AIA Engineering Ltd

NSE:AIAENG

Earnings Call Analysis

AIA Engineering Reports Solid Q2 Performance

AIA Engineering reported sales of 77,725 metric tonnes and a revenue of INR 1,273 crores in the second quarter, with an EBITDA of INR 444 crores (34.32%) and a net profit after tax of INR 323 crores. The company's net cash increased to INR 3,135 crores and is progressing on planned CapEx, expecting to commission an 80,000 tonne grinding media expansion by December '24. A strong product mix and reduced freight costs drove improved margins, which are predicted to normalize by 3-5% in upcoming quarters to align with long-term guidance.

Executive Management Signals Strong Business Prospects

The tone from the top is notably optimistic, with executive management expressing a bullish outlook on the company's future. They have affirmed a strong belief in the ongoing opportunities for growth, anticipating positive business prospects despite some challenges encountered.

Volume Growth Expectations Adjusted with Assurance on Opportunities

Initially, there was an expectation to achieve a volume target between 320,000 and 325,000 tonnes. However, a review of the first half's performance suggested a possible shortfall in the range of 10,000 to 15,000 tonnes, which is ascribed to the longer time required for converting opportunities into tangible results. Notwithstanding this reduction, executive management remains confident about the robust potential for the next year, indicating that the dip does not signify a reduction in overall prospects.

Strengthening Market Engagement and Focusing on Core Products

While volume forecasts have been moderated, the company’s strategy heavily emphasizes deepening customer engagement and focusing on prime offerings such as grinding media and mill linings. These products are central to the company's operational dialogue with customers, and their importance is expected to persist. The company also aims to secure a significant share of the grinding circuit market through these offerings.

Margin Trajectory Set to Maintain at Higher Levels Amid Market Volatility

The company has seen considerable improvements in its margin profile over the past two quarters. A realistic trajectory for margins is envisaged to be around 23% to 24%, which has been posited as a stable floor for the foreseeable future. Although fluctuations are anticipated quarter-over-quarter, the indicated level is expected to be consistent.

Sales Realizations Subject to Market Dynamics and Currency Fluctuations

Sales realizations are projected to fluctuate between INR 150 and INR 165, with estimates aligning closer to INR 155 to INR 160 over the next four quarters. These figures account for various factors, including currency value changes that were not considered in previous estimations. Executives acknowledge the evolving nature of certain financial metrics and maintain that the noted range constitutes a fair estimate at present.

Earnings Call Transcript 2024-Q2

[Operator]

Good evening, ladies and gentlemen. Thank you for standing by. This is Nirav, 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] Please note that this conference is being recorded. I would now like to hand the conference over to AIA Engineering management team. Thank you, and please go ahead, sir.

[Kunal Shah, executive]

Yes. Thank you so much. Very warm welcome to everyone, and good evening. Thank you for joining on this call -- second quarter result update for AIA. I'll dive into numbers and then get into Q&A. I also have Sanjay Bhai here with me. I think second quarter has largely been in line with the first quarter. We did 77,725 metric tonnes of sales, which converts to around INR 1,273 crores of revenue. Total EBITDA comes to INR 444 crores, which is 34.32%, and profit after tax is INR 323 crores. So -- and EBITDA and profit numbers are higher sequentially and also compared to second quarter last year. Same numbers for the whole year. For the half year if I were to compare to H2 last year, we did 151,771 tonnes as compared to 146,000 tonnes 6 months last year, converting into sales of about INR 2,500 crores -- INR 2,494 crores and -- which was INR 2,376 in the 6 months last year.EBITDA was INR 611 crores, which is INR 846 crores this 6 months. And PAT was at INR 435 crores, which is at about INR 595 crores. So there's an improvement in margin, and we'll go through unpacking some of those details.Our other income, there was export benefit of INR 20.94 crores, which is in line with the benefits under RoDTEP and duty drawback. Our other income which is treasury is at INR 63 crores. And both these numbers are largely comparable to the first quarter numbers and a total other income of INR 62 crores, of which -- sorry, total other income of INR 62.32 crores, and INR 20.9 crores what we are considering operating other income.Our working capital is in sync with the first quarter. There's a slight improvement in inventory. And total number of days now working capital is about 95 days. And this is -- this -- there is an improvement on this one metric which had gone up to 118, 120 days right after COVID [ wherein ] we had issues around freight and container availability. So there is a fair improvement on the working capital side.Segmental details, again, are largely comparable to the first quarter. It will be 52,000 tonnes in Mining and -- which was about 53,000 tonnes in the first quarter; 25,600 tonnes in the other [ line mining ]. And there's some improvements in Cement or more [Technical Difficulty] than otherwise compared to 20,790 in the first quarter. So there's about 3,000 tonnes -- or 3,000 [indiscernible] tonnes of higher sales in the second quarter compared to the first quarter.Our order books and other things are largely in line with what we have reported in the previous quarter, with the caveat that order books are all -- this does not include the value of contracts which are longer term. The supply happens under periodic monthly, quarterly purchase order, and that's what we are reporting over here.Our net cash is now at INR 3,135 crores, up from INR 2,757 crores end of June and INR 2,553 crores end of March. Our realization is also largely in line. It's about INR 152 a kilo, down from about INR 163, INR 164 in the previous quarter.Couple of factors that I would like to share. Just one second. Yes. So a couple of things. If I compare first quarter to second quarter, there has been an improvement in raw materials. That just reflects the lower raw materials consumed in this quarter compared to the first quarter. And raw material continues to be volatile. Ferro chrome has been between -- INR 120 at its peak. It went down to about INR 100. It's back to INR 110, INR 112 level. So it continues to be volatile, and there will continue to be a pass-through going forward when we see these fluctuations coming on. So that's something that -- so this quarter a reduction, and we have a pass-through mechanism built on it.There's some improvement in power. That's a function of the higher captive -- renewable wind generate the highest in this quarter. So there is some reduction in power cost on account of that. So there's a 2% sequential improvement in margin on account of these 2 factors and both will normalize going forward.Another thing when we look at 6 months last year versus -- first half last year versus first half this year, there is also a ForEx from -- what was about [ INR 79 ] odd is [ INR 83 ] plus in this -- average is about [ INR 83 ] plus in this first half. So there is -- you see better numbers on account of rupee deprecation also. So all of that has slowed in.Our freight cost has also seen a reduction, and our pass-through is in mechanism. I think over the next 2 quarters that will continue to -- you'll see margin adjustment on account of pass-through in rate cost.And one last thing is we still had one more quarter now where our product mix helped the realization as well as margin. So I think we expect our margins to adjust by -- between 3% and 5% over next few quarters and normalize to our long-term guidance. But this is just to unpack the numbers for this quarter.Other highlights. We are having a -- it's called a sunset review when the 5-year anti-dumping duty gets -- passes through that tenure. And in Brazil that sunset review has started and we are in that process to furnish all information and go [ defend ] that -- the duty over there. So that is one development.Second is, we've completed the 30% acquisition of a company in Australia where we are part of the mill liner capabilities. So, apart from that, business as usual -- we are on track to spend INR 500 crores between now and end of March '25, where about INR 200 crores goes towards the grinding media expansion, INR 200 crores towards overall restructuring and debottlenecks, INR 50 crores towards captive power and other INR 50 crores for land and other requirements. So we continue with that.We spent INR 100 crores this first -- this quarter, and we'll continue to spend from that budget right up till March of '25. The 80,000 tonne grinding media expansion is on track for being commissioned by December '24.I think that sums up our commentary as far as numbers is concerned. I'll [ have ] Sanjay Bhai just chip in on the business outlook and also some tonnage conversation, and then we'll go on to Q&A.

[Sanjay Majmudar, executive]

Well, good evening to everyone, and thanks for joining this call. While Kunal has taken you through all the relevant highlights, just quick 1 or 2 small clarifications. I think what Kunal meant was that we acquired a 30% stake in that Australian company and not -- as announced on the stock exchanges as well. That's pretty strategic in the sense that it's a high technology design capability company, and it will help us to significantly push our penetration and into the overall liner -- mill liner opportunity. That is point number one. Point number two, as you would have seen, we have done fairly decent in terms of margins, while the reported margins of 34-odd percent in Q2. At the operating level, it is about 29%. As Kunal explained, we have the benefit of a very good product mix, and therefore, a very strong -- and, of course, reduction in freight which has helped in improving the percentages in terms of comparability.On the CapEx on all our medium to long-term opportunities, we remain very intact. As you would have seen, we have done close to about 151,000 tonnes of sales in the first half as against 291,000 sales in the last year. And we believe that we have given an indication that we are working on several fronts, several exciting opportunities, and as we have also demonstrated in the past that conversion from [ port ] to hydro [ remains ] our complete area of focus based on all the key conversion drivers that we have and the focus and the market opportunity as well as the technological wherewithal that we have.We do expect the incremental tonnage to also come up more or less in the same indicative range. The only thing is it may take a little more time. This is a indication that is [ relevant ] today. So we may not be able to do maybe 25,000 to 30,000 tonnes for this year. It might be slightly lower. We don't know exactly how much it could be lower. It could be maybe anywhere between 10,000 and 20,000.Having said that, the overall direction remains the same. It could be a little bit of tonnage shift from this year to next year, but that does not in any way change in the direction or the opportunity or the strategy with which we are going.I think with this, the overall business remains very bullish. We remain -- continue to remain very bullish on all the prospects. And I will open the house -- open for the Q&A. Moderator, over to you.

[Operator]

[Operator Instructions] The first question is from the line of Bhoomika Nair from DAM Capital.

[Bhoomika Nair, analyst]

Sanjay Bhai, just -- what you mentioned right now that there has been -- from an incremental tonnage perspective we are looking at a lower number. If you can just give some more clarity around this, and why are we seeing this kind of a slippage into the next year? And what is the reason for the delay in the acceleration of volume or slower pace of conversion? If you can just talk about [ that ]?

[Sanjay Majmudar, executive]

Bhoomika, what I wanted to convey is that from a conversion process opportunity as well as the number of mines on which we are working, it remains absolutely the same or rather more. We are a little bit more [ assertive ].The only problem is that the time is exactly not under our control. So today when we were evaluating first half vis-a-vis our earlier target of 3,20,000, 3,25,000, the indications available that there could be for this year maybe a shortfall of 10,000 or 15,000 tonnes just because that conversion is taking more time. You just can't control the time.What we wanted to convey was that there could be a little bit of slippage, but that does not mean -- so there is a very strong probability that next year the target -- the volumes could be actually more aggressive because that conversion opportunity -- supposing I'm working on, say, 10, 20 mines and we are looking at an opportunity of converting say 100,000, 200,000 tonnes in immediate future, out of that some will happen this year, some may slip to next year. That's all I wanted to say whatever team told us, that we can't control the exact quarter-wise rate, but there is absolutely no dilution from an opportunity standpoint.

[Bhoomika Nair, analyst]

So basically what you're saying is next year could then kind of look -- so this...

[Sanjay Majmudar, executive]

Yes. But again -- see, let's confine to this year. So for example, earlier we were saying a 25,000, 30,000 tonne volume growth. That volume growth may go down a little bit from, say, 15,000, 20,000 tonnes. Having said that, next year it could be a little more aggressive, but I don't want to give you any number about next year till I reach Q3 or maybe a little closer to Q4. This is just a nature of business. We can't help it.

[Bhoomika Nair, analyst]

The other question was related to the Australia entity. So if you can just throw some light in terms of what is the addressable market for this [ stake ]...?

[Sanjay Majmudar, executive]

No. So -- Okay. We are looking at an addressable market for mining liners at, say, around 300,000 tonnes plus for the Metal segment. Correct? Now we have one design capability already. This is one more incremental -- So this particular company -- the Australia-based company was very strong in designing a wide variety of mill liners. So we have enhanced our designing capability and technological progress. We also have a very good access to certain markets. So this adds one more feather in our cap for aggressively converting the mill liner opportunity and improvement of our volumes in that segment. That's all.

[Bhoomika Nair, analyst]

And so in...

[Sanjay Majmudar, executive]

We work with a very complex set of parameters where it's very difficult to explain to you from a layman's perspective that what exactly -- so as you know, over last 10 years our journey is to be -- keep on strengthening our technological [ progress ] and our solution giving capability. This is one more acquisition which is more on our technology and design side. And they already have a [ steady ] sort of a business which they are currently doing. Correct? And we are supplying to them lot of liners. So that -- it's a very complementary kind of a situation.

[Bhoomika Nair, analyst]

So sir, does that mean that our mix in terms of accelerating growth -- while the overall volumes might be muted, but mix might shift a little more favorably towards mill liners per se, given our capacity...

[Kunal Shah, executive]

Volume may not be muted. It will -- Bhoomika, the point is that -- obviously, grinding media is a product of interest, right? And mill linings complement that conversation because we are bringing in all these other benefits alongside. So the -- even with what we are doing in Australia, like Sanjay Bhai explained, it is deepening the engagement with our customers. What we're saying, we'll go out and sell some more mill liners, right? Our objective is to get the whole piece of the grinding circuit, which is mill-lining and grinding media. And that's where -- and to that extent, grinding media to non-grinding media ratio will vary quarter-over-quarter, and maybe for a period because something comes before the other. But generally, the product of interest remains to be grinding media. So think of it that way.

[Bhoomika Nair, analyst]

And sir, lastly, in terms of the margin profile, I mean, obviously, this quarter was very, very strong. In last 2 quarters we've seen that -- very strong improvement in the margin profile. So do we think that -- why it may take some time to pass on the benefits of the lower cost to kind of clients? So this might remain elevated for the next 1 or 2 quarters and then kind of settle down towards our medium to long-term [ trajectory ] of 21%, 23%?

[Sanjay Majmudar, executive]

I think a little more realistic trajectory could be a little -- slightly about 23%, 24%. While we continue to report much better margins -- so as I said, now we believe that this 23%, 24% seems to be a very consistently reasonable bottom that we can look at. It could be fluctuating quarter-over-quarter, but it should maintain at a decent level.

[Kunal Shah, executive]

And we live in a very volatile world, right? I mean raw material -- like we cannot imagine -- everything else is corrected back to a certain level, our raw materials have not, and they're going down and coming back up. So in that situation, there is quite a bit of uncertainty that is there. And so, going out and [ saying ] here is our margin is also -- a tough question for us also... Exactly. So -- I mean, freight and product mix will correct over a few quarters and what that number will be -- I mean, at least for the next quarter -- next 1 year, like Sanjay Bhai is saying, it may be upwards of 2022. And over a longer period, it'll get normalized to -- around 20%, 22% there.

[Operator]

Next question is from [indiscernible] from [ Invest ] Analytics.

[Unknown Analyst]

My question is on the sales realization side. What is the range expected for second half?

[Kunal Shah, executive]

Yes, the sales realization?

[Unknown Analyst]

Right.

[Kunal Shah, executive]

It will vary between [ INR 150 ] and [ INR 165 ] depending on -- like I said, a variety of factors. Rupee weakening was not part of this estimation when we had done last year, right? And the product mix changes. So closer to [ INR 155 ], [ INR 160 ] over the next 4 quarters is what we can estimate right now.

[Unknown Analyst]

I think earlier it was INR [ INR 165 ] to [ INR 170 ], right?

[Kunal Shah, executive]

So it is the same more or less. Earlier [indiscernible] -- Exactly, because [ some ] factors keep changing. So today it is this. I mean, I don't recall when it was [ INR 165 ], [ INR 170 ]. But for now where we stand, [ INR 150 ] to [ INR 163 ] is a fair estimation of where it could be.

[Unknown Analyst]

And, I mean, what is the exact reason? Means why these delays are happening in the conversion? Like you are negotiating with the customers in mine [ freight ]...?

[Sanjay Majmudar, executive]

No. So you must -- let me elaborate. So we are working on, say, X number of mines, say 20, 25, 30 new mining locations where there is a lot of debate -- it is not a question of debate. It's a question of process. So you do trial and error, you engage into discussions with their technical guys. They may come for a further evaluation. Then they may want to negotiate on the term. This process typically takes 1 to 1.5 years, maybe a little longer in case of certain more complicated situation. Now to add to this, there are local factors, there are other local limitations that also we have to counter. So it's a sum of all this where we have evaluated after the second quarter results, where at the Board there was a presentation done that how things are panning out and how things are looking. We said that it could be a result shift from maybe 1 or 2 quarters. That's all. We are not saying that, that opportunity is gone.And as I said, this is 100% beyond us. We are trying our level best. Our teams are engaging. They are very excited. There are lot of locations where we are working. And as I said, because our -- technically our year ends by March '24, we are talking of now 2 more quarters. It is possible that the volumes could come much better in Q4 than we anticipate. But that's something that we felt that we should -- whatever we said internally that this is what the reality we should convey to you. That's all we are saying.

[Unknown Analyst]

So going by that, by FY '25, can we expect 35,000, 40,000 kind of volumes in FY [ '25 ]?

[Sanjay Majmudar, executive]

I told to the previous participant that we will come with a more precise number. But broadly, yes, you can look at, at least the 30,000, 40,000 minimum. But again, we will come to you with some more specific numbers as we approach the fourth quarter.

[Unknown Analyst]

And sir, on your margin side, so which are improving consistently over the quarters, is really a good thing. But the problem is the reason for the same is not clear to me. Like it doesn't seem the operating leverage -- because our volumes are not that high if I compare with the past...

[Sanjay Majmudar, executive]

You must understand our business is not running on operating leverage. Our business is primarily driven by an extremely wide product mix where we have products ranging from INR 80, INR 100 a kilo all the way to INR 250, INR 300 a kilo. It's a function of product mix. Then it's a function of pass-through. So where every quarter or every 6 months when there is a price adjustment due to pass-through on the raw materials, in some -- or in a few quarters we could be at an advantage that raw materials have actually come down a little bit, but the impact is not passed on and therefore, there could be a quarterly trend that might reflect in our margin. Secondly, more importantly, it's also a function of the currencies. As you know, last year, average currency rate was [ INR 79 ]. Now this year we are looking at [ INR 80 ] to [ INR 83 ]. So that currently also moved in my favor because my imports or my foreign currency [ outgoes ] are minimalistic or they are practically 0, and my inflow is very, very strongly positive.So it's a function -- it's very difficult to do a math and say that X is the contribution of Y factor, et cetera. So it's a mix of all these 3 factors which keep on fluctuating. But overall, our sustainable margin at this point in time definitely looks to be upward of 22% to 24% as a pure operating EBITDA.Again, freight has come down drastically. So that also has an impact when you do a math as per percentage. Freight is a actual cost pass-through. But when the numerator and denominator contains a lower amount, as a percentage, you see an improved percentage.

[Unknown Analyst]

But like you mentioned the first factor, like passing on of the raw material cost and all these things. But sir, this thing can improve our absolute sales, but the margin and absolute EBITDA can't improve significantly because of this. But here in AIA what we are…

[Sanjay Majmudar, executive]

It's a function of -- see, this quarter, we have a very strong sales coming from non-grinding media, Grinding began, non-grinding -- now non-grinding media comprises of tube mill liners, then mining liners, plus all my VSMS, those large castings where -- definitely our margins and profitability overall is much better, while we don't share the segment -- internal segment-wise numbers for strategic and competitive reasons. So a product mix plays, I would say a very, very significant part, and that's what is driving our margin.

[Unknown Analyst]

So what kind of product mix do you expect in the coming 2 quarters? Like is it going to be the same? Or how it is going to shape up?

[Sanjay Majmudar, executive]

[Foreign Language] we have always guided that our long-term sustainable margin should be in the range of 23%, 24%. We are not seeing Q3 [Foreign Language], Q4 [Foreign Language]. We don't do that. We don't share that quarterly margin number. We just give an indicative guidance. You have all my historical data with you. So I think we should always try to work and improve from what we are guiding, but this is what our guidance remains from a margin standpoint.

[Operator]

Next question is from the line of Ashish Shah from JM Financial.

[Ashish Shah, analyst]

Sir, could you help me with what was the average raw material prices, [ Metal, steel ] and ferro chrome for the quarter versus maybe last year? So how has been the Y-o-Y movement?

[Kunal Shah, executive]

Listen, it'll get little too granular to start sharing -- the idea of sharing raw material price was only to say that it continues to be at an elevated level and volatile. Otherwise, your raw material is there -- as in, from an accounting reported number will be our average raw material price to a selling price. We'll be unable to share exact...

[Sanjay Majmudar, executive]

We have different rates...

[Kunal Shah, executive]

We do -- Exactly. I mean, there is a different -- you can just look at a ferro chrome and a scrap benchmark to see how things have moved.

[Ashish Shah, analyst]

Second point, sir, that, while we have said that the freight rates -- and we can see that the freight rates have also come down and historically from the -- I mean, last few months they have been coming down, but because of whatever is happening around in terms of the geopolitical issues, are you seeing that go up again? Have you seen any indications that -- in the coming months or quarters?

[Kunal Shah, executive]

No, not yet.

[Ashish Shah, analyst]

And just the last bit. So we obviously -- in our business model, we pass on the impact of raw material in freight, but what happens to the currency depreciation? So is that a benefit that we as a structure retain that, or we also pass on some benefit of the currency depreciation?

[Ashish Shah, analyst]

We sell to a lot of -- so, except U.S. and some countries -- end currency is not U.S. dollar, right? U.S. dollar is a transacting currency. There is always a importing currency on the other side. And a lot of our pricing is ultimately a cross-currency conversation. So yes, generally, a weakening rupee is better than an appreciating rupee, but it's not fair to say that all rupee weaken becomes -- flows through the bottom line. Generally, it gets adjusted in our pricing because other important currencies would also have moved in tandem with Indian rupee. So our dollar price keeps getting adjusted as far as these cross currencies move.

[Operator]

The next question is from the line of Sumit Pathani from CD Capital.

[Sumit Pathani, analyst]

My first question is how the [Technical Difficulty] manufacture hydro grinding media? And what prevents any new players from manufacturing and scaling up the same?

[Sanjay Majmudar, executive]

My friend, of course, I'll try to do a little bit of justice. But for this, I think you need to understand our business in a little greater detail. I'll be happy to take it offline. But just to very quickly give you heads up. We are 100% focused on providing customized solutions. So we understand a given application and design or part to shoot that particular application. We would have retrofitted hundreds of thousands of mills and equipment across the world in more than 125 countries. We have more than 100 different alloy combination ranging from 35% to 32%. We have different retreatment cycles for different types of solutions. It's fairly complex. So it's not easy for anybody to emulate the capability of providing a customized solution, though it's not a rocket science. We are a foundry, and there would be hundreds and thousands of foundries across the world.But there are very steep entry barriers because once we provide a solution to a customer, there is almost 100% assured customer stickiness. We don't only reduce the cost, but we only -- we reduce the overall cost of ownership and make their processes more efficient, we improve their profitability. And all this we do as a package, which is, therefore, very compelling. So this is all a culmination of several factors over last 30 years that have given rise to all these entry barriers. And even today on a very comprehensive basis we are still an oligopoly, between us and Magotteaux.

[Sumit Pathani, analyst]

And the second question is just the extension of the cost. I understand that it is very difficult to persuade and convince a miner to switch to hydro [Technical Difficulty]. And is there a possibility that once a miner adopt hydro media, [ on ] competitor could employ undersetting strategy to cannibalize our customer base?

[Sanjay Majmudar, executive]

Do you mean to [indiscernible] shift back to [ ports ]?

[Sumit Pathani, analyst]

No. You have converted your customer to hydro media.

[Sanjay Majmudar, executive]

Yes.

[Sumit Pathani, analyst]

And any other manufacturer -- for example, Magotteaux might [ undersect] you and [ poach ] that customer or…

[Sanjay Majmudar, executive]

Theoretically, it is always possible. Practically, it is very difficult because Magotteaux operates under different operating circumstances, we do operate under a very different set of circumstances. All our plants are in India. We have huge cost advantages as compared to Magotteaux. But yes, theoretically, it is very much possible. Practically, it is extremely improbable, if not impossible.

[Sumit Pathani, analyst]

Just one last question. On what attributes you differentiate your products vis-a-vis your competition? And why we don't face a lot of competition from China?

[Sanjay Majmudar, executive]

No. So first, China -- I'll address the second part first. China quality of grinding media and the approach of Chinese players no way matches our quality standards between -- when I say our, it is [ AIA ] and Magotteaux both. So vis-a-vis China we operate on a similar platform because we have the same or similar solution giving capabilities. However -- therefore, if you see overall, wherever we operate, there is -- so there could be 1 or 2 odd instances of some Chinese also quoting alongside us. But when it comes to quality or when it comes to the -- addressing the customer requirement, I think there is no competition -- no serious competition from China. This is point number one. Having said that, China itself is a large market for cement and also a little bit of mining. However, bulk of that market is currently addressed by some Chinese players. We -- as AIA we are present in a very, very special range of products called larger castings or VSMS. We could supply grinding media in China.Now your second question as compared to Magotteaux, as I said, while we have significant advantages in terms of superior operating conditions, all plants in India, significant cost arbitrage vis-a-vis the fact that Magotteaux operates with about 15, 16 small or mid-sized plants across various parts of the world.There is also another advantage that we are far more responsible and focused and we are able to give much quicker and better solutions from a quality standpoint. Certain things -- like, for example, mill liner technology which is a patented technology that we have, certain designs of mill liner, et cetera, we have access to, but I think Magotteaux does not have that. So maybe from a capability standpoint we score a little higher. But from an overall comparability, they are more or less the same, but it is just the equation of cost versus our capability.

[Operator]

Next question is from the line of Santosh Kesari from Kesari Financial Service.

[Santosh Kesari, analyst]

So I have 2 questions. One is about accounting. So in the consolidated accounts you can see there is a withholding tax provision of INR 8 crore [indiscernible] that were in the Note 4 to the financials -- quarterly financials. So I was just wondering that what is this about if you can tell us? And secondly, if this is withholding tax in the other countries, then isn't it available as a foreign tax credit to you in India? Why should we make a provision?

[Sanjay Majmudar, executive]

See, this particular withholding tax was in one particular country where we were not -- I mean, there was no withholding tax aspect, but the government has been withheld the tax. Our claim is for allowing us the refund, but that refund claim is pending. This is an African country where there are certain issues. And therefore, this withholding tax has been kept as it is. Probably, I would -- in our accounts, we would have written off this. I think we have written it off. Correct? Because it's not likely to be...

[Kunal Shah, executive]

No, [indiscernible] thing is we're looking for a refund. We are working towards that, but just to be conservative we have shown that as a -- currently spent as a write-off, but we continue to work towards getting the refund. It's a new jurisdiction that we are working with, and that is one tax issue that we are trying to figure out over [ here ].

[Sanjay Majmudar, executive]

Secondly, from a direct -- I mean, this tax credit perspective, we do get tax credits everywhere. As per the [indiscernible], there is no...

[Kunal Shah, executive]

Yes, wherever it is available...

[Sanjay Majmudar, executive]

We get. There is no issue. This is a one specific solution [indiscernible].

[Santosh Kesari, analyst]

So here we are not sure, but that [ TC ] would come...

[Sanjay Majmudar, executive]

We have written it off. Yes.

[Santosh Kesari, analyst]

Now my second question is about the demand situation and the order book. So I think we have we spoken about the demand situation. But can you tell us the present status of the order book, and give us some outlook for the future from the order book perspective?

[Sanjay Majmudar, executive]

Yes. So the order book that we publish is the actual purchase orders [Technical Difficulty] which is close to about INR 700 crores, generally quarter-over-quarter. But most of our contracts are long term. We don't make -- we only produce on a make-to-order basis. We don't produce on stock-and-sell basis, except for the staff of -- so based on our long-term contract, which is typically 3 to 5 years or even longer, we have a very clear understanding and visibility of what is our run rate and how things are going ahead. Orders will only reflect the quarterly situation.

[Santosh Kesari, analyst]

So we are sure of whatever we are producing to...

[Sanjay Majmudar, executive]

Yes. I have a clear visibility of almost the entire year or even next year, but the order book only reflects the current POs on hand.

[Santosh Kesari, analyst]

So the demand situation is better than compared to the past 3 years? Because -- I'll tell you the context where I'm coming from. See post-COVID it was consensus that mining is -- the investments in mining is not so much and the world needs a lot of mining capabilities to come up in the near future. So if that situation continues or the mining capabilities -- investments are done with, and now we are looking at the [ replacement ] demand or the normal demand?

[Sanjay Majmudar, executive]

See, from our standpoint, of course, while the mining industry may continue to grow at, say, 3%, 4% or may not grow at all. Let us assume a situation doesn't grow. What we are talking about is that our entire focus is on the conversion opportunity. 80%, 70%, 75% of the mining industry today does their grinding operations based on forged grinding media, correct? Now what we are doing is we have come up with a much superior solution. So between the [ ores ] that is gold, copper and iron ore, we are talking of a very recent opportunity of anywhere between 1.5 million to 2 million tonnes, vis-a-vis the penetration of 400,000, 500,000 tonnes between us and a few other players like Magotteaux and a few players on the liner side, correct? So liner [Foreign Language separate [Foreign Language].Even then we are talking of at least 1 million, 1.5 million unconverted opportunity which we are working on to convert. So this is a pure 100% conversion-based, replacement-based market opportunity. And therefore, we are agnostic to the mining sector growth. We believe our solution is a very, very significant benefit to offer vis-a-vis conventional forged media.The only difficulty is that the whole process is been [ stickingly ] slow because of a host of factors, local competition, local pull [ temperatures ], governmental road blocks like anti-dumping or some kind of a similar duty on position, trade barriers, then the mindset of the customer, the mining manager working with a limited budget where he is not really jumping away and clapping his hands and I show him the profit that can earn. All those factors collectively make my journey very harder.Having said that, we are extremely confident that this should happen over a period of time. And we see this as a long-term 5 to 10-year growth opportunity rather than 1 or 2 years.

[Santosh Kesari, analyst]

And at the same time the customer who are convinced and who are buying your products, they are also sort of happy with the solution that they are getting, right?

[Sanjay Majmudar, executive]

Of course, they are. Then they keep on buying for life. And they need me every 15 days, 1 month, 1 day, depending on how fast the consumption goes.

[Operator]

Next question is from the line of [indiscernible] from Invest Analytics..

[Unknown Analyst]

Sir, just want to know how economic activities are going on? Like what is the near to medium-term outlook in Australia as well in Brazil in terms of mining?

[Sanjay Majmudar, executive]

Which country you said? I think nothing is significant to report. I mean, the world continues as is. Copper and gold continue to be commodities of interest given end use that they have, but nothing stand out to report in that sense.

[Operator]

Next question is from the line of [indiscernible] from HSBC Mutual Fund.

[Unknown Analyst]

Sir, can you elaborate on this anti-dumping duty in Brazil? I missed some of your commentary on that part.

[Sanjay Majmudar, executive]

For the?

[Kunal Shah, executive]

Fuel dumping, anti-dumping,

[Sanjay Majmudar, executive]

The 5-year period has just ended and they are in the midst of -- they are going to do a reassessment as a whole prescribed method to go about it, and we are participating in that process, right. And we don't…

[Kunal Shah, executive]

By March of next year '24, we should know the new regime that will come in once they investigate and analyze data in the last 5 years.

[Sanjay Majmudar, executive]

And it is not disrupting my current supply to Brazil. They'll continue.

[Unknown Analyst]

[Technical Difficulty] But that goes against us, right? I mean -- so what could be the volume profile that we're supplying to Brazil?

[Kunal Shah, executive]

So we went from -- last year between 6,000 and 8,000 tonnes. This year, we should be doing a little more. We don't expect a very adverse outcome. In any case, the duty is there, right? The world [indiscernible] duty continues, which we are living with right now.

[Operator]

Our next question is from the line of [ Raja Kumar ], individual investor.

[Unknown Analyst]

Sir, I want to is there any update on the Peru subsidiary as well as the Canadian operations? And the second question is the volume guidance which you are reducing now, has that got anything to do with the impending global slowdown?

[Kunal Shah, executive]

Not really. It's not linked to that. No. What was the other -- the first question?

[Unknown Analyst]

Update on your Peru subsidiary and any update on the Canadian operations? And do you think the current standoff between India and Canada will it impact us in any way?

[Kunal Shah, executive]

Not really. Ours is strictly a trade matter. And in any case -- I mean, it's a matter that's under [ subjudice ] because we are party to that arrangement that is there as far as the last investigation was there. And it continues, we're doing all we can to continue to sell in that market and nothing to report on that front right now.

[Sanjay Majmudar, executive]

Nothing to do with the current stand off, whatever.

[Unknown Analyst]

And update on Peru subsidiary?

[Kunal Shah, executive]

Peru?

[Unknown Analyst]

Yes. I think in last quarter you mentioned that we have started a subsidiary in Peru, right?

[Kunal Shah, executive]

Because a lot of these places, we have staffed -- we have people on the ground, we need permanent establishment and that requires us to be creating those companies. So it is more structured thing rather than a market thing.

[Sanjay Majmudar, executive]

And of course, we continue to work very aggressively on the South American opportunity, including Peru, Chile, everywhere.

[Unknown Analyst]

And sir, this global slowdown is not going to impact us from a growth standpoint?

[Sanjay Majmudar, executive]

No. Okay, let's just understand. This is Europe. There's hardly any impact of the overall European slowdown on our operations. South America, Australia, all those geographies continue to do pretty well in terms of mining. So no, Frankly, there is no impact of the global slowdown as such.

[Operator]

Next question is from the line of [ Suraj ] from Asian Market Securities.

[Unknown Analyst]

So any update on our CapEx and capital expansion plan?

[Sanjay Majmudar, executive]

Yes, we are on track. As Kunal explained, we have a CapEx plan of INR 500 crores between this year and next year. This year, we should do upwards of INR 300 crores plus. That should increase our capacities, the grinding media, Kerela -- GIDC Kerala plant of 80,000 capacity enhancement project should be over by December '24. Then there are some other debottlenecking or reorganizing brands which should have another 50,000, 60,000 tonnes. So we are absolutely on track. So you should see about INR 440 crores going to close to INR 540 crores by end of next year.

[Operator]

Next question is from the line of [ Kamlesh Kora ] from Asian Market Securities.

[Unknown Analyst]

Sir, just -- I don't know whether you touched upon on this. Can you help us understand how the mill market opportunity, how big it is? What are the key markets, which are the key competitors, how we are poised and -- that will be of great help.

[Kunal Shah, executive]

So mill liner market is about 300,000 tonnes plus of annual consumption. And there are 4 -- according to our information, there are 3 or 4 organized players operating in that industry. Our capacity for this -- we've set up a new greenfield plant with a 50,000 tonne capacity. And we've got about 25,000 tonne capacity in our existing plants. So there's about 75,000 tonne market opportunity that we are looking in this segment. And the whole opportunity is not just to sell more liners, but it allows us to engage with these customers in offering them solutions around increasing throughput, lower [ par ] consumption in sync with our grinding media offering.

[Unknown Analyst]

So is it more of a cross-selling opportunity for us -- for existing clients or we are tapping new clients?

[Kunal Shah, executive]

Both.

[Unknown Analyst]

And could you get names of who are the key players? As you mentioned, I mean, if you can help us...?

[Kunal Shah, executive]

Mill liners?

[Unknown Analyst]

Yes.

[Kunal Shah, executive]

There is a company called [ Elecmetal ]. I can share that on an e-mail. If you can send me an e-mail I'll share youa what these other names are. I may not be able to spell each one. But if you can send me e0mail, I'll share you -- share all those details.

[Operator]

Thank you. As there are no further questions, I would like to hand the conference over to the AIA Management AIA Engineering Management for…

[Kunal Shah, executive]

Thank you for joining, and we look forward to -- Sanjay Bhai and I remain available offline for any questions, and we look forward to connecting end of third quarter. Take care, and have a great – enjoy -- happy Diwali to everyone.

[Sanjay Majmudar, executive]

Yes, Happy Diwali. Thank you.

[Operator]

Thank you very much Ladies and gentlemen, this concludes your conference for today. We thank you for participation and for using Chorus Call conferencing service. You may please disconnect your lines now. Thank you, and have a great evening.