's also reflected in a smaller, foreign currency coverage, you know, open form here on. Some notable things that probably we would share, one is on the CapEx side. We, we discussed about INR 510 crores of, CapEx, for the full... for two years, which included INR 200 crores of, you know, the overall older Odhup cluster restructuring, you know, which is creating creation of warehouse space, creating some pattern storage and, you know, related, infrastructure, restructuring some old plants, and some debottlenecking.
You know, we will see about 20,000 tons of additional non-grinding media capacity that will come up with that. There was INR 200 crores on that account, INR 250 crores on the grinding media work that we're doing, which will take about the 80,000 ton grinding media plant, which is expected to come up by end of 2025. Another INR 60 crores+ on captive renewable power generation. Of that, about INR 510 crores for next, you know, between 2024 and 2025, we've done about INR 63 crores in the first quarter, you know, towards all these three line items.
There was a announcement yesterday about Peru. We formed a subsidiary in Peru, in the way that country works and in line with our work that we're doing in Latin America. The lawyer there, you know, a legal law firm created that entity, and then, you know, had to transfer it to us. That's how, you know, the entities get created there, it looks like. So it was termed as an acquisition, but it was only basically, creating a fully owned subsidiary in Peru. Just to clarify the announcement that was done yesterday. We also have a sunset review for the duties that are there in Brazil, which are currently at 11.8%, and the outcome of that process will be known by end of March.
we'll continue to work on that and, and, you know, doing our bit, working with the authorities in Brazil on that. Another thing is, for mining liners, we've, we've done about 9,000 tons of mill liners this quarter. from what we did about 25,000 tons last year, full year, and we hope to do about between 30,000-35,000 tons this year. that's, that's on track. about 4,000 tons of that coming from the new plant, so which is all getting settled very well. Our captive generation now stands at 64 MW, and because of the... Sorry, 38 MW.
38, yeah.
Our total installed capacity is at 64 MW, and our captive is 38 MW. As you know, it has a lower PLF, you know, generation. About 22% of our total power came from our own captive renewable sources. We are happy about that. Lastly, you will see a little higher tax provision for this quarter, but that's the sum total of, you know, we've got all these subsidiaries outside India, within India, and then that's a point in time. I think for the full year, our tax will continue at about 23%. This is just a point in time, profit as is, and once the transfer pricing adjustments, et cetera, are done, which are all year-end activity, our tax will be at 23%. There is no other reason for the higher tax. The tax is at 27%, 26.7%, I think.
This quarter.
It will normalize to 23% for the full year. From a market standpoint, I think absolutely the commentary remains what it was for the fourth quarter. We continue to remain focused on the mining sector. Metals that we are focused on, which is copper and gold, remain to be metals of interest for the world in terms of its end use. To that extent, there is a lot of interesting conversations that we are, we are able to do on account of the solutions that we provide to our customers, which we've discussed extensively, you know, on our calls, you know.
That, that allows us this excitement that, you know, there's this whole conversion story as far as moving from forged to chrome is concerned, and the whole mill lining opportunity in terms of delivering improved throughputs, lower power consumption for the customers. I think for the full year, we did about 292,000 tons. We hope to add about 30,000 tons...
Yes.
-on that this year, including the mill liners. We may do a little more or a little less, and we'll keep, you know, sharpening that as we go forward. With that having said, we'll have Sanjay Majmudar share his input, and then we can go on.
Yeah, thank you very much, Kunal. Good evening, everyone. Yes, business as usual. All the basic parameters remain the same. We have done reasonably well in Q1. Bottom line appears to be, you know, the operating margin, after adjusting the treasury income, is at about 28%. It is including the other operating income. As we always say, it is a function of product mix. It's a function of a lot of factors that come in play, the pass-throughs, the reducing freight costs impact, and all that. I think we, we are doing pretty good. As Kunal explained, the CapEx plans are absolutely on track, and the efforts for conversion is going with full force, and we are hopeful of continuing traction.
On an annualized basis, we believe that we should keep on growing the way we have been anticipating. I think with this, Kunal, let's open the house for Q&A.
Sure.
We open the house for Q&A.
Thank you very much. Ladies and gentlemen, we will now begin the question-and-answer session. If you have a question, please press star and one on your touchtone telephone and await your turn to ask a question when guided by the facilitator. If your question has been answered before your turn and you wish to withdraw your question, you are requested to press star and two. Ladies and gentlemen, please use handsets while asking your question. We'll wait for a moment while the question queue assembles. The first question is from the line of Aakash Bansal from Equirus Group. Please go ahead.
Please go ahead.
Yeah, this is Ashutosh. I think there's some issue.
Yeah, sure. Please.
Yeah. Hi, Kunal, Sanjay bhai. Firstly, the overall volumes, the volume looks good. On others volume, this quarter was a bit low. Is it like a quarterly phenomena or should normalize in the on a full year basis?
It will normalize. It will normalize.
Okay. You mentioned 30,000 tons we plan to add this year, the same guidance as earlier.
Yeah, yeah, yeah, absolutely the same.
Okay. Okay. On obviously, tax rate is higher. You mentioned it will normalize, but there's some line items saying that there's INR 8.3 crores provision related to some withholding taxes recoverable in overseas reductions. What is that exactly?
That is the reason why, you know, this, it's very difficult to one of our subsidiaries. Yeah, Kunal will explain.
There is, we, you know, the work, we, we're doing work, you know, outside. At one of the countries that we operate in, there is, you know, like you have TDS in India.
Okay.
When you pay outside, you have to do a tax deduction and source, and then, you know, there's a recovery adjustment of tax. You know, in that, we are facing some sort of issues in terms of recovering that. As a cautious, prudent measure, we have shown, we have written that off while we make efforts to recover that. Going forward, we have claimed an exemption over there, this is just that one-time old issue that continued.
Okay, got it. Lastly, as an outlook, obviously, we have this guidance of adding volumes, and we have put up the subsidiary in Peru. How is South America as a market, looking for us, what we have done, and how do you see it going ahead?
Of course, we remain extremely bullish on North America, Latin America. Peru is extremely critical for us. We are strengthening our presence there, and this subsidiary formation is an effort to have a more direct presence in this critical market. It's an ongoing process, you know?
Okay.
It's a part of our overall strategy to-
Nothing specific to report on that.
Yeah. Yeah. Like, you know, we have more than 15, 16 subsidiaries in all critical markets. We need a POP, point of presence there. That is what the subsidiary would do.
Like, are we getting good traction in Latin America as such? I mean, because that's a big market for copper and gold as well. Are we getting good traction orders from there in that market?
Nothing specific to report.
We, we are working very hard in those markets, and, of course, our endeavor is to fructify a lot of conversions. I think we are working very hard. Let's, let's wait and see. That's all I can say at this point in time.
You mentioned 9,000 mill liner volume in this quarter.
Yes.
4,000 was produced on the new plant. Is that correct?
INR 4,000, the new plant?
Yeah.
Yes.
Yeah.
Yes. Correct.
Okay. Okay, okay. I think that would be also enough, thank you.
Yeah.
Thank you. Next question is from the line of Garvit Goel from Invest Analytics. Please go ahead.
Yes, Mr. Goel.
Garvit, may I request you to unmute your line and go ahead with your question, please? Due to no response, we move on to the next participant. Next question is from the line of Dhananjai from ASK Investment Managers. Please go ahead.
Hi, sir. Congratulations. Good set of numbers.
Yeah.
wanted to ask, regarding, OP, OP per ton.
Dhananjay, your voice is not coming clearly. Can you please speak a little louder?
Can you hear me now?
Yeah.
Yes.
Yes. Our OP per ton has increased sharply because of the reduction in freight costs. Is that something which we see stabilizing? Would this be something similar going ahead, or, would we have to pass this on back to customers? How would that play out?
Freight is, like our other raw material cost, is, is conceptually a pass-through. There is a timing difference, but, you know, freight rates are going down, that will be a pass-through.
Okay. Then, any guidance on what OP per ton would be then a fair estimate for the year, considering, because 46,000 is significantly much higher than-
We don't have a fixed price. It's not an absolute number, no. Because, I mean-
Yeah.
It will depend on the selling price. Selling price is a function of because we are selling, guiding in terms of margin, operating margin, which is a 20%-22% is a directional convert, you know, guidance that we're giving as far as margin. We've done better, that I think, you know, we'll not be able to split that and say how much. Now, as far as the average realization is concerned, it will fall in line with raw material and freight, there's also a product mix angle at it. It's very difficult to give a guidance, whether it be INR 150 or INR 140 or will it stay at INR 160. You know, if, if raw material remains at current levels, it should be around INR 150. I mean, broadly, that's where it will stay.
Little more, perhaps. Yeah, as, as Kunal said, it's a lot of factors that play, but currently this quarter, we've done about INR 165 average realization. It should hover in that range, plus minus, 5% or something of that sort.
Sure. As, the other volumes, any reason why there was a decline year-on-year, considering, let's say, cement, volume?
It's just a function of a quarterly typical requirement of a given set of customers. You should not read more into it.
Okay, sure. Sure. Thank you.
Thank you.
Thank you. Next question is from the line of Bhoomika Nair, from DAM Capital Advisors. Please go ahead.
Yes, sir. Good evening, sir, and a good set of numbers.
Thanks.
Yes, sir. Just, I know, I mean, I know we don't talk much about percentage margins, but we've seen a very strong margin profile in this quarter.
Yes.
While, you know, realizations are broadly hold on, so, held on. Is that kind of got to do with the lag in pass-through of the lower prices, et cetera, for this quarter?
Mm-hmm.
Of raw material freight, et cetera?
Bhumika, there are two, three reasons which are coming in play. One very important factor is product mix. If the product mix is more tilted towards bigger or the larger castings, then definitely the margin profile will improve. There is also an effect of, how do you put it, the freight cost going down, et cetera, and then there will be some lag with which it will be passed. A much better way of looking at us is, it should normalize and stabilize in the range of 20%-23% or 24% and thereabout, on an annual average basis. Some quarter may look to be very good. I'm not saying that this is not sustainable over a longer period. All I'm saying is, quarterly trends cannot reflect the annual trends. That's all.
Got it. Got it. Got it. Sir, the other thing is obviously we are seeing a lot of traction in terms of volumes, which is where you also guided roughly a 40,000 tons of incremental volumes for the year.
25%-30% is what we are talking about. Our endeavor will be, of course, a little higher, but let's see.
Sir, where are we seeing traction, you know, where are we progressing? How many new clients are we seeing? Some, a little, you know, whatever way you can give some color, you know, in terms of where, what kind of volumes are under trials, which can possibly kind of go up, et cetera. Plus, also on the... If you can give some color on EEMS, the, you know, how is that kind of progressing?
Okay, Bhumika. There are a couple of things that we will definitely. See, we will not give you client-wise details. It is not our policy. However, having said that, there are several new mining locations, at least 30, 40 new mining locations, which are under trial stage. Obviously, when we are talking about this, it is meaning that there would be different stages of progression at different mines. Some of them are at a fairly advanced stage, I would say, some of them are at the initial stage. Based on all that, and based on the indications available, we are fairly confident that this 25,000, 30,000 tons should be forthcoming. There cannot be a timetable to it, you know, given the difficult process with which the conversions happen.
Having said that, I think we are fairly confident that this should happen, and this should be on a sustainable basis. This is point number one. Now, your, what was your second question, you say?
Sir, on EEMS.
Okay. As we said, there are multiple approaches. One, the EEMS, that is the typical patented mill lining design with which we are working is one of them, and the DP EMS, everything collectively works. It is not just one particular factor.
Moreover, Bhoomika, idea was to talk about what's the solution. I mean, trying to get into how many tonnages towards each solution is, I don't think it's beyond the point relevant. Idea is to sell casting, right? The idea is to sell our product.
Mm-hmm.
That was only to demonstrate that there is a design intervention, there's an alloy intervention, ultimately leading to a disproportionate outcome for the customer.
Understood. Understood.
Very much.
Got it, sir. Thanks a lot, and wish you all the best.
Thank you.
Thank you. Next question is from line of Ashwani Sharma from ICICI Securities. Please go ahead.
Yes.
Ashwani Sharma, may I request you to unmute your line, please?
Hello, can you hear me?
Yeah, yeah, please. We can hear you.
Yeah, thanks for the opportunity. My question is again on the margin. If you look at this quarter, 28%, in the previous calls also, we have been kind of guiding that, you know, there's some reversal will happen. At what point in time, maybe in next quarter or quarter, if you can give some, you know, indication that it will normalize to 22%-23%, which is in line with your guidance. How do we see this, sir, your margin profile going ahead?
There are, couple of clarifications I would want to give. We have been saying that a minimum sustainable margin for our kind of business is in the range of 22%-24% pure operating margin. We have also always maintained that our endeavor will be to improve the margins. Having said that, our focus currently is on conversions and market share gains, where we would have to definitely also consider that we will have to price the products for every new entry that I get, the product will be priced competitively. So the point here is that I am saying this is the definitely a sort of a base margin based on which our endeavors we are working, and some quarters we have done well. Just for your understanding, Q3 of FY 2023 was very good, exceptionally good.
Q4, because of the transition effect, was normalized a little bit. Q1 is very good. Where there are factors like reducing freight costs, reducing raw material costs, or maintaining raw material costs at a steady level, and improving the product mix in favor of certain larger castings, which has changed the profile of Q1. I made it very clear this should not again be regarded as sustainable. In Q2, you may again find us coming to 25%. We don't guide on a quarterly basis, we only give a minimum base-level margin guidance so that investors are clear that this is how the company operates. If I've done better in a particular quarter, we are cautiously guide making a statement that this should not be extrapolated to mean the margin for all the four quarters. That's all.
Okay. Thanks for the revert, sir. Secondly, on the Brazil thing, you, you know, touched upon Brazil, thing in your initial remarks. If you can, you know, put more some light on this?
The duties were applied for five years, and that period ended, you know, so there is a review that happens in which they will reassess, you know, what sort of duty to apply, and that's a little bit of a collaborative process. There is a, you know, where we are required to submit information on all that we are doing, our costs, et cetera. We are, we are engaging with the, with the department that runs these, this process. It is a routine process. It's a routine process, and we'll be able to know what the new duty would be from 11.8%, what will it change to? The whole process, at the end of it, will, it will get determined, which will be by end of March.
What is the current volume that we are doing to Brazil?
We'll do about 10,000. full year, about 8,000-10,000. 10,000, 8,000-10,000.
8,000-10,000 tons. Okay, sir, thanks for the answers. Those were my questions.
Thanks.
Thank you. Next question is from line of Atul Bhole, from DSP Mutual Fund. Please go ahead.
Hello. Sir, just one question. In sectors like chemicals or cables, et cetera, we are hearing commentary of clients going for destocking because supply chains... Are you seeing such kind of-
Different, I think.
Okay.
Yeah.
Because of B2B angle, there are no sub, de-stocking related issues?
We are a long-term solution provider. Our growth is primarily focused on a conversion opportunity, where the penetration in mining of our kind of high chrome solutions are significantly lower in the range of 20%-25% of the total demand, rest being met by conventional port products, where our entire endeavor is to convert the customer or the mines to our solutions, where, you know, the question of stocking or destocking will not come. Once we are onboarded, it becomes a very long-term engagement, and we get our indications about annual requirements, and we maintain inventories in warehouses across the globe to make sure that the customer's requirement is met.
If, if there is for example, if the client or the mine is already having earlier stocks of conventional products, they will first wait to exhaust them, give us initially lower orders, and then gradually increase. But, but our whole angle is very different.
Okay, sir. Thank you. Very helpful. Thank you.
Thanks.
Thank you. Participants, you may press star and one to ask a question. Next question is from line of Garvit Goel from Invest Analytics. Please go ahead.
Yes.
Hello. Am I audible, sir?
Yeah.
My first question is on the total industry size, as of today, for grinding media balls, and how much of it belongs to high chrome grinding balls?
Again, you know, this industry, you have to dissect every... I, I would just very quickly.
Garvit, sorry to interrupt you. Sir, sorry to interrupt you. Garvit, can you mute your line, please? There's a bit of disturbance from your background. Yeah, sir, you may continue, please.
You know, if you look at mining, we are talking of a replacement opportunity of 2.5 million-3 million tonnes. Addressable opportunity for the ores types that we are focused on is anyways in the range of 1.5 million-2 million tonnes. Penetration of high chrome between us and our competition is in the range of 400,000-500,000 tonnes, and that is where the conversion opportunity we are working on. In cement, it is close to about 300,000 tonnes, and it is all... I would say, entirely serviced by, it is converted into high chrome use, so that cement industry is more or less flat for us.
Understood, sir. How far this penetration is going to be? Like, sir, we are guiding for only 10%-12% volume growth, which seems little bit conservative. If you look at your factors that are you are talking about, like migration thing and industry growth and the CapEx we are undertaking, et cetera. So what is stopping us to have 20%-25% kind of growth if our product is so good for the, for the, for our customers, and considering the growth that considering the growing metal demand at the global level, sir?
You see, there are multiple factors that come to the play. All the mines, they have their own sets of compulsions. Mine manager, who is at the ground level, he operates with a limited budget. We, we are talking of a fundamental shift for which we are focused. The process is very long. You have to go, you have to take trials, you have to convince the mine that this Aries is workable for them. You work on the chrome advantage as a cost-saving factor, then you work on the down process advantages that our solutions offer. You also work on the mill lining, typical solutions. After all this, it takes one or two years for us to convert every customer. Even then, after taking all the benefits, they have their own internal compulsions.
All these processes, it is a very, very painstakingly minute, micro-level process, which takes its own time, and therefore, the conversion process itself is very slow, and therefore, we are always conservative in guidance, and we're taking the target rates of conversion. It's, it's fairly complicated. It's not like, you know, you set up an automobile robotic line, and you start producing. It's, it's much more complicated than that, and that's why it takes time.
... Yes, good, sir. Sir, going ahead, if we see our June quarter, June quarter is lower as compared to other three. Is that correct understanding that we will have improvement Q1Q from here? Can we assume we should witness 20% kind of YOY top line growth this year?
Sir, we are very clear that our quarterly trends should not be looked into. You know, for example, if I've done 74,000 tons, it doesn't mean I will do 74,000 tons only as an extrapolation. What happens is that as we convert, and there could be therefore quarters where we are flat, quarters where you will see a decent volume growth. I would say that an overall volume growth of about 15% is what we have guided this year. That's about 25,000-30,000 tons. It need not come on a quarterly basis. It is not a sum total divided into 4. I can't even say that what will be Q2 and what will be Q3.
Right, sir. The last one is, sir, you mentioned 7% is on the treasury balances. Sir, this is too low, so which is lowering our overall ROC as well. Why are we not considering rewarding the shareholders in terms of buyback and all, sir?
Sir, you see, what is happening, the market is very big. We are working on several opportunities. We want to conserve our cash till such time that we reach a internal targeted level of penetration, because we might come across any growth opportunity, we will need working capital. We are aggressively going on cash also, work CapEx also. Currently, we are working as per the board guidelines of about 20% distribution. I think going forward, we are very consciously reviewing it every quarter, every six months, and we will take a considered call going forward. We think that shareholder reward also will come in the form of a growth, and that is what we are targeted upon.
Understood, sir. That's also my take, sir. All the best.
Thank you, sir.
Thank you very much. Next question is from Amar Kedia from Ambit Capital. Please go ahead.
Yeah. Hi, Kunal. Hi, Sanjay Bhai.
Yeah, hi.
Yeah, hey, congratulations on a good set of numbers.
Thank you.
My question is relating to one of the comments that you had made, I believe, a couple of quarters ago, that freight costs at that point of time were elevated. You had mentioned that if the freight costs come down, then you will be a little more competitive for the Latin American market. Now that freight costs have more or less normalized, are you witnessing incremental traction for the Latin American markets, or we still have some time to see that?
I think the.
That's Canada.
Yeah, at the point Latin America, freight was a big issue. We lost time because of travel. We did a lot of work before COVID. You know, we almost lost a year and a half, two, for COVID. Shipping rates were high. We're now back into the market, right? I think for the last 2 quarters, we've been talking about it. We are going... I think shipping has become like your utility in terms of predictable, expected, and working business as usual, right? I think those converse, it will not be, you know, everything okay. There is effort and a journey and a period linked to that. We'll be happy to share updates as they come along. You know, nothing specific to report at this time.
Okay. Should I... My understanding of what you said is that, okay, the competitive scenario is now better, but it will take, it will still take, some effort and time for, that to yield results. Is that the correct understanding?
Yeah, yeah. And which is why we are giving a volume guidance. We take into factor all of that, right? We can't isolate one part of our business and, you know, waiting, keep waiting for that to grow. That is not the only lever that we have for growth, right? There will be other parts of the business that will also grow, and which is where that forms part of this 30,000 ton guidance that we're sharing for the full year.
Sure. Sure. The second question is, would it be possible to share what was realized ferrochrome prices for the, the quarter gone by, as well as what, are the prices today?
I think it's about.
More or less.
Previous quarter to this quarter, few percentage points lower, you know, but not much-
Very marginal.
Materially different.
It's fairly stable right now.
Okay. Somewhere around INR 115 kg or so?
Exactly.
Exactly.
It is varying in that range.
Yeah, there are three, four grades. You can't segregate, averages.
Roughly is a benchmark.
It's in that same range today.
Sure. All right. That's all for me. Thank you.
Thank you. Next question is from the line of Dhiral Shah from YES Securities. Please go ahead.
Yes, please.
Yeah. Hello, sir, good evening. Just one question. I just wanted to understand the frequency of negotiation that we have with clients.
Sir, it's, a, a very detailed engaging process. We have a front-end team of 60-65 people across the globe who would go and open up the doors along with the assistance of the local people. Then there will be a pitch, then there's our, our technical guys, back end, front end, they will work together to design a solution, to design a wear part with a particular metallurgy, given the requirement, given the typical mining equipment or the typical mining or cement. Sorry, we'll talk more of mining only. Typical mining operating conditions. Then there will be trials, there will be results which are evaluated, there will be further trials, further validations... till a final solution is reached. A lot of this work happens at the mine end itself.
A lot of it also happens at our back-end operations, so it goes as a synchronized way. Typically, it might take anywhere between, at least a year to a year and a half for us to reach the stage where we can confidently and convincingly tell the client that this is the final solution, which is also equally acceptable to the client. It goes into the pricing negotiation, then it goes into contracts. Contracts are typically long-term, but all this takes a lot of time. It's a very engaging, continuously engaging process.
Okay, so and, this is I mean, you are referring to for new clients, right, over here? I'm just asking in terms of somebody who's already there, you know, as and when the realization-
There would slowly and gradually, and that would also as and when they need some service, some input, some technical issues, then our engineers go. Otherwise, for an ongoing client, that engagement it continues through, annual, indication of the quantity that they would require year over year.
Okay, okay. Is there a particular time of the year this happens, or it depends on each client to client, right?
It depends on the client to client, and these are very typically a continuous. It's not so cyclical. Once you are onboarded, it is more or less continuous matching with his own mining production.
Okay, okay. So just to get a sense, would it be fair to assume that probably the new negotiations that are happening would be somewhere close to, you know, 5%-7% lower realizations that you mentioned versus what is there in 1Q?
Again, it's very, very difficult to give a % statement because some of the mines we approach on a DP-related benefit or the down process-related benefit. Some of the mines, many mines we approach on the mill liner advantage that we bring in in form of reduced power consumption costs at the segment stage or improved throughput on an overall basis. Pricing is, of course, very important, but not always the first part of discussion. Yes, eventually, when it comes to the final pricing negotiation, it is a very hard negotiation. Client wants much improved benefit at a cost which is matching with his budget, current budget. That's always a trade-off. Again, it depends on product to product. If you are talking of grinding media, it's different. If we're talking of liners, it is different. Very difficult to make one statement.
Got it. Got it, sir. Okay, that's it from my side. Thank you very much.
Thank you. Next question is from the line of Amar Mourya, from Alphega Credit Advisors. Please go ahead.
Thanks a lot for the opportunity.
Amar, you are not audible.
Yeah, yeah.
Is it, is it clear now?
Yeah.
Yeah. Sir, like, you know, you indicated that, you know, this EBITDA per ton boost, which we are getting, is primarily led to the product mix change, largely more of a large casting kind of a product. Is it, is it there, like, you know, in total order book of around INR 600 crores-INR 650 crores, what would be the mix of this large casting order book?
No, no, no, Amar. Let's, let's make two, three things very clear. One, the participant asked or made a statement about EBITDA per ton, but we are very clear and what Kunal replied, and what we always say, that internally, we don't track on EBITDA per ton for the very simple reason that I don't work with a standard product. There is a very wide variety of products. There's a wide disparity of pricing. Some products are high volume, therefore relatively lower value. Some products are very high value, but relatively lower volume. It's very-- That product mix changes quarter over quarter consistently because we are servicing a very wide network of customers across 125 countries, and they don't have a standard type of requirement. Correct?
A much better yardstick to track us is a percentage EBITDA or an operating profit margin that we can definitely aim as a base operating margin of 22%-24%. We can do better year-over-year, quarter-over-quarter, it could be different. As the product mix changes, the passthrough comes in play, the freight cost comes in play. Many factors. Therefore, I think a much better way is not to look at EBITDA per ton, but to look at the percentage operating margin that we have generated or which we can generate on a sustained basis.
you know, even if I look, percentage EBITDA per ton, like, you know, what we all are...
I see.
Yeah, what we all are trying to understand is basically, you know, every analyst has gone wrong from last 4 quarters. You know, basically, everybody is assuming 23%-24%, and you are basically beating the numbers. That means there is something which we are understanding, probably we are not able to understand. I mean, what we are trying to understand is this, that you know, is this the momentum of high-margin product mix is likely to sustain? Because as you are indicating that now you are servicing to a probably a larger size product, because normally in a larger size product, your fixed cost, fixed costs reduces significantly, right?
Kunal here, let me.. We understand the quandary and there is, which is where we've clarified that we are not. What you are saying is a quarterly guidance. AIA is not giving a quarterly guidance, first point. AIA is giving a directional conversation in terms of what our business model will defend a 20% to 22% operating margin. There are periods we've done better for a variety of reasons, which we try and keep explaining, right? Directional margin is going to be that. Now, it is not for us to give that quarterly. That's not somehow, that's not something that we've done for last many years, correct? There are variables we don't understand. Some continue for a longer period to go against the way we think about things, some don't, right?
To that extent, we believe it's a futile exercise to try giving a quarterly guidance on margins. That's the first part. When you're comparing of 25 to a 22, 22 is a directional guidance, 25 is an actual quarterly performance. There will be a delta. Quarter-over-quarter, it is not a better product mix that has generated the additional. It is 1 part of the better margin-
Yes.
There is also a lag, right? Costs have gone down. My selling price has to adjust. My selling price is a sum total of lots of customers, lots of products, done with different formulae. Overall, there is a pass-through. Some is benchmarking the previous quarter, some could be benchmarking the quarter before that. While that adjustment comes, this quarter margin has changed or costs have changed, right? There is a lag process. Overall, costs have gone down. My selling price will follow down on a lag basis, right?
Okay.
We haven't said it is going to. It does take two to three, sometimes four quarters for all of it to get passed through. Directionally, it will get passed through, which is where this 22% to 20% or 22% operating margin as a directional guidance comes along. While all that pass-through happens, something else may change, right? That is real life, where we know the directional guidance only means so much because real factors come in and, you know, do the adjustment. That's where we are with the margin answer.
So normally the lag of pricing pass-through takes, are you saying that four to five quarters to percolate into the customer?
Generally, it takes two to three quarters.
Okay.
Right? The rate is also, the costs are also going down each quarter, at least the freight costs. Raw material went down, then went up, right?
Yes.
To that extent, there is that now to split every order and every customer and then explain each of the difference is something that I don't think we'll be able to do, right? That also demonstrates that, as we also mentioned, we do have a lot of avenues to improve the margin, but the current focus is on market share gain, and therefore, we are conservatively giving a benchmark rate, which we think we can deliver on a sustainable basis. That's all.
Okay. Thank you, sir.
Thank you.
Thank you. Participants, you may press star and one to ask a question.
I think we, we can take any other questions offline. Moderator, we can, we can probably get done with the call. Yeah?
Sure, sir. Would you like to make any co-closing comments?
Yes. Thank you all. As always, Sanjay and I remain available offline for any questions. Thank you. Have a good evening.
Have a good evening. Thank you.
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