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Good evening, ladies and gentlemen. Thank you for standing by. This is Aman, 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'd now like to hand the conference over to the AIA Engineering management team. Thank you, and over to you, sir.
Yes. Thank you so much. A very warm welcome to everyone, and thank you for joining the call. I think we've got some updates. But otherwise, it's a routine call. So we'll try and keep it short. To start with, we are very happy that this quarter, we saw the resolution of the ongoing litigation in London, which was first at International Chamber of Commerce, ICC, in London. And after that verdict, the other side chose to appeal that verdict in the High Court of U.K.But afterwards, most parties decided that it's not worth pursuing that litigation forward. So we signed a settlement agreement that essentially settles the whole litigation. So with that, I think, an important ongoing matter around litigation now stands behind us and allows us to continue with our focus on our core business and growing -- continuing to add market share and tonnages in our story for converting from ports to chrome. With that said, we are very happy also to report that we are back to pre-COVID levels much earlier than what we had anticipated. And we closed the quarter with 68,575 tonnes, and we produced almost 77,000 tonnes. We were adding for transit and for customer stock. So if I look at half year, our sales stood at 121,000 tonnes, 121,700 tonnes, and that closely compares with about 124,800 tonnes that we did half year last year. And we did about 61,220 in the second quarter last year. So we made good -- we did about 10% growth from second quarter last year and just under -- we are at under 10% of -- under 2% differential between the -- between half year last year and half year this year. Along with that, the rest of the numbers are also in line with the previous quarters. So just to finish with a few highlights on our numbers. Our sales are at INR 719 crores. Our other income from export benefits is at INR 22.43 crores. This includes -- we've not taken income -- there's MEIS benefits that got suspended from first of September, and -- which was about INR 2.3 crores, which is now not included in these figures. The other nonoperating income includes ForEx and treasury. There's a -- compared to first quarter last year, which was at INR 74 crores, that gross figure is about INR 24 crores. We have a large other income gain in ForEx last year, about INR 38 crores, which is -- this quarter is at INR 4 crores. So there's a difference in that. And our -- with mark-to-market gains in our treasury portfolio last quarter, we had a small loss on that account this year as interest rates unforeseenly inched up. And so we are about INR 18 crore treasury income, and the rest is ForEx income. The rest of the figures, raw material consumption is at par with last year -- last first quarter. And the rest of the other expenses are largely comparable. So if you strip out the other income differential, I think most [ reserves ] are comparable. Our EBITDA is at INR 215 crores for the quarter, reflecting at about 29% EBITDA margin, and profit after tax at INR 143 crores after minority -- INR 144 crores. That compares with INR 612 crores that we did in the second quarter last year and INR 531 crores -- sorry, INR 676 crores of sales that we did in the second quarter last year and about INR 561 crores sequentially on the first quarter this year. PAT is up from INR 129 crores in the first quarter to INR 143 crores in the second quarter. If I compare profit in the second quarter, we are at INR 152 crores, but that's after about a INR 22 crore tax reversal that we've done on account of the change in tax policy announced by the government. So it's not a comparable period, only from a profit after tax standpoint. Moving forward, all our working capital numbers have improved, like we had guided for in the last quarter. Our raw material days are down to 35, and the absolute amount is down from INR 134 crores to INR 94 crores. Our stock has reduced from 92 to 83. And some of these figures are only better because our sales have improved, right? And our receivable days are down from 92 to 82. So I think back at historical average for our working capital, we expect that to continue to be progressive in that sense. From the 68,500 tonnes that we did this quarter, mining again forms the bulk of the sales at 46,750 tonnes. And cement caught up from the first quarter, with the cement and the utility -- and the aggregate business together at about 22,000 tonnes. This is up from 12,000 tonnes in the first quarter, so a decent recovery. We are largely back at pre-COVID levels in most markets that we operate, including India. And we continue to be optimistic that there are a lot of -- a lot of -- the world is getting reconciled at the same time with COVID. But at the same time, we keep hearing diverse views around the shutdowns in Europe, lockdown announcements in Europe and ongoing political and COVID-related uncertainty in the U.S., in which, in turn, affects the rest of the world. So we continue to be cautious with our guidance in terms of how things are. But we just wanted to take a moment and moment of breathe -- a breather that we are back to pre-COVID levels as far as production and our sales strategies are concerned. We are sitting on about -- our net cash position is at INR 1,847 crores, and we've taken on debt about at INR 160 crores. So the gross cash will be higher to that extent. We've added -- we've done about INR 65 crores of CapEx for the first half. And on the mining liner, we've done about 100 -- we did about INR 60 crores on the mining liner in the previous year. And the total CapEx is at about INR 250 crores. The balance, about INR 125 crores, will come in the second half. We expect another INR 50 crores of maintenance and other supporting CapEx for this year, so about INR 175 crores will be the guidance for the CapEx for the rest of the year. And assuming we do the plant next year, the second phase of grinding media, which is slated to come up next year or anytime soon, we'll be announcing the de-pausing -- the unpausing of the grinding media plant, and that should be another INR 250 crores for most part of next year. So that's the scene. The current capacity stands at 390, and with the mining liner capacity that will be enhanced to 440,000 tonnes, and it will increase further as we add the grinding media plant. I think from a business standpoint, there is COVID -- there are 2 or 3 major things -- major, not to -- major headwinds that, I think, every business is suffering from and which is applicable to us as well. One is around just the uncertainty that businesses face. The world has still not emerged and things, while they look to be coming to normalcy, there's been a lot of anxiety and uncertainty around how things will work out in the future, which means a lot of company businesses and digital makers go back to status quo mode, right, preservation mode and avoid decisions around changes or decisions that will impact their existing operations. And a large part of our conversation is around requiring customers to adapt our new solution, which is chrome plus all the other benefits that we bring around down process and improving processes around grinding with the mill lining solution. And our inability of our engineers to travel to meet people, all of that feeds into our inability to give a guidance on tonnages. I think we remain optimistic that these are best times for people to look at measures to save costs or to improve either their operating parameters, but at the same time, we also see decision-making suffering through a longer cycle because of these reasons. And ours is not -- we're not a software company. Our people need to meet, engage, give them the confidence. And so travel is going to be a -- we imagine that's going to be some part of the conversation around what happens with tonnages going forward. So I think that remains the single largest point why we are still being cautious around giving a guidance on tonnages. For this year, we should be -- we've done 120,000 tonnes for the full year, at least 125,000 to 130,000 tonnes for the second half, and that will take the full year to a very reasonable number compared to our anxiety in the first quarter. I think our order book is at about INR 550 crores, INR 600 crores. As you know, that's not reflective of business. They're just open orders that are yet to be delivered at this time. I think that's about it. That sums up the key highlights for the quarter. Just to recap our broad strategy. W.e have a lot of -- most of our growth will come from the mining side and the 3 labor levers on which those growth is -- that growth based on are around strategy for improving grinding efficiency, which is the mill lining solution, where we can improve throughput, reduce power consumption, improve the grind size, which in turn, can improve recovery. Engagement with customers around optimizing down process, which is for gold and copper, improving recovery of gold and copper metal and reduction in consumption of reagents. And third is just engaging around reduction in the wear cost for these parts. So all of these are significant initiatives for the customer. And we've seen exceptional interest. It's a matter of time where we hope a lot of that will get converted to sales. We are also happy that in these 6 months of largely the COVID, the pandemic period, we've added about INR 350 crores to our net cash of INR 400 crores of net cash. We had about INR 1,300 odd crores net cash or INR 1,400 odd to about INR 1,850 crores. So company continues to be conservative, to be extremely diligent in terms of how our operations are being done, safe practices, all of that. All our teams spread across the world are absolutely in sync with the customer, with their requirements, which is where 70,000 tonnes of sales and making sure that gets executed, gets delivered or forms in terms of parameters that we have promised, continue to give solution, improvements in terms of products that have already been supplied is exceptional. And then we're just grateful that our teams have come through in this difficult time. And we hope to give you a better guidance on tonnages in the quarters coming forward. We'll have a quick recap with Sanjay and then open up for Q&A.
A very good afternoon and good evening to all. And I think Kunal has summed up quite well most of the questions, but 2 specific questions. Question number one, preempting. What is going to be the tonnage of this year? We already -- Kunal has answered that we have done about 120,000, 121,000 tonnes sales. Another 125,000, 130,000 legacy. Q3, Q4 should tell. But yes, that should take us to closer to 267,000, how much close, very difficult to say. But therefore, hopefully, as Q2 has turned out to be better, Q3 also hopefully should give us a little more clarity. Point number two. I reiterate that the 3 key issues on which the company is growing, all the 3, the mill lining, the DP and the wear advantage, they remain continuously and completely in focus. Customer acquisition, customer conversion process, we said in the second -- first quarter call that it is taking a hit. We were expecting that by October, the whole world will start traveling in the way we believe that it should happen. Unfortunately, we are seeing a little bit of hiccup in U.K. and a few other countries, Europe, et cetera, America still having a lot of cases. So a bit uncertain, but we are trying our level best to push that process and let us hope that by Q3, that process reactivates. The medium to long-term prospects remain absolutely intact. The whole focus remains intact. The story remains intact. It's just a matter of time. And I think that if you ask me personally next year, if everything is normal, there's nothing that can stop us from growing and having a volume growth of at least 25,000, 30,000 tonnes year-over-year. But as I said, this statement is qualified by that if hoping that there is no second serious round of COVID, which creates a very big impediment. If everything is under control, I think nothing can come in our way. I think with this, I'll request the moderator to throw the house open for Q&A.
[Operator Instructions]The first question is from the line of Ravi Swaminathan from Spark Capital.
My first question is with respect to the gross margin having seen an expansion this quarter. So is this a function of lower raw material costs, which have been there? And if so, can we expect this benefit to be in the next couple of quarters also?
There isn't any expanded in gross margin. You have to look at it and sync with the change in stock, Ravi. If you apply it with the change in stock, of course, change in stock also includes these other costs that get the inventory valued at full cost, right? So it's not there. It's a -- raw material consumption is -- if you look at total costs, they're roughly comparable between first and second quarter on a percent basis. So raw material is flat between first and second quarter. The consumption has not changed.
There is a little -- if you look at half year, it will be a little more realistic, don't look at Q2 alone. Just compare last year, half year [indiscernible] But this is also a function of many other factors. So [indiscernible] there is nothing really much to read through. Yes, it has a marginal improvement. And I think...
Due to Q2 improvement largely because of more sales, the -- it's operating leverage that come through in -- overall basically.
Got it. And so basically, we range at around the 50% gross margin level. This year also will be somewhere lower than that level for the full year?
Ravi, can you repeat?
I mean we are at around 60% gross margin level. Last year, we were around 60.5%. The year before, we did around [ maintaining numbers. ] So this year also, we'll be doing 60.5% gross margin level?
Sanjay is shaking his head. We are speaking to no guidance on margins. I mean we hope it remains that way, but we're not giving the guidance on number.
I mean, if you look at the operating EBITDA, which is one yardstick that we are comparing, H1 is quite comparable, around 23.5 to 24. We will continue to work with that, those kind of numbers rather than going into further nitty gritty.
Got it, got it.
And [indiscernible] on giving any further dissection of the margins.
Got it, sir. Got it. And other costs have increased 16%. So anything to read into -- to read through into that? Or...
Trade elements. Other costs are in line with sales.
No, nothing has outside of that.
Okay. I mean, revenue has gone up by 6%, 7% and other cost, 16%. So that's why I just was making sure.
But some of that gets adjusted with the change in stock. Some of that gets paid into the increase in stock at the other side.
Okay. Got it. Got it. And recent news article says that container shortage is there, of course...
If you see on sales revenue, not with the other income, it's largely proportionate. The increase in other expenses is largely proportionate with your product freight...
Usually freight, outside freight outward and other expenses.
Got it. Got it. Got it. And finally, with respect to the recent news article on container shortage, et cetera, direct quotes for this [indiscernible]. Are we facing any challenges with the rest? Or I mean...
Not really, not really. Nothing material in that sense.
The next question is from the line of Sumit Jain from ASK Investments.
Kunal and Sanjay, and complement on your set of numbers. Sir, a few quick questions. In Brazil, what is the update on the duties that are there? Are there any instances of tariff barriers, of duty barriers, protectionist measures in any other country? When do you expect Brazil sales to resume, what is the update on [indiscernible]?
So Brazil, status quo. I mean there's no other update. We continue to engage with the customer. We are hoping that we get the breakthrough soon. As you know, we still have -- we have the import duties that have been applied for imports from India. And -- but nevertheless, the issues are different, as you all know, and we've discussed over a period of time. So that we've not budgeted sales from them as we go forward. I mean, that will be upside as and when that happens.
That is true for even FY '22?
FY '22 also, exactly.
Okay. And any other country where protectionist measures have been imposed like this? Like Brazil?
No other -- no, no, no. No other measures. I mean this is something that's a little fluid where different countries have their own processes to evaluate and apply. No other dumping investigation is going on anywhere.
Duty remains at 12%, right?
It's about -- It's, I think, 10.8% -- 12%, you're right. 11.8%, yes.
Okay. And if current environment grows any opportunities in consolidation, especially outside of India, would AIA look at it?
Not really. I mean, today, we are in front of most customers. We've got the market reach. We've got our own teams. We've got customer access, right? And with the local stock that we place everywhere, I mean, by and large, so right through the whole COVID period, that was one thing that we were proud of, that we didn't default on a single delivery, right? So I mean, running production plants in some of these countries is really a difficult initiative, and we are happy to have our plants in India. So no plans as of now to change that.
And the mill line, sir, in terms of realization, how much higher that would be compared to high chrome media?
The realization would be higher, but obviously, the cost will also be higher because there's a much longer process. To make these liners, you need drawings, you need to make wooden patterns and a lot of assembly is required. So the lead time is not less than 10 weeks after we get the order. So much longer process compared to grinding media, and the cost is also higher because of all that processing that's required. So per se, they are not comparable in that sense. The realization is higher, but the cost is also higher.
Net off the margins will be higher [indiscernible]
It will be INR 150 to INR 180 a kilo versus INR 180 to INR 100 that we get for grinding media. So at least twice, I would imagine.
Yes. So net of cost, will the margin be higher here?
Margins would be higher, but the volumes are lower, no? So we have a non-grinding media component in our business already, and then that will continue with the mill lining. The reason we talked about mill lining is only to explain that there is -- we're adding that as a strategic product alongside grinding media. Otherwise, it's just one of the -- one more non-grinding media product alongside with other stuff that we already do.
The next question is from the line of Ashutosh Tiwari from Equirus.
Sir, firstly, we talked about because this travel restriction could become delayed with your customer in terms of adding questions and all. But just one question on that. Let's say, the customers, they already tried, sir, going on there, it should not be impacted much?
Yes. You can see the Q2 dispatches are our testimony.
Yes. So I think there the...
No, no, new trials also -- so those trials continue, right? So wherever they're engaged, there is work going on. I think that's a part. But even with trials, the -- it's just a human form of engagement where not only do -- are we not able to travel customers. Engineers are also -- at the customer side, supervisors are also not at the plant site, okay? It's a very unique issue where it's not just our inability. So the product people in our type of business, where it's a physical product, we have a physical installation done. There are process benefits, which are also physical in nature, how will that pan out is something that we look at it as something that may not be as straightforward. It will just require us -- even limited travel might be useful as our sales. So that's something that's uncertainty that we don't want to hazard a guess and say, it's not a insignificant matter. It is something that can be a little bit of a trouble. All it means is that growth that what we are expecting may take a few months more. And basically -- and the world is also adjusting to a new normal very quickly, right? So these are all uncharted territories on -- it will take 2 weeks or it will take 6 months. But we are just leaving that as a flag, saying that within the new normal, our inability to travel from our side and lack of staff at the customer side poses a problem in terms of the natural engagement that happens with our type of a solution engineering. So we're just leaving that as a flag. We don't know what to make of it, whether that will really be a problem, how long and deep it will run. It's just to let people know that this is something that could be a problem.
No, sir, we understand, obviously. I would say in a new customer [indiscernible] issue, but with [indiscernible], maybe it's not that big an issue, hope so.
So you will see. And it applies to -- and we just -- it should not, that's our common gut feel around it as well. But these are strange times. So it's difficult to go out and emphatically say, no, it will not be a problem. It will be -- I mean, we hope it's that way, right?
Yes, I got your point. Secondly, in terms of MEIS incentive that you booked in this quarter, it's only for July, August, September, is basically is a lower amount?
MEIS, the number that we have reported, which is INR 22.43 crores, includes beauty drawbacks and [indiscernible]
[indiscernible] it's a cap, whatever is eligible for the month of
In MEIS, we've not [ booked it ] for September, basically...
Only INR 50 lakhs.
No, no. We've not booked INR 2.73 crores.
Yes. So I'll explain, there is a cap of INR 2 crores imposed by the government, MEIS benefit, which we could have claimed in 4 months. So in the month of September, only INR 50 lakhs are booked. That's all.
Okay. And what is the amount for, say, [indiscernible], I guess, in total volumes within this quarter, if you have ready?
Total is INR 12.5 crores for the quarter.
[indiscernible]
Okay. And lastly, on the [ U.S. unrealized rate ], what was the number for this quarter?
[ 55].
And how we look at -- [ 75 ]?
Yes.
And it should come down a bit from the next quarter, right?
Yes. Correct.
Okay. And one more question on this. Like, say, we have seen some [indiscernible] in chrome prices. So it will take some time to partner with customers, right?
You are seeing what? Increasing chrome...
Chrome, yes, yes. So that could be based on [indiscernible]
Yes, yes. I think the 10% increase in raw material prices and that pass-through will come.
Okay. So maybe for 1 quarter, maybe they could be some hit, but then it will normalize.
If this keeps on fluctuating, so there was an [indiscernible] -- as we speak today, there is a bit of a softening also. So many times you see if there is a sudden spike and it softens, then by the time you negotiate or start a dialogue with the customer, if that price rise is not visible, we may have to limit it. So it takes time. It takes either way. There is always a lag, which, if it is a persistent and a fixed kind of a price increase here. But yes, you are right, there was a spike. Now today, there's a little bit of softening also of ferro chrome as we speak.
Okay. Sir, like you say, I mean, maybe 1 or 2 quarters, maybe some volatility [ and then things ] will normalize. So that's okay.
[indiscernible] there forever. You can't [indiscernible].
Impossible to say [indiscernible] customer base. It's a new normal. You have to live with volatility.
Yes. So we already have to put a very high margin. So we don't expect to sustain also. So that one...
[Foreign Language]
The next question is from the line of Renjith Sivaram from HDFC Securities (sic) [ ICICI Securities ].
I'm from ICICI Securities. Good set of numbers, sir. Congrats given the overall environment. So if you look at the overall performance, it has been really good and especially in the mining, the volume uptick has been good too. There has been this incremental growth in this segment. Was it pertaining largely to the gold, copper? Or you have seen iron ore also or [indiscernible] this incremental volume from the mining from there was this largely?
I think incrementally we've gone from 41 to 46. But full year, I mean, we'll be -- if you look at half year basis, they're almost at par. It's just -- I don't think there is any pattern underneath on -- the mix remains the same. They did about 40,000 tonnes half year last year. We did 41,000 now.
Okay. Okay. And...
We have done around 87,800, sorry. We've done about 7%, 8% more, about 7,000, 6,000 tonnes more. But the pattern remains. I mean there's nothing that's under -- that strikes out saying what more significantly played a role. So gold is bigger, the existing efforts with various clients.
Gold, copper, everything. Gold, platinum -- platinum is standard, but gold, copper, iron, all the 3 are doing okay. No problem.
Okay. And by March, our -- this 50,000 tonnes of this -- the liners will be on stream. So by when do you see the sales improving from that? And also that requires a lot more of business development activity in terms of typical presence of people from here going to the sides. So such kind of activity, when can you expect? And when will we see a really good traction from that 50,000 tonnes which will come on stream on March? What is the overall plan there?
So the overall plan is that we don't have to only sell with the new solution, right? This is already a 300,000 tonne incumbent -- existing market. The plant can make linings with design that the customer is currently using and we'll be supplementing it with our own solution, which is where we are giving improved throughput, power consumption savings and so on, right? So our attempt would be to not only just focus on those improved solutions, but also if the customer needs that time to adjust and to get used to our product, yes, we are -- we'll also be targeting those existing conventional design products. So I think we should be able to fully utilize it 3 to 4 years' time.
But Renjith, it's not only this capacity utilization, which is critical. What is critical is it opens a very big opportunity for cross-selling our grinding media, as we have elaborated in the past on many calls. This creates a very unique kind of a capability profile for the company, that you have a unique proposition for any type of solution to the client across the mining space, in high chrome, which no other player in the world has that capability. And that gives you a very different platform to play rather than just to say that I'm supplier of a wear part, which will save you cost. Get my point? So it is the down process which has tremendous benefits. It is this mill lining solution, the EEMS, which has their own set of fantastic benefits. And then the basic fundamental proposition of reducing the wear and therefore, reducing the cost. And therefore, as a package, we become really very, very potent. And that is where that gives us the confidence that if you ask me on a long-term basis, a consistent 25,000, 30,000 year-over-year volume growth tonnage should not be a problem. Even if we speak on all the 3 fronts, developmental activities are continuing. What we are trying to say that the travel restrictions plus non-availability of people at the client's end. So I have customers in North America who have customers in many parts of the world where if they have, say, 20 engineers as a normal practice, today, they're working with 10 or 8 people. So my own people and their own people, therefore, are not ready to and as receptive to take the development in the full drive -- overdrive mode.So we believe by next quarter, we should be able to start looking at the traction. Whereas as to the next year, [indiscernible].
Okay. And lastly, on the diversity in use regarding the fire in Amazon and a lot of people blaming the mining activities for that. So was there any curtailment in the overall mining activity due to the [indiscernible]?
It's just bad PR for those companies. But as long as the world is buying electronics, we need copper. South America is going to keep cranking out that ore.
The next question is from the line of [ Rita Shah ] from Quest Securities.
Congratulations on good set of numbers despite the situation. I have a couple of questions. One is a very broad-based question that, in the long term, where do you expect the new customers to come from like gold, copper, iron ore? And what we do specific [indiscernible] region from a longer perspective, say, 2 to 3 years' end?
So I think, as you know, there's already a 2.5 million tonne forged grinding media market, right? And with all our engagement strategies that we have with the customers, for gold, copper, iron ore, platinum is largely converted. So most of our growth, first question, will come from gold, copper and iron. Iron is at least 50% of the market. So that's just a large market that's still using forge for iron ore grinding. And so that copper and gold, I think that business should come from all 3 ore types. Like Sanjay explained to the previous question, with the mill lining solution, we have now the capability to address 3 key areas, the 3 largest key areas that any plant manager has, which is to improve throughputs or to produce more metal to increase the yield; again, to produce more metal and reduce cost. So we are able to -- from a cost standpoint, we're able to reduce power costs, we are able to reduce reagent cost, we're able to reduce wear costs. Wear cost, meaning, cost of mill linings and grinding media. With the mill lining solution, we can improve throughputs. And if they've got the downstream capacity, we can actually produce more metals while grinding the same amount of ore. And for gold and copper, we can improve recovery of that metal. So all of these are directly feeding into the key areas that most of these plant managers have. So it's a very interesting proposition that we are going along with, right? We're not selling our product, which is just cheaper than the incumbent and hoping that someone will buy from us, right, which is the general Asia export story. Here, what we are trying to do is engage with them, explain the proposition, show benefits just by using our solutions, right? And some of these -- the benefits are sometimes 3 to 4x the cost of our parts. So significant benefits can accrue by migrating to a solution. Of course, there's a -- because we are going through the solution way, it takes time, right? It takes time to understand that solution, to get the confidence and comfort that this will deliver what we are seeing. And that's the long-drawn journey that our business has. It takes anywhere between 2 to 3 years before a new client actually starts consuming. But it's a very sticky business thereafter because we have so much ingrained in that whole -- in their own -- in the customers' operating process that it's difficult to just move from one vendor to another once we are in there. Also, even through the depths of the pandemic crisis, the lowest we went was 16% in the first quarter, right? We still sold 84% of what we sold in the first quarter of previous year. So that's the strength of the model. It may take a little longer depending on how the new normal plays out, but I think -- so answering again, gold, copper and iron will be -- most of these -- most will be -- over where most of the conversion will come from. And we expect, even if we are at 15% -- chrome is 15% of the whole market. Even if it becomes 30%, we have another 0.5 million tonne of market that's there. So we really don't have to worry about whether it will be 80% converted or 90%. Even a small additional shift will be reasonable tonnage for us to keep growing in the near future.
Okay. And what would be the region-specific or any particular reason where you are looking at...
We are present everywhere where these ore -- or wherever these -- all these ore types of places, which is Australia, North America, South America. Europe does not have as much mining. There's some parts of Africa that...
You're referring to the mining majors or the mining, the cluster mining?
No, both. No, so mining majors are present everywhere, but also there are a lot of these independent companies that have large operations in specific countries. So we are targeting both.
Okay. And a little -- on the business side of you. I might be a little premature, and I just wanted to have a little additional knowledge. On qualitative terms, how are mill liners and high chrome grinding media different? Like what is the additional benefit? Or how are they different in sense, how will the customer if you got a pitch, what is the benefit of high chrome grinding media and mill liner?
Yes, I think as a courtesy to the rest of the 130, 40 people that are there on the call, would you be okay if we take this offline? I think that will require us to share much more context on the product and the grinding operation itself. So we'll be happy to just take this question off-line.
Yes, that would be great. I have 1 last question that on this quarter, we've seen a great amount of working capital improvement. So what was changed? And what will change for it to be sustainable?
No. So we just had reduced sales in the first quarter. Actually, the numbers, they are largely flat, working capital, actual, absolute number has not changed. It is our sales have gone back to normal. And so these numbers -- the working capital needs look -- have come back to normal levels.
And sir, the current [ MLSP ], what would be the more efforts to be taken to reduce it? Like what would be the...
The largest portion of our working capital is stock, and that is the model we produce in India and we distribute and sell to customers across 120-30 countries. And we do although sales are on a delivered basis, which means they're carrying our transit stock, and we are keeping stock for customers against their orders. So that's just the nature of the business that we have. I think 120, 130 days is our typical working capital cycle, and I think we expect that to continue, just because of the model that we have chosen for ourselves.
The next question is from the line of [ Chaitanya Shah ] from [ Sedwellai ] Partner.
Actually, this is my first time on the call, and I'm recently trying to understand the business. So pardon me if my questions sound a bit elementary. So one thing that I wanted to understand is I have been reading the annual reports in the last 8 to 10 years. And the replacement demand for grinding media in the mining sector, it seems like it's been in the range of 2.5 million to 3 million tonnes. So I want to understand why this number not going up?
So it's like this. Replacement demand of mining when we came out with the IPO and thereafter, we have been working on this segment. Our real effort after we created the large capacities and around 2010, '11, our serious activities of conversion started. You see it's a function of which ores you are targeting. So currently, we are focused on 4 major ores; that is, copper, gold, platinum and iron. In these 4 ores, we are tapping -- so one, there are no industry-specific published databases that are available. So we started off with an addressable demand or an addressable market of about 2.5 million to 3 million tonnes. Theoretically, this market could have grown a little bit. It could be -- it could have shrunk a little bit, but the fact is that between these 4 ores, we believe that the addressable market as a sum total of all key leading mines which are producing these ores and corresponding their service by [ force ] players like [ Molikof ] and [ Maxwells ] of the world, [ who put our output or requirable ] when we calculate our business number, we thought it prudent not to worry about increasing or doing that statistics again for 2 simple reasons. The level of penetration today out of even assuming that 2.5 [ million has remained steady ] for 10 years, which in reality may not be the case, world growth at 2%, 3% per year, let us assume the market growth at 2%, 3%. However, the fact is that as much penetration as we are able to do. So if I replace one particular mine who is currently using a fold media, with my high chrome and theoretically if we're using 5,000 tonnes of fold every year, high chrome requirement will go down to 3,000 tonnes. For the very simple reason that I bring upon a massive reduction in [ very ]. So yes, annual consumption actually goes down in tonnage. So therefore, it is better to remain with a static market, point number one. Point number two, the level of penetration, as we speak, is not more than 10%, 15%, 20% of high chrome, that means there's a very big headroom of 80%-odd which is yet to be converted. And therefore, we are focusing on [ conversion ] rather than doing any theoretical working of this tonnage. This is more to make the people in the market understand that what is the opportunity size [Technical Difficulty] [ and how much we are ] focused on.
All right. And again, since you were mentioning the percentage of mines that are using high chrome. I was seeing that, that percentage between 15% to 20% is also remained constant for the last whatever 8 to 10 years....
I mean, we've added -- we were at 0 in 2010. We were doing 175,000 tonnes last year. So all of that is this new addition on the chrome side.
Okay. No. My reason for asking this is that my major concern was that if the end user market is not growing. And we keep on growing by taking market share from other players, there has to be a limit to [ tax ]...
But that fortunately for us, that figure is there still 85% unconverted. Like Sanjay explained, we never went into them recorrecting that 2.5 to 2.75 or 2.7 or 2.8. It is still a large figure, and there's enough opportunity for us to grow. I mean, which is where we haven't done a lot of, there's no published data that explains where the gross market, where it possibly could have moved to.
All right. So would it be fair to assume that there is a long run of growth and we can keep on sort of growing at whatever at 25,000, 30,000 tonnes. All right. And sir, my last question is regarding the dividend payout ratio. What is the ratio that one should expect going forward? Because I guess you increased it by a huge amount in FY 2020.
So our stated policy for dividend is 20% of consolidated PAT. We've done more -- we just -- we had surplus cash, and there's a lot of conversation around returning back some of that additional cash. And under that, so we returned more in dividend last year just because of the surplus cash. So for now, the stated policy continues to be at 20% of consolidated profit after tax. So last 8, 10 years, except for 2 years when we did more than that. I think it's been around 20% of profit after tax, or 8 out of last 10 years.
The next question is from the line of Anirudh Shetty from Solidarity Investment Managers.
Yes. Sir, so you mentioned that 5,000 tonne of ores [ has given ] 2,000 tonne of high chrome. I just want to understand on the customer side, they obviously will require lesser of high chrome but the per unit cost will be higher. So over the life cycle of a high chrome media product, what is the overall cost savings for a customer?
So Anirudh, first, clarification, that was more as an example, to see that why we are keeping that overall market opportunity static. So that [ non or that artic ] is not universal. It can vary case to case. What I wanted to say that as compared to [ force, the various ] reduction that we can achieve could be 20%, 30%, 40% or even 50% or, in some cases, even 100%. So there is no [ reactic ] each mine is different. Each application is different. We have to work around with the miners for 1 year, 2 years, as Kunal explained in a previous question. And then only we have to suggest the right solution. It gets the miner is convinced that he has it worked, and then it fructifies in terms of an order. So please don't take it [Audio Gap] because it was just as an example. What was your second question?
So from the customer's viewpoint, so what would the range be of what cost savings they see over the life cycle of [ that is ] there?
Generally, it would not move unless there is an, 15% to 20% actual cost savings that will accrue to him. After factoring a little higher cost that he will have to pay for my product, which is an alloy which is a combination of a higher metal that is ferro chrome or a higher alloy. And therefore, after factoring everything, annually, if he's paying, say, x as a consumption value for his grinding media, it should be x minus at least 10%, 15% per year, then he will look at me with a little more conviction.
Got it. My next question is, I wanted to understand the overall market opportunity. And you had mentioned 2.5 million between 4 ores. So can I look, besides any industries you're taking to currently, are there other end industries that you could potentially use our product in? And related to that, we have also launched -- we sell our mill liner products, which is non-grinding media, are there other nongrinding media products that you feel are strategic in nature that could be offered as a entire [ book today ] of products to the customer?
So the first answer is that gold, copper and iron ore will form most of the mines that have large requirements. So you also have smaller products like silver or zinc. And we are present in those mines of chrome even that needs grinding, but those requirements are very small. So we are not really not considering that as a growth opportunity for [ sabon ]. We do have presence in those segments. But not material volumes. Second is, mill lining was something that we were historically doing it. We did mill lining for cement on our lines. That's what we've been doing for the last [ 30 ] years. So mill linings for the mining segment was just a natural extension. The reason we've been talking about it, we've not talked about cement lining, for example, is that mill linings are a strategic product, which aids conversion of grinding media also from [ ports ] to chrome, right, because of the whole book that Sanjay talked about, right? So when we are offering the whole suite of services and solutions, is where we are -- where the customer is then telling us that please give us the full set of mill internals, and here's the benefit that will accrue to you. So mill lining is not an adjacent product. It was just something that we never worked upon until we had a solution that differentiated it. There are 4 incumbents in that market. And Mr. Shah was very clear that unless we don't have a differentiated solution or a product, there's no point in just being 5th in queue, right? So which is what we developed over the last 2, 3 years, 2 years, and why we now participated in that segment. So for now, just to answer your question, I think there's enough on our plate with grinding media and mill lining to not take the ball off that opportunity.
Okay. Got it. Sir, within the grinding media space, are you -- is there -- are you in a situation where your competition due to xyz reasons, whether it's a lot of financial leverage or unhealthy balance sheet, but they will not have the ability to grow as fast as you can. So we will have the ability to grow market share faster due to this COVID -- [ do you think ] COVID could be like a tailwind for you?
I think COVID aside, we are probably the best placed to make the most of this opportunity. I mean, COVID possibly has accelerated that. But it's a new normal. So we don't want to opine on whether it's good or bad. Irrespective of COVID, we believe that we've got everything in place to be the best beneficiary of the shift from [ ports ] to chrome.
Just one final question. The export incentives that we have, could you please elaborate on what are the -- what is the source of this export incentive? And is there any like sunset clause on it or anything of that sort?
Yes. So when you export, the Indian government has 2 schemes in place. One is called merchant export incentive scheme or MEIS. This scheme is -- you get a percent on a FOB price of your export invoice. And that scheme has a sunset for 31st of December, it's already expired actually. So 31st of July was the last date -- 31st of August was the last week for that scheme. The government has paused any payout under that scheme as we speak. And they've announced to migrate to what's called a RoDTEP, which is remission of duties and taxes paid on export. And that's slated to come in force from first of January. We are waiting to hear back on what those figures could be. And then we also -- the other scheme is called Duty drawback, which is remission of the import duties that you pay for import of goods. So that's the 2 schemes that we -- that are available under export [ reg A ].
The next question is from the line of Sparsh Raina from Mirabilis Investments.
My first question is, what would be the potential cost savings post closure of Velca Steel, if any?
No, no. So you see this Velca Steel decision had several other ramifications. As we speak, the permanent closure decision is yet not final. So we will talk about it a little later. But I don't think that...
The Board has taken a decision for the closure of the plant. I think there is no benefit or -- that's not the way to look at it. There is no way to look at it, whether there's a benefit or otherwise. I mean, that's just a logical decision that the company has taken at the time. We keep updating as things evolve over there.
Sure, sure. Sir, my other question would be -- the other expenses have been slightly higher this quarter in terms of as a percentage of sales equity, it has increased significantly from roughly 33% to 36%. So any specific reason for that? And also my third and last question would be about the borrowings that INR 160 crores of borrowings as of on-balance sheet. What was it for exactly?
What was it -- no, it was just a treasury operation, actually. It's just a short-term working capital that we use -- that we borrowed. Yes. It was a working capital borrowing, just that, just a treasury operation.
Okay. Okay, sir. So then on the other expenses side, the other expenses have been slightly higher this quarter. So why is this...
They're in line with production. You'll have to look at other expenses in line with our production and sales. Our sales production has gone up from 50,000 to 76,000 tonnes.
76,000, exactly.
So the other expenses are in line with that.
The next question is from the line of Sumit Jain from ASK Investments.
I just want to take the thread from this, but the other gentlemen who said he read many of the annual reports and looked at the industry data and spoke about. And I'll take this off-line as well. But the INR 25 lakh, the total market of grinding media and into which the SPM is close to 6 [ lakh % ]. If I look at our growth rates, and correct me if I'm wrong, last 5 years, we would have grown 6% and Magotteaux actually has grown by 1%. If I look at 10-year data, we have grown 12%. We've always, in our conversations, have had and spoken about our ambition of growing at very healthy rates. If I just do this math, at for a number of years that is starting from today for next about 10, 15 years. If we grow at 12%, Magotteaux grows at 3%, and like you said, the overall market may decrease a little because you're going to replace the [ port ] media with PGM. So I take a rate of minus 1.5% because the overall market will decrease. It creates a situation where in about 10 years you and Magotteaux reach 50% of the market size, by FY '35 you reach 70% of the market size. So I think you should be cognizant of the fact is that after a while, it will be difficult to further move that number. Sir, your observations on that?
You are absolutely right. So there will be a point where after which migration would be difficult, like but it's unchartered territory, right? So whether our competition adds more capacity, we are not aware about any plans from their side to add capacity. So difficult to comment on that. But big picture, total chrome in our estimate is about 400,000, 450,000 tonnes in the mining space. And force players, then sales are upwards of 2 million, in our estimate, it's about 2.5 million tonnes currently selling. So even if it's say 2 million tonnes, even if 20%, 30% of that migrate, rest we're talking 500,000, 600,000 tonnes of additional chrome opportunity. I mean that's a reasonable opportunity for us to grow when there are limited players really offering those solutions, right? So over a 10-year period, possibly that we may run into a optimized market share but we'll be very happy to be in those shoes and maybe explaining what else we are doing at the time, right? For us to -- it is going to take every single bit of resolve and effort and resources to actually be there, right, be that Indian company who's reached that position in a global sphere on the back of its ability to provide those solutions. So just [ in shall ] that we reach there and we reach those situations. I don't think that...
Just to add, this is a very interesting question, the way you have articulated it, but the fact of the matter remains that, as I said, this 2.5 million tonne is more of a derived number, point number one. It is absolutely not correct to assume that the world will not grow and only AIA and Magotteaux will grow. So that also is something which is more hypothetical than real. Third, honestly if you ask me about the vision. So today, you compare us with any other player who can make a statement that they have clear visibility of where they will be after 10 years. If you find 10 such companies, I'll be very happy. So I think more importantly, at least I have the visibility and the vision that after 10 years, I want to have 30%, 40% of the market share. So that way, if you compare there are many, many -- yes, you're right, but there are many theoretical situations which are very difficult to comprehend. What we are trying to say that at least for next 5 to 10 years, we have no reason to look anywhere else, but to keep on working and taking the market. This is very important. Beyond that, very difficult to answer, sir.
Sure. And we hope to also that we reach that, and wish you good luck for that as well.
Thank you.
The second is also that we have been asking you is about increasing tendency of nations or your competition to actually lobby and so that countries impose duties et cetera, protectionism. In that case, the whole business model of AI is of actually manufacturing in India and then exporting. And which is where because of which you earn this kind of very high margin compared to, let's say Magotteaux, which would be 8% to 10%. But then that exposes us to this risk, which increasingly, there will be globalization that is happening and your views on that.
So yes, the world is going to that. There's no question about it. But those are really relevant for commodity-type products. In our experience, where large numbers of jobs are engaged in that industry in those countries, like the steel sector, rubber or chemicals. We are a small player, a chrome -- as a chrome industry, when we're going out and competing, we're a very small part of really the scheme of things, number one. Number two, there aren't a lot of local players, right? We have only 1 large organized player, a few unorganized players in every country that is there. So per se, I mean, we're not -- third is that we are a solution provider, our pricing is premium. It's not that we are going away and doing a dumping our product, so to speak, right? So I think all those factors put together, we are not so worried. I mean, if it were to happen, it would have happened. Notwithstanding that, there is -- there are chances that different countries view it differently and try and protect local jobs. But that's not the reality of life will have to live it. That's not something -- that could be a small bump, so to speak. That does not change the whole rationale of the solution that we are offering, the benefits that we bring, right? The product may cost a few percentage more for the customer. But so be the value addition as a proposition is far more than just the additional small duty that may potentially come.
Yes. So we will never go overseas and put our production there?
That's -- never say never, but we don't have any plans as of now.
And one last question on payout ratios. Now that we are clear about our CapEx plans this year and the potential CapEx next year. And [ you run the tax code ], we are a tightly run ship. Then there is [ no ] scope for enhanced payout.
So let me correct this question I've been facing for last 10 years. See, the problem today is that at the Board level, we have been discussing this a number of times, correct? So when should a company pay out more? It will pay out more only when it feels that there is a plateau, there is no scope for growth. There's no scope for any kind of opportunity that can suddenly come across. So today, as we speak, after COVID, many new things you yourself posed a very interesting question that some nations may want protection to be more, et cetera, et cetera. And Kunal answered that never say never again, and there is a possibility that we might have to relook at our whole strategy. So until we feel that at 200,000-odd tonnes in mining, maybe over the next 3 years, 4 years might reach 300,000, 400,000 tonnes, still we feel that now there is a plateau and there may not be any need for growth. At least till we reach our [ full active ] for a couple of years more, I think, we'll continue with this conservative payout policy. We believe that there is huge opportunity that is -- that can come across any time. And today, with our INR 1,800-odd crore cash, it is definitely surplus and taking 6%, 7%, 4%, 5% yield, which is not a great thing to talk about. But it is that availability of that cash to convert that opportunity into a reality is what makes us feel encouraged to continue holding higher cash levels and keeping them with absolutely 0 risk or practically very low-risk instruments rather than go for a debt. So let us say, you'll have to bear with us for at least a year or 2 more in terms of these payout ratios, and then we will 100% review.
The next question is from the line of Bhavin Vithlani from SBI Mutual Fund.
Congratulations for a good set of numbers. A couple of questions. Couple of questions. One is on the Brazilian mine, when we had a large contract. So from the last quarter to today, has there been any development, be it positive, negative or there is no movement at all?
So there is no movement as Kunal explained in 1 of the previous answers. And we have frankly not factored anything to come this year or maybe even next year. If it comes, it will come. As of now, there are so many other opportunities on which we are working. So yes, I mean, we are not factoring anything at all to come.
Sure. So could we construe that this is a loss of opportunity?
No, that is also not correct. There will be some -- there is a possibility always of reviving it. We will wait and watch till that customer comes again and talks to us.
Okay. So the reason -- I'm sorry, I'm harping too much because what we understand that mine has come into operations, and hence I'm drilling too much into this. Is it like some -- either a competitor has taken it or our substitute has taken it?
See, the customers don't like us talking on a public forum, they are also a listed company. So I think please allow us to not be able to share any details beyond that. We haven't -- for various reasons, we are not budgeting that in our sales outlook for next 12 months. It might regard is -- I mean, absolutely, good fair chance that it might provide, when, how, what form, we don't -- I mean, that's just something that we'll have to wait and watch.
Okay. Sure. Fair. Second question is, I mean, as an industry, what are you seeing on the RoDTEP? Will it be similar? Will it be lower than what you're currently getting? And I mean as an industry forum [ where ] in dialogue at the moment.
No, everybody's clueless here. Most people -- the questions start from whether the government has the budget to spread out this bounty, right? So we don't know. It's very difficult. We are just hoping that -- see, there's a whole logic behind RoDTEP where the country does not want you to export an inefficiency in terms of taxes you don't get credit for. So in theory RoDTEP is a great scheme. It is not a subsidy. It is actually reimbursing for taxes and duties which are not available as a credit. So if that's really done in the right spirit and government has enough budget, I think we should be okay. And see, so we would not [ work out of this ]. I think there are lots of unknowns at this time, and we'll just hope that the government does the right thing.
Yes, they have gone on record in saying it is a [ new tax ]. So let us hope and it's more -- I mean it's WTO compliant. So let us hope that it is there, but there could be a slippage there. So that 3% can suddenly become 2% or 2.5%, we don't know. As Kunal said, it's just that we have to [ yes ], but our advanced license continues. So that 2% odd... a duty continues, that 2-odd percent benefit continues.
Sir. The last question, please on the Capex. So if you could help us with what is the CapEx for full year of FY '21 and full year of FY '22?
FY '21, we should do about
250...
So inclusive of the maintenance cap rate?
Yes. Yes. So we should do about between INR 250 and 300 crores this year and about INR 250 crores next year. If next year, if we announce the grinding media plant. So for now, we've got additional INR 300 crores yet to be spent basically. You've got about -- sorry, INR 175 crores more to go. We've already spent INR 125 crores. We have to go spend about INR 175 crores, including the maintenance Capex.
In FY '21, in H2, INR 175 million in H2. We may have a spillover in the next year or the year after. But that's the amount of spend that's already been earmarked and on its way.
The next question is from the line of Renjith Sivaram from ICICI Securities.
Sir, just last bit, in terms of market share in your internal assessment, have you seen any considerable improvement vis-à-vis the competitors, if you can share something on that. Have we improved our market share? Because even in this challenging institution, we are able to show growth, so how much, if you can throw some light on that? Was it largely in line with the market? Or we are seeing some market share gains, if you have some data points to share?
Not really. I mean we're just doing -- like we explained before, there's a large conventional market, which we are converting. Our competition would also be doing the same. But there's enough market for both of us to grow at a very decent pace for a foreseeable future. So I mean, it's very difficult to add what their addition has been in this period. But I mean, we remain optimistic about our prospects.
The next question is from the line of Abhishek Vora from Ambit Investments.
My first question to you is regarding: since we are able to save the power and fuel cost and wear and tear cost for the miners, how much percentage of that cost we would be saving for the miners' total expenditure, if there's any ballpark number?
So we can reduce their power cost by 10% to 15%. We're talking about the whole set of the complete package solution, if we were to offer, you're saying, right?
Right.
So I mean there's a copper mine where we have done work, copper-gold mine, where for a spend of about INR 20 million, the estimated benefit were almost INR 100 million on account of all of these things, which is reduction in mill internal cost, reduction in reagent costs, reduction in power costs, increase in production, so over the same grind, you're getting more metal out, and improved recovery. The whole combination was as much as 5x the cost of a part. So I mean, very material benefits that will accrue for the intervention solution, intervention that we do.
Right. So the savings and amount for the miner is 5x the cost of the part that we [ schedule ].
Yes. No, no, I think it was an example, it was an illustration that it can be as high as 5x. But surely, there -- I mean, so that depends on -- it's very, very circumstantial, right? Depending on what their operating conditions are, where the low-hanging fruit is. So that is really -- I'm saying for someone who could -- where we could apply benefits to all streams that benefit was more than 5x the cost of our part, basically.
Sure, sure, definitely. My second question is on the cash flow front, I'm seeing a multiple sale of investment. If you could highlight if this is anything in relation to the factory? Or is it something else?
No no, sale of investment is our treasury sales. They get classified under the sale of investments.
The next question is from the line of Priyankar Biswas from Nomura.
Congratulations. So I have a more strategic question. So like in case of mill liners, as you had explained in earlier calls, it was more an attempt to gain more of the customer wallet share. That is the understanding that I got. So in media to mill liners. Now is there something else also in the customer wallet share that you can potentially be targeting in the future? Let's say, like a pulp mill or even the ball mill itself, that is there in the works in AIA...
No, no, no. This is a large enough wallet for us to keep growing for next few years. No. This is enough for that, Priyankar. We're not going besides this.
Okay. So this is the limit, essentially the mill line is the lining media, that is...
The whole grinding circuit, basically. Everything that's a consumable, which is not -- we will never be into onetime supply of things like mills and things like that.
Okay. Okay. And just squeezing 1 thing here. So what is your -- based on discussions with your customers? So what is the expectation of the volumes for the mill liners in the first full year of operations? Any ballpark number?
Not really. I mean, we should do at least 10,000 -- 8,000, 10,000 tonnes, but hopefully more.
The next question is from the line of Amber Singhania from Asian Market Securities.
Just 1 small question. I wanted to know [ a government ] case [ agreed upon ] in London. The [ Sintercast agreement ], is there any chance that any of the such related things can come in, in the future in terms of any geography restrictions or anything which is there on the settlement [ floor ]? And second thing is, any indication that you can share about the settlement cost?
So Mr Singhania, I'm Sanjay here. One, this is a completely broad-based settlement that we have executed, whereby on this issue, they are never going to and they are not allowed to move under any forum for the same or similar issue anywhere. So there is a complete blanket kind of an agreement not to litigate on this issue again. Secondly, what we have is agreed that there will be no compensation of any type payable by us to them. What we have, in fact, agreed that each party will bear its own cost. So as you know, these kind of litigations, arbitration, overseas in London are very expensive. So each party, otherwise, the winning party will also ask for an [ EOR ] of costs. Correct. So here, the [ one setup ] is that we will bear our own cost, they will bear their own costs, and there will be no litigation initiation of any sort of proceedings anywhere in any jurisdiction on this issue.
Okay. So there is no cash outgo from our side or from their side on any part on the settlement and the contingent liability of that $60 million will go...
It's 0.
Ladies and gentlemen...
I think moderator, if there are no further questions, we can conclude the call.
Yes, sir. Would you like to add any closing remarks, sir, before we conclude?
No, that's about it. Thank you all, and we hope to give you more color in next 2 quarters. Wish you all a Happy Diwali in advance. And as always, Sanjay and I remain available for any offline questions. And we connect with you for the third quarter results thereafter. Thank you. Have a good evening. Thank you very much. Bye.
Ladies and gentlemen, this concludes the conference call for today. We thank you for your participation and using Chorus Call conferencing services. You may please disconnect your lines. Thank you, and have a great evening.