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Good evening, ladies and gentlemen, thank you for standing by. This is Michelle, the moderator of 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. Please go ahead, sir.
Yes. Thank you for the introduction overall. Very good evening to everyone. This is Kunal and also I have Sanjay bhai with me here. Pardon my voice today and I think Sanjay bhai will do most of the talking, but we are very happy to report probably one of our best quarters ever in this quarter with 78,500 tons of sales over a production of 80,000 tons and that's up from about 69,000 tons of sales second quarter last year, but also up from 68,000 tons, sequentially, from first quarter of this year. And most of the pass-throughs in terms of cost inflation has now been factored in into these numbers with a weighted average realization for the quarter coming at about INR 167. So that's where a lot of these pass-through in terms of shipping cost, raw materials has now been baked in these numbers and that has taken our numbers to INR 1,300 crores to [ INR 1,311.59 ] crores and which is up from about INR 8.71 crores in the second quarter last year.
I think the rest of the numbers are broadly in line. Our raw material consumption now has reduced from second quarter last year, largely reflecting the pass-throughs that are coming. Our EBITDA is at INR 344 crores, which is about 25.9% and profit after tax at INR 244.81 crores, up from INR 137.59 crores in the second quarter last year.
I think just finishing off a few housekeeping numbers export benefits we get drawback [indiscernible] reflected in the other operating income for the second quarter, largely in line and a little higher than first quarter, reflecting the higher export. Treasury income is about INR 29.72 crores and then balance is foreign exchange adjustments.
The net other income in this year -- in this quarter at INR 32 crores, up from INR 20 crores in the first quarter this year and INR 35 crores, down from INR 35.72 crores in the second quarter last year. I think working capital has -- is largely in line. Our debtor days -- our inventory days look a little lower than before. We tried to not add to inventory. We've liquidated a bit and higher revenue figures. From a tonnage standpoint, it's reduced a little bit, because of the value of the goods, so the number of days has reduced a bit, so our inventory days are down from 84 to 75. I think, our guidance would be closer to 78, 80 going forward and our receivable days are at about 64, but they will also be -- will normalize around 70, 72.
Mining has -- most -- growth has -- in this quarter has come from mining. We did about 54,000 tons in this quarter. And almost closing at 100,000 tons for the half year compared to 85,000 tons we did in the first half last year. Non-mining has remained largely flat from 44,000 tons half year last year to 46,500 tons half year this year. So from the half year numbers, we have grown from 129,000 tons to about 146,000 tons for H1 this year.
Few more -- our net. Net cash end of quarter is about INR 2,050 crores, there's net of some debt and some extra cash, but the gross cash is higher, but there's also some net working capital against that. Net cash is at INR 2,050 crores and we probably expect that will stabilize with a lot of working capital deployment over last 2 years given the inflation that kicked in and just the higher value of working capital of our stock and I think all of that will also stabilize going forward.
There are 3 announcements that we have made this year. One was a supply arrangement that we have done with the company in Ahmedabad -- based out of Ahmedabad SAL Steel and they are producers of ferrochromium. And it's on a -- it's like a job work arrangement on our supply -- commercially under our supplier agreement. And all it does is helps us with diversified locks in the supply chain for us.
As you all know ferrochrome is an important raw material. They have a plant in Gujarat and they are all set up for efficient logistics for ore from the east of India as well as captive power plant allowing for an efficient cost and conversion from ore to ferrochromium format and this allows us comfort of having almost a captive arrangement for production.
To this extent, it is at the peak of this agreement arrangement that we expect to get between 3,000 and 4,000 tons a month from them. So at which time it will be about 50%, 60% of our requirement within this year and next, maybe a little more. But again, that will be determined by a host of factors, but we had a lot of questions asking us more about it, but it's actually a simple -- they needed cash infusion in that business to stabilize their operations and they get visibility on sales of their product, while we get almost a captive producer and -- and this being a critical strategic raw material, we just felt more comfortable having a partner who is doing it for us.
We've extended INR 125 crore secured loan to them and at 10.5% yield. So to that extent, we are well protected not just on the coupon on that, but also on the security against those assets and which will be more than adequately compensated in terms of a supply arrangement that we are looking at.
In addition to that we very, very excited about the mill lining plant that we commissioned after the close of the quarter. It's a fully automated plant or significantly automated plant for the casting as far as castings, which is -- other than grinding media production, I think one of its -- one of the best type of plant in the world for these type of castings, which are large custom made. These are not repetitive parts. These are custom-made to application designs that we curate for the customer and we are very hopeful that we'll be fully utilizing this plant over next 3 to 4 years. We welcome all of you to come visit Ahmedabad and have a look at the plant [indiscernible] transit in this side.
Also there was an amount we disclosed about Canadian Border Service we have -- doing the assessment of the duties that assessed last year in 2020 -- end of 2020 and this assessment gets triggered when cost change materially. It is on their prerogative and because raw material cost and other costs have changed significantly from the time that this is last assessed, this is an administrative procedure to go revisit and assess that structure, so we'll be fully cooperative.
With that, we will not be able to share more information except that the materiality of this market today is that, we've done about 3,000 tons first half of this year. Maybe we'll do 5,000 tons, 6,000 tons full year. So to that extent, we are in the market. We may not -- it's a subjective matter again. It's business as usual for us.
Duties may change, may get -- maybe a little different format, but we -- our business model is far above and beyond that. So we may not be able to take more questions on what it means. Beyond that, it's a regular assessment. There may be more such as cost change. And that's something that as a business -- as a company we'll be well organized to support and gear up for.
From a CapEx standpoint, total this year and next, will be about INR 480 crores to INR 500 crores, half of that comes from our grinding media plant about INR 250 crores, there is about a INR 20 crore spend on the liner plant, which is -- which happened this year. There is another INR 50 crores that we plan to spend on the liner plant for supporting infrastructure need pattern storage, et cetera. We are investing about INR 60 crores for captive power and about -- between INR 70 crores to INR 100 crores on balancing other infrastructure support in next 2 years. So broadly, we've got a CapEx plan of INR 480 crores to INR 500 crores, this year and next. We've done about INR 112 crores in September this year. And the plan is to do another INR 160 crores, INR 170 crores for the rest of the year or some may spill over to the next year.
Broadly 1.5 -- 6 to 7 quarters going forward and 2 quarters passed over that 2-year period starting April '23, till March -- between March and June, '24 we'll do about INR 500 crores of overall CapEx.
I think, with that said, I'll ask Sanjay bhai just give you a brief about the -- about the markets and what you seeing going forward, but it looks like that ferrochrome scrap are at a peak pricing. Ferrochrome has seen some downward adjustment over last 1 quarter, but it's anybody's guess which way it will go. Scraps still continues near the peak, it reached sometime back. Shipping costs are volatile, but clearly trending downwards. So I think that's a good sign for us that finally the costs look to be stabilized or don't seem to go higher from here, but it's too early to say that is going one way or the others.
So I think we are on a watch and stay and play mode and be ready to absorb and adapt as costs and the situation changes. I think most of the COVID restrictions around travel have gone. I think, our people are traveling all over the place, trying to go gear back up for the whole strategy that we are trying to lay out. And between mining liners and grinding media, we hope to add 30,000 tons at least going forward. We may not be able to guide on exact numbers on how far right that number looks like as you are aware.
One last point before I hand over to Sanjay bhai is that these -- as costs will ease down, there will be a pass back on those costs. So I think long-term margin guidance. We may not again unfortunately be able to offer beyond 2022 operating margins. So please do bear with us on that. There'll be quarters where we'll do better and we aspire to do better, but there are too many variables as you all know that we work with and it's difficult for us to exactly pinpoint where those margins will ultimately reside.
Okay. I'll just hand over to Sanjay bhai and then we'll go into Q&A.
Thanks, Kunal, and good evening to all of you. So as we can all see, it was a certainly satisfactory quarter both in terms of the volume growth as well as the overall margins, but as Kunal has cautioned, yes, going forward we believe that the peak level pricing has already reached so probably there could be a little bit of softening of the raw material prices, rate has already gone down, started going down. So we believe that going forward, we should be able to, we might see a little bit of declines in terms of average realizations.
Though it is a bit difficult for us right now to predict exactly how much it will be, I think the average price realization in first 6 months is around INR 162 a kilo in terms of sales, which could be regarded to the, I think, peak and it may go down a little bit. But as we have always maintained, it is our endeavor to ensure that the margins are protected and our absolute margins will be protected. Possibility that while there could be a little bit of downward trend on the realization margins will be maintained. So we'll see margins in percentage terms also should be maintained, but current level of operating profit margins are at around 23%, 24% and we are quite happy about it.
Overall, the volume growth has started to kick in as it is evident from the first 6 months number. We believe that we should be on track, we are on track. We feel that for about 30,000 tons to 35,000 tons we -- comfortably per year. Overall traction is appearing to be good. Although geopolitical issues are there. But so far I think, we have circumvented them and we should be able to go ahead. And as Kunal explained, this Canadian authorities re-investigation is more procedural rather than anything further to be read into it and we will keep all of you posted as we cross the bridges. So broadly, we are quite on track. We're very comfortable.
I think, with this let's start the Q&A, moderator. Thank you so much.
[Operator Instructions] We have the first question from the line of Ashutosh Tiwari from Equirus Capital.
Congratulations on very strong numbers. Firstly on the volume side, we almost had done almost 1 lakh tons in the first half in mining. So is the growth driven by new miner additions or ramp up at the older mines only, how should one look at it?
This is new mines. The growth is coming from new mines.
And any particular minerals is doing very well for -- any other, let's say, gold or copper or something which is doing very well for us in the first half?
15,000 and this growth is not that large to really draw patterns from, but clearly gold and copper remain metal of interest.
Gold?
Copper and gold, both.
Okay, okay, okay. So finally, I think now that probably we've done 146,000 tons in the first half, we're probably are on track of delivering 30,000 tons incremental this year, right?
Yes. Yes.
And you obviously mentioned -- so, like relations have gone up because of this whole commodity pass on and plus shipping costs as well, but is there a benefit in this quarter that probably costs has started coming down and probably the pass through happens with a lag. So that's why we probably had higher margin in the current quarter, is that...
Absolutely, you are right. So ferrochrome is -- these are -- a lot of these are formula-driven and which is where I was saying that as cost reduce, there will be a downward adjustment, which you'll see in the next quarter.
Okay. Okay. And on the liner side, we expect major volume to kick in from next year only, because we -- just the plant is commissioned, so it will probably take some time to go to customers and showcase them and all those things will happen. So...
No, no. We have orders, but execution -- see what happens in mill liners is, once you get the order there a design phase, there's pattern making, approvals. So with that lag, you will see volume coming in next year. I think, order -- from an order standpoint, we are actually seeing growth we've seen growth. And we've taken orders in anticipation because the plant is commissioned, right? You won't see it may happen next year onwards. So I think, we are on track to add at least 10,000 tons per year starting this year, invoicing maybe a little lower.
You're saying 10,000 tons incremental volume online aside this year?
Yes, yes.
Okay. Well, and then probably like I said it...
Invoicing would be lower. No, that's what I'm saying.
You probably want to utilize the plant. So that growth should be extra count.
3, 4 years is fully utilized. I don't think that looks too much of a challenge as of now.
Okay. Okay. Okay. And this is also a mix of domestic as well as export customers.
Largely export.
Largely export, okay.
Yes.
And lastly, on the USD-INR realization side, how much we did for the quarter?
Realization just one second, INR 81.3.
We have the next question from the line of Dhavan Shah from AlfAccurate Advisors.
Just couple of clarification from the last question. You said the mill lining volume will be 10,000 metric tons this year?
No, no, no.
Order will be will be 10,000 billing maybe invoicing.
We're just trying to give him an answer directionally that he asked a question that because the mill got started now you will go out and take orders. I said, we've already started to get orders of more than 10,000 tons invoicing may not happen this year. Some of it will spill into the next year.
So Dhavan just to elaborate, we are already selling mill liner. Now we have shifted to this dedicated plant and volumes should go up. It will be definitely, definitely higher than annual what we did last year. Exact number may be difficult, but definitely higher than what we did last year.
Okay. So I think on an average annually we are already selling 10,000 to 12,000 metric ton, right?
Exactly.
We are selling 18,000 tons mill liners last year, about 18,000 tons last year.
Okay. 18,000 tons.
Finding these are mining mill liners that is over and above cement mill liners.
Correct, correct. Mining mill liner, right?
Yes.
Okay. So when you say cement mill liner, this is 18,000 plus, you would be selling whatever will be the cement mill liner, correct?
Correct.
So that would be another 5,000, sir?
Sorry.
That would be how much, that cement mill liner would be how much?
I don't think we are not -- the idea of sharing these liner tonnage is only to give a perspective that we set up a plant. And just for comfort that, that product will be fully utilized. We'll -- as a practice not sharing segmental product wise data. It does not add to the overall understanding for the business, right? It just becomes a...
I got it. So sir, basically I think now the total capacity is 50,000 metric ton? Total?
For mill liners, yes.
Yes. So basically, then we are already doing more than 18,000 tons.
Total capacity will be about 67. We've got existing casting plants, where also we can make some quantity, no? This is a new.
Okay.
So Dhavan, let me summarize it. We have a dedicated plant for mining mill liners for about 50,000 tons, which has been commissioned. As we explained last year, we still did about 18,000 tons from our existing plant.
Correct.
So now that volume will obviously be shifted to this dedicated plant, point number one.
Correct.
And what -- partly, so see we have that flexibility of using the dedicated plant.
Mill liner is 50 dedicated plus another 15, 20 will come from the shared plants.
Okay.
But what I'm saying is, don't -- again don't get bogged down by that. This capacity we'll fully utilize in 3 to 4 years. Okay?
Okay, okay, okay. And secondly, sir that realization, like normally we had guided for at least, we will be at the level of 150, so basically this quarter is obviously exceptionally high. So at least, we will maintain that 150 realization run rate or, it will come down below that?
It is a function of our cost, no, I mean, cost shipping, currency, so the average selling price is a function of a lot of other input variables and it will move in line with that.
I got it. But sir, basically since -- till last quarter we were saying that we were not able to pass on exact the whole thing, right? Obviously, we would have passed out in this quarter. So I'm just saying that, is there going to be a lag effect?
No, I think, Dhavan, I'm sorry I'm interrupting you. There is a little bit of a misconception here. So first let us understand our model. Our model is that we are 100% in a position to pass on the cost increase in the input cost as and when they happen with a lag of about 1 quarter in most of the cases. Many times it may go up to 2 quarters, correct?
Correct.
Now so your statement that we are not able to pass on is not a correct statement. We have said we are able to pass on even the freight cost on a full basis, shipping costs on a full basis and raw material mainly ferrochrome and scrap. Now what we are talking therefore that current realization of about INR 160 average for first half is -- looks to be the peak, because, A, the shipping costs have started coming down. B, the raw material cost do not look like going up from this level, but only going down a bit. So with a lag, the price reduction will also happen. The way it happens -- increase happens with a lag, reduction happens with the lag. It's a transition process which is continuous.
Correct, correct.
Now we -- our price realization is a function of therefore the costs, which are going in the input, the freight plus the product mix. So what is more important for you, is that what is my margin? My margin has to remain comfortable and fixed and therefore, we believe that we will be able to maintain a decent margin of [Foreign Language] without any problem on our operating profit level [Foreign Language]
Correct, correct [Foreign Language].
And that should happen. So I think a better way is that you track it as a percentage more rather than a realization, realization is just to explain that pass through [Foreign Language].
[Operator Instructions] We have the next question from Bhoomika Nair from DAM Capital.
Congratulations on a good set of numbers. Sir, sorry to just harp upon this realization bit. Very accurately you said that we are clearly seeing the benefit in terms of the better pass through, which is reflected in our realization. While now of late, we started seeing the correction in commodities and freight cost et cetera. Would it be possible to get a -- obviously in the second half, there will be a decline in realizations because of the same aspect. But as things stand today on spot basis, what would be the gap in terms of the pass-through versus what today is in terms of spot of ferrochrome or in terms of scrap or logistics cost et cetera?
Bhoomika which is when, we've already shared our long-term margin of 20%, 22%, and things ultimately even out at that level, right? It will -- it doesn't serve any purpose to tell you this quarter I've got INR 15 crores extra, or on our next quarter, we could -- correct? So I mean, the math, we can do, but it does not help us. Because in any case, our pricing is going to be a function of my cost, right. And we aspire we work to make sure we keep a margin like Sanjay bhai explained at 20%, 22% margin. It does us no good to know whether next quarter will be 155 or 140, yes my absolute margin can change with that, but it's fate accomplish, right. I'm not going to change anything in our business to know that business, because that requires us to estimate what it will be end of the way volatility has worked out, we realize it's a endless loop of trying to estimate. So we'll still have to consider that will be a 20%, 22% long-term margin. And we may be a few quarters above that, a few quarters much above that and few below that, but it will all normalize at that level is unfortunately, all I can share.
Sure, sure. So the other thing is in terms of volume. We've seen pickup in terms of the volume trajectory in the current quarter. So if you can talk about the next 1 or 2 years, how we are seeing the volume scale up. Where are we in terms of trial run, new customer acquisitions. How is it kind of moving which gives us visibility for and confidence on the volume growth trajectory as we move ahead.
So first and foremost Bhoomika as you have seen, there is a definite increase in the level of volume growth is visible now. And therefore it validates our statement that annually around 30,000 tons [Foreign Language] incremental volume growth, it's something that we are working on. And it appears that things are falling in place. We are very, very cautiously optimistic, because that is the way we always are. We want to be, we want to be as close to the reality. The good part is, that now the -- forget about this geopolitical issues, but overall it seems that we are on track for that incremental 30,000 tons, 35,000 odd tons minimum volume growth that we are expecting year-over-year, that is point number one.
We have 3 major focused areas. One is the pure chrome ore cost advantage that we can offer because of the ferrochrome vis-a-vis forged. That part is clear, that many endeavors is towards conversion of mines is happening on that, plus we are working very hard on the DP front. We have been always cautious about this that, in our business it always takes more time for us to convert the customer, because the mine is more concerned with the cost control, rather than the benefit alone that can come on table and therefore it is taking time.
Having said that, we are very strongly working on DP, and equally strongly working on the mill liner advantage that we are offering, both for the purpose of improvement of throughput, improvement of yields, the reduction of cost. So we believe that with this 3-pronged approach, we should now see a fairly consistent trajectory, the growth can at times in 1 quarter it may appear to be a little low in another quarter it may appear to be a little high. Our humble request is, please track us year-to-year on a long-term basis, medium to 2 to 5 years and I think we are very comfortable. There's absolutely no change in any of the business propositions. All opportunities remain the same. Now we are able to demonstrate something on the balance sheet and that is what we are happy about. So let us see. We'll wait and watch.
Sure sir. So no, definitely it's visible. Sir, the basic thing is, can you go ahead of that 30,000 incremental volume...
It can. It can, but we are not giving you any guidance on that. As and when we have more clarity numbers will speak and we will also speak. It definitely can, but when we don't know let us see.
We have the next question from the line of Amarnath from Ministry of Finance of Oman.
Congrats on a very good set of number ahead of what we have expected from you. Of course, the market condition has helped you as you explained. I have 2 questions on this. First of all, you say that your -- you aspire to grow 30,000 little bit here and there on a year-to-year basis. So for the next 2, 3 years, if we assume that this is going to be the case, do you have the adequate capacity to utilize -- to execute that kind of a growth for next 2, 3, 4 years?
Absolutely, Amarnath. So that is your first question? Should I answer that or we will take question-by-question. Okay. Let me answer that. Yes.
No, please answer that. I will go to the next one.
Okay. So first is as you would have seen my rated capacity today, installed capacity today is 440,000 ton. I'm operating roughly at about 70% to 72% average capacity utilization as we speak. We are also adding another 80,000 tons of brownfield expansion for grinding media, which is our core volume-based product at the same location that is at GIDC, Kerala, which is close to Ahmedabad, and that will take me to about 520,000 ton. So today -- assuming that today I reach somewhere around this year about 490 or thereabouts. And if I keep on adding 30,000 tons to 35,000 tons year-over-year for next 2, 3 years, I should be -- I'm good to go for next 2 to 3 years without any problem.
Secondly, historically, we have been very conscious about the fact that our capacity addition does take time, because we have to first get the site clearances from an environmental standpoint and then we can do the CapEx, et cetera. So we also keep on adding the infrastructure like the required land, et cetera. We have to well in advance apply for all the permissions, well in advance from an environmental or site clearance perspective, which is now very standardized for us, because we have been doing this kind of brownfield expansions and greenfield within the same area quite regularly. So we are very conscious about the fact that we can't go beyond 80%, 85% of the rated capacity and we have to keep on adding capacity at regular intervals.
Yes, so in that case, your current cash accrual fees will be adequate enough to fund all those future CapEx requirement you are thinking about, right, or...
Absolutely. Absolutely. So I have about INR 2,000 crores plus liquid or cash investments available. I have decent cash accrual position, so we should be able to take care of that.
And can you guide to what is your current ROCE?
Our current ROCE without considering our investment is higher, but on a balance sheet basis about 22%. If I exclude the investments which are -- sorry? So if I exclude the investments or the surplus which is passed in this financial securities then because that is typically lower ROCE business then I would be around 27%, 28%.
Okay. Now if I connect the dots, here we are talking about the volume growth of 10% to 12%. I don't know about I have a control over my margin, which you are talking about 20% to 22%, with a operational ROCE is between 25% to 28% and most of your CapEx is going to replowing back to the business. So every incremental money I'm putting into my CapEx is going to give me an ROCE above 25%. And based on the cash basis, almost no debt. That is the way we are looking into the future cash generations from your company for the next 2, 3 years, am I right?
You are right. Absolutely.
Okay. But this is, this is a very healthy situation in the current situation -- in the current scenario. I must say. Now I just have one more question relating to this cash as you also know that this investment, which is sitting in your book and your future projection of the cash and you are in a position to fund your -- most of your CapEx using your internal accruals and you yourself also know that extra cash investment is lowering down your overall ROCE, do you have a plan to deal with this extra cash to return to the shareholders in different way, or how do you deal with that? Because overall ROCE is getting rushed if it is, if that cash accumulation pain increases.
So Amar, a very pertinent question and a question, which we have been very regularly facing. So one, as a company, we remain a bit conservative and we still continue with our same old dividend distribution policy of about 20%. We know that we do have surplus cash generation free cash also coming in. However, there are 2 situations, which we are envisaging. One, see as we have been repeatedly telling the headroom growth opportunity is significant. We are working on several mine conversion projects in various geographies all over the world. While we are very conservative and we are very realistic, I may use this world in given the growth trajectory overall indication of 30,000 tons, 35,000 tons annually there is a possibility as one of the previous participant did put a question of a more aggressive growth.
In our sort of situation therefore there is a possibility of some significantly heavy involvement in working capital because most bulk of our sales happen through warehouses, which are located all over the world where we maintain a significant inventory. So it's tending to accretive -- a little bit more working capital accretive. If the growth trajectory becomes steep and we start growing at a faster pace. Now the problem is, we have not reached our optimum level of sales in mining, which we believe could be anywhere between 300,000 tons to 400,000 tons, we're still talking about 200 odd thousand tons sales in mining, so we're still talking of at least couple of years where we believe that we may consider having reached a decent level of plateau and the penetration the way we want. So as a management, we want to continue to remain a bit conservative in cash distribution at least for next 1 or 2 years in the maximum situation.
Having said that in every Board meeting, we are consciously discussing this, we are very alert about this. And sooner -- as soon as we get the right opportunity, we will be taking a conscious view of making our distributions a bit more aggressive, but this is the conservative stance want to maintain at least for some more time.
This is the music to our ear, sir, to hear this explanation. As a shareholder, we don't want the cash back in any form, especially when a business while the plowing back can give me 25% return on capital employed. The things you just now said is giving us a hint that there is an opportunity to increase the growth trajectory and utilization of the extra cash within the business, which gives me more returns than getting the cash back. We don't invest in a company to get the cash back. We invest in a company where the company really takes this cash and utilize and give us more ROCE.
If I can say one more option sir, just now the cement part of your business as we all know last few years, cement industry has undergone very difficult time. And as well as it is cyclical business as well. But what we are hearing from different cement companies con call that the business outlook is going to be very good in the next 1 or 2 years. Demand is increasing, pricing power is little bit coming back. So from that side of the business, this grinding media business for cement, how is your outlook, please. If that business if you can focus please?
Okay. So simply put, my growth in cement will be coterminous with the industry growth, which still with all said and done is only a decent higher of single-digit type of a growth for the very simple reason. That we have, A, the cement industry worldwide is already converted to a very large extent to the product that I am supplying that is high chrome.
Second, if you talk of India, the consumption, overall consumption of these wear parts in cement is significantly lower. So we have been talking about the overall replacement market worldwide of an opportunity of about 300,000 tons, 325,000 tons. Most of it is already converted, so therefore when I have an overall 35% market share in this industry ex of China, whatever the industry growth in India or anywhere else in the world, we operate in more than 125 countries and we service all the cement mills, key plants all over the world. But the consumption ratios are very low and it is already converted. Therefore the growth we will be only tepid, if I may use that expression.
And that's par with the excess growth?
Exactly, yes.
So we will grow with the market -- this is Kunal. We grow with the market and, but it's anyway it's not material in the scheme of things now, right? We are non-mining business will be about 80,000 tons, 75,000 tons to 80,000 tons. Even if you grow 10% that's 8,000 tons, right? In the scheme of things, if you're growing to will be 300,000 tons this year, that's still not material, right? So all our growth coming from our, all our efforts towards growth comes from the mining market. Cement is fait accompli if it grows will automatically grow.
Are you getting something in China plus advantage somewhere you are seeing, because you are operating across the globe, are you getting...
Thankfully, both our industries we operate in, which is cement and mining are local industries. So our customers never migrated to China, right? So they were, anyways located all over the world. And chrome nevertheless came from ex-China suppliers [indiscernible] few others. So to that extent, we are agnostic to all that's happened in China.
We have the next question from the line of [ Ujjain Shah ] from Congruence Advisors.
One of my query would be. Can you just, I think I have missed out the point. Can you just repeat that the secured line INR 125 crores of the [ chart things ] which we have been discussing. It is a 3,000 tons fully incremental right, from the [ chart ] which we have been doing backward integration.
So I'll just quickly explain. One, this company is manufacturing ferrochrome. In Gujarat, they have a plant where their peak capacity can go up to 40,000 tons. What we have done, we have entered into a contract with them, whereby the entire capacity they are reserving for us with a minimum period of 3 years. And therefore, for us it's a raw material security. It's a raw material security and it's a very comfortable kind of an arrangement that we have entered into. And if they have dedicated their entire plant, we have paid them a secured -- security deposit, which is interest-bearing of INR 125 crores at 10%, where we have taken the first charge on their entire block of fixed assets of ferrochrome and the power plants.
Okay. And sir, just like add to this question. So if you wanted to sell this ferrochrome plant. So what would be the total cost if -- let's suppose we have to set up a 4,000 tons of plant currently, so could we say that the cost would be around INR 200 crores to [ INR 250 ] crores of...
Minimum, minimum. More actually.
Okay. So this is a very win-win situation for us because we are giving just INR 125 crores at a yield of 10% and we are getting a secured raw materials. That's a good situation from our side.
We have the next question from the line of Gopal Nawandhar from SBI Life.
Sir, 2 questions. One, the post-COVID opening up, we saw very limited traveling and all, which was restricting our long-term volume growth outlook.
Sir, sorry to interrupt, sir. You're sounding too low. Can you please increase the volume a little bit and talk?
Sure. So just on the post opening up the travel restrictions was still there and the client conversions were delayed and all. So if you can just highlight how are the things and the new client conversion travels and all?
So things are very much back to normal. And frankly, we have all forgotten about COVID. So traveling, there is no restriction, our people are able to travel to most of the mining locations without any problem. And that is the reason why over last 6 months, we have been sounding a little more confident about going back to the growth incremental volume trajectory.
Sure sir. And one of the other element was like at -- and the competitive landscape, because of this higher shipping cost and all we might have lost some volume to the competition. With this current reduction in the shipping cost and all are you winning back on the competition on the pricing and all?
So frankly, I don't think we have lost anything significant to any competition. This is the first statement I want to make. Secondly the endeavor is always to gain market share and to convert mines from, but current focus of competition is more on the forged players and we are focusing on converting people from forged media to grinding media and our line-up. And there our whole equation and our own business strategy is very different as explained earlier that we are talking of significant cost savings and we are also talking of reducing the cost of ownership and making the mining operations more efficient. So that way I think we have a superior solution. And of course, we have one major competitor worldwide that is Magotteaux but that's, that remains that situation very much remains.
But in terms of pricing will -- now will we have a better competitive pricing with the reduction in the logistics cost and iron ore right?
No, no from a margin standpoint which is like giving a guidance of 20%, 22%, right? It will be higher, lower depending on the past it takes 2 to 3 quarters to pass through, but that will even out over the period.
Okay. Sure sir. And this current volume run rate of like 70,000 out of which, almost 54,000 on mining should be a sustainable run rate?
Yes.
We have the next question, that is a follow-up question from the line of Dhavan Shah from AlfAccurate Advisors.
Sir, one more question like since this arrangement is therefore with the for ferro-chrome, so sir, we'll be having some benefit because of this on the gross margin also like let's say getting some discount from the market price and all those thing?
I think this is the agreement, the purpose of the agreement is supply chain perplex it and that's -- you'll have to look at it from that standpoint.
Okay. And the annual capacity with this plant is 48,000 metric ton, correct?
And listen I didn't keep sharing more information not material to the scheme of things, right? I think all well -- we are trying to say is that, we try to protect that supply chain, but offering secured loans 3000, 4000, 2000, I mean these are all -- there are lot of variables linked to that and as a practice now, we are not sharing more information around it.
I got it, got it. And secondly, sir, in terms of the other income like, you know, the current run rate of other income, what would be the ForEx part into the other income in this quarter?
About INR 3 crores this year, a gain of INR 3 crores.
INR 3 crores in this quarter, right?
Second quarter.
INR 3 crores in this quarter? So basically if you exclude INR 3 crores, rest all is kind of a sustainable other income?
There is treasury income of about INR 24 crores. [Technical Difficulty].
Sir, your voice is breaking.
Yes, there is treasury income of INR 28 crores in the second quarter. Okay, okay. And the tax rate would be around 20%, 23%, 22%? Yes. The tax rate, effective tax rate is about 20% to 22%, effective tax, overall tax rate, okay?
Okay. 22%. Fine sir.
We have the next question from the line of Raja Kumar B, an individual investor.
Yes, good evening. Thanks for the opportunity, sir. Sir, I have 3 questions. So should I ask all at one go or stop?
Yes, yes, whatever makes you comfortable. We have no issue.
Yes, the first question is on the margin, sorry to labor on that point. So what I understand from the call is, you maxed out on the selling price. So -- but however the absolute EBITDA reported will be more or less protected and go forward, the margin expansion will come more in terms of the volume and mix increase, is that a fair understanding, sir?
Yes, of course, I am making a clear disclaimer that as a matter of policy, we are not giving any guidance about the margins, but your understanding is broadly correct.
Okay, great sir. And sir, the second question is on the -- you have a factory called Welcast Steels. So I was just looking at the numbers for this quarter, so it has come down significantly compared to the previous quarter. Just wanted to know are we not fully utilizing the capacity in this subsidiary? And what is the kind of a plan for the quarters to come?
So in the overall scheme of things, Welcast is sort of our Contract Manufacturing Support subsidiary. It has a facility in Bangalore. We as you know, we are putting up significant capacities here, so it's more to be looked at not in isolation, but in the overall scheme of things. And therefore, Welcast, therefore from that point of view has a very limited role to play, but it's important because it's a facility in south for grinding media.
Okay. Sir, do you plan to utilize them kind of fully in the quarters to come or it will be more in the current...
Again, it will depend on which type of product where markets, et cetera, on totality basis exactly. It's not able to share plant wise each investment.
Yes.
Okay, sir. Sir, and lastly one housekeeping question. So I saw INR 460 crore borrowing on the balance sheet side, just wanted to know what is that given that you have a high cash balance?
It's a treasury investment.
The borrowing is actually, no, no, I'll explain, the borrowing is in the nature of export credit, which we are getting at a very, very competitive rate. And therefore as an export finance, we are utilizing it, because it is to our advantage.
We have the next question that is a follow-up question from the line of Amarnath from Ministry of Finance of Oman.
Actually just one question last time.
Please go ahead.
You said that you are going for an investment for this power plant and for your I think renewable energy [indiscernible] and elaborate little on that, that by doing that are you going to save some of your electricity and energy cost? And second related question is, how is your outlook as a company towards the ESG side regarding decarbonization relative target? And how much investments or something you are planning for that because the industry you are operating at a international level, the foreign investors including us, we all look at that ESG compliant part very seriously nowadays. So if you can give little more outlook on that side, please?
Please yes, Amar, this is Kunal again. So absolutely very conscious on the ESG footprint that the company has. It's a regular feature and conversation at the Board level and which is where we've started our journey for renewable power. So end of '22 about 20% March '22 about 22% of our power or 23% of our power came from renewable sources. The idea is to take it up to 30%, 35% that's how the policy allows today. If it was our choice, we would have done all possible, there is a limitation on how much captive renewable offsite one can setup.
So we will do all that is possible within the current regulation to migrate to the -- on the renewable side. In addition to that, we move to cleaner fuel sources like P&G for our heat treatments which we moved away from electricity, coal fired electricity, right? So that's as far as fuel is concerned, but outside of that we are by and large not just compliant, but looking to do we have plans we are doing green plantations et cetera. But a large part of multi-order value is what we bring on the customer side, right? We are helping customer reduce their power cost and overall reduce the amount of power that goes into their overall system.
So some of these things are in as far gold and copper is concerned wherein our chrome grinding media potentially reduce the consumption of reagents, which as a proxy with added due or improve the recovery of gold and metal, gold and copper. So these are the footprint that we have as far as ESG is concerned is significantly higher at the customer end. But also mindfully doing all possible as far as our doing things at our operational level is concerned.
Yes nice to hear. Sir, during that process, are you going to have some financial savings due to coming out of your traditional power input to 30%, 35% of the renewable power, net-net, will there be any finance relating to that?
Yes, yes, there will -- captive power is always cheaper, but instead of using -- setting up our own coal fired captive, we've chosen renewable, which could be higher cost, but ultimately, obviously there is a cost saving linked to it right because you're getting an offset from the grid power, which is more expensive than a captive source.
Yes, so just to if I may allow because it is all leading to one final question too. Now if I link, all the things you said, that we can increase our capacity, we can increase by capacity utilization, we increased our volume, we're using the renewable power and as the capacity utilization increase, the economies of scale must be fixed onto it. Then if I put all the things together, then I suppose to get an higher EBITDA margin as all those things progressing upon. Then why we always keep that EBITDA margin range between 20% to 22% because, okay, at a small volume it is okay, but as you're increasing everything and economies of scale kick start, it should reflect in a higher EBITDA margin does it so?
So Amar, thanks for this question and this is Sanjay again. Actually, see, if you look at our history, we have grown from a very small company, we were a joint venture earlier. Our whole mindset is to always remain conservative and be mindful of what we are talking. Now you see we are -- the whole game today is market share gaining, so which is my biggest range of, I mean the biggest targeted range of customers, they're all mines.
These mines are extremely decentralized if I may use this word from a power or a budgeting standpoint, mine manager is the boss, he works with a very close but yet, in spite of all the benefits we have to take a lot of time and efforts to convert that mine and start getting orders. So therefore, we also many times have to become very, very competitive in order to ensure that the mine manager remains comfortable. So you know some total of all these factors that make us a little conservative when we talk about achievable operating margin range of 20% 22%. Having said that, again, I'm talking of pure operating, so you remove other income, you remove FX, you remove everything, okay? So my point is, yes, there is a potential for increase in margin, but since our entire focus today is gaining higher market share, we are very consciously sort of giving this kind of a guidance that, yes, this looks to be a long-term, sustainable margin, given the fact that all these imponderables or all this variable factors we have to always face.
So sir, now you are giving us -- look that okay, even if there is an opportunity to increase the margin, I will preferably make it within a range and use that as a weapon to gain the more market share by increasing our competitiveness in the international market, which is very competitive deck. So I will gain through the volume and market share and probably I will maintain my EBITDA at the current level and use that economies of scale to gain my more market share, so that is the strategy?
Yes, broadly without taking this as a guidance, yes, that is the strategy, but we remain where -- we want to remain conservative. That's very important.
We have a next follow-up question from the line of Raja Kumar B, an individual investor.
Yes, sir. Just one question. Sir, there is a news article that government is trying to revive the Kolar gold field in Karnataka. So just wanted to know, is that a immediate opportunity for AIA or it's like a long-term and also what would be the potential in?
So Mr. Raja, frankly our market is actually worldwide, the volumes outside India are much, much larger, all our efforts are actually for mining concentrated outside India. Having said that, if any such opportunity does in fact come, we will look at it.
Thank you.
So operator if -- moderator, if there is no other question, we can conclude the call.
Okay, sir. As there are no more questions, I would now like to hand over the conference to AIA Engineering management team. Please go ahead, sir.
Yes, thank you all once again and Sanjay Bhai and I remain available offline for any further clarification. Thank you so much and have a great evening.
Thank you. 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. Have a great evening.