AIAENGNSEAugust 12, 2022

AIA Engineering Limited

7,239words
111turns
11analyst exchanges
2executives
Management on call
Kunal Shah
EXECUTIVE DIRECTOR
Sanjay Majmudar
AIA ENGINEERING LIMITED
Key numbers — 40 extracted
rs,
have a lot of updates for this quarter, but nevertheless, as usual, we will run through the numbers, share a brief on where we stand on a macro level and we will open it to Q&A thereafter. So, we h
Rs. 1,064 crore
(Inaudible) 2.38 and hence the realization increased to 150-plus, we have seen our revenue is at Rs. 1,064 crores. Our EBITDA is at Rs. 267 crores, and which is about 25% as a percent of sales. And our profit a
Rs. 267 crore
lization increased to 150-plus, we have seen our revenue is at Rs. 1,064 crores. Our EBITDA is at Rs. 267 crores, and which is about 25% as a percent of sales. And our profit after tax is at about Rs. 190 cror
25%
have seen our revenue is at Rs. 1,064 crores. Our EBITDA is at Rs. 267 crores, and which is about 25% as a percent of sales. And our profit after tax is at about Rs. 190 crores. These numbers are l
Rs. 190 crore
s. 267 crores, and which is about 25% as a percent of sales. And our profit after tax is at about Rs. 190 crores. These numbers are largely comparable to the fourth quarter of last year. Our other income is at
Rs. 15 crore
. These numbers are largely comparable to the fourth quarter of last year. Our other income is at Rs. 15 crores, which is largely export benefits and which is RoDTEP and drawback. We have got non- operating
Rs. 20 crore
rgely export benefits and which is RoDTEP and drawback. We have got non- operating other income of Rs. 20 crores, a large part of that is treasury income of about Rs. 14 crores and foreign exchange gain of abo
Rs. 14 crore
got non- operating other income of Rs. 20 crores, a large part of that is treasury income of about Rs. 14 crores and foreign exchange gain of about Rs. 6 crores. Raw material is at 44% to sales in line with th
Rs. 6 crore
a large part of that is treasury income of about Rs. 14 crores and foreign exchange gain of about Rs. 6 crores. Raw material is at 44% to sales in line with the fourth quarter. I think most of the costs are
44%
come of about Rs. 14 crores and foreign exchange gain of about Rs. 6 crores. Raw material is at 44% to sales in line with the fourth quarter. I think most of the costs are comparable to the fourth
Rs. 2,065 crore
es from the non-mining seasonal impact for this quarter. Our cash at the end of the quarter was Rs. 2,065 crores, up from Rs. 1,868 crores end of March. And from a CAPEX standpoint, investment standpoint, we c
Rs. 1,868 crore
easonal impact for this quarter. Our cash at the end of the quarter was Rs. 2,065 crores, up from Rs. 1,868 crores end of March. And from a CAPEX standpoint, investment standpoint, we continue on track for Rs.
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Guidance — 18 items
Kunal Shah
opening
“275 crores should come this year and the balance should come next year.”
Kunal Shah
opening
“We explained our constraint in giving exact figures to model just because many variables play into that conversion time line and which is where we will be sharing near-term guidance and overall structural direction for periods going forward after that.”
Sanjay Majmudar
opening
“We continue to demonstrate our ability to pass on the cost increase, both in raw material as well as in freight as it will be seen from an increase in the average realization, which has inched up to 150-plus this quarter.”
Sanjay Majmudar
opening
“The mill liner project is actually technically commissioned, but we are waiting for the last mile approval from the local authorities and then we should be able to flag it off.”
Sanjay Majmudar
opening
“But all other work on that project is over.”
Sanjay Majmudar
opening
“So, we continue to maintain the same guidance that we gave at the time of the FY '22 results call about the growth.”
Sumit Jain
qa
“So, when you talk about roughly 30,000 tons of additional volumes this year and next year, this is only the grinding area or this includes some lining material also because.”
Sanjay Majmudar
qa
“However, therefore, from a margin standpoint in an absolute terms, we will be agnostic for the simple reason that freight is always charged extra on an actual basis per customer.”
Sanjay Majmudar
qa
“See, our strategy is that we target various mines based on different strategies within the broad focused universe of gold, copper and iron, okay?”
Ravi Swaminathan
qa
“And any target volume for mill lining this year and next year from the new facilities that you can talk about?”
Risks & concerns — 5 flagged
So, raw material pricing still continues to be volatile and high and so is shipping.
— Kunal Shah
From an overall market standpoint, as mentioned early on, shipping still remains to be a cause of concern in terms of our current cost.
— Kunal Shah
I do not think there is any concern there.
— Kunal Shah
Having said that, in a scenario of falling commodity prices, if theoretically the margins of mines come under pressure, then they would be a little more open to look at us because we are talking about their benefit.
— Sanjay Majmudar
It is a higher-priced product, but it will not help you derive the impact of it on margin because we also have many other higher-priced products compared to the average realizations, right?
— Kunal Shah
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Q&A — 11 exchanges
Q
Congrats on good numbers. Firstly, if I look at the freight outward expenses, they have declined almost 20% quarter-on-quarter. So, is it there are some reduction in the ocean freight cost or it is?
Kunal Shah
No, that is just the export from India because we have got a fair amount of material in transit also, right? So, that is just a quarterly volume of export, that reduction only reflects that. It gets built into a stock value and increase/decrease ultimately. Okay. So, there is no reduction in freight costs. No. That is not reflecting in the shipping. Okay. And we are seeing lot of this, the power and fuel cost increase happening for industry per se but we are not so much impacted so far. So, anything that can come up in that in future like, say, an increase in power and fuel cost expected? So,
Q
So, when you talk about roughly 30,000 tons of additional volumes this year and next year, this is only the grinding area or this includes some lining material also because.
Kunal Shah
No, it is all put together, total volume growth. Total volume growth, including mill liners? Yes. Okay. And this reduction in freight cost, if you can just explain a bit more because you are saying it is not still freight cost per ton or your freight costs coming down and you still has challenges passing it on? Sorry, can you repeat, Sumit, I did not get your question? So, this reduction Q-o-Q in freight cost, if you can explain a little more because what you sound and what you tell, and correct me if I am wrong, is that you are trying to tell us is that you are still not able to fully pass on
Q
Congratulations for a very good set of numbers. I have a couple of questions. So, the question is if you can give a breakup between exports and domestic sales volume in this quarter? That is the first question.
Kunal Shah
Okay. And what was the second question? Yes. The second one is essentially that, with the mill liner plant also going to get commissioned, so will there be incrementally better margins from mill liners? Or how do you look at it? Or will the margins be similar? All the margins in liners at a product level, the margins are different, at an EBITDA contribution level, most margins normalize, right? In the current product mix, we have grinding media and we have a non-grinding media piece, right? So, while mining liner comes up, we are still looking to ramp up our grinding media sales also. So, I do
Q
My first question is with respect to the blended realization. Obviously, this quarter realization was one of the highest. How do you see the realization panning out? Has it fully captured in the price increases that we need to take further rupee depreciation, can it be relevant to the realization? Where do you see this realization settling in over the next 12 to 24 months?
Sanjay Majmudar
See in our view, we believe that the current Q1. I think so this reflects more or less most pass-throughs. Some raw material prices, it may not increase significantly. The only difference would be currency and product mix from here on. So, it may come down, as I said, if the freight goes down or if the ferrochrome prices come down. I think we are seeing directionally a little bit of softening everywhere. So, you may treat this as the peak. And secondly, with respect to the efforts with respect to the grinding media in new geographies in Latin America, any update on that? Especially the key cou
Q
Congratulations for a good set of numbers this quarter. Sir, just to extend on this realization bit. Now I understand that ferrochrome prices have actually fallen by about 20%, 25% on a spot basis and not to mention that other aspects like freight, et cetera, itself are softening. So, would it be fair to say that in a gradual manner, this would be reflected into our realizations as we move ahead?
Kunal Shah
Yes, it is a pass through both ways, Bhoomika. It cannot be one way, right? The customers have given us the pass through when it went up, we will have to be fair and square and pass back some of those movements. Yes. Okay. So, when we pass it on, while I do understand that it is not fair to really look at on a per ton EBITDA or a per ton gross margin, given the change of mix and other aspects which come along the way, but how should one look at the margin profile? Would it remain in the 22%, 23% band? Or with the pass-through element of the lower cost structure, the margins will optically look
Q
So, I have a couple of questions. The first question is, I just wonder, any opportunities AIA is seeing from the orders that will be let go an European competitor Magotteaux with the high power costs?
Kunal Shah
Sorry, we missed most of what you said. Because of the higher power cost in Europe, some of the competitors are looking at, I mean, that will be an advantage for Indian companies right, so just wanted to know, is AIA seeing any kind of upside from market share standpoint? I think there is not so much facilities in Europe. So, it is not a big opportunity in that sense. Okay. And sir, for the current financial year apart from the volume increase of 30,000 tons that you spoke, so what are the other levers for margin expansion? Okay. So, there are several reasons which can come in our favor. So, y
Q
Sir, you just talked about the total mill liner market size is 3 lakh tons. So, is it only a metallic mill liner or it includes rubber and composite also?
Kunal Shah
That is a metallic market of 300,000 tons. Okay. Sir, I mean about how much would be composite or how much would be rubber mill liner? We do not have the exact number on it. 300,000 tons is a metal market on which we are focused on. Okay. Sir, since you are entering into this metallic mill liner for the first time, even one of the domestic player were into similar line of business, it is only disrupting the metallic mill liner market through the innovative product. So, what is your take on that? We are not disrupting the metal market, we are just replacing the metal mill liner with another met
Q
Sir, one clarification. Like in the overall scheme of things, what will be our contribution in the total cost for the miners? Like basically, I want to understand if, let us say, copper producer spends $100 for producing 1 ton of copper, how much of mill liners or maybe our product is used over there? Is it significant enough or?
Sanjay Majmudar
Yes. So, Siddharth, see, there is no clear yard stick. There are very different types of operating conditions, but you can generally say that grinding, the consumable, the wear parts that we are focused on will constitute 8% to 10% of the entire mining operations cost. That is an average. It can vary mine to mine, but this is the average, so that is significant. So, the value add that we say, that if you use our grinding media or liners, A, you can reduce the consumption by 10%, 15%, 20%, which would mean a direct 1% or 2% addition to your EBITDA. That is point #1. Point #2, we bring a lot of
Q
Sir, one clarification. To one of the participant, you responded that realizations, you do not see changing much in the cycle, despite the reduction in ferrochrome price.
Kunal Shah
The question was, can it go higher. What Sanjay Bhai responded was this looks to have plateaued in raw material pricing. If it goes down from here, our realization will mirror that. So, the current 20% reduction in ferrochrome price is already reflected in the Rs. 160 realization. We did not say 20%, I do not know where that number has come from. Ferrochrome is very, very volatile. Every day, every week, the price is changing. And I do not think we have seen cycles where things go down and go back up again. So, we will have to see this over the next 2 quarters on the price. The important thing
Q
Congratulations, Kunal Bhai and Sanjay Bhai, on the great numbers. So, of course, most of my questions are answered. So, just one question from me. So, we are seeing that freight rates are softening. And I remember, you had once told that, at the moment, the supplies to Canada and Brazil, the freight rate was kind of an issue. Now how much does the freight rate, according to your calculations, need to fall from present levels for you to, let us say, resume shipments to Canada? And how much volumes?
Kunal Shah
No, I mean today, freight rates are at least 2x, maybe 3x in many lanes. Again we do shipping from 100 miles to a few thousand miles, right? So, that is not a one answer. But I mean, those shipping lanes where we sell to, it should come back. So, at some places, it is 2x, some places it is 3x and some places it is still even 3.5x or 4x our original rates, right? So, it is more a directional answer versus objective answer, saying, if it falls below 30%, I get 20% more margin. I do not think there is a one-to-one correlation like that kind of. But your FY '23 or FY '24 does not include any contr
Q
I think most questions seem to have been answered. I think we can go for the closeout comments. So, thank you all. As always, Sanjay Bhai and I remain available offline for any other questions that you need answered. And we look forward to connecting after Diwali for our second quarter results. Have a good evening. Thank you.
Management
Speaking time
Kunal Shah
37
Sanjay Majmudar
17
Moderator
13
Sumit Jain
8
Ashutosh Tiwari
6
Raja Kumar
6
Bhoomika Nair
4
Dhiral Shah
4
Pritesh Chedda
4
Amit Dixit
3
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Opening remarks
Kunal Shah
Thank you. A very good evening to everyone. Warm welcome to our conference call. This is Kunal, and I have Sanjay Bhai here also on the call with us. Given its first quarter, we have discussed at length on the plans for this year on the fourth quarter call last month, 1.5 months ago. So, we do not have a lot of updates for this quarter, but nevertheless, as usual, we will run through the numbers, share a brief on where we stand on a macro level and we will open it to Q&A thereafter. So, we have produced about 68,000 tons in the quarter and sold about 68,000 tons of sales for this quarter, which is up from 60,000 tons in the first quarter last year. But clearly, that quarter is not comparable because of COVID interruption. On a sequential basis, we did about 73,000 tons in the fourth quarter. Compared to that, we did about 68,000 tons this quarter. Our realization has inched up to about 150-plus during this quarter, largely reflecting the inflationary pass-through that has come along. O
Sanjay Majmudar
Well, good afternoon, and happy to just very quickly add to what Kunal said. Directionally, we remain absolutely on track as the results have shown. We continue to demonstrate our ability to pass on the cost increase, both in raw material as well as in freight as it will be seen from an increase in the average realization, which has inched up to 150-plus this quarter. The margins look healthy. Even at the operating level, the EBITDAs are in the range of about 23%-odd, whereas the reported EBITDA is obviously higher at about close to 25%. The CAPEX plans are on track. The work for the new grinding media facility, which we have announced with 80,000 tons has already started. The mill liner project is actually technically commissioned, but we are waiting for the last mile approval from the local authorities and then we should be able to flag it off. But all other work on that project is over. So, we continue to maintain the same guidance that we gave at the time of the FY '22 results call
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