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Good evening, ladies and gentlemen, and thank you for standing by. This is Inba, the moderator for your call today. Welcome to the post results conference call of AIA Engineering Limited. We have with us today the management team of AIA Engineering Limited. [Operator Instructions]I would now like to turn the conference over to AIA Engineering management team. Thank you, and over to you, sir.
Thank you so much. Very warm welcome, and a good evening to all of you. This is Kunal. And we also have Sanjay bhai here on the call with us.We welcome you on this meeting after a very, very volatile quarter for not only AIA, but for the rest of the world. We have spoken not so long ago at the end of our fourth quarter, and wherein we've given some idea about what looks to be our world view at the time and what our numbers should pan out for the rest of the year.I'll start with highlights of the quarter, like we always do, give some color on what we -- where we see the business at. And we'll open up for question and answers thereafter. We're happy to report sales of 53,000 tonnes -- 53,177 tonnes, which is 16% lower than what we did in the first quarter last year. Of course, it's a little higher -- there's a higher drop if you compare sequentially, but we are not looking at fourth quarter per se because as explained last quarter, there is some amount of bunching up that happened in the fourth quarter. So we'll try and compare this quarter with the first quarter of last year. And for some numbers, balance sheet items, we'll look at sequential numbers.So we've reported performance at 85% of what we did first quarter last year. And that's a large testimony to the resilience of the model that AIA has -- of the business model that AIA has, which is predominantly industrial consumables. And where -- which -- the engines of which continued despite the large challenges that the world and we faced and our customers faced in this tumultuous period.Walking through a few more numbers, production was at 49,900, almost 50,000 tonnes. And that was about -- compared to 70,000 -- 68,000 tonnes what we did in the first quarter last year and about 76,000 tonnes in the fourth quarter last year. Again, so a large part of our sales in April and some part of May were done out of stock that we have kept for at strategic locations across the world. And we caught up with production in latter part of May and most part of June, and which is where production numbers -- we replenished those storage locations and which is where we did not see a drastic fall despite production facilities being shut for a small period of time and only in ramp-up mode right till second half of May. Again, our testimony to the resilience in the way the business is structured, where we've got these -- we've got stock points and stock locations at various places across the world.Moving on, sales figures. Sales stood at INR 561 crores, which is comparable to INR 700 crores -- INR 713 crores in the first quarter last year. Of course, the realization in that quarter was about INR 112, reflecting higher raw material price in that quarter. The realization for this quarter stood at about INR 105 a kilo, and up from about INR 101 from fourth quarter last year.We've got 2 numbers that probably need discussion or rather 1 number that needs discussion, which is other nonoperating income. But before that, we've got other operating income, which is predominantly export benefits at about INR 18.93 crores, about INR 19 crores, which is lower than INR 26 crores we earned in the fourth quarter last year or INR 19 crores in the first quarter last year, and that's just because of lower exports in that period.The large headline number that needs explanation would be the other nonoperating, while -- which is about INR 74.76 crores. We call it nonoperating from the schedule as published by -- required for listed companies. But a large part of that, about INR 38 crores, comes from ForEx gains. And the rest, about INR 30 crores, comes from a treasury income, from the cash -- net cash that we have. So -- and I'll just explain that a bit in the second slide on how those numbers add up.The rest of the figures, I think, are in line with previous periods. There's nothing outstanding that stands out. Other expenses, employee benefits, employee benefits are at par. We've not had -- thankfully, we've not had to resort to any salary cuts or such. Our employee morale is extremely high. As explained last quarter, most companies were complaining about workforce and labor unavailability. But I think our industrial policy -- industrial relation policy in terms of workers and wages really played out over this quarter. We did not have a single day we lost productivity on account of unavailability of workers.On the contrary, right through lockdown, we had enough workforce available at all our plants. So again, that's something that we are proud of that it's obviously industrial policy and responsibility from a business is what stands out in such periods. Again, we did not cut wages. We paid them what was due despite factories not being operational. So real CSR happens in our own business, and this was one such testimony on that account.Our EBITDA, which includes other income, stood at INR 198 crores, and which was about 34% when looked at as a percent of sales. Depreciation is at about INR 25 crores, and there's some finance costs, a small amount of INR 1.41 crores, taking up PBT, profit before tax, to INR 171 crores and profit after tax to INR 129 crores.Before I move on tax at INR 42 crores in the published results, you'll see tax at INR 61 crores and a reversal of deferred tax of about INR 19 crores. So there was a large chunk of money, about INR 600 crores odd, that -- about INR 700 crores, INR 740 crores to be exact, which was -- which had finished more than 3 years. And which is where there was a certain tax provision that was being made on that money. And which was going under deferred tax because that liability accrues when actually that you redeem from that debt scheme. And we redeemed towards the end of the year with the COVID-related issues going along in the financial situation that we saw alongside. We were advised to move a lot of that money to absolute safe havens and which is overnight money, et cetera. And so there's a reversal of -- so there's a tax payable, but that comes off provision that we have already made in deferred tax. So it's just an accounting entry. Otherwise, tax that is shown reflects what -- about 22% as a percent of PBT is what our tax stands at.Moving on, the foreign exchange gain of INR 78 crores -- INR 38 crores largely comes from our -- so last quarter, end of March, while the closing dollar rupee conversion was INR 75-odd, our invoice average realized rate for the quarter was INR 72.21. And whatever forwards that we have taken went into -- and whatever gain was there, got transferred to a hedge reserve and was shown under OCI, other comprehensive income, below profit after tax. And this quarter, that realized rate moved to INR 75.06 and -- which led to INR 38 crores of gain, of which a large part, about INR 25 crores, INR 26 crores, is realized and the rest is translation and other gains.From this quarter onwards, this will convert into our selling price itself. So there may not be such a large gain, but that benefit will transfer into a selling price. Of course, one should not draw an inference that this just means additional profit. Our -- we are largely exposed to cost currencies and which is where our dollar pricing gets adjusted in line with the cross-currency in terms of countries that we export to, which would be Australian dollar, ZAR, real, Canadian dollar, euro and so on. So -- but this is just the treatment for the accounting benefit as it's occurred.So INR 38 crores is on foreign exchange gain. There's also a INR 36.75 crore treasury income. As you would see, that was at about INR 32 crores in the fourth quarter, and it has averaged between INR 22 crores and INR 25 crores over the other 3 quarters last year. About INR 8 crores to INR 10 crores of that comes from benefits on account of mark-to-market gains. So there's a yield that stays at between INR 20 crores and INR 24 crores for the quarter. And the rest comes from mark-to-market onetime gains for the quarter, and which is where the treasury income is at INR 36.75 crores.All right. So moving on. From a cash standpoint, our gross cash was at INR 1,872 crores, which is up from INR 1,572 crores end of March or end of fourth quarter last year. And there's about INR 117 -- about INR 118 crores of borrowings and leading to a net cash of INR 1,754 crores, which was about INR 1,460 crores in the end of fourth quarter, so end of March. So there's an improvement of INR 300 crores in net cash. But that's also linked to reduction to a small extent in working capital -- reduction in debtors. We've seen increase in other parameters of working capital. So working capital is largely flat. It was at INR 2,781 crores. Sorry, it was INR 1,209 crores end of March, and that's about INR 966 crores end of June. So -- and that's largely because reduction in -- about INR 170 crores reduction in net debtors because of reduction in sales in the first quarter. So INR 650 crores of debtor is reduced to about INR 485 crores, INR 170-odd crores of reduction in debtors. And that's -- so some part of profits and some part of improvement in working capital, which led to about INR 300 crores increase in net cash. Number of days. So working capital net number of days have increased from 120 to about 130 days from March. March was about 120, and June end is about 130-odd. Slight increase in debtors. We were at about 86 days in end of March. It's now at 92 days. But also as old payments start coming through, those number of days will get -- it's not because the payment cycle has increased, just reflecting the lower sale in this quarter. And old payments, debtors reflecting some part of sales, high sales done in fourth quarter. And so over next quarter, I think by the end of second quarter, this should revert back to mean, which is about 85 to 87 days.Our work in progress and finished goods stock, we've increased that because we believe a lot of that is just catching up with production and fill up the requirements that we see coming up in this quarter. And which is where from 74 days, they've increased to about 92 days. But in absolute terms, with -- that stock was about INR 570 crore and that's about INR 550 crores. So absolute terms, it's gone down from INR 570 crores to INR 556 crores, but lower sales as a denominator means your number of days look higher. But as sales catches up this quarter, again, this number would also normalize. So nothing to highlight from working capital. It's just an arithmetic that shows a higher number. I think it will revert to mean next quarter.Okay. Explaining sales for this quarter. So mining is, we've largely -- at par with what we've done over the last 4 quarters, which is between 40,000, 41,000 tonnes as a run rate for the first 3 quarters, last quarter that saw a jump to 55,000 tonnes and it's back to 41,000 tonnes this quarter. So mining business largely unaffected despite everything that all of us have heard and seen. Our nonmining business and a large part of that is cement, that's what's shrunk. Average was between 19,000 tonnes and 22,000 tonnes for 3 quarters, jumped to 27,000 tonnes in the fourth quarter, but that's reduced to about 12,000 tonnes in the first quarter. So there's about 8,000 tonnes of loss on nonmining or cement and utility business. And that just represents slower infrastructure spend across the world.India was in lockdown and all our business in India suffered at least for 2 months and started to pick up from June onwards. So put together, 41,000 of mining and 12,000 odd for nonmining, total 53,000 tonnes of sales.From an update on a project standpoint, we've been doing -- as you know, we are running the mill lining facility. We are setting up a greenfield facility for mill liners. Our total CapEx is INR 250 crores for that project. We expect to commission that by March '21, and -- which is about 9 months from now, approximately 8 to 9 months from now. And the total outlay, INR 250 crores. We've spent INR 60 crores last year. And we'll do balance INR 190 crores this year, of which we've done about INR 30 crores this quarter and INR 3 crores of other CapEx. So total CapEx for the quarter was INR 33 crores. And the total budget, so if we spend the balance INR 160 crores for mill lining and another INR 50 to INR 70 crores for other balance infrastructure that we need for supporting all our production and some purchase of land, so total outlay should be between INR 250 crores and INR 260 crores for this quarter -- for this year, of which we've done about INR 33 crores. So balance INR 230 crores odd should come in if everything goes to plan for the rest of the year.I think that leaves us -- leaves me with the last part, which is just a general update on the business. I forgot mentioning about outstanding contracts. We've reduced ForEx hedges on account of a lot of uncertainty on -- or visibility on what will happen with sales. I think that visibility has picked up. And we are now at about 35% to 40% of our dollar exposure is hedged between 76% and 77%. And we are cautiously booking and covering up the rest of our book as we get more confidence on cash flows and future sales. Our order book stands at INR 740 crores as of 30th June.And all right, so coming -- giving you the -- ending with a small summary on what's going on with the business. I think we are pretty satisfied ending this quarter with 85% of pre-COVID or first quarter last year figures. We've been extremely blessed to be in a space which is consumable in nature and industrial at it. And while a lot of retail and travel and hospital and industries related to hospitality suffered, the world continues to buy basic raw materials, which is steel, copper and gold.Two important things that helped us continue the momentum was that when the world was -- when China was shut, the world continued on right until end of March, and when the world started shutting, China started coming up -- back up online and which drove a large part of mineral ore requirement. And hence, ensured that our customers did not go through a phase of complete lull, right? So they never went through 10% utilization and all of that. So their factories continued. A large part of the -- China consumes half of world's mineral, as you all know. And that ensured that most of our customers continued to operate. Some at lower utilization, but still enough to keep the engines going as far as our industry was concerned, and which is where things looked okay for us. Most of our customers have paid us on time. Again, extremely grateful that we are in that situation where things did not go drastically awry.From a business standpoint, I'll preempt 2 questions that you all have and have been asking us. One is about guidance for the rest of the year. And second, of course, would be margins, what happens with that. I think from a tonnage standpoint, we are still not in a position to give out a firm figure for the rest of the year. We expect to be, for this 9 months, to be at pre-COVID levels or a little lower than that. And we've lost some tonnage in the first quarter. I think that, by and large, would sum up where we expect the full year to end with.There are still a lot of uncertainty. I don't think COVID is behind us in a way where people can make firm judgments about the future and keeping that spirit in mind with the uncertainty that everyone knows exists, we will refrain from giving our guidance on exact tonnage for the rest of the year. But we continue to engage very closely with customers. We had explained last quarter -- on the call last quarter that we faced a dichotomy where our solutions help customers reduce cost through various strategies that we employ. But at the same time, there will be customers who would prefer status quo, who would prefer to get back to a semblance of normal operations. Get engineers and staff back on the ground.So I mean, between that, we'll -- time will tell us how things actually played out. It will be too early to make a judgment either way. But we are engaging with the customers in the new normal, which is through Zoom calls and -- video calls and other digital means. And customers are okay. So 53,000 tonnes of sold in the absolute dark days, the first dark quarter of the last 20 years -- 100 years. I mean we are confident that our business will sail through without too much of a -- without too much concern. We stick to the basics, which is strategy in terms of how we engage with the customers. I'll quickly sum up what we do and then request Sanjay bhai for a quick update, and we'll go on to Q&A.We started with our -- with engaging customers on reducing wear cost in the mining space since all our growth is going to come from mining space. We then introduced down process benefits, which is for gold and copper, where we can improve yields or recovery of metal and reduce reagent cost. And lastly, in 2019, we introduced a mill lining solution that can improve throughputs and reduce power consumption. So with these 3 initiatives, we've been deepening our engagement with our customers, and we can help a plant manager with all 3 basic KRAs or objectives that he works with, which is throughput improvement, cost and yield, and our solutions on these 3 interfaces is actually helping on all 3 accounts.From a cost standpoint, we're helping with reduction in power cost, reduction in cost of grinding media, reduction in cost of mill lining, and reagent cost for gold and copper miners. We help them with throughput, increasing throughput from that mining from the existing equipment, and for gold and copper, we can help them increase yield. So it's a privilege to be in a situation where one discusses such level of improvements with the customers. And COVID or otherwise, I think this -- these solutions are of interest to the customers. We'll keep continuing to do our bid on engaging with them and demonstrating what we can build. And we are hoping in the next few months, as things ease up, and we should be back in growth mode, and we'll share more information over the coming quarters on how those things are panning out.Sanjay bhai, you want to add anything or we can go to...
Yes, just very quickly, just a couple of very, very quick points, Kunal. A very good evening to all of you. And I know that Kunal has been a bit elaborate, so he's taken a little more time. Kunal pointed out one very important fact that you see, just to give a correct perspective, we have been very bullish on the medium to long-term prospects, specifically on the mill liner side as well as now on the conversion from the conventional forged or any other grinding media into high chrome. To put the matter in the right perspective, if there was no COVID, perhaps there was -- we were very confident that this year we should have done at least 25,000, 30,000 tonnes additional volume. And then going forward, this could have been a little more elaborate.All I'm saying is that all those initiatives will continue. In fact, they continue the challenges that are posed for the development or the new conversions as we love to call them. They are primarily because of the absolute sheer travel restrictions or at the end of the day, on the digital platform, there is a limitation and we are trying our level best to see how soon we can bridge this and recommend that developmental process.So I think there is nothing unchanged. Absolutely, everything is status quo ante from opportunity standpoint. It is just that, frankly, you have to write-off this year and see that from '21, '22, how best and aggressively we can go back on our journey.Thank you very much. Let's put this move into a Q&A mode, moderator.
[Operator Instructions] Our first question is from the line of Ashutosh Tiwari from Equirus Securities.
Congrats on the decent set of numbers in this very moment. Firstly, on the cement and EBITDA side, how are things shaping up now? Obviously, April was washout, but like June and July, how did cement [indiscernible]?
On cement, can you repeat the question, sorry?
I think that cement if it is washout in April month and probably things would have picked up in May and June. But -- so we saw almost 47% decline in Q1 overall, but I think -- but looking at June and July, what would you say, where we've reached in terms of cement and utility columns?
We believe that infrastructure is a tool that most countries will use to invigorate their economies, and cement will be the first beneficiary. You, Ashutosh, I know track cement, and you know how those stock prices have done in anticipation of a revival in cement. So I think that's all we are looking at. June and July it has been more than, obviously, the previous 2 quarters. So clearly, it's looking better, but it should be back to normal levels by the next quarter, hopefully.
Okay. And last time you mentioned that, I mean 1 market which was under lockdown, South Africa, where the volumes were impacted. So how are things shaping up over there?
Well, they are -- I think they are out of -- like India, they're going through their own unlock processes. So hopefully, that should be -- we should -- that it should be on track as well next quarter.
Okay. And lastly, we are hearing about this export incentives getting delayed in terms of payment from the government side. So any thoughts what you're seeing over there?
Well, I think so. The first is the announcements that we keep hearing about December '20 and the budget still that it's -- as we understand it, it looks something -- to be something that will get clarified very soon. The government had already announced the remission scheme, which will replace MEIS and -- so we have -- I think if that comes in, and we believe the government should be announcing that soon. I think that will address a lot of that anxiety that media has been showing about this.As we speak, people we talk to tell us that it should be okay. In some form -- see, the genesis of this question is that the country does suffer from inefficiencies of various type and that cannot be exported, right, from infrastructure to logistics to power cost that you pay, which is subsidizing farmers, import duties. So as a sum total of all of that, some form of remission of those costs will -- is something that the government is looking at. What we understand is it's already under close consideration and should be announced soon. So we don't have a view on it beyond that.
Our next question is from the line of Sujit Jain (sic) [ Sumit Jain ] from ASK Investments.
Strong numbers, congratulations. So some quick questions on situation in Brazil. There was 0 volume FY '20. Is there visibility coming? What is the situation of Vale? Because you spoke about radio silence from them. And another question is on basically any protection measures by some countries, for example, Brazil is having an import duty, which is reduced now, but there's still a duty. The domestic players in various countries might lobby with policymakers. And since our model is of exports, 75% is export, those could be threats to us?
Yes. Sure. So I'll start with the first question. I think Vale is a large listed company where they don't appreciate us talking about what's happening with them. So I'll refrain from names. But we've lost business from a large iron ore customer. And we still don't have clarity on that. We are not budgeting any tonnage from them for the rest of the year. We'll share some -- so our plans for the rest of the year today are subject to -- are without considering those tonnages coming in. We'll keep you updated on what's going on. I think the radio silence still continues as far as the mechanics and the details of that -- of what's going on with the business there.The second question is in terms of the anti-dumping duty that Brazil has initiated, I think over a period of last 10 years, we've seen many countries go through a process of evaluating duties, right? These duties fundamentally apply to industries which are commodity products -- in industries, which are prone to dumping and such, right? So you see companies putting duties on plastics or chemicals or steel. A lot of these would be where 1 country like China, for example, has advantage or where the government is subsidizing costs to a large extent, and they dump a global -- they dump the product in many countries, right? And where countries come up with protective measures to protect their local industry.I think -- and so we are not part of one such industry, right? We are not -- not only are we not a commodity product, we are not also part of such large industry where you have countries waking up and saying, we need to do something about this because a lot of jobs are at stake, so on and so forth. So we are a very small, very niche industry with our own HS code where we export across the world. That's the first part, right?Second part is that we do not sell at prices where a lot of these conversations come in play, right? And again, those lower priced products, again, are commodity -- largely commodity-specific, where low margins, they're trying to export and take up our market. As you see our numbers, they are in front of you, we don't need to resort to those tactics to take market share, right? So we are -- we would imagine we are a fair price, fair trade business, and we would want to comply with and meet most government's practices around that.Having said that, if a country wishes to look at it and initiate or investigate or view pricing, we'll be very happy to support and comply with all requirements and we share information as it becomes available. So -- but that theoretical answer to your question is yes. Practical answer would be that it's difficult to imagine a lot of that risk coming in per se. But there is -- one, as we know, is very uncertain to make any such statements would be with its own pinch of salt. So as we understand, we'll keep sharing information if any of that sort becomes known going forward.
Yes, just to add, I don't think we have seen any client saying that, say, now we will not buy from you, but you will shift to a local supplier, which can have any material impact on our operations. So -- and there are equations are much broader than merely an option of shifting to a local player, which, as Kunal elaborated, is importing from AIA.
Sure. And 1 quick question is on mining volumes. If I look at annual volumes, is it safe to assume most of that is exports?
A large part of that would be exports, yes.
Okay. And 1 last question is on the arbitration that you're engaged with $60 million in London, which is initiated by Magotteaux, some patent infringement. There's no provision for that. What is the status there?
So we argued in the ICC, the chamber, on jurisdiction grounds. And the ICC, the tribunal there on a 3-0, there were 3 tribunal members, at a 3-0 level, they said that ICC doesn't have jurisdiction on this matter. So we've got relief on that first level at the ICC chamber. Magotteaux has appealed against that order in the high Court of U.K. and so that process is now ongoing. It should get heard towards the end of this year. So it appears to be a long drawn-out matter from here because it's on appeal at the jurisdiction level. Then if it goes against us, we will appeal, then it will come to the main matter and so on and so forth. So -- but at the first stage, it looks like that we've got an important relief. And so that's where we are.
Our next question is from the line of Ravi Swaminathan from Spark Capital.
My first question is with respect to the gold prices steadily on decline. Do you see more mines going for increased volumes of grinding media, more mines opening up and will this kind of compensate for some sort of subdued demand in other metals?
I think a lot of mining companies are trying to optimize their throughputs, for sure. And which bodes well for us for all these other solutions, for throughput improvement and other things that we are working on.Opening up a new mining site, greenfield projects are 5, 7-year time line. So not sure -- I mean it's too early for us to be aware about what's happening there. But I think they are running full throttle. So whatever existing capacity is there, they're running full throttle.
Got it, sir. Got it. And in terms of our foray into Chile and Peru, which are major mining sites for copper, at what stage are we are and can we see incremental volumes from those 2 countries this year or next year? If you can give a broad outlook, it will be great.
So that's the new normal now, Ravi. Anyways, that's what I was trying to explain before that it's -- I think we'll share more information on where our growth pockets will come from and what our strategy will be for that. As of now, our development efforts, we've just gotten stabilized with existing business. We are just now getting organized to deal with the new normal, which is no travel, doing video calls. And within that scenario, where the customer is also not having people on the site, right? So we are coming to terms with what that means. We are bullish because our solution improves -- makes -- improves parameters that ultimately improve the bottom line, and which is very important for a lot of miners as we speak. And so there's a lot of interest. But what's that time line? What's going to be the conversion cycle? I think you'll have to give us some more time before we opine and say this is what it looks like. But we continue to make deep efforts in all of that. And starting this quarter, we've started to reinitiate a lot of those conversations, but it will take a few quarters for us to really give a firm answer on that.
Got it, sir. And in terms of mill liners, sir, do we have any visibility of volumes for next year? I mean have clients kind of tentatively agreed to this much amount of volumes with you given the fact that the liners facility will be set up by this year, it'll be completed by this year?
I -- see -- we're doing trials at more than a few locations, at least 10 to 12 places. Either we're doing trials or we're in conversations to do a trial. We can't take orders or get into a supply discussion until the plant is up and about, right? We expect the plant to be ready in the fourth quarter of this year, but it can take longer than that. When you're commissioning a greenfield plant, it's not a wise thing to start taking orders in anticipation of the plant getting commissioned. So I think there's a fair degree of optimism that with everything that the solution brings, we should be able to ramp up through output production and sales from that plant. But generally speaking, mill lining -- there's a lot of interest in the mill linings per se. So which is why we've continued on with the project, right? We're not delaying the project. We are saying we'll get that through because we have -- we believe we've got a very interesting proposition for the miners, something that no one else has and we don't want to be any behind. But we cannot take firm orders or supply conversations based on a tentative commissioning date.
Got it. But any -- at least a market share target that we have in the 3 lakh tonne market in, say, 3 to 4 years, any internal targets that you have kind of?
I think so. We've 50,000 tonne capacity. And let's say, we reach 80% utilization in 4 years' time, would be a fair. So 40,000 tonnes in 4 years' time is something that we can look at. But this is just off the bat, right? This is -- there's no arithmetic that we've done behind it. But we are fairly confident. See mining liners requirement is fairly frequent, right? So every few months, they need to replace the full set. So there's a large market. And the proposition is solid, right? So we hope that in 4 to 5 years, we should be -- we can fully utilize the facility.
And just to add, Ravi, it's not only that 40,000 or 50,000 tonnes that's really important for us. Of course, it is very important. It's changing the orbit and giving a completely comprehensive solution to a customer and doing a lot of cross-selling of grinding media and other products as a complete package for that mill or for that mine so that they get benefit of reduction in the wear cost of grinding media, obviously, because of high chrome, the incremental benefit that we can bring in through mill lining solution and then the DP benefit that also we can further push so as to make this a very, very compelling proposition. So I think if you view it from a strategic standpoint, it's not that it is the capability of giving that solution which makes us a very comprehensive solution provider. That is how we are approaching all the clients and that is where you should view it from a little broader perspective, which will make a lot of sense.
Our next question is from the line of Renjith Sivaram from ICICI Securities.
Congrats for a good set of numbers given the challenging environment. So one thing which I wanted to understand, if realizations have come down, so are we followers of somebody else taking a decision to reduce the realization? Or are we -- do we lead ourselves by telling clients that, okay, the raw material prices have come down, so we are reducing it? So how does -- sir, I just wanted to understand the market share, how does the market share move also because of these realization decisions?
So Renjith, thank you for your question. I think realization is sum total of a few things. One is, of course, raw material prices. Second is product mix right? So we do grinding media and we also do castings, which are other than grinding media, which have a whole gamut of selling price. So from a product mix, quarter determines the average realization that comes. Third is cross-currency rates, right? So final rupee realization that you see is a culmination of these 3 important parameters. And when -- so forth -- if it moves from 112 to 105, it doesn't imply lower margin or it doesn't imply lower profit. It only means that the 3 variables have moved. Obviously, the fourth point is competition, right? So pricing is determined by these 4 parameters. The first 3, which is raw material price, product mix and currency, they move in tandem and get adjusted as these 3 move, right? So there's no margin conversation there. Fourth, competition, of course, affects margin.I don't think over the last few quarters, there is any price -- the realization change is because of margin conversation. It's only a pass-through on the other -- on the first 3. So that's the first point. Second is you asked whether we lead the conversation. I think that's a very, very -- that's very specific to every customer, right? So that depends on whether we've been supplying -- is it an existing client? Is it a new client? Are we taking market share from a forging customer or a high chrome incumbent. And that determines the velocity of competitive bidding and, hence, the pricing. So for existing customers, there would be a price pass-through arrangement for larger guys. And for other customers, there would be a conversation every quarter or every order on what that price should be. So I think you'll have to look at the broad P&L figure to really make -- the realization will not give you a peek inside where margins are headed to.
So what I'm trying to understand is that have we increased market share by taking -- by reducing the prices and taking someone else's market because market is more competitive now given the slower demand and other things?
Are you asking in the first quarter? Are you general -- asking this on a general basis?
First quarter.
Not really. I think first quarter, I would imagine a large part of business is existing clients. I don't think we've gone through any conversion in the first quarter.
Okay. And this grinding media expansion has been put on hold. So what is the thought process? Are we still looking at it? Or we feel that the market is not good enough to go for that and will that be a moving target now?
I think we've -- so last -- first quarter, when we had the call for the fourth quarter in June and when we had the conversation on CapEx, as a prudent measure, like all companies have done, most companies have frozen all CapEx, right? We went there and said, we are very bullish on the mill lining prospects and we continued CapEx for mill linings. For grinding media, we already have surplus capacity. We said that if we can stagger CapEx to the next year, it will just allow us to not enter into a large CapEx cycle in this year of uncertainty.I think we've much better visibility now compared to when we had the last conversation in June. We are absolutely on in terms of adding the 50,000 tonne grinding media capacity. It's a question of just taking the final call on when to do so. For now, the plant remains for doing it next fiscal year, which is starting April of '21. We may prepone that, but we'll share information on it. We've just extended the time line for 12 months. I don't think we've put it on hold. We've just pushed it out by 12 months to balance the CapEx outlay in over 2 years instead of one.
Okay. So the CapEx of INR 250 crores this year is on track or is there any reduction in that?
So we are spending INR 160 crores on balanced mill lining project and about another INR 80 to INR 90 crores on other -- on maintenance CapEx and other peripheral infrastructure that we need for our plants. So our broad plan remains at INR 250 crores. We've already spent INR 30 crores, and we plan to do another INR 220 crores in balance 9 months.
Our next question is from the line of Bhoomika Nair from IDFC Securities.
Congratulations on a good set of numbers in a challenging environment. Sir, just wanted to check, Sanjay bhai earlier mentioned that travel is clearly a constraint in this environment. And we do need to kind of interact a lot in terms of mining sites and being on ground to see how the ore is, et cetera. So how does this impact our long-term conversion of volumes and gaining market share from the forged media into ferrochrome? I'm not talking about the current year, but also from a more medium-term perspective of next year as well because if we don't really go into the client sites, can that impact our ability to grow next year as well?
Bhoomika, we've never imagined our children will study from home, right? So -- I mean or you all will operate as research or broking arms operate from home. So the point is that we believe that mankind in general is adapting very fast to new realities. Our businesses per se is dealing with people, right? It's not that our person needs to be at the grinding mill and doing some things physically. We are not surgeons where we need to be operating on a physical body, right? So I think, to a large extent, our work can be done from a remote location. Question is what happens on other softer aspects of it? How do you build relationships, how do you engage? So those are things that are applicable to most industries, right? It's not just related to us. Even from a broking company, how do you develop new clients on Zoom calls, right?So those are things that will evolve as time goes past. What -- as Mr. Shah keeps talking all the time within the company that we can't lose focus or we can't take the eye of the ball on the fundamental value proposition that we have for the customer, right? If we can help them with throughput, if we can help them with costs, if we can help them improve yields, this is a compelling reason for them to look at our product. And sometimes disruptions like these possibly catalyze faster conversions, right? So now which part -- and that's the focus our teams are working on. How do we keep sharpening our engagement? How do we keep sharpening and giving the comfort of the value that our product will add up to and hoping over a few months, different types of realities come to play where business continues without any disruption. Now whether people adapt [indiscernible] happens or travel becomes simpler and essential travel starts. We don't know what part of that will come to the fore. So difficult to say one way or the other.
And Bhoomika, just to add, this was in the context of the current fiscal where even as we speak, we are in the middle of August. And still, we are not sure that how and when the international air space will open or how and when within Europe or -- sorry, within North America, Latin America, how people will travel. So it was limited to the context of the current year. I don't think this is going to be forever. And as Kunal explained, as we see newer and newer technologies of doing things are emerging without the interaction or without the personal presence of people being necessitated, but I think that from next year onwards, I don't see that this is going to extend forever. And let us hope that by September, October, hopefully, by end of Q2, we should be in a much better position to make some more confident statements about -- but if you consider this year to be gone, as I've said earlier, from a growth or a new customer addition standpoint, even internally, as we speak, there are a lot of efforts that are going to be put in from Q3 onwards to see what best can be regained in terms of the new customer addition or the new development initiatives, which have been, so to say, slowed down because of all this improbable circumstances that we are facing. So this was very clearly limited to this year, actually.
Got it. Got it, sir. Sir, in terms of, as you mentioned that it might actually catapult clients to look at our model much more because it's far more efficient across, as you said, not only in terms of cost but also in terms of throughput and yield. So are we starting to see a faster or a higher level of inquiry levels in terms of customers wanting to -- have not looked at it and looking at our solution?
I don't think that question can be generalized in 1 answer, right? Like I said, we keep doing our best, Bhoomika. I think it's very -- it's not fair to generalize and say our customers. We are not a B2C business where you see inquiries going up and down, right? We know the lay of the land. We know the customers that we are approaching. We're just being in touch right now, right? We're just making sure we keep reinforcing what our solution can bring along and what are other things that we need to work upon. It's -- like we said, we've not, in all earnest, started vigorous efforts to look at conversion conversations, right? That will happen over the next 2 quarters as realities -- new realities get clarified. I think this is a question that we'll have a better handle on in a few quarters, difficult to say it one way or the other as of now.
Sure, sure. Sir, the other thing was in terms of the -- we got some volumes in Brazil. So while they have not really communicated that much to us. But how is it in terms of has their mine restarted operations and they haven't really reached out or we -- or is it that the mine still remains shut and, hence, we are not really seeing much action out there?
I think that's a customer that it will not be fair to talk about what's happening at their end. I mean we keep maintaining that we don't have an insight into what's happening at their end. For the rest of the year, I think we should -- it's fair to assume that tonnages may not come along. It's just difficult to hazard a guess. I mean we'll just leave it at that for now.
Our next question is from the line of Kiran Naik from Mody Fincap.
My question is, sir, who are out listed clear competitors in this -- our business?
Sanjay bhai, you want to...
In India, nobody, absolutely nobody. Globally, only one. And that too -- that is the owner company, Sigdo Koppers based out of Chile, who are the owners of Magotteaux, they are listed. And again, they are only comparable because we are talking of high chrome to high chrome. But if you look at the application standpoint, then quite a few forged media players like Molycorp, et cetera, whose focus is absolutely on the forged media rather than anything to do with high chrome. So in India, absolutely nobody. Globally, I've answered, and 1 or 2 small other players, but I don't think they are listed.
Our next question is from the line of Lokesh Manik from Vallum Capital.
My question was mainly to understand the opportunity size. Now you have mentioned in the past that about 80% of the market in the mining segment still operates on forged media and 20% is high chrome. What would be the ratio in the cement industry? If you can...
Cement is largely chrome worldwide.
All right. So that would be more than 70%, 80%?
More than 90%.
Maybe 90%, more than 90%, yes.
Okay. So because what I have observed is over the years, what you have experienced in cement is what you are basically applying in mining. So the opportunity size is to go up to 80%, 90%, if I'm correct, in mining. I mean that's the potential we can go to?
In the mining, it's 3 million -- 2.5 million to 3 million tonnes and chrome is less than 0.5 million tonnes, right? It is about 50,000 tonnes. So there's a large runway. I mean 80%, 90%, even if it's 50%, it's still a large growth opportunity in front of us, right? So we believe chrome is a better solution. And like I said, since it's a large opportunity, even if we can -- even if chrome has 50% opportunity -- even if it's 40%, for example, we can -- there's still 0.5 million tonne of market opportunity there in front of us.
Understood. Sir, just 1 more clarification. Your margins have been quite consistent, and you have guided for the same at about 20%, 22%, leaving out the extraordinary year, as you will. So is this correct to infer that rising raw material prices benefits you in terms of the absolute EBITDA is then higher in that sense?
I mean that's a question that we -- lots of people have asked over. I mean we've been tracking it. I've been taking the question for the last 15 years. It doesn't work that way, right? There are so many moving parts to strip off, currency, shipping costs, other overheads in all of that, the competition, the product mix and then to say, whether we need absolute more EBITDA, it's a tough one. These are to get a higher selling price, increased realization when prices are going up is also a tough one, right?
Right, right, right.
And we have to compromise on margins, but it's just over a few quarters. So when -- if one looks at it, yes, we do make higher EBITDA per tonne, purely from a statistical standpoint when raw material cost is -- the raw materials are higher. Otherwise, I mean it's just a function of the value we bring to the customer and keeping a fair margin of that.
But mind you, 1 clarification, we never ever track internally as EBITDA per tonne. So because the product mix is extremely diverse and it's impossible to standardize that way. And therefore it's better to track the way you guys do generally as a percentage to sales, knocking off other income, knocking off FX, but that's the way. So not to get into that per tonne kind of arithmetic.
Our next question is from the line of Avinash Gupta, an individual investor.
Yes. I just wanted to know whether the assumptions have been correct or not. What I've been hearing for the last several con calls that you are making -- developing a tailor-made solutions for the mines. Is it my assumption correct that the grinding media and the liners and all these things will be specific to a particular mine and they can't be -- whatever is develop site A, can't be used at site B?
Correct. Absolutely correct.
So that means once you've developed a solution, he will stick to us for a very, very long period?
That is also correct. Generally, you're right.
And second question, today in the con call, we mentioned that -- I mean we impressed that we have been selling about 85% of what we did in the last year the same quarter. That gives the impression that we might be -- I mean making the exemption that we will be able to do at least 85% of whatever turnover we did last year. Now on the other hand, you mentioned that because of the glitter clarity available, we will reduce the hedges, which is an indication that probably the sales will be a little lower. So where do we stand?
No. Whatever the statement we made is that because of uncertainty in the first quarter, we generally take hedges up to 50% between 6 and 12 months. As a policy -- there's a hedging policy that we follow. We -- because of the uncertainty in the Indian rupee, where there's a large conversation where people were expecting that to go to 80 or 85, right? So we didn't want to lock in rates. We are exposed to cross-currency rates, right? So if you have taken a hedge and the rupee weakens, we may still have to reduce our dollar pricing, end up with a double whammy. So as a risk mitigation tool, we reduced our hedges for the first quarter, which is reflective of our hedges as on end of June. We are now systematically picking up our hedge level. That's what we've mentioned.
Our next question is from the line of Sagar Naik from Equentis Wealth Advisory.
So what I would like to know is how much of your volumes would be in the kind of recurring nature?
Can you repeat, sorry?
How much of -- yes, recurring in nature?
The business you're saying?
Yes, yes volumes.
Business percentage recurring. This quarter, it was more than 97%, 98% as we would imagine, is in that nature.
Okay. And in a normal year, normally how it is?
It has varied over the period, but last 2 years, I would say, more than 95%.
More than 95%. Okay. And second question is the order book of INR 742 crores. What would be the tenure of it?
Tenure varies from 3 months to 9 months, that depends on -- because some could be longer term contracts. So we have -- what we do is we take off what is deliverable in the next 12 months. And that's the figure historically that we've been sharing with -- on our calls. But a large part of our business is recurring contracts or orders that come through, we don't form part of the order book. It just gets released every quarter. So one cannot infer sales in next quarter or next 2 quarters based on the order book, unlike other CapEx, capital businesses where order book drives sales, right? In our case, large part of our volume comes on quarterly orders that get released at the end of the previous quarter.
Next question is from the line of Shradha Sheth from Edelweiss.
I just wanted to understand, as we are seeing that how the commodity prices are improving across different ores. Gold has already been on an all-time high. We're also seeing the case for other ores also how we are seeing improvements. So if we can give some visibility, while not on volume, but in terms of qualitatively, how and where we are seeing pickup and are we really seeing new inquiries with the improving commodity outlook?
Sanjay bhai, you want to take the question?
Yes, yes, yes. Okay. So Shradha, there are 2 things that we want to stress as we have been always, always saying that in our kind of business, we are rather agnostic as far as possible to the price movement the end commodities or ores in which we are dealing or rather our customers being gold or copper mines are dealing. That's point number one. Having said that, the fact remains that when the gold prices are at all-time high and the mines are operating at full throttle, as Kunal answered in one of the previous questions, the overall mood will always be more receptive, and they are also keen to look at what kind of other benefits we can bring on table. This is the theory.In practical reality, actually, what we are doing is we are saying that we are helping you improve your overall efficiencies, your throughputs, we are helping you reducing your costs, improving your recoveries and, therefore, we have found that even when actually things are bad and industry, for example, is not growing, prices are on a downslide, we have found that in some cases, in fact, the customer is more receptive because he wants to further reduce his costs or improve his efficiencies.So I think, yes, it augurs well from a mental standpoint. You are more receptive. But actually, the strength of the final solution will bring the results. If I'm able to, for example, improve the throughput by 10%, 15%, as we have been explaining in the mill liner case, and if I'm able to improve the recovery by even 0.25% in case of a gold or a copper mine. And mind you, we are working with the largest gold and copper mines of the world right now as we speak, either on the development side or on the commercial side. Then obviously, I'm making a very big statement and it makes a -- and then I'll say that incidentally, I will also reduce your conversion, I mean your costs relating to grinding media because of the high chrome advantage. Then I'm making a very compelling solution. So as far as possible, we do not want to ride a wave of a very high price or defend ourselves in a tough situation, but we want to remain focused on the solution. So I think if that clarifies.
Sure, sir. I mean my only question was that basically, even in Q1, while a lot of production begin toward the second half of May. But already, we are yet at 80% and above utilization and now with the improving commodity prices, should be even better. So possibly, we will have some output?
Not because of the improving commodity prices, but because of improving overall business picture itself.
I mean, our solution-based approach along with the overall improving demand. So I thought possibly a quarter down the line, we should...
And you see, Shradha, if you know, you've been tracking us for now a very long time. You know that our focus on gold and copper is primarily because of the fact that we believe that, a, the requirement in these 2 ore segments is very large. Not to say that we are not focused on iron ore, we are continuously -- we are equally important focused on iron ore, but from a DP standpoint or from a mill liner standpoint, why we are working very hard on iron ore -- I mean, sorry, on gold and copper is because we believe that the results that we can bring on table can be really demonstrated with a very, very striking impact.Having said that, after the mill lining focus, we have, again, started working very hard on iron ore as well. Platinum is only one part where we are currently not very focused because, a, the opportunity is limited; b, we believe we have already done a decent debate and if we channelize our energies on the other ore, then the long-term benefit in terms of consistent volume growth and a very significant presence can be achieved easily. So gold and copper has always been a focus even before 5 years when perhaps the gold prices were much lower than what they are. So if that answers your bit, but yes, the mood is upbeat, so things look better.
Our next question is from the line of Bhavin Vithlani from SBI Mutual Fund.
Congratulations for a good set of numbers despite the difficult environment. Just a clarification that I have is the impact on the iron ore large mine that you spoke about, is it that we have lost the contract or is it postponement because of the underlying condition that the customer is facing?
I think difficult. That's where we don't have an answer. It looks to be a combination of things. They have local conditions there in terms of the mishap, et cetera, where we believe there are internal issues that are driving some of those decisions. We are still hopeful that we should gain some part of that volume back. It's just that -- it's just not fair to keep talking about 1 customer, and which is where we are saying, let's just move on and talk about the rest overall market and sentiment, right? If that volume were to come, great. Our strategy and our growth plans are not contingent on 1 customer either way. I think that's where Bhavin bhai it is.
Sure. And what should be the capital expenditure guidance for the current year?
This year, it should be about INR 250 crores. We've spent INR 33 crores already. And balance INR 175-odd crores -- INR 225 crores -- INR 220 crores -- INR 215 crores will happen in the rest of the year.
Sure. Just a connecting question. Given that we have substantial cash on the balance sheet and we are now getting into the free cash positive zone consistently, any thoughts on the dividend payout ratios?
Is there any other company in India today who has been asked this question? Why are we not paying more cash out today, right?Bhavin bhai, it's a happy problem to have. And I'll have Sanjay bhai respond to it. I mean this has been adequately discussed in each Board meeting. Sanjay bhai, would you like to...
Every Board meeting very regularly. See, Bhavin bhai, what we believe that as a company, even at a level of, say, 250,000 or 300-odd thousand tonnes that we will probably reach next year, there is still a significant headroom for us to grow, and there could be opportunities that come our way for reasons that we are looking at multiple avenues of growth. Correct? So in this environment, if our hunger is -- hunger of growth is still not satiated and we believe that we should conserve the cash a little bit for a little more time, our strategy would be that till we reach a considerable volume of at least 300,000, 350,000 tonnes. And when we feel that there is sort of a plateau either in terms of organic or inorganic growth that we might come across anytime, any opportunity, we would be a little conservative at about 20% payout ratios.Having said that, there is a very strong case for improvement of payout ratio. I consider that. And we believe that next year, definitely, we will be looking at it from becoming a little more generous in terms of payout ratios, at least, if not a significant reduction through buybacks or anything. And let us see as we move forward. But at least you have to give us some more time, maybe at least a year for us to have that luxury of conserving a little higher level of cash. And then -- yes, we know it drags down the ROCs and ROEs, but that's the arsenal I want to keep for some more time.
Our next question is from the line of Amber Singhania from Asian Markets Securities.Mr. Singhania, we are not able to hear you, sir.
Can you hear me now?
A little bit better.
Congratulations on a good set of numbers given the current situation. Most of the questions are answered. Just 1 thing. If you can give some color about the kind of cost savings we are doing on the power side, having our own wind mills and how are we operating it in terms of -- are we also selling it to the grid or entire thing is going on a captive? If you can give some color on that?
I think it was a very prudent decision that the company took by investing in wind mills, where we have seen IRRs of upwards of INR 20 crores -- 20% IRR return on the investment. There's a very NEAT saving between INR 7 crores and INR 8 crores per quarter that accrues. But that depends on the season because wind is not equal for the whole year. But about INR 25 crores, INR 30 crores is our power saving that accrues every quarter.This quarter, there was a force majeure -- every year, INR 25 to INR 30 crores every year that accrues on that investment. This quarter, we had a force majeure situation where their engineers, they could not service the downtime and maintenance requirements, and we had a lower saving than what we had expected. But I think it's being remedied as we speak. So -- but NEAT savings that accrues on account of wind farm generation -- power generation.
And it is 100% captive number, 100% captive.
Thank you. As there are no further questions from the participants, I would now like to hand over the conference to AIA Engineering management for closing comments.
Thank you so much. Guys, thank you so much for joining. I hope we have more color when we meet in coming quarters. And we, Sanjay bhai and I, remain available for any other questions you may have off-line. Thank you once again, and have a good night. Thank you.
Thank you. Thank you.
Thank you, members of the management. Ladies and gentlemen, this concludes your conference for today. We thank you for your participation and for using Chorus Call Conferencing Services. You may please disconnect your lines now. Thank you, and have a great evening.