Ladies and gentlemen, good day and welcome to AIA Engineering Limited Q2 and H1 FY2027 earnings conference call. 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 the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Sanjay Majmudar and Mr. Kunal Shah. Thank you, and over to you, sir.
Good evening, ladies and gentlemen, and welcome to this Q2 and H1 FY2027 conference call. At the outset, let me apologize. We have delayed this call by about an hour. Since Kunal was traveling, his flight got delayed. He is just landed, and he also will be joining the call, I believe, in next couple of minutes. Since it is already late, I will do the preliminary, some presentation on the numbers, and then by that time, Kunal should join, and then we will take a Q&A. I am assuming that most of you would have a chance to look at the numbers. We did about 61,500 metric tons sales in Q2 on a production of about 63,600 metric tons.
That translates into sales of about 126,000 metric tons in the first half of the current fiscal, slightly above 124, 125,000 tons that we did in the corresponding H1 on a YoY basis last year. So, practically flat. The top line for Q2 was INR 1,093 crore. Then there was other operating income of about INR 19.5 crore. Similarly, that resulted into a top line of INR 2,246 crore in the first half and about INR 34 crore of other operating income. As you all know, our other operating income mainly comprises of export benefits. That is a pure operating part of the income. If you look at the other non-operating income, you will see that in Q2, it was lower at about INR 71.70 crore as compared to INR 98 crore of Q2 on a YoY basis.
Therefore, in the first half, the other non-operating income stood at about INR 182 crore as against INR 207 crore that we did again in the first half on YoY basis. You would have seen that we did an EBITDA of about INR 361 crore in the Q2 of the current fiscal and INR 786 crore again in H1 of the current fiscal. That resulted into a PAT of about INR 249 crore in Q2 and INR 550-odd crore PAT in the first half of the current fiscal. This correspondingly on a YoY basis, you will see there is a slight decline both in the EBITDA as well as in the PAT number on a Q2 as well as on a YoY basis.
Primarily, if I look at the key reasons for the bit of decline in the margins in this quarter, on a total reported EBITDA basis, you will see there is almost a 5% decline. However, on the operating EBITDA basis, it is about 2.5% to 3%. The primary reason for this decline on an operating EBITDA level basis is a steep increase in the cost of export freight, which has grown by over 3.5% in Q2 and H1 of this year on a YoY basis. As you all know, freight costs have gone astronomically high in the current quarter. Though now, on the positive side, there seems to be some reduction that is started to become visible, but this was a major dampener.
That also is a reason why most of you will see that the realization per ton or per kilo on per kg basis has increased about INR 178, largely attributable to the increase in the freight which has been passed on. Having said that, the gross margins remain more or less comparable. Overall, from a directional standpoint, I believe Kunal has joined. Kunal, you want to brief something on the directional standpoint? Sorry, I will continue. I think his line again has got disconnected. Just quickly, the other operating income reduction is mainly due to reduction in the forex income. Again, if you see my net working capital cycle in this Q2 as well as H1 remain more or less at about 129 days. That includes about 41 days of raw material stock, 79 days of WIP and finished, and then about 87 days of receivables.
Again, just from the point of view of reporting our segmental sales, mining sales stood at about 39,700 tons in this Q2, resulting in about 79,000 tons in the first half. More or less showing some increase on a YoY basis on an H1 to H1 basis, and also little bit increase on a Q2 to Q2 basis in the current fiscal. On the order book, just on the capex, we have incurred a total capex of INR 86 crore in the first half. We believe that we should be incurring additional about INR 250 crore in H2, largely due to the corporate house land that we will be completing the transaction, and also some normal maintenance and incremental capex of about INR 50 crore to INR 75 crore. With this, if Kunal is connected, Kunal, do you want to do some briefing on the current scenario and the prospects?
Yes, yes. Thank you. Can you hear me, Sanjay bhai?
Yes, yes. Please go ahead.
Yes. Good evening to everyone. Please pardon the background noise. I have been in some transit issues. The important part I think Mr. Sanjay Majmudar and I would like to share for this quarter is, we have moved on to planning for next two years, for FY 2028 and 2029, and getting back to a base growth of at least 25,000-30,000 tons each year, and then potential upside is all the various things that we have discussed come to fruition. We are not guiding this as a volume target, but this is what internally that we are working on, and looks to be within the realm of possibility. I think that is the first bit I would like to share. Secondly, on the numbers, there were some freight-related anomalies in this quarter, but overall, the quarter's figures will normalize with the rest of the year.
I think these are the only two updates, Sanjay bhai. Rest of them are all, I think this is just a quarter as usual, of course, subject to a little bit of a profit adjustment on account of freight. Otherwise, everything as per our earlier trends continue. Our excitement for what we bring, we believe, in that mining industry, especially copper in South America and gold, continues, and we remain excited about that. Sanjay bhai, you can take up next.
Yeah, yeah. Just to add, on a strategic direction standpoint, while the volumes are definitely flat, as you can all see, what we can very convincingly say that our entire new strategy remains intact. That is to say, go on a value-added focus with liners and NGDS as a package, doing trials. Yes, trials which are undergoing right now at various mining sites, including the large mines, have been elongated a little bit. They are still on, and we are very bullish internally that they should start yielding good results.
However, it is difficult to exactly give any time commitment, and the strategy is that once the NGDS plus liner-based success in terms of volume starts flowing in, which we believe should start becoming visible in the second half of the current fiscal, the grinding media volume should also follow, and that is the basis on which, as a package, we are addressing the markets rather than going the other way around. Everything remains intact. We believe the second half should bring some possible upside, but it's a bit early for us to give any indication or any clear-cut guidance. Therefore, overall, we are absolutely on track in terms of whatever directionally we have been doing. With this, I think, moderator, you can open the house for Q&A.
Thank you very much, sir. 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. If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to use handset while asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. First question is from the line of Varun Jain from Dolat Capital. Please go ahead.
Yeah. Hi. Good evening, Sanjay bhai. Good evening, Kunal bhai.
Good evening.
Hello. Good evening. Yes.
Yeah. A couple of questions, starting with, sir, your Q2 volume growth. On the mining front, YoY, I see a change of 13,040 metric ton. Chile order itself was supposed to be 3,000-4,000 metric ton per quarter. Had it not been for the Chile order, the rest of the mining business has been declining. Is that correct?
I think that is I don't think declining, but the duty impact. Over last 12 months, we lost some more volume. One of the countries was Mexico, where the Trump administration put in tariff duties on certain countries, and Mexico put in There's no production, there's no local producer in Mexico. These are bizarre geopolitics happening. There was some volume that got affected on account of that. I think there's a 50% duty on imports from most countries into Mexico, including from India. There was some volume that got affected with that. Your point is correct. I don't think we still losing volume in that sense. We don't expect any further duty-related reductions anymore. I think we are at the absolute bottom, if I were to call that.
Which is where, for next two years, we are getting back to now thinking about volume and growth and factoring all of these current situation. Of course, freight is another variable that continues to give us some concern. But other than freight, things look a little more on track. Based on that, I think a 25,000-30,000 volume looks possible.
But Kunal, I mean, Varun, specifically, your assumption that this quarter also, that mining order has gone and dispatches have been made at that run rate is slightly not correct because in this particular quarter, for almost two months, that mine had stopped production, and therefore our dispatches were also very low to this particular mine, which has again started at the normal traction from the current quarter. So, partly what Kunal says is true, and partly this is a factor that you should take into consideration.
Sure, sir. But, sir, I think a couple of quarters back, two, three quarters back, I thought that we had already bottomed out when it came to the tariff action thing, and now things will go upward. So, now the Mexico, what is the overall annual volume? Because if the tariffs have been applied, then the entire volume comes at risk. Like, what happens in the-
It wasn't material volume. Like Sanjay bhai explained, that was some amount of tonnage that we liked. It's not a large mining country in that sense. So, what I'm trying to tell you is that this year looks to be continuing to be flat, right? Various reasons here and there, we've continuously explained. We get back to 25,000-30,000 tons from next year onward. That's the current plan.
And sir, this 25,000-30,000 ton which you are saying, this is regardless of whether any outcome of any of the conversion trials happens or not? Like, even if there is no outcome and the trials keep running, you are still confident that 25,000-30,000 will be possible next year?
I think what we are saying is trials are important, right? That's a larger strategy where we believe that we have a solution that I think nobody else has, right? There is a large grinding media opportunity across the world, and I think the whole solution bit flows alongside. So, there has been some refocus in terms of, given the condition we are in, how do we look to getting back to growth? That gives us the confidence. Like I said, we are not giving this as a guidance yet, but this is what it looks like that, listen, we've been saying growth for last two years, with NGDS and trials and other things, it has not come back, right? So, we will be happy to announce growth as it happens.
What we are trying to share is the mindset today internally, where we are saying that with everything that we know, it looks like that we should get back to growth phase from next year onwards. We will share, this is in absence of any guidelines on how to think about it. This is where we are coming from that. But we will share a little firmer guidance when we get that confidence. Otherwise, our commentary continues that it will be wait and watch, and we'll be happy to announce the upside that we are all looking forward to.
Sure, sir. My other piece of the question was on the non-mining volumes. So, non-mining volumes fell 12% YoY, 14% QoQ. So, what was this attributable to? Was it domestic cement, or was it export, or it was thermal power? I mean, even-
It's just timing. No, no. No structural-
Yeah. Exactly.
Nothing structural, Varun Jain, underneath that. I think it is just timing between a quarter and the rest.
So, this other volume-
Non-mining continues to be good. No problem at all.
Sir, do you think this non-mining will grow this year, overall volumes?
The thing with non-mining is that it is not predictable, right? It may not be scalable beyond a point. While there may be some growth that may come from that, it is not going to be needle moving. We will be beneficiaries of any upside movement over there, but we do not believe any would be needle moving. We will have to keep our sights on mining growth and all that lines up.
I understand that. I understand cement is not a growth business for us, but this quarter's weakness was, did some cement company take a monsoon-related shutdown, or was it from thermal? Just understanding what happened in this quarter?
Nothing. I mean, you will have to look at an annual basis, Varun.
Yeah, yeah. You please look at it as an annual, and we don't see any weakness at all.
Okay, sir. Sure. I'll come back in the queue.
Thank you, Varun.
Thank you. Next question is from the line of Ankur Periwal from Axis Capital. Please go ahead.
Yeah. Hi, Kunal bhai. Hi, Sanjay bhai. Thanks for the opportunity. Just focusing on the volume part itself. You mentioned 25,000-30,000 tons of incremental volumes there. Is this largely on the core business that you are seeing the growth coming back and excluding the benefits from NGDS here? Or does it include some bit of NGDS as well in terms of volume ramp-up?
We will share a little more color once we have more confidence in that number, hopefully next quarter or the quarter after that. I think for now, let's stick to a broad directional commentary on 25,000-30,000 tons.
Okay, sure. Because even if I look at 25,000-30,000, we are largely talking of, let's say, 10%-15% sort of a volume growth. NGDS, as and when it comes, should that be a top-up, or probably we will get more clarity over the coming quarters?
NGDS is game-changing structural shift, right? Those volumes are very exciting. But to put a timeline on it, I don't think is doing justice to the whole effort as an initiative. So it could be a top-up. You can adjust that as a top-up.
Sure. The second bit on the Mexico issue that you highlighted. Will it continue to hamper our volumes, or it is already there in the numbers and Q1, Q thing should be improving from here on, even from a near-term perspective?
It is already in the numbers. We actually feel that this is the absolute bottom for us.
Okay, sure. Just one bit on the freight cost. While there is an increase in our overheads, primarily led by freights, the realizations on a QoQ basis are largely flat, even if I look at from on a per kg or a per ton basis. What explains then the further decline in terms of absolute EBITDA on a QoQ front?
Because our freight cost has gone up. That freight, this is temporary surge with all that we are seeing geopolitically right now. We are not in a position to pass through on a spot basis, right? We are hoping that this normalizes either with the pass-through if it is sustained or hoping it normalizes soon.
I will add one thing, Kunal. It is also a function of product mix. If you see in Q1, there was a higher element of other castings. In Q2, it is slightly lower. So it has a compensatory effect that [Non-English content ] product mix has gone a little down. I think, again, quarter-over-quarter comparison or a trend is really not honestly required. What is important is a major impact of the increasing realization is due to the freight pass-through. Again, as Kunal explained, part of it is passed through this quarter, part of it will go to the next quarter.
Sure, Sanjay bhai. That is helpful. Just lastly on the capex bit, and any updates on the capacity expansion for Ghana and China, if any more details you can share.
Yeah. Today, we had a very good discussion on this. Right now, for one more quarter, we are still maintaining the position of putting this Ghana, China right now on hold. Though, very honestly, we are going to reconsider this very soon. However, right now, as I said, the focus is continued on the trials and all strengths on that. We will be definitely looking at reactivating our geographical expansion at some point in time, hopefully by end of next quarter.
Sure, sir. Thank you. That is it from my side. Thank you.
Thank you.
Thank you. Next question is from the line of Umesh Raut from Nomura. Please go ahead.
Yeah. Hi, team. Good evening. My first question is pertaining to freight cost.
Could you be a little louder, please?
Sorry to interrupt, Mr. Umesh. Your voice is not clear. Request you to please use your handset.
Is this helpful?
Yes, please proceed.
Thank you. My first question is pertaining to freight cost. If I look at probably second quarter, our freight cost is about closer to 10% of sales.
That is right.
I think it is significant. Do you think this freight cost is also kind of in a way temporarily dampening our competitive positioning in various markets, especially outside India?
I think Sanjay Majmudar will take this.
Yeah.
What happens is-
I think. Yeah.
Yeah, go ahead, Sanjay bhai.
This 10%, I would say, is a little abnormal. In a normal scenario, it should not be more than 7%-8%. This particular quarter, due to some composition of freight, part of it being air freight as well, is a little bit on the higher side, coupled with high sea freights. I think on a long-term basis, you can take 7%-8%. We expect this to come down to that 7%-8% range in this quarter. Again, see-
Sanjay bhai is adding on. Sanjay bhai is adding on. Cost is one aspect of freight, but there is an uncertain global environment around shipping and logistics and the long delivery lead times. This is true for any producer which is producing at one end, and there is some timeline from the use of the product. That uncertainty does. When we have spoken about last two years, the uncertainty in the shipping environment, right? Between Red Sea, the Hormuz, a lot of other things have come along, where we thought shipping being a commodity item will normalize, and it hasn't normalized. Now, there are pundits that tell us that Iran war will get settled in next few months. It may not, right? It is not a cost factor. It is the uncertainty linked to depending on a shipping-linked supply chain, I think is the question.
When we speak to customers in South America, for example, some have expressed that they would like for this environment to settle down. That is one of the challenges that when we speak and we go for conversion, does come up. We have a solution there where we are saying we will put more cargo on containers. So rather than just having, let us say, two months of stock on the ground, we will make sure that there is another three months on the sea and ensure that even if things get delayed or interrupted, their ops will not suffer. So, while we have mitigation measures, this is something that we are hoping gets resolved sooner than later. So, more than it being a cost issue, it is also a larger geopolitical uncertainty and risk that comes from that question.
Understood. So, hypothetically, if suppose tomorrow situation becomes better, it is also relatively better for us in terms of inherent demand from various geographies, right?
It is one.
Also help in terms of. Yeah.
Rather than it being a clear upside signal, it will stop being an additional friction point. The conversion that we speak about is not a straightforward commodity replacement, right? There is a solution, there is outcome, there is measurement, there is trials, there is solution engineering that is done for the client. There is commercial aspects, there is currency. Everything happens to be one more element that comes into the conversation, and today, it just become an additional friction point. So, if things normalize, for sure, that one important friction point hopefully goes away.
Understood. My second question is pertaining to order backlog data point that we disclosed in presentation. If I look at broadly, say from FY 2021 to FY 2025 or 2026, largely our order backlog number was hovering in between INR 5 billion to INR 7 billion, and suddenly now it is in the range of about INR 10.7 billion. If I look at probably production number, it has remained in and around about 60,000 tons on a quarterly way. Does it also indicate more of, again, logistical challenges in terms of dispatching inventories or finished goods from India to outside the various markets?
Not really. Open orders are things that has not been fulfilled yet. I don't think it is just the nature of open orders at this point in time.
Just to add, Kunal, as you know, we have recently got some good orders, some reasonably large orders which have come in the last month of this quarter, and therefore, the order book has really actually gone up a little bit. I want to clarify two things. All our contracts are long-term. The order book reflects the purchase orders that we receive under these long-term contracts, and that is an ongoing exercise. There is no bunching because of the delay in dispatches, but rather there is some inflow which has come in the last month of Q2.
Understood. Thank you for this opportunity and all the very best.
Thank you, sir.
Thank you. Next question is from the line of Bajrang from Sunidhi Securities. Please go ahead.
Sir, just the question pertains predominantly to the U.S. market. Now, the midterm elections are already there in U.S., and there is a possibility that the situation is not in favor of Trump. I am just trying to understand from that perspective that, it might be repetitive question, but just for the understanding purpose, if the global situation little normalizes, we have already seen the rupee has depreciated against Chinese currency almost 20 odd percent in last one year. There are multiple industry sources which are talking about significant export opportunities are being seen for the Indian manufacturers. In that parlance and obviously little more calm on the global side once Trump loses these midterm elections. Both situation if normalizes, how do you see this export opportunity for the company from the lens of these two situations?
Just your broader sense on that will be really valuable, sir.
Okay. Kunal, should I take this?
Yeah, but I think Bajrang bhai, we are a little agnostic to what happens in the U.S. Global factors are important for us. Shipping is one large element. I think otherwise, the end users that we cater to, which is copper, gold, iron, they are all basic commodities. They generally look to be doing okay. It is not that our end industry will materially change with any of these aspects. Our ability to go service and deal with them, geopolitical factors and trade is one large element over there, and any semblance geopolitically will help us in that aspect. Otherwise, like you are saying, India is a great place to make and ship to the world. We have been a big beneficiary of that from 2005 onwards, 2004 onwards, with one-way trade.
These last five years where all of these global, right from COVID to protectionist measures, trade, non-trade, shipping, a lot of that uncertainty has crept in. The world going back to business as usual is something that we look forward to sooner than later. But no specific signal saying if this happens, then that here is a cause and effect.
Yes. Just to add to what Kunal said, very important, our major focus right now is on the LATAM and a few other geographies which are not necessarily, frankly, not U.S. Secondly, the duty structure currently is under Section 232 plus the anti-dumping part. So immediate relief, [Foreign language] we don't know, very honestly. But as Kunal said, if the Hormuz opens and Red Sea crisis goes away, a lot of things can happen. The global geopolitical environment will stabilize. [Foreign language] 100% [Foreign language] in terms of the overall cost scenarios, etc. But it's honestly a wishful thinking. Let us wait and watch. Honestly, let's see what happens.
Yeah. I was just trying to understand, this is one part, that once the shipping situation normalizes. The second aspect was that the rupee depreciation vis-à-vis Chinese currency. So we have become a little more competitive. We'll talk about last one.
We don't really-
What I'm saying, are we seeing more export opportunities with this becoming a little more sensible-
Yes, Kunal, go ahead.
that we are getting more competitive?
We don't really compete with China in that sense. Otherwise, we wouldn't be having this conversation. I think for us, the more important part is we sell in cross currencies. While our transacting currency is dollar, we do, it's a BRL or AUD, right? We are really neutral to that question. Indian rupee weakening vis-à-vis China is not We don't compete with the Chinese, so it's relatively a less of a signal for us.
Got it, sir. Thank you.
Thank you.
Thank you. Next question is from the line of Varun Jain from Dolat Capital. Please go ahead.
Yeah. Yes, sir. A couple of follow-ups on my earlier question. Just can you tell us the specifics of this Mexico tariff? Is it a tariff? Is it some other kind of trade action? What was the tariff earlier? What is it now?
Listen, Mexico is not a material country for us in terms of the future opportunity or existing volumes. But there was some gentleman asked us why is the South American volume not reflecting, and small part came from there. It is an action Mexico took against all importing countries on behalf of U.S. It is not against India.
Sure. But, I just wanted to understand what was the trade action? Is it a tariff and what is the percentage like that?
I think Mexico has applied a 50% duty tariff to a large number of countries as part of their NAFTA obligation. It is not against India as a country or us as a company. This is part of the U.S. Like they are doing things with Canada, you may be watching. Mexico has been much more compliant. You don't see that in news, but U.S. has influenced supply chain going through Mexico and bypassing U.S. tariffs.
Yeah, I think the peak volume was not more than 8,000 or 10,000 tons per year. Peak volume.
Yeah, under 7,000, 8,000 tons max.
Yeah, exactly.
In this quarter, even though volumes have been lower, the export benefit has been very high, highest ever probably. So why is that?
One second.
Export benefit reflects what India has sold, exported, but that may not have converted into billing, right? The supply chains are longer. There is a timing difference in that. Sometimes it is lower than our revenue, sometimes it is higher.
It is linked to dispatches, Kunal.
That is what I am saying. Export from India to our subsidiary, that is what this number reflects, not necessarily billing to the end consumer.
Correct.
Okay, sir. Okay. The two trials which were running, Peru and Ghana, for this NGDS, whether any outlook on when the outcome can come? Will the outcome come in this next quarter or this quarter, in this financial year? Any outlook on when the outcome can come?
At one mine, the trials have been delayed. At the other, they have gone in for a reiteration. They will not go for a redesign. We will update when we have a little better guidance to give on it.
Sorry, I did not understand. It has gone for a reiteration. What does that mean?
NGDS involves liners, involves sometimes grinding media. They worked as a solution. When we implement it, there are design changes that we do. There is alloy work that we do. It is not a one-shot sample or a one-shot trial. It is in that process. One is delayed, one is I will not update in next quarter basically.
Okay. The one customer which we converted, which was the Chilean copper customer, they had given us trials for their other mines. Any outcome of any of those trials for that same customer for which we had converted one mine?
Sir, they are happy with what they have bought as grinding media. We are hopeful that it will migrate into more work in the future. For today, it is to exceed expectations there. We are on track for that.
I mean, Kunal bhai, if you can give some more specific guidance, it would be good. It's like a very high-level comment.
I think we'll stick to that for the time being, Varun bhai.
Okay. Okay then. Thank you and all the best.
Thank you.
Thank you. Next question is from the line of Madhu Agarwal from Agarwal Family Office. Please go ahead.
Hi, good evening. Just a quick one. Compared to the last financial year, we see approximately a 20% uptick in the other expenses. Could you throw some color as to what that comprises?
Yeah, Madhu, as we said, primarily that other expenses mein major needle mover is freight, export freight, which is almost-
Okay
It has gone up significantly. It is almost 10% of sales in Q2.
Got it.
Rest all is normal.
That makes sense. Thank you.
Thank you.
Thank you. Participants, to ask a question, you may press star and one. As there are no further questions from the participants, I now hand the conference over to the management for the closing comments.
Kunal? I think-
Kunal sir's line got dropped.
Oh, okay. Thank you very much, dear participants. We know we are facing a little bit of a challenging situation, but we are internally very confident that we should go back on track of again, meeting your expectations. We are very open between me and Kunal to answer any further questions, and we all wish you a good evening and also a happy Diwali, and we will connect again. Thank you very much.
Thank you very much, sir. On behalf of AIA Engineering Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.