Ladies and gentlemen, good day and welcome to Carborundum Universal Limited Q4 FY 2025 earnings conference call hosted by DAM Capital. 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 the operator by pressing star, then zero on your touchstone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Bhoomika Nair from Dan Capital. Thank you, and over to you, ma'am.
At the management today, present are Mr. Sridharan Rangar ajan, Managing Director, Mr. Sushil Bendale, CFO, and Mr. G. Chandra Mouli.
Ma'am, sorry to interrupt. Your voice was not audible. Could you please go again?
Yes. Management today is being represented by Rangar ajan, Managing Director, CFO, and Mr. G. Chandra Mouli.
Yeah, just get on with the call. You can connect to the main call.
Yes, sir. You can go ahead.
All right. Okay. Good morning to all of you.
Yeah, go ahead.
Good morning. Good morning, I'm Chandra Moulia. Before getting into the call, I'll read out the disclaimer. Good morning. During this call, we will make certain statements which reflect our outlook for the future or which could be considered as forward-looking statements. These statements are based on management's current expectations and are associated with uncertainties, and risks are more fully detailed in our annual report, which may cause the actual result to differ. Hence, these statements must be reviewed in conjunction with the risks that the company faces. Thank you.
Good morning to all of you. I hope I'm audible. A very warm welcome to our fourth quarter and full-year earnings call, 2024 and 2025. In today's call, I will try to cover as much as possible to give you all the facts that the company has gone through in the last couple of quarters so that you get a better picture of the performance and relate to that appropriately. I'll start with consolidated sales. Consolidated sales on a full-year basis was INR 4,834 crores, with a growth of 4.4% compared to the last year. This growth was driven by ceramics, 7.7%, abrasives 3.3%, and Electrominerals, 1.9%. At standalone, the sales grew about 7.3%. The challenge at the consolidated level is largely coming on account of the softer VAW growth in Q4, which I will describe more in detail.
However, subsidiaries such as RHODIUS, Foskor have all grown well. RHODIUS has grown 6%. Foskor has grown by 15%. We have a Q4 challenge arising out of the VAW post-sanctions. I will cover that in detail. Consolidated PAT was INR 168 crores lower compared to last year, which is INR 461 crores was the last year, FY 20 24 number, and INR 293 crores is this year's number. There is a shortfall of INR 168 crores. I will broadly explain what is the reason for this INR 168 crores upfront. At VAW, we made a provision of INR 91 crores. This is the post-tax amount that I am talking since I am covering the post-tax in Q3, and we have already described the reason for that. In Q4, since the sales volume of VAW came down post-sanctions, the profit also came down by about INR 24 crores.
Besides this, in AWUKO, we reverted a deferred tax credit to the extent of INR 32 crores, plus we have not taken deferred tax credit for the losses in FY 20 25, which is roughly about INR 18 crores. These are the broad reasons for the shortfall. Consolidated PAT was lower on account of these exceptional items. There are two broad items. One is VAW, which is relating to sanctions, and post-sanctions, the lower volume. All of that is relating to sanction-related. The second one is the deferred tax credit reversal. We feel these are reversible once the situation improves. That is how I read this situation. PBIT on a full-year basis was about INR 541 crores compared to INR 621 crores in the last year. This was lower by 13.4% over FY 2024. PBIT from ceramics was marginally higher. Our PBIT from Electrominerals and abrasives were significantly lower.
The drop of INR 84 crores was mainly due to loss to the extent of INR 36 crores and will go to the extent of INR 31 crores. Overall, PBIT margin decreased from 13.5%- 11.2%. On a standalone basis, full-year, the sales was at INR 2,784 crores, with a growth of 7.3% compared to the last year. This growth was contributed by Electrominerals at 10%, ceramics at 6.5%, and abrasives at 3.9%. Standalone profit after tax on a full-year basis was INR 322 crores, as against INR 350 crores in the last year. This is due to higher and low-code expenses, the details of which will be covered by Sushil later in the section. I will cover the segmental performance. The abrasives, to start with, on a consolidated basis, the abrasives sales in FY 2025 was INR 2,159 crores. This is a 3.3% growth compared to last year.
Standalone contributed 3.9%, RHODIUS 6.4%, AWUKO 11%, showed good growth compared to FY 2024, whereas the selling had a small degrowth, largely relating to their agro business. Standalone abrasives sales on a full-year basis was INR 1,196 crores, with a growth of 3.9% compared to the last year. The growth was majorly driven by volume, both in industrial and retail. Precision was a bit softer. That's how the overall growth was about 3.9%. RHODIUS, on a full-year basis, achieved net sales of EUR 67 million compared to EUR 63 million during FY 24. This represents a 5.5% growth over the last year. This was mainly due to volume growth. On a full-year basis, RHODIUS incurred a loss after tax of EUR 0.2 million against a loss of EUR 1.5 million last year. The losses have come down significantly.
If we exclude the PPA write-off of EUR 2.8 million, they delivered a profit after tax of EUR 1.8 million. This is what we were also earlier communicating with you. Moving to AWUKO, AWUKO achieved a sales of EUR 10 million on a full-year basis. This is a growth of about 10% compared to the last year. The losses before tax on a full-year basis was EUR 6.6 million compared to EUR 3.3 million during FY24. The difference is on account of two things. One, there was a gain in FY24, which is not recurring, plus an inventory provisioning in FY25. Put together, there is a difference that we are seeing. Besides this, we have also stopped taking deferred tax credit. This resulted in a reversal of EUR 3.5 million of deferred tax asset.
This is a deferred tax asset until FY 24, plus the three quarters, whatever we took, that also we reversed in Q4. Besides, not recognizing for this year, which is roughly about EUR 2 million. In total, on a full-year basis, the loss after tax was EUR 10.2 million against EUR 2.3 million. The swing is majorly driven by the reversal of the deferred tax asset. The reason why we took this decision was we wanted to see delivery of profit before we continue taking this deferred tax asset credit. Hence, we reversed this effort so far what we have taken. Now, I'll cover the PBIT performance in the business segment. Consolidated abrasives PBIT on a full-year basis was lower by 17% at INR 151 crores as compared to the last year.
The major drop is coming from AWUKO due to the inventory provisioning and on-time gain that I just talked about. Standalone PBIT was lower by 1.3%, mainly on account of product mix. On Electrominerals, consolidated sales in FY25 was INR 1,574 crores, showing a growth of 1.9% compared to the last year. Standalone business grew by 10%. Phosphor grew by 14.8%. All of them showed a good growth. The performance of VAW ratio was impacted in Q4. The specifics of which will be covered in the subsequent section is related. Standalone Electromineral sales on a full-year basis was at INR 815 crores with a growth of 10% compared to the last year. This was on account of the increase in volume and price realization. Price realization was much higher compared to the volume growth. Another feature of this growth is that we have a higher exports compared to the last year.
There's a significant growth in export. VAW until nine months ending December 2024, the company's operations were slightly better compared to the last year. They delivered a growth of 2.2% in the first nine months as communicated earlier as per the press release of the United States. VAW was put on sanction on 10th of January, included in the SDN list of OFAC. As a result of this designation, most business in Q4 got impacted. Silicon carbide volume came down by 30%. Abrasives and refractories were almost flat. In Q4, VAW made a sale of RUB 1.83 billion in Q3 FY2025 and RUB 2.31 million in Q4 FY2024. They made a profit after tax of INR 11 crores in Q4 2025 compared to INR 35 crores in Q4 2024 and INR 38 crores in Q3 2025. These are all excluding exceptional items.
On a full-year basis, VAW made a sale of RUB 9.4 billion against RUB 9.7 billion in FY24 and delivered a profit after tax of INR 119 crores, excluding exceptional items. This means that whatever the provision that we made is not considered part of the INR 119 crores against INR 149 crores in FY24. So roughly INR 30 crores of profit is lower compared to the last year. On a full-year basis, in Foskor Zirconia, we witnessed a sales growth of 9% compared to the last year. The growth was majorly driven by the volume. On a full-year basis, Foskor incurred a loss after tax of roughly about INR 12 crores compared to INR 7 crores last year. I'll cover the PBIT of this segment. Consolidated Electrominerals PBIT on a full-year basis was lower by 25% at INR 177 crores as compared to the last year. The major drop is coming from VAW.
Standalone PBIT was lower by 11% on account of higher input costs. Now, I'll cover the Ceramic section. Consolidated Ceramics sales on a full-year basis was INR 1,160 crores. This represents a growth of 7.7%. The growth is mainly driven by CUMI India. Indian Ceramic business, standalone ceramic business, on a full-year basis were at INR 939 crores. This is higher by about 6.5% compared to last year. In Industrial Ceramic business, metalized engineered ceramics grew substantially well at almost double-digit growth, while the wear- ceramics remained flat. Due to the absence of major orders in wear- ceramics, this remained flat. The fire and mono refractory business grew well, again high teens growth. Corrosion- resistant business, which is highly project-dependent business, had a degrowth. This resulted in a net growth of 6.5%. Now, I'll cover the PBIT performance of the business segment.
Consolidated Ceramic PBIT for the full-year basis was almost flat at INR 286 crores. Standalone PBIT was better by 5.5%, mainly on account of better volumes and price. Now, I request Sushil to cover the PBIT margin, debt position, CapEx, and cash flow.
Thank you. The PBIT margin consolidated on a full-year basis was at 11.2% compared to 13.5% during the last year. Standalone PBIT margin on a full-year basis was at 15.3% compared to 18% last year. Abrasive consolidated PBIT margins on a full-year basis decreased from 8.7% to 7%. Standalone abrasive margins were at 16.1% against 17% in FY24. RHODIUS reduced their losses, but AWUKO PBIT was lower in FY25 due to a one-time gain of EUR 2.2 million in FY24 and inventory provisioning of EUR 0.7 million in FY25. Now, Electrominerals.
The Consolidated PBIT margins of Electrominerals on a full-year basis declined from 15.4% - 11.3% primarily due to VAW. The Standalone PBIT margin was at 7.7% compared to 9.5% in FY 24. This drop is mainly due to higher input costs and the pricing pressure in the market. Ceramics, the Consolidated Ceramics margin on a full-year basis decreased from 26.5%- 24.7%, and Standalone Ceramics PBIT margins declined by 28 basis points to 24.8%. Profits from CUMI Australia and CUMI America were lower compared to last year. Now, the debt position. There was no debt in our standalone books, and total debt at a consolidated basis was at INR 120 crore at the end of Q4 2025 compared to INR 109 crores at the end of Q3 and INR 113 crores at the end of Q4 2024. The debt-to-equity ratio was at 0.03 at a consolidated level.
In FY25, our CapEx investment was INR 282 crores at a consolidated level. Free cash flows on a full-year basis at a consolidated level is 22% to PBIT compared to 86% last year. The decline in free cash flow was on account of higher working capital and higher CapEx investment. The return on capital employed on a full-year basis at a consolidated level is 14.2% compared to 18.5% during last year. At a standalone level, it is at 16.6% compared to 20.3% in FY24. For consolidated segments, ROCE in FY25 for the Abrasives segment decreased from 13.1%- 10%. Ceramics decreased from 46.9%- 35.5%, and the Electrominerals decreased from 26.7%- 18%. For standalone business, the ROCE on a full-year basis for abrasives has decreased from 44.2%- 36.2%. Ceramics has declined from 52.2%- 43.8%, and Electrominerals has decreased from 26.2%- 18%. Now, about the unallocable expenses.
On a full-year basis, the unallocable expenses for the standalone were at INR 63.1 crores in FY25 as compared to INR 19.8 crores in FY24. This was higher by INR 43.3 crores primarily due to lower dividend, higher project-related expenses, higher employee costs on account of new headcount additions, ESOPs, and leave benefit valuations. Now, I request Mr. Sridharan to talk to you about the future outlook. Thank you.
I will cover now about two things. One is what we look at FY26 given what we have seen. I also would like to share more about the long-term strategy that we have been working for the last 18 months. We expect the full-year consolidated sales growth could be 6%-7% in FY26. Consolidated sales growth in Abrasive would be 5%-6%, majorly driven by growth in Standalone Abrasives, which could be 6%-8%, and then RHODIUS and AWUKO.
Sales growth in Consolidated Ceramics would be 16%-18%, majorly driven by growth in Standalone Ceramics and then supported by CUMI Australia and CUMI America. Sales growth in Electrominerals could be about 1%-2% because of the drop in sales in VAW Russia. For VAW, we expect a sales drop to the extent of somewhere between 25%-30% in FY26. Standalone Electrominerals and Foskor to grow in the range of 8%-10% and 6%-8% respectively. In FY25, we delivered a PBIT margin of 11.2% at consolidated level. In FY26, this could drop by 100-150 basis points because of the softer performance in VAW. Consolidated Abrasives margin was about 7% in FY25. We expect this could improve by another 100-150 basis points. Consolidated Ceramics in FY25 was 24.7%. We expect this could drop by 100-120 basis points.
Consolidated Electrominerals in FY 25 was 12.5%. We expect this could be dropped by 100-600 basis points in FY 26. This is again rising from VAW. CapEx could be in the range of INR 300 crores-350 crores. This is what we are expecting. Just to sum up here, I think we feel that VAW's performance will have a deeper impact in FY 26. We feel that the profitability could drop at least by INR 100 crores, and that is why we have factored in the numbers whatever I'm telling. It all depends on the recovery. Basically, if the sanctions get lifted sooner than later what we are looking at, then this could change. I'm expecting whatever I communicated as if the sanctions are continuing. Now, I'd like to share more about the long-term strategy, which is the five-year program that we are looking at.
CUMI has a strong legacy in industrial material as a great starting point to capitalize the growth opportunity available in India and across the globe. Building on our rich legacy, we have spent dedicated effort in detailing out where to play and how to win for all our businesses, creating a clear trajectory of bold long-term strategy for the next five years by identifying opportunities in the existing and emerging sectors. Our clear long-term aspiration has been built grounds up with cumulative effort of over 150 leaders across CUMI, its subsidiaries, and joint ventures. This will guide our focus and investment for the next five years. At the highest level, we want to grow by two times in this period with sustained profitability. Our aspirations will be met with the right level of investment, if you will resolve in India as well as globally.
This strategy will also be supported with a structured execution roadmap to help us drive on-the-ground change effectively. We have ensured that our long-term growth strategy is holistic and is anchored on three strategic factors. One is scaling up our core existing businesses, entering relevant adjacencies, and exploring step-outs. Today, I would like to share more details on the first vectors of the group. This is about scaling up our existing business going forward. In abrasives, we build on our strong position to become the leading player in a growing INR 10,000-plus crores domestic market while further scaling our presence in the key export markets. We are reshaping our go-to-market model and investing in frontline capability building. We are investing in digital capability to enhance customer engagement and reverse data-driven execution. We have a strong industrial distribution base.
Our goal is to deepen the engagement with customers across both retail and the B2B channels through our distribution base to gain market share in under-penetrated states and gain customer share to nearly double our domestic market share over the next five to six years. To drive this growth, we are strengthening our product pipeline across both corporate and bonded segments, shaping a dynamic customer-centric portfolio. This would be through our R&D as well as through an appropriate sourcing strategy. To serve the growing infrastructure and construction industry, we are also investing in expanding our thin-wheel capacity using the synergy with RHODIUS and Dronco, which is both the asset as well as the technology and asset that we bought. In Electromineral division, we will evolve from a minerals player to a specialty material player.
Our focus area would be we will scale up alumina capacity from the current level and increase the share of treated grain. This treated grain means heat-treated grain, silane-treated, sol-gel-treated, blue-heated, and zirconia-coated grains. Thereby, they increase the share of value-added products in the alumina portfolio. We will also focus on export markets. Our current share would almost double in this space. Secondly, we will focus on expanding our zirconia portfolio. We want to add capacity. We also want to add products like alumina zirconia , stabilized zirconia, monoclinic zirconia, and zirconia for thermal spray powders using the synergy that we will have with Foskor Zirconia. Lastly, we will aim to enhance our product development capability to serve the high-growth sectors like semiconductor, aviation, clean energy by venturing into advanced materials such as thermal spray powders, both oxides.
It could be alumina, alumina titrate, metalized zirconia, stabilized zirconia, and mullite. Thermal spray powders for solid oxide fuel cells, HPSIC, graphene, silicon nitride, and alumina nitride. These are the newer portfolios that we will add. This strategy will allow us to completely reorient EMD's business strategy. We plan to increase our specialty minerals to 40% share in the next five to six years. In industrial ceramics, we will scale up leadership in high-margin advanced ceramics while strengthening the core segments like scaling up metalized cylinders, serial ceramics, and wire production. Growth will be powered by innovations for specialized sectors such as semiconductors, aerospace, defense, and e-mobility. We are expanding into ceramics for semiconductor, wafer fab equipment, opening opportunities across the broader and higher-value segment of the value chain.
At the same time, we are aligning the long-term global priorities as well as national priorities entering new areas such as aerospace and defense vehicle and body armor, both alumina, ZTA, RBSiC, and boron carbide, and as well as in the electronic sector, which would involve tubes, substrates, brace assemblies. To reinforce this, we are investing in the state-of-the-art manufacturing facilities, strengthening our global footprint, establishing a strategic collaboration with leading technology partners, positioning us for the long-term differentiation. A significant share of our overall investment will be directed towards our effort of expanding industrial ceramics to be a truly global ceramic powerhouse. In super refractors, we will target to be a relevant and scaled player in India's large and growing INR 15,000 crores plus refractory market.
We will continue to push the borders of addressable market by adding newer products in mono and market capabilities and gain share both domestic and export markets. We will use our competence in glass, CPI, carbon blocks, cement, and addressable global market. We will ensure our focus on cost excellence, considering increased global competition in the domestic market while continuing to grow our overseas footprint. We are also expanding our structural composite capability to advanced composite capability. To support this journey, we are building a future-ready capabilities across key functions. We will scale up our investment in R&D in line with the required growth. We expect to increase our R&D spend four to five times over the next five to six years if we want innovation across the board.
Building a high-performance organization that embodies and demonstrates a set of behavior deeply rooted in the five lights of Murugappa Group, signaling a culture of being even more performance and collaboration-oriented. The five lights of the Murugappa Group are integrity, passion, quality, respect, and responsibility. We also redesigned the role of the functions, various functions, to support the truly global organization. Lastly, we will be comfortable in funding these investments for our growth through our cash flows. To summarize, the entire organization of CUMI is energized by this vision of our long-term growth, and we are supported by a robust governance framework to ensure and track progress. We look forward to providing an update on specific projects as we realize the maturity. Just to sum up, I think for the time being, we are focused on FY26. We have given a broad guideline for you.
At the same time, we are preparing well for the five-year journey for which we have broadly given some of the programs and what we are looking at. Just to sum up, for FY 25, two major issues that we faced are the sanctions in VAW, which had a significant impact. The second one is the reversal of deferred tax credit. These are the two extraneous factors. The rest of them are normal business, which we feel that we are getting into. There are issues that we need to focus and address. We feel VAW, as I communicated to you, one more year, we have kept this at least at a lower volume of 25%-30%, which brings the profitability also down. That is what we have factored in in the guidance that we have shared with you. Thank you. We will now open up 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 touchstone telephone. If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to use hands up while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Harshad Patel from Equitas Securities. Please go ahead.
Thank you very much for the opportunity, sir. Sir, my first question is on VAW. I missed the sales and profit number that you provided in the ruble terms. Could you please repeat on that, please?
Yeah. I think VAW, on a full-year basis, VAW made a sale of INR 9.4 billion against INR 9.7 billion. They delivered a profit after tax, excluding exceptional items, of INR 119 crores. You should net off INR 90 crores of impact on this. INR 119 crores minus INR 90 crores would be the profit after tax post this one-time adjustment. If you exclude the one-time adjustment, it is INR 119 crores. It gains INR 149 crores of FY24.
Understood. On these fourth quarter margins, which are very weak, and you explained that our volumes were drastically down in the fourth quarter. Is this weak margin performance just because of the operating bill leverage due to lower volumes, or are there any other one-offs? What I'm trying to understand is, were the gross margins intact over there at VAW?
Yeah. I'll say the thing is this is exclusively coming out of the volume drop. As I said, it is 25%-30% volumes are down in Q4. We have factored in the similar volume drop for the full year next year as well. That is what I communicated. It's a pure volume drop.
Understood. Sir, my second question.
Volumes relating to VAW were earlier communicated in Q3 itself.
Perfect. Understood, sir. Sir, my second question is on Ceramics. With the normalization of supplies to a large U.S.-based clean energy customer, we thought that the standalone revenue growth would be high-level decrease in the fourth quarter. However, it has not happened so. Was it due to delayed ramp-up at this particular customer, or was there any other reason for the sale?
Yeah. I think the ramp-up with this customer is happening, as communicated, no challenge at all. Just to give you a perspective, the entire Ceramics segment is looked at in three broad areas. 65% of the business grew at about 18%. 23% of the business, which is Wear C eramics, were flat. And then 12% of the business, we grew at 36%. That is how the overall mix you are seeing about 6-7%, right? Now, that camouflages the real growth, what is happening. The 12% is a business which is highly project-driven business, and there are delays in projects which really cause this degrowth. It has nothing to do with the high-margin ceramics business, and whatever we have communicated is very much in line. We feel this project-led growth would come back next year.
Understood. Sir, what are these 65% and these 23% parts? Could you explain these two?
This consists of engineered ceramics, metalized cylinders. Those are the components. Also the fiber factories, all that put together is a component that consists of 65%.
Okay. And 23% would be the Wear Ceramics business. Would that be right understanding?
That's what I told.
Perfect. Sir, just lastly from my side, the standalone EMD margins have contracted sharply, both on Y-o-Y and Q-o-Q basis. Could you please explain the reasons for the same? There is also a steep jump in the standalone other expenses. Are these two things related to each other?
No. I think in the EMD margin, the way I would like to look at it is that we practically forced on the cost increase of alumina to the extent of, say, 85%-90% cost push. The rest, we could not push because of the pricing pressure coming from China. That is what you are seeing in the margin drop.
Understood. Perfect, sir. That was all from my side. Thank you very much for answering my questions. I'll come back in the questions.
Thank you.
The next question is from the line of Mohit Kumar from ICICI Securities. Please go ahead.
Good morning, sir. Sir, my first question is, how much is the CapEx and implied expenses you expect to incur to achieve these strategic objectives which you have laid out for the next five years?
Thank you, Mohit. We are not sharing this at this stage. The CapEx program, I would have loved to share at this stage. Next year's CapEx, I have shared with you broadly. That is what at this point. As I said, we have a clear program to deliver this two-times top-line growth. We feel that we have enough program to deliver this and should not have an impact, should not have an issue for us.
Is it possible to share the R&D CapEx which you incurred last year?
Don't have readily. Probably at a later point, we will share with you.
Understood, sir. My second question is on the abrasives. How is the competition shaping up? Are you seeing the easing out of the competition? Because you're saying at the same time you're excited for the market share. How do you think you'll achieve a higher growth and a higher market share in the next five years, given the competition there?
I broadly described the program that we would increase the market share. Right now, we are looking at the market in four broad categories. There is a first category like ourselves and Norton. That is local manufacturing players. The second category is largely people who either manufacture here or import and then sell in their brand name. These are good brands that they are selling. The third category is the non-abrasive companies who import for their own industrial use, right? Direct import from that. The fourth category is basically the international players, which they import and then sell in their brand. We feel that we have enough room in these three other categories to take a share and that we can grow in the market. The growth strategy is largely two broad strategies.
One is wherever there are product gaps, where we have identified product gaps, and that are going to be met both out of the new product to be developed and introduced or sourced where required. The second one is strengthening the go-to-market. Clearly, there are certain states where we are not present or we have very, very low market share where we would like to expand the market share. Plus, the customer, certain Class A and Class B customers, they would like to improve our value share that we work with them. Based on these two broad, and there are sub-elements to this approach, but that's how we are looking at it.
Understood. Thank you and all the best, sir. Thank you.
Just a second. I think my team says that it's about R&D spend. I'll get back to you.
Sure. Thank you, sir. Thank you and all the best, sir. Thank you.
Thank you. The next question is from the line of Amit Anwani from PL Capital. Please go ahead.
Thank you, sir. Thanks for taking my question. My question pertains to your remark about the strategic plan, and you highlighted that we'll be focusing on aerospace, defense vehicles, and I think defense electronics also, and investing in manufacturing facilities and collaborating there. If possible for you to share more details, what kind of product, any target we have in this space, and would it be high-value product export or domestic market, any more color on this space?
I would broadly touch upon this. One is it's basically both vehicle and body armor are the two spaces that we would work because that is where the ceramic has got a play. That is how we are looking at it. That is why I said that we will be focused on that. It will be based out of either alumina or ZTA or reaction-bonded silicon carbide or boron carbide. These are the materials that we would be using, and the product outcome would be either a body armor or a vehicle armor.
Yeah, sir. Second question, again on VAW. You said FY26 also will be hit by a decline of 30%-33% on VAW and impacting the PAT by almost INR 100 crores for FY26 as well. I wanted to understand how one should look for VAW. Are we in a wait-and-watch that these things which are dependent on external controls will be better off? Or is there any strategic thinking which has gone into VAW while devising the three-to-five-year plan for us?
I think since the time of the sanction in early January 2025, right? We are almost, say, kind of four-five months since the sanction has happened. There are a lot of developments which are very positive, right? There are multiple ceasefires that have happened between Ukraine and Russia. There are open comments made by both the governments that they would like to end this conflict and then reach a settlement. There is also a lot of facilitation being offered by various countries across the globe. Every other country has expressed that this should end. We hope, I think, there will be a logical conclusion sooner than later. I'm not an expert on the geopolitical happening, but we positively look forward to that.
All right. So finally, on the Chinese impact, which we have discussed throughout last year also, that there has been a pricing pressure, and we tried to devise distribution strategies across segments where it was impacted, including the low-end abrasives and alumina. And we talked about at least five to six quarters for things to be better off. Are we on the similar notings, or has the things further deteriorated or improved from the Chinese dumping side?
See, again, the time we talked versus the time we are now talking, there are many things that have happened. There is a global trade itself that is undergoing a reset. Obviously, it is better to wait and watch how this whole thing would develop. We expect that the competition from China will continue to be tough, and they will have upper hand in terms of bringing down the cost, ability to compete in terms of prices which no one can match. Those issues will continue is what our current thinking is. Obviously, we are preparing ourselves to work against that.
Thank you, sir. Thank you for taking my question, and all the best.
Thank you.
Thank you. Ladies and gentlemen, if you wish to ask a question, you may press star and one. The next question is from the line of Mohit Pandey from Macquarie. Please go ahead.
Yeah. Good morning, sir, and thank you for the opportunity. Sir, my first question is on the five-year outline that you have shared. Please correct me if I'm wrong, but as I could understand, the bulk of the incremental growth as per your current position will be from incremental domestic investments. Is that understanding correct?
Right. That's correct.
Okay. Okay. Sir, just wanted to hear your thoughts on the turnaround strategy for AWUKO and RHODIUS, especially in line of the stimulus that is being announced by the economy there on the infra side. Is AWUKO and RHODIUS likely to have a second-order impact there?
As far as the RHODIUS is concerned, as I said and communicated in the call also, they are profitable after you exclude the TPA, which is our own write-off that we are trying to do that, right? It is profitable, and it is the growth trajectory. There is no issue on the RHODIUS side. What we are facing is on the AWUKO side, we feel that the growth opportunity which you are talking about, the second-order benefit that would come, we feel that this would help them. Definitely, this is what we are also looking forward to. There will be a betterment is what we are looking at.
Okay. For this year's guidance, it's too short-term. You're not bringing in any impact because I heard you said it's largely driven by commission. Okay. That's clear, sir. Sir, secondly, on Ceramics, if you can please confirm, you said for the margins, the guidance is a drop of 100-125 basis points. Is that right, sir? Is that right? What is 30 for FY26?
Yeah. 100 to 120 basis points. Right.
Okay. And sir, what would drive this, please? Yeah. What will be people?
It is coming from the, again, there's a small portion of the business from Russia, so that would get impacted. Hence, we are building that.
Okay. Okay, sir. Sir, and across the three businesses, or maybe across the Abrasives and Ceramics, as per your current assessment, over the next five years, there is clearly a much higher growth. Would that be Ceramics? What would that mean for overall margins for the company?
I'm not sharing any margin guidance on this stuff, but broadly, I explained that our overall trajectory, we are looking at doubling it. Second is that we programs that what would drive the growth is what we have shared. I would like to stick to that.
I'm sure, sir. Sir, one last question on the minerals, the specialty minerals, greater push towards specialty minerals. Sir, if you could please, if it is possible to elaborate what is different this time? Because I understand for the past several years, there has been an ambition to increase salience for specialty minerals in the overall business. What's the right to win now, given that if I understand correctly, we have already been trying this in this area for quite some time?
Absolutely. Great question. I think thanks for asking. Three different things. One is within alumina, we are increasing the treated grain, and export of alumina is going to go up. That's the first vector that is different. Second is increasing the zirconia portfolio. This is the second vector of difference because our right to win is very high because we have established operation in South Africa, plus we are also having a small operation here. With this, once we increase the portfolio, as I said, it's just not only all varieties of zirconia, whether it's alumina, zirconia, zirmol, stabilized Zirconia, Monoclinic, and Zirconia for thermal spray powders, which enter a range. That's the second difference. The third difference is focus on thermal spray powders using oxides.
That is the third difference where we have established our capability and we are trying to ramp up with a few anchor customers that we have. The fourth area that we would like to focus, which is on two, three different materials. One is the HPSIC and the thermal spray powders for solid oxide fuel cells and the alumina nitrides, which is both silicon nitride as well as aluminum nitride. The last alone would take about three, four years before the real benefit of this would start coming. The first three where we have established the right to grow, and that is how we are planning to grow. These are the differences between the earlier program and this program.
Okay, sir. Wish you all the best. Thank you. Thank you so much.
Thank you. The next question is from the line of Nidhi Shah from ICICI Securities. Please go ahead.
Yes. Thanks so much for taking my question. My question is mainly around employee expenses. You're seeing employee expenses have kind of shot up this year. I understand that some of this bit is from ESOPs. How much is ESOP? How much is not? What can we expect in FY26 in terms of employee expenses?
Broad baseline is that employee expense as a percentage is still very much under comparable range only. There is no change into this. These are minor blips that happen on a year-on-year basis. They're not significant. Since you are making a forecast, I would encourage you to look at it that way.
All right. Could you give out the ESOP number that was before in the employee expenses?
Not much, madam. Any of the annual report comes, we'll have a lot of details on the ESOP.
Thank you.
Ms. Nidhi, did it answer your question?
Yes. Thank you.
Yeah. The next question is from the line of Manish Goyal from Thinqwise Wealth Managers. Please go ahead.
Yeah. Thank you so much, sir. Sir, I have two questions. Based on your five-year plan, so we had the. Since soon, does it include any organic initiatives? And if yes, then probably in which areas or what would be the focus on that? First question. Second question, I just would like to know, have we probably started realizing any cost-relating benefits on acquisitions with RHODIUS and AWUKO, maybe geography-wise in terms of leveraging skills and distribution, and also on the product? Thank you, sir.
The numbers that we looked at and shared does not have any acquisition as part of this number. As far as RHODIUS, clearly, we are looking at a lot of synergy arising, and we are setting up a good summary. Typing is slow, but yeah. The thin wheel facility technology of RHODIUS, and that would help us deliver quality products at a cost that market would like to have. This is the synergy, I would say, as an example from RHODIUS at this point.
Would it be able to, like the challenges, what we face from China in terms of largely on the pricing front, will this probably technology help us to address that? That is how we are probably looking at it.
Yes. We have looked at what is the imported cost and what this technology would bring. Plus, we worked on a cost model where we should still be competitive. If we have some dumping happen from China, we should be able to counter that.
Sure. Thank you so much.
Thank you.
Thank you. The next question is from the line of Aditya from Kotak Securities. Please go ahead.
Good afternoon, gentlemen, and thank you for the opportunity. I had a question from my side. The way you have split the ceramics business in terms of components and growth, could you do the same for the abrasives and EMD standalone portions in terms of what is being impacted by China and what is not? It would be good to know the relevance of Chinese competition in terms of revenue share impacted and the real impact being seen given whatever is happening right now in the last one year.
As far as abrasives are concerned, I don't think we have any—I mean, that's a universal growth that we are having. If you look at—I'm sure you would have looked at other publishers' results in this space. We both are traveling, give or take, about 4% growth. The way I look at it is that I'll more say 50% plus market is getting imported into India. Of that, 50% comes from China, and the rest is coming from other countries. That constitution, we have not seen any big difference compared to the earlier position. That's why I felt that you continue to have this challenge, and then you are looking at that. With countering that, two things.
One is come up with your own new product to be delivered or source for the time being and then develop the product as you become ready to launch this. We have now looked at a whole lot of sourcing strategy to counter this, and that's the program that we are looking at. As far as the Electromineral is concerned, I think where we are having a challenge is the entire electro—sorry, the alumina space is where the challenge that we will have, which is all we talked about so far in the earlier calls also. My guess is that the entire alumina space could be about 30%-35% of our business could be that way.
Sure. Just to kind of complete this question, if we only focus on areas within Abrasives and Ceramics that are not impacted by Chinese, what will be the kind of growth patterns that you're seeing in those kinds of markets on a managed basis?
Yeah. We are not sharing anything like that. I've given a broad next-year growth. I've given my expectation in terms of that. I would like to stick to this idea.
Okay. Okay. The second thought on this would be then that, see, the Electrominerals segment at a standalone level, margins were low. As we see through the next year, how should we think through them? As in, you've been able to pass on 85%-90%, and this alumina kind of division is a sizable part of that business. So how do you think through whether there's scope of further pushing the pricing up, or should we be assuming low single-digit margins in that portfolio?
Overall, I waited that the EBIT margin on the aluminas will come down by 500-600 basis points compared to this year, 12.5%. I feel that it would take care of some portion of your passing on benefit with cost push also. I think that in the initial Q1, we will continue to have this pressure in India, and then we will slowly start getting this better in Q2 onwards. That is how I am looking at it.
Would there be a strategy that we can follow the way we are doing in other areas wherein we'll be in a better positioning in the alumina space from here on, or is it just depending on? Yeah. So what's the strategy for them, and how can it benefit us here?
Right. I just discussed the strategies. Supplying more treated grains in alumina, which helps us to have the ability to counter this. This is what is our strategy. I enlisted all the types of treated grains, and we are very much on it. In the next one year, we should be able to start launching these products and going in that trajectory.
Noted. Those are my questions. Thank you for your responses.
Thank you.
Thank you. The next question is from the line of Bhaven Vithlani from SBI Funds. Please go ahead.
Yep. Good afternoon .
Yes, Bhaven.
Thanks. I have three questions. First, if I look at this Abrasives business on a Standalone basis where for 11 quarters, we are seeing low single-digit growth. I would see a couple of quarters in the early part of calendar year 2024, where we were seeing some acceleration, but we have now seen deceleration back. If you could help us understand, breaking it into two parts. One is what part is the slowdown in the end market? I understand abrasives is over-indexed to commercial vehicles, and that segment of the market has slowed down. Second is what we are seeing is acceleration in the thermal power manufacturing, especially when we look at the BHEL order book, etc. If you could help us understand that, the underlying market slowdown. Second, what part of the market is impacted by the Chinese competition?
That part, we understand, should have already been adversarial. That is my first question to understand the standalone Abrasives better.
The industrial distribution is moving, growing at about high single digit, right? We see that that's a very positive one. Retail is growing at about mid single digit. The challenge is largely in the precision side where the industrial growth-led precision side is where the challenge is. I think you pointed out some of the industries, and you clearly articulated that. That is where we see this deceleration is happening. As the industry picks up, we feel that this momentum will start picking up. That's how I read this.
Great. The second question is on the Russian piece. When we see this quarter revenues declined by about 16%, but we've seen a sharp drop in the margins. In this, if you could help, because this is a continuous process industry, slowing down or stopping production is difficult. We would have been forced to sell in the Russian market. What part, if you could just help us understand the kind of pricing pressure that would have happened and the kind of volumes impact that was there in the Russian piece because of forced selling into the home market and exports kind of getting impacted due to the sanctions?
Honestly, there is no forced selling. We feel we are currently not able to sell. Hence, we are not producing. As a result of that, the unabsorbed cost, because you carry a lot of costs of this whole manufacturing process, that is what is getting impacted. As I said, it is not 16%. It is about almost 25%-30% volume drop in Q4. We expect a similar drop for the next year as well. There is no, I would say, because of that, we are trying to push this into the market, hence the price falls, etc. It is largely we are not able to sell, hence we are not able to produce, hence we have an issue in terms of the profitability.
I understand that. The last question is on the Ceramics piece. If you could just give us where we had seen a slowdown last year in some of the specialized piece, which was going to, we were selling to the hydrogen cells. How has that market now shaping up, given that when we look at your end customer, they are seeing increased order booking? Second is especially on the metalized piece where transmission and distribution as a segment, world over, we are seeing very strong growth. On that, if you could give us an outlook in terms of what we are seeing in the specialized piece and what it does to the growth outlook for the next year in the Standalone Ceramics piece.
You made great observation. I think, as I said, that 65% of the Ceramics segment has grown about 18%. This includes the sectors that you talked about. They are growing, including metalized cylinders are growing well. Definitely, you are right in your observation. As I said, the 23% of the business is flat, and the average is coming down. That is what I have earlier also told.
Just a follow-up here. This piece is basically the refractories piece, which is slowing down due to the underlying steel production demand.
No, it's a valve side of the Ceramics business, which is what is flat.
Understood. Yeah. Yeah. Those were my questions. Thank you so much.
Thank you. Thank you.
Thank you. Ladies and gentlemen, that was the last question for today's conference call. I now hand the conference over to Ms. Bhoomika Nair for closing comments.
Yes, I would just like to thank all the participants, as well as the management, for giving us an opportunity to host the call. Thank you very much, sir, and appreciate it. Any closing comments from your side?
As I said, I think just to give a brief closing comment is that this year, there are two extraordinary factors. One is largely driven by Russia sanction, which eventually has brought two types of impact. One is a provisioning impact, which we feel that once this sanction gets lifted, it reverts back. The other one is the volume drop as a consequence of that, which happened in Q4. The second major challenge that we faced is the reversal of the deferred tax credit in AWUKO. If you take these two factors, which is the substantial portion of the difference that I accounted for, we feel that the business is doing fine, and we have spent a good amount of CapEx this year. We have also spent 18 months of time in creating a good structured long-term strategy.
We communicated the broad direction in which we are trying to travel. We have also broadly looked at considering the current global trade-related issues and the geopolitical issues. We feel that what we are looking at as the next year, we communicated. We said that we'll have a 6%-7% growth, and we also broadly communicated the PBIT margin, how it would pan out. We feel highly focused on our execution in terms of the long-term strategy, so we will see improvement strength to strength every quarter. Thank you for your support, and thank you for your patience hearing.
Thank you. On behalf of DAM Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.