AIAENGNSEJanuary 30, 2023

AIA Engineering Limited

13,877words

208turns

15analyst exchanges

2executives

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Management on call

Kunal Shah

AIA ENGINEERING LIMITED

Sanjay Majmudar

AIA ENGINEERING LIMITED

Key numbers — 40 extracted

1209 Crore

, finally. So we are happy to report that. That sale of 71500 tons translates into sales of about 1209 Crores, and an EBITDA of 39.42%. This quarter has been very interesting, like last three, four years fo

39.42%

port that. That sale of 71500 tons translates into sales of about 1209 Crores, and an EBITDA of 39.42%. This quarter has been very interesting, like last three, four years for us have been every singl

40 Crore

So, when I look at an EBITDA of 39.42% and of course, there were treasury income in that of about 40 Crores, 42 Crores, the rest of that being operating in nature. But there is about 5% in treasury gains

42 Crore

look at an EBITDA of 39.42% and of course, there were treasury income in that of about 40 Crores, 42 Crores, the rest of that being operating in nature. But there is about 5% in treasury gains end of Dece

t of about 40 Crores, 42 Crores, the rest of that being operating in nature. But there is about 5% in treasury gains end of December the rupee was at 82 plus levels, and a lot of our invoicing for

ed to currency. We also had a very favorable product mix just in terms of this period. So about a 2%, 3% margin that got added on that account. So those two put together is about 7% to 8%. There i

o currency. We also had a very favorable product mix just in terms of this period. So about a 2%, 3% margin that got added on that account. So those two put together is about 7% to 8%. There is a

riod. So about a 2%, 3% margin that got added on that account. So those two put together is about 7% to 8%. There is a margin that is sitting on currency and product mix. On the cost side, we have s

So about a 2%, 3% margin that got added on that account. So those two put together is about 7% to 8%. There is a margin that is sitting on currency and product mix. On the cost side, we have seen ra

10%

urrency and product mix. On the cost side, we have seen raw materials correct from between 8% and 10%. So there is some ease off. Most of our contracts now have a price pass through mechanism. So pri

ow there will be a small period where the price reduction will follow by a lag. So there is 3% to 4% of that sitting, which is all costs related to raw material and freight costs. Some amount of fre

20%

utile for us internally to look at every quarter after others. So while we continue maintaining a 20%, 22% operating EBITDA margin, it is more directional, more indicative than a quarter, especially

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Guidance — 20 items

Kunal Shah

opening

“So when the pricing kept going up, there was a paying lag, and now there will be a small period where the price reduction will follow by a lag.”

Kunal Shah

opening

“So from a margin standpoint, of course, the next question will be what is our guidance on margin going forward.”

Kunal Shah

opening

“I think in the next quarter, we can share a little more sharpened margin guidance for the next year.”

Kunal Shah

opening

“Now obviously, with a fair and square basis, it will be adjusted down, and that is what makes us proud that there is a franchise we have built where we are not dependent on the winds of how the market moves.”

Kunal Shah

opening

“So 9 months, if you look at it, 73000 tons versus 61000 tons and full year we will be closer to say, 95000 tons.”

Kunal Shah

opening

“Going forward, 2024, about 30000, 35000 tons is something that I think looks doable for now.”

Kunal Shah

opening

“So full year FY2023, we think we will do about 6000 tons of production and sales from that plant, and about 24000, 25000 tons of total sales coming from mining mill liners, and that should grow by another 10000 to 15000 tons next year, and based on that, about a 30000 tons, 35000 tons overall growth for fiscal year 2024.”

Kunal Shah

opening

“Lastly as far as Capex is concerned for next year, we will do about 300 Crores.”

Kunal Shah

opening

“Next year, it should be about 300 Crores, which is a 200 Crores for the grinding medial expansion for 80000 tons that we are doing, which will take our capacity from 440000 to 520000 tons.”

Kunal Shah

opening

“Some land of 30 Crores, balancing Capex and some other enhancements that we are doing at about some another 70 Crores, 80 Crores so that put together is about 300 Crores of Capex for the next year.”

Risks & concerns — 6 flagged

So the amount of volatility that we are setting on is unchartered, and in that case, trying to predict variables and then give a margin continues to be a challenge for us.

— Kunal Shah

But we are hoping that will happen, I mean, shipping across the board has a weak outlook.

— Kunal Shah

We know what is the opportunity, what is the challenge and what we have to achieve.

— Sanjay Majmudar

Unfortunately, it is way difficult to carve out expenses across the value stream and park those under R&D expenses, because a lot of R&D that gets classified is more related to innovation and which is going to lab or you have got a bunch of people whose costs gets allocated over there.

— Kunal Shah

Very difficult to put a number to it, but gradually, yes, it can go down a little bit.

— Sanjay Majmudar

Frankly, it is very difficult to decide, very difficult.

— Sanjay Majmudar

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Q&A — 15 exchanges

Congrats on very good numbers. Firstly, on the volume front, obviously, after a very long time, you are delivering very strong numbers, and so in the mining side, it is still driven by copper and gold only. These are the two bigger vendors contributed to this growth.

Kunal Shah

Yes. So copper and gold, and of course, we are doing some work in iron ore, that also continues to be an area of interest and mill lining, which is not just gold and copper. So it is a mixed bag at least as far as there is no single ore driving disproportionate volumes. You also mentioned about this 6000 tons of production sales from the new plant. This is for full year, right. Yes, we have done about 2500 tons till now. In this quarter, we will do another 3000 tons, total about 5000 to 6000 tons is what we will do from the new plant. Cement volumes, like obviously nine month figure is probabl

Good evening, sir. Sir, my question is on the EBITDA per ton side. So basically, it is consistently increasing for the last three quarters, and one year before, these were around 26000 per ton, and if I talk about 2021, these were only 24000 per ton. But in this FY2023, in first nine months, these are almost double, double to 47000. So my question is exactly what is happening. Is there any change in business economics that I am not getting? Because I understand, part of the reason could be the raw material pass on is happening, and cooling of the prices. But the thing is your absolute EBITDA i

Sanjay Majmudar

I understand your question. So let me first and foremost, tell you that you should not look at EBITDA per ton because it is not a correct reliable yardsticks for two, three reasons. One we do not operate with a standard product. So we have a very wide diversity of products, ranging from grinding media, then liners for cement, liners for mining, then we have VSM, that is vertical spindle mill pads, where the price range is very high. My point is that volume and pricing, they do not go in parity and hand-in-hand, and because of that, if you do not have a standard unit of measurement, you cannot

First question would be on, first of all the production per metric ton and the sales per metric ton. So in this quarter, our total production is 64000 and our sales is 71000. So I think from last, let us say, from 7, 8 quarters we are low at production. So are we seeing any difficulty in the production side or like due to installing new facility, it has been like with the low production and it can take some chunk to 75000, 77000 in next quarter.

Kunal Shah

I think it was only a working capital optimization. I mean, that is something that we keep doing, and there was a higher amount of stock if you go back to our commentary over the whole of last year. Because of containers not being available, we were keeping more stock in transit, against an order to make sure that there is no situation when the customer is without supply. I think progressively, as things improve. Today, we are not speculating on how much improvement can happen. But we have been able to do something, because there is visibility of containers and shipping lines and delivery time

Congratulations Kunal bhai and Sanjay bhai for very good results. My first question is like when I see your numbers for the nine months, and it seems that for this year, you are very much on track to do possibly a Rs.100 plus EPS. That is what it seems like, I mean, just on the nine months. Now next fiscal year FY2024, I believe that there would be some price pass through to customers, I mean, as the things cool off, the freight and the commodities, and as you said that like a 22% margin broadly. So in the next year, how do we grow our profitability or PAT? Because it seems that this year is s

Sanjay Majmudar

So, thank you for telling us that yes, our EPS will be Rs.100 this year. My point is, as a management, we really do not look at the numbers from a narrow standpoint. We know what is the opportunity, what is the challenge and what we have to achieve. So we know that if the opportunity is 2 million tons or 2.5 million tons, and I am presently still scratching the surface, so to say, I have to ensure that I keep on going and converting maximum number of mines and reach a position where I become a dominant player in the space where I am operating. We know that technologically, we are unquestionabl

Sir can you explain the establishment strategy like we have our current line in this warehouse globally. So how do we decide it? Is it volume dependent? Can you elaborate on that?

Kunal Shah

I think warehouses are not in the sense that other companies have where you have stock of material than whoever comes you replenish or fulfill from that location. Most of our warehouse is barring, I think two or three locations, are customer specific stocks. So when a customer places an order on us, given that we are not based in those countries. We are based in India. We are producing and exporting out of India. They get comfort if there is stock on the ground closer to them, and we are doing a door delivered supply. We are not using the third-party intermediary doing the fulfillment or the l

Hi, sir. Maybe you mentioned this, but what volumes are you targeting this year and what we are targeting next year.

Sanjay Majmudar

Around 30000 tons, incremental additional. We are talking about close to 300000 tons this year and about 330000 tons around that about next year. 330000 tons next year, and this includes you mentioned 24000 tons from the mill liners for next year. No. milliner is a part of my total volume. We are talking of incremental volume. You got 300 Crores Capex in FY2024, 200 Crores for grinding media liner, 30 Crores, other, 60 Crores, 70 Crores, is that right. Yes, right. Thank you, sir.

First of all congratulations Kunal Bhai and Sanjay ji for very good set of numbers in a very tough environment with so many challenges, we have been able to achieve very good volumes for the first nine months. Sir, my first question is in terms of when we look at despite the duties which got imposed in three different regions, we have been able to achieve good set of volumes and we have been able to make up for the 25000 to 30000 tons of shortfall in volumes. Sir, can you just touch up on, has it been our new customer acquisition, which got accelerated, which helped us or any specific region o

Kunal Shah

I think it is just that those four years, three years, we did not grow because of those reversals, but the whole thesis was that there is enough market for us. We have been talking about market in excess of 2 million tons, 2.5 million, 3 million tons even for forged material, where chrome is only 0.5 million tons, and there is this reasonably large runway for us to continue to grow. It is just that we talked about it, and these reversals meant that our growth was not visible, here. So, we have made good some of that and continue to grow. The idea is that if our thesis is correct, if our unders

Good evening sir, and congratulations on a good set of numbers. Most of my questions have been answered. Just one or two things. You mentioned that we have started now kind of the pass through is much more easier with the client. So if you can just take a step back, how is the nature of the contract in terms of raw material pass through or freight pass through or any other cost pass through. How has that changed over the last two to three years in general time?

Kunal Shah

So when the raw material costs were going up. I think the pass through was coming along. But by the time you pass through, see first of all, it is that the discussion on pricing is very dicey. It goes up, but when it is going up, you always feel this is the top and chances are it is coming back. You do not want to waste your conversation with the customer on a pricing discussion, unless it is inevitable and required because there are plenty other things that we do with them. I want a higher price because of a better value addition and not because my raw material price went up. So it started wi

Congratulations Kunal Bhai and team for great set of numbers. My question is, the EBITDA margins that you have reported in this quarter of about 30% excluding the nonoperational income and foreign exchange gain. If you were to take business as usual, we understand it is never the case, but given the lead lag in pricing on, what would have been a normalized margin in this quarter if you take off those lags into consideration.

Kunal Shah

We have not done that exercise. I mean we can do it, but I do not think it helps us any better doing the bridge. We will have to work on with what that margin would have been. We have been saying that our normal operating EBITDA under normal set of circumstances could be anything in the region of 22% or thereabouts, a little higher also. Yes, we have been reporting better operating margins. But as we have been repeatedly saying, we are not giving consciously any guidance. So I think a very base case scenario of 22% would be a better number to work with on a long-term average basis. It can move

Hi, Kunal and Sanjay Bhai good set of numbers. So just quickly harping on the realizations a bit. Do you have a sense of what the exit rate of realization was versus 169 for the quarter, which you have reported?

Kunal Shah

Sorry, say again. The exit rate of realizations, let us say, what you repriced in December versus for the average of the quarter was there a material difference. Second quarter was 167, third quarter was 169. So let us say, what I am asking is, what was it in December. If you have that sort of a sense versus average other quarter. I do not have that number. You are talking about particular month. Yes, whatever signed, to look at it, what sort of reduction has happened in December, although October, November… No, it is not monthly. It is our generally, the pricing is for a quarter, which is bas

Sir, thanks a lot for the opportunity. Two questions. Sir, you indicated that 3000 was from the new plant. So basically 6000 tons is from the old capacity for the mill lining, 3000 tons additional we did this quarter.

Kunal Shah

No, I was only saying that there is a general question of what is the update with the new plant. I preempted that by saying whole year, we will do about 5000 to 6000 tons from the new plant, which is part of the total approximate 24000 tons that we will do full year for mining mill liners. But then, sir, capacity doubled, right. Capacity is 50000 tons for the new plant. So when you say 6000 tons from the old plant... 18 came from the existing plant and 6 from the new plant. That is broadly what I am saying. And then year-to-date. Not year-to-date, for fiscal year 2023 that is the guidance. Tha

Thanks for the opportunity. Congrats Sanjay and Kunal Bhai for the great set of numbers. While we continue to using the cricket parlance, while you continue to guide like Dravid, but your actuals are like Shewag spin the ball out of the park. So I just wanted to know why you remain so conservative in your guidance.

Kunal Shah

When you run a business like us, you will realize the amount of variables that we work with, we honestly the idea is, again I will give a short half a minute answer is we actually focus on the long-term, a lot of our customers are there for a long period, there is a lot of solution driven conversations happening, it is as long as I am doing that job well, the outcome is going to be okay and that is where all our effort goes into. The outcome currency changes, raw materials change, shipping cost change, the competitive scenario changes, some duties position comes in. The idea is that despite al

Thanks for the opportunity. Sir just wanted to get a better understanding of the mill liner market. So like in grinding media where chrome is gaining market share over forge. So just wanted to know that is also happen with the mill liner segment like chrome is gaining market share.

Sanjay Majmudar

Not really, mill lining has a different alloy base, and we are trying to introduce new alloys, but it is not forge versus chrome at the existing incumbent it is a low chrome product, and we are in that same alloy range if I were to use that word. The differentiation for us comes in, in terms of design of the liners and of course with the metrology that we are offering ultimately resulting in benefits for using our product versus the competition in the mill lining space. So the reason why I am asking was because this another listed player which claims that is hybrid mill liners which is made of

Thanks, congratulations. Did I hear it correctly that every year mill liner volume can go up 10000 so let us say in FY2024 it could be 34000 tons.

Sanjay Majmudar

No, so you see we are talking our consolidated volume this year, which Kunal explained you about 20000, 23000 odd tons our rated capacity of the new plant is about 50000 we are also doing some liner from our existing plant. So we believe that over next two, to three years we should achieve a near optimum capacity utilization but then exact number of 10000 is not what we are talking about. We are talking of a directional opportunity, if the opportunity is good, our efforts are on, let us see. But we talking of a blended volume incremental growth of 30000 so we are not saying from that mill line

Thank you Nirav for taking this. Thank you all for joining the call. As always Sanjay Bhai and I remain available for your follow up questions offline, and we look forward to engaging again for the fourth quarter numbers. Thank you and have a good evening.

Sanjay Majmudar

Thank you. Thank you all.

Speaking time

Kunal Shah

Sanjay Majmudar

Moderator

Ashutosh Tiwari

Abilash

Sujit Jain

Bhavin Watsani

Amar Maurya

Pujan Shah

Bhoomika Nair

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Opening remarks

Kunal Shah

Thank you, Nirav. Good evening to all of you, and thank you for joining our call. This is Kunal. We also have Sanjay Bhai on the call with us. As always, I will get into a summary for the quarter, and we can quickly get on to question and answers thereafter. Finally, this year, over 9 months, we have grown materially from 9 months in the previous period. We have seen a few years where we had different types of headwinds, different headwinds of different natures in which there was some amount of growth related question. So I am happy to report from about 187000 tons from 9 months previous period, we have done 217000 tons and about 30000 tons more for the 9 month period with about 71500 tons for the quarter, and for the whole year, we should be between 295000 and 300000 tons, hopefully, crossing the 300000 mark, finally. So we are happy to report that. That sale of 71500 tons translates into sales of about 1209 Crores, and an EBITDA of 39.42%. This quarter has been very interesting, like

Sanjay Majmudar

Thank you, and thanks everyone, for your interest. So it was a very interesting quarter, a very excellent set of numbers, but as Kunal clarified, quite a bit of it can be regarded as one off. Having said that, the basic business outlook remains the same. The opportunity remains equally exciting, and all the efforts are on to take a significant share slowly and gradually away from the forged into high chrome, and directionally, everything has remained the same. So from a business strategic point, opportunity point, our earlier thought that we should be able to do at least around 30000 plus year-over-year addition incremental volume. I think all that remains and we believe that as we go ahead, we should be able to share more exciting news. So I think with this, let the house open for Q&A.

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