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Ladies and gentlemen, good day, and welcome to the Carborundum Universal Q4 FY '22 Earnings Conference Call hosted by DAM Capital Advisors Limited. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Bhoomika Nair from DAM Capital Advisors Limited. Thank you, and over to you, ma'am.
Thanks, Rutuja. Good morning, everyone. On behalf of DAM Capital, I would like to welcome you to the Q4 FY '22 earnings call of Carborundum Universal Limited.
We have the management today being represented by Mr. Sridharan Rangarajan, Director of Finance and Strategy; Mr. N. Ananthaseshan, Managing Director; Mr. P. Padmanabhan, CFO; and Mr. G. Chandramouli, Advisor, Investor Relations.
I'll now hand over the call to Mr. Ananthaseshan for his opening remarks, post which we'll open up the floor for Q&A. Over to you, sir.
Good morning to all of you. Before we begin, as a practice, we will now have Mr. Chandramouli readout our disclaimer and then I will take the call.
Good morning. During this call, we may make certain statements, which reflect our outlook for the future or which could be construed as a forward-looking statement. These statements are based on management's current expectations and are associated with uncertainties and risks are more fully detailed in our Annual Report, which may cause the actual result to differ, hence, these statements must be reviewed in conjunction with the risks that company faces.
Thank you.
Thank you, Mouli, and thank you all once again for joining us on this call. So before highlighting the performance of the period, I hope that you and your family members are safe and healthy.
Today, we are joined on the call by my colleagues, Mr. Sridharan Rangarajan, Director of Finance and Strategy, a very familiar person and faced most of you; and Mr. P. Padmanabhan, CFO; and Mr. Chandramouli, Investor Relations.
Since the last time we met, there has been quite some changes in the world. The VUCA factor has, not only been further reinforced by the totally unexpected geopolitical situation and its implications caused by the Russian-Ukraine contract. The domino effect it has been having on commodity price inflation, raw material availability, supply chain disruptions and ForEx fluctuations need no further emphasis. We also had the Omicron scare globally, and specifically in India in early Q4, reminding us the virus is still very much active and has not gone away for good. At CUMI, it has been very exciting and challenging times. We had to do a fine balancing act, managing the present and preparing ourselves for the future.
So while operation teams were focused on creating capacities and delivering on the quarterly numbers, the other parts of the team were focused on getting the long-term drivers in place, particularly the acquisitions and product innovations. Later in the call, Sridhar would share more in detail.
I'm pleased to inform you that in the recent Q4 quarter and for the full year FY '22, the company has performed well despite many of these challenges. Our revenue for the full year has grown by 26% year-on-year to INR 3,290 crores at a consolidated level and by 33% to INR 2,192 crores at a stand-alone level.
For the year, at the consol, profit after tax and noncontrolling interest grew by 17% to INR 333 crores as against INR 284 crores of last year. While at the stand-alone level, the PAT increased by 38% to INR 254 crores from INR 184 crores in the previous year. All this was made possible by higher capacity utilization, volume and realization growth from all the business segments and significant performance of key subsidiaries.
In the January to March quarter, at a consol level, sales accorded INR 859 crores with a quarter-on-quarter growth of 14%. And at a stand-alone level, the company has recorded a sales of INR 580 crores, which marks a 15% increase over Q4 of last year. Again, the growth was driven by all the 3 segments. And all the major overseas subsidiaries have also performed significantly.
When it comes to the bottom line performance, PAT and noncontrolling interest degrew by 37% to INR 57 crores against INR 91 crores in Q4 of the previous year. This was majorly due to operational expenses related to Maniar, some acquisition costs and employees retrenchment costs for the new acquisitions. At the stand-alone level, the PAT increased to INR 62 crores from INR 58 crores in Q4 of last year. So despite increase in sales and profits in absolute numbers for stand-alone, the PAT margins were lower by 70 basis points due to partial absorption of increasing input costs.
Coming to the external environment, the demand outlook remains fairly strong, but facing supply challenges and also cost pressure due to inflation and commodity price increase. This also means that the price pass-through is also difficult.
Just to update, our operations in Russia has not been impacted as much as it was anticipated during the initial days of the ongoing conflict and the consequent sanctions on Russia. More details will be covered later.
In terms of CapEx, at a consolidated level, we have spent INR 170 crores in the last year. On the COVID front, the businesses are well prepared with safety protocols and vaccination drive. The new variants of the COVID is a key near-term risk, but an increase in the pace of COVID vaccination with nearly 99% of our workforce having received at least 1 dose and around 91% with both the doses should contain any demand disruption.
I will now request Mr. Padmanabhan, our CFO, to walk us through the financials.
Thank you, Ananth. Good morning, everyone. Let me summarize the financial performance for the quarter ended March 31, 2022. The consolidated sales for the quarter has increased by 14% to INR 859 crores from INR 759 crores in the corresponding period of last year. It is driven by steady performance across all the 3 business segments. Profit after tax and noncontrolling interest for the quarter was at INR 57 crores as compared to INR 91 crores in the corresponding period of last year. PAT margins dropped from 12.1% during Q4 of previous year to 6.6% in the current year on account of the acquisition cost, Maniar-related expenses and the employees retrenchment costs for the new acquisitions. The stand-alone sales increased by 15% to INR 580 crores from INR 503 crores. PBT for the quarter was at INR 91 crores against INR 81 crores during Q4 of previous year. Profit after tax grew 7.69% to INR 62 crores from INR 58 crores. PAT margin decreased from 11.4% to 10.7% during this quarter on account of increasing input costs.
Coming to the yearly performance, consolidated sales grew by 26% from INR 2,604 crores in FY '21 to INR 3,290 crores in FY '22. Profit after tax and noncontrolling interest for the year was at INR 333 crores as compared to INR 284 crores during last financial year. PAT margin dropped from 10.9% in FY '21 to 10.1% in the current year. Stand-alone sales grew by 33% from INR 1,649 crores last year to INR 2,192 crores in FY '22. PBT for the year was at INR 346 crores against INR 244 crores and PAT increased to INR 254 crores from INR 184 crores, showing a growth of 38%. PAT margin increased from 11.2% to 11.6% in the current year. Return on invested capital for 3 major segments together moved from 27 percentage last year to 30.7% in the current year.
Moving on to the segment wise, Abrasives, on Abrasives, consolidated sales for the quarter increased by 15% to INR 344 crores from INR 300 crores in the corresponding period of last year. Stand-alone sales increased by 10% to INR 279 crores from INR 253 crores in Q4 of last year. At the consolidated level, the PBIT for the quarter was at INR 27 crores decreased from INR 50 crores, mainly relating to the acquisition costs, relating to newly acquired subsidiaries. For the full year, the segment grew by 29% from INR 993 crores last year to INR 1,283 crores on a consolidated basis and grew by 29% from INR 818 crores in last year to INR 1,052 crores at the stand-alone level. The stand-alone business, Russian subsidiary, Volzhsky Abrasive and subsidiary in America registered significant growth.
Moving on to Electro Minerals division. Consolidated sales for the quarter increased by 17% to INR 340 crores from INR 290 crores in the corresponding quarter of last year. At the stand-alone level, sales increased to INR 168 crores from INR 137 crores in corresponding quarter of last year. Consolidated PBIT of Electro Minerals for the quarter increased to INR 44 crores from INR 42 crores in Q4 of last year. For the full year, the segment grew by 23% from INR 1,064 crores in FY '21 to INR 1,312 crores on a consolidated basis and grew by 41% from INR 440 crores in last year to INR 621 crores at the stand-alone level. The stand-alone Electro Minerals segment, African subsidiary Foskor Zirconia and Russian subsidy, Volzhsky Abrasives grew in double digits. The consolidated Electro Minerals recorded a PBIT of INR 194 crores against INR 136 crores for the full year on the back of volume growth and higher realizations.
Ceramics consolidated sales for the quarter grew by 6% on a quarter-on-quarter basis from INR 190 crores to INR 202 crores. The stand-alone sales grew by 14% on a quarter-on-quarter basis to INR 170 crores. Consolidated PBIT of the Ceramics segment for the quarter decreased to INR 35 crores from INR 42 crores in Q4 of last year. This segment performed well and registered double-digit growth, but bottom line for the quarter was impacted due to the logistics challenges. For the full year, the segment grew by 27% from INR 627 crores in last year to INR 798 crores on a consolidated basis and grew by 32% from INR 501 crores in last year to INR 661 crores at the stand-alone level. Subsidiaries in Australia and America registered significant growth.
On the finance side, there was a debt of INR 163 crores in stand-alone books as of March 31, 2022. The total debt at the consolidated basis was INR 212 crores as compared to INR 38 crores as of December '21. The debt equity ratio was at 0.09% for both stand-alone and consolidated as of Q4 FY '22.
On the ForEx cover, CUMI is typically a net importer in dollar terms and net exporter in euro terms, we cover the net exposure as appropriate and in accordance with the ForEx policy.
On the cash flow front, our strong balance sheet is evidenced by net cash flow position and low debt equity ratio. The cash and cash equivalent including deposit with the new exceeding 3 months, net of borrowings was at INR 138 crores. Free cash flow for the year ended March 31, 2022, was at INR 118 crores, which was at 35% of the PAT as it was lower as compared to previous financial year, wherein the free cash flow was 133 percentage of the PAT. This was mainly on account of we're strategically maintaining higher inventories considering uncertain external environment and higher CapEx spend.
On the dividend, the Board of Directors of the company announced a final dividend of INR 2 per share, which is 200 percentage of the face value of INR 1 to the shareholders of the company amounting to a total dividend of INR 3.50 per share.
This concludes my update on finance. I'll now request Mr. Sridharan, our Director of Finance and Strategy, to walk us through the recent acquisitions and update on war.
Good afternoon to all of you. Thank you, Ananth, and Padmanabhan. I am happy to be back amongst you after 4 years. I thought it would be appropriate to talk about the recent acquisitions, as well as the business in Russia. You all will be keen to understand why did we make this acquisition? And how does it make sense to us? We are also keen to share this with you, and we felt that this is an appropriate time to do that. All the 3 acquisitions put together, we spent about INR 660 crores. And you will only know that it's all funded out of internal accruals, no debts were raised. You will also see that, at the end of this financial year, we still have a positive cash at INR 138 crores, which shows that we still have room to do more, and I think we will do as appropriate.
I'll first cover about RHODIUS. So during the year, we made a significant acquisition of RHODIUS Abrasives in Germany at an enterprise value of EUR 55 million and took control of the company effective from April 1, 2022. RHODIUS manufacturers in Germany, global best quality cutting and grinding disks. They lead in product innovation and quality with unique professional segment product suit. They have proprietary product production process setting industry benchmark. Their turnaround time is the lowest in the industry. They have a strong legacy of 7 decades of successful business serving more than 100 countries. RHODIUS has got a good mix of own brand and private label brand. RHODIUS supplies to Tier 1 power tool manufacturers, RHODIUS has trained and experienced employees with committed leadership team executing a successful strategy. RHODIUS has a robust order book with considerable pipeline, including multiple major projects, as well as regional projects with power tool manufacturers, which is going to support the future growth. RHODIUS has got a strong financial track record with a clear growth path supported by the investment plans.
RHODIUS Group had 2 independent businesses with strong growth potential, both requiring considerable management attention and investment capital. They have beverages business and abrasives business. These are the 2 independent businesses they have. The shareholder family could not pursue both opportunities and prefer to direct their focus at more regional RHODIUS mineral water and beverages business, whereas abrasive business is more international and it requires more their attention and investment. CUMI evaluated this opportunity based only on the strong fundamentals of RHODIUS abrasive business and the reasonableness of the growth path carved out by the RHODIUS team.
Further, the CUMI identified areas of synergies, which will be explored to bolster this investment. The areas are: access to Indian market; supplying critical electro minerals, namely white fused alumina, brown fused alumina, silicon carbide, alumina zirconia, zircon and synthetic alumina; supplying CUMI's precision abrasives products to RHODIUS distribution network, supplying coated abrasives to RHODIUS; manufacturing high-quality thin wheel products at competitive costs in India; leveraging CUMI's international network and access to Russian market. These are the 6 synergies we identified. CUMI and RHODIUS team will work on these synergies and quantify the potentials of each of these synergies in the next 1 year. Our investment decision did not consider, at this point in time, the benefits of synergy, though, we have a sight of it.
CUMI expects the Indian market for thin wheel would grow fast with Gati Shakti program of the Government of India, we feel that the Indian thin wheel market is roughly about INR 2,000 crores, wherein 60% is through cutting wheels and 40% is through grinding wheels. CUMI also expect that the market in U.S.A. would grow due to the U.S. government's committed spend on infrastructure $1 trillion spend they have committed. Similar trends are visible on other geographies. So we feel that infrastructure-led growth will very well augur to the thin wheel demand going forward, both in India, U.S.A. and international geographies.
In 2021, RHODIUS had a net sales of EUR 61 million with high-teens ROCE. CUMI expects a drop in the margin [ initially ] due to the investment in CapEx in line with the strategy and operating expenses to support the business transition. CUMI expect to reach EUR 100 million top line in next 5 years with a high-teen return on investment.
I'll now move to AWUKO. During the year, CUMI acquired the main assets of AWUKO Abrasives from the insolvency administrator. The assets included land, building, plant and missionary, fixed assets, leased assets, brand, trademark, patterns, technical know-how and other intangibles, excluding cash and receivables. CUMI paid EUR 8 million to acquire this asset. AWUKO is a 120-year-old leading brand in coated abrasive business. AWUKO is a market leader in leather and wood applications with strong presence in metal and lacquer applications. AWUKO exports 70% of its production predominantly in Europe and Americas. AWUKO has got 2 makers, flatbed and [ loop drying ] mechanism with wide [ width ] capability, which is significant, I would say, this will give us an advantage. CUMI will gain access to coated abrasive capacity in Europe with global distribution base and our experienced process and application engineering team. CUMI is working on stabilizing AWUKO's business and expect that it will take a couple of years. CUMI expects AWUKO to breakeven by FY '24. CUMI expects to reach a sales of EUR 22 million to EUR 25 million by 26%, with high-teen return on investment.
AWUKO has got a quoted capacity of 10 million square meters on a single shift basis. CUMI's quoted capacity will double with this acquisition. CUMI will work on a global quoted strategy, optimizing product portfolios, geography and application need and cost positions.
I'll now move to PLUSS. During the year, CUMI invested INR 115 crores in acquiring 72% equity stake in PLUSS, a niche technology company in the field of Phase Change Materials with good growth prospects. This is in line with CUMI's long-term goal of pursuing opportunities that leverages material science sustainable. PCMs are thermal storage materials with versatile applications in pharma, pharma cold chain, refrigeration, food supply chain, medical devices, building and HVAC applications. In FY '22, PLUSS made a turnover of INR 50 crores with a loss of INR 5 crores after considering a few write-offs after we acquired the company. CUMI believes that PCM is a growing technology. PLUSS is working on many opportunities, CUMI would take a year or so to present and discuss with you the future opportunities of PLUSS. We feel it is too early to discuss the future opportunities of PLUSS at this point in time.
Update on Russia. Coming to the update on Russia, CUMI acquired Volzhsky Abrasives Works in 2007 for a total investment of $44 million. During FY '22, the total sales of Russia, VAW was RMB 7.3 billion, and made a profit of RUB 1 billion. Around 42% of the total sales of VAW comes from domestic market and 58% from exports. Over the years, CUMI received dividends from VAW and has recouped more than the investment of $44 million it made. VAW has no debt in its balance sheet, VAW has converted all its foreign currencies into ruble before the start of the Russian initiatives into Ukraine. VAW predominant banking relationship with 2 banks, and these banks are not part of the sanction list. VAW has adequate inventory of raw material and liquidity to continue the manufacturing for the next 4 to 6 months. VAW procures its entire raw material mainly from the domestic market, very minimal imports. VAW would collect all its receivable from its customers, no challenge. Bank of Russia raised its key policy rates at this point in time from 9.5% to 20% in February and decided to cut the key rates by 300 basis points to 14% per annum in April 29, 2022. VAW being a debt-free market -- debt-free company, the direct impact of increase in interest rate is minimum. VAW has no customer in Ukraine.
So far, there are 5 packages of sanction released till date by EU. The products of VAW are not under any sanction, nor is restricted material. Neither Volzhsky Abrasive Works as an entity nor its director or its employees are under any sanction at this point in time. VAW sells 47 percentage of silicon carbide volume in Russia. The current challenge is predominantly a logistics challenge. VAW meets only a portion of the demand of SiC in Russia. So it has the capability to sell more in Russia. The breakeven volume of VAW is about 45% to 50%. The team in Russia is exploring all possible options in minimizing the costs and optimizing the opportunities. The impact assessment is a continuous process, given the evolving nature of the uncertainties associated. The company will continue to monitor all material changes to the internal and external environment. We feel that the people at Russia is doing their best to minimize the impact of this conflict. And as of April, their business has also done so well. We feel pretty confident that they will be doing future as well. We need to navigate this. It's a political conflict, so we need to wait and watch how it transpires and goes into the future.
I would request Ananth to conclude with the summary and we will then take up Q&A from you.
Okay. So we now are open to questions.
[Operator Instructions] The first question is from the line of Sujit Jain from ASK Investment Managers Limited.
Sir, just had a few questions regarding the subsidiary margins in EM, which fared well. You have kind of covered some portion of that. But just to understand it a little more deeper, we would have ideally thought, in Russia, you would have faced problems, but it seems that the results are good. So if you can just throw some light as to how your Russian subsidiary coped up, that is VAW coped up well and could fair well?
I think to start with, if you see, this conflict itself started late in March and -- late in February. So it's a very initial stages. And so, the results are up to March, that what we have presented. So it has practically no impact at this point in time. But I would just say that even in April, whatever we have seen, their business is normal. As I said that, their mix of business, 50 percentage of the business is domestic. And they are able to fungible -- increase the mix within Russia so well. And the demand of Russia for silicon carbide is so huge. They are meeting only a portion of it. So they have still an opportunity to play with this. And that's how this is happening. But it's not without any challenge. Like there's a lot of logistics issue that is currently being addressed one by one, I think the team is working on in meeting those logistics challenges, complying all the rules, complying all the restrictions imposed. We still find methods to fulfill our obligation under the sanction at this point in time.
Just to add here, VAW, as Sridhar mentioned earlier in his opening remarks, has -- is not under any sanction. The material silicon carbide is also not under any sanction. So that has really helped in a sense that the customers who are being buying from VAW would continue to want to buy from VAW, provided metal is made available. So legally, for any of our customers, it is not a challenge to buy from VAW. And the focus has been on getting the material out. Traditionally, all material which goes into Europe are largely through land routes and which comes into Asia or through sea routes. So today, we are figuring out methods and fully in compliance with the rules currently in place to ensure that people are getting the material. There has been some additional costs involved, some delays, but then we are still able to get the material across.
So I have multiple questions and for the [ one top panel ] I'll quickly go with them. What you're saying is that what is getting imported in India from VAW in EMD might get impacted because of supply chain issues? Because globally, many shipping companies, suo moto have stopped trade via the Black Sea.
The initial impact assessment was showing that, but we have been able to figure out alternative routes out of Russia through China and other Asian countries, which gives us some comfort that the impact will not be so bad.
How much of VAW's total sales are exports to India?
About less than 10% of silicon carbide, yes.
And you are saying you're finding various ways it does not impacted.
Yes.
Okay. When I do a consol minus stand-alone, the staff cost has jumped to a number of close to INR 75 crores.
Sorry?
Stand-alone minus console, it would be the subsidiaries data. The staff cost there has jumped to INR 75 crores for the quarter. INR 266 crores Q-o-Q.
I think one is that, we paid close to $1.8 million for settlement of AWUKO employees, that is one which is about close to about INR 20 crores.
Yes. I'm sorry, actually, my number was wrong from INR 45 crores to INR 75 crores, you are saying most of that is because of the settlement.
Correct.
Right. And just 1 question, sir, is it right to look at your console minus stand-alone data as an indicator for subsidiaries, are there any sales from stand-alone to various entities, which are subsidiaries -- global subsidiary?
That gets eliminated. So you can look at it that way.
So you are saying consol minus stand-alone is the right way to look at the subsidiaries data?
Yes. The only difference is that, whatever the stand-alone sells it to the subsidiaries, that profit elimination would happen. So it would represent a fair picture.
And if you can later share the data at least of top line PBT, PAT for the 2 entities you acquired in Germany?
I did tell. I think as far as RHODIUS is concerned, last year, they made EUR 61 million sales and high-teens return on capital employed. And AWUKO is a -- as far as AWUKO is concerned, it is -- we bought assets. So the sales of the 3 prior companies is not relevant at this point in time. We need to make it work, and we feel that it will take a breakeven situation by FY '24.
Right. But some sense in terms of size for us to model it both these companies, could you give PAT of RHODIUS?
So I would say that the RHODIUS, we feel that it could take EUR 100 million top line and return on capital employed, again, with the high-teens will be there from that -- investment that we have made in this. And similarly, we see will be EUR 22 million to EUR 25 million top line for AWUKO. And again, we'll have high-teens or even slightly higher than the return on capital employed [ from there ].
The next question is from the line of Charanjit Singh from DSP Mutual Fund.
Sir, just wanted to clarify on the stand-alone EBIT margins in the Electro Minerals segment, historically also, they had been volatile. And this quarter, we have seen single-digit margin. Just if you can give further clarification. And how do you see the outlook going forward for the Electro Minerals margins in the stand-alone business? That's my first question.
Yes. I think your question is very pertinent, and I think you have observed it very well. Electro Minerals division had to take a one-time provision for a settlement of a legal dispute with the Kerala State Electricity Board, in which the company lost a legal dispute at Supreme Court level, and that is about INR 30 crores to INR 32 crores we took a provision. So hence, this is having an impact. So if you normalize that, I think it would be a very good EBIT margin, I think close to -- and I think at a full year level, it will turn into 17.5% EBIT margin. That's how I would read it at a consolidated level. I'm talking consol level reported is 14.8%. That will turn into 17.5%.
Okay, sir. Sir, on the Abrasives side, we had actually a good run in the last couple of quarters because, one, the pace was also low. And now we have seen about a 10% kind of a growth in the stand-alone Abrasives business on a Y-o-Y basis. From here on, how do you see the Abrasive segment performing in terms of the growth going forward, both volume as well as value terms, if you can highlight? And any particular segments where you're seeing more promise versus some segments, any weakening, especially auto or any other manufacturing sectors?
Yes. I think Abrasives has been maintaining its momentum in terms of both top line and improving its margin. The focus has been very strong there. Of course, the last quarter and a little more than the last quarter has been a pressure on margins due to the commodity price increases. What we are seeing is that, the demand pickup from -- especially in Q4 from the auto industry for the precision abrasives has been reasonably strong and being maintaining. While the distribution-led business, which is the mass market business has -- was showing some weakness towards the end of Q4. This could be due to multiple things in terms of the construction or building materials, costs going up and also resulting in possibly a little softer demand. This possibly could be a short-term effect, but hopefully, the focus on infrastructure, focus on the -- all the manufacturing coming back should result in a better growth for both the auto industry -- auto component industry basically and also for the mass market products. Of course, the pressures on costs are going to be there.
Okay. Sir, if I can just squeeze in one more question. In terms of -- we have seen our acquisition spree in terms of acquiring 3 companies. So 1, in terms of our thought process and we are looking at these acquisitions and plus integrating it also requires a lot of management bandwidth as we are spread over geographies, we have also Russia to deal with and then managing these new acquisitions. So how we have been thinking about acquiring these companies? What are the main benefits which we are looking at when we are even contemplating in terms of acquiring new companies? Yes. That's my last question.
I think I elaborated there are 6 reasons why we looked at RHODIUS as a business, which are basically -- we have a very large thin wheel opportunity within India, which we need to explore, as well as the growing thin wheel opportunity elsewhere. And if you look at RHODIUS, they are very strong company, innovative products manufactured company, where we feel that we will be able to leverage that and then take this into the next path of growth for CUMI.
The other area of reason is basically capability of CUMI to supply critical raw materials needed for RHODIUS and AWUKO. So that's the second reason why we looked at that. And also, the third is that, how can we leverage the network of RHODIUS and put our products, which is basically precision abrasive products into their network, access to the Russian market are some of the reasons that we considered why we made these acquisitions. But broadly, our template for acquisition is, 1, we would like to continue the path in the known areas of our business, which is Abrasives, Ceramics and Electro Minerals. And wherever it gives us an opportunity to grow our business globally, access to technology and capability of delivering synergy with whatever the current business has got, that's the reason why we are looking at going and acquiring companies at this point in time. So that's a broad template that we are looking at.
The next question is from the line of Rajesh Kothari from AlfAccurate Advisors.
Sir, my first question is with reference to the Russia business. I just wanted to understand a little bit more about the Russian industry because you said the demand there is huge and therefore, as such, the production and logistics are more of a kind of a thing, which is probably can become a challenge at times. So see -- you see, demand is -- can you just explain, sir, till now what's catering to the demand? Was it they were importing from somewhere else and therefore, that imports are probably has dropped and therefore, our Russian local company, therefore, is a ready market, something like that?
The major product of VAW is silicon carbide. And silicon carbide is used in abrasives and steel metallurgy and refractory manufacturing. So traditionally, what's happened is while, over the last few years, while Russia has been -- VAW has been building its markets, building markets for its products, it was not only in Russia, but also outside the country. When I say outside the country, it's largely to Europe and Asia, where we were looking at the higher realization of products and applications. So there has also been a continuous demand in Russia, which was not being serviced by VAW because of the capacity limitations that we had. So this situation -- current situation has given an opportunity, both for VAW to service the local markets and for the local industries who have been sourcing silicon carbide from other geographies. For example, Ukraine is one of the other producers of silicon carbide and also from China. So those volumes are now available to us and also the customers see a local producer, who can supply them with volumes and of our quality, which is now in demand. So it's a benefit -- 2-way benefit, I would say. And that has helped VAW to kind of manage or navigate this situation.
Of course, the other major markets are in India. India imports approximately 80% of its requirement with very small local manufacturing. And that always also presents an opportunity for VAW to bring in more than what it normally does into India. So the -- that's why the challenge of the logistics, if we are able to crack it, then VAW will be in a much better position.
Sir, in case if you cater more to the Russian market, you mentioned that pre this war, the company strategy was to focus more on Europe and Asia because of the higher value-added high realization kind of products. So does it mean that in the interim, the product mix may, to a certain extent, change and therefore, to an extent, it can adversely impact margins?
Possible. Quite possible. I mean it is not that it can just switch for the same and have the same kind of a product mix available in the domestic market, which is not for us. So the product mix, which we would address in the Russian market would undergo change, and it can impact margins in the interim, while the logistics challenges are being sorted out, so which can again give us an opportunity for better realizing products outside Russia.
Would you like to indicate kind of some financial impact of this? Maybe I'm talking to the first quarter, I'm not talking beyond this because it's very difficult to predict beyond this.
I mean, it's not too material, I would say.
Okay. Okay. The margin impact is not material. Understood. And also the impact on overall volume is also not that material.
No, no, no.
Okay. And by material, I mean kind of a 10% deviation that one should assume?
About. Yes.
About, okay, perfect. My second question is with reference to the non-Russia side of the business. Earlier, I remember every year, probably you used to give your guidance, how do you see next 2, 3 years. Considering the geopolitical situation right now, ex-Russia, would it be possible for you to give the segment-wise some color on how do you see the market from here on?
Okay, Russia, we are very clear. I mean, it's too early for us to comment on Russia and how things are going to work out there. But if I'm looking at the Indian business on the abrasives side, still large part of the business is in abrasives. And we believe that while this year it can be a very difficult year for the economy in general, we have to navigate through all this inflation, what we are seeing, but going forward, India, I would believe, is very well poised to leverage all the manufacturing opportunities that are being talked about and are being realized. So which means a good demand for abrasives. And one of the reasons why, as Sridhar was also mentioning, that we are focusing on the distribution-led products.
So while we have always been very strong in the position of abrasives, and we will continue to further build on those capabilities, it is the distribution-led products, which would see much faster growth. So the last year has been where we -- or last 2 years has been the time when we have invested in growing the abrasives business, and the other part of the distribution-led business is the thin wheels and with the acquisition of RHODIUS, it would help us make our position stronger. Yes, so I'm very positive about abrasives. The challenges in terms of the cost -- cost push, we will have to overcome, the entire industry has to overcome, but that is something which is normal. And preparing ourselves for growing in this business with better products, higher productivity, et cetera, is going to be our focus.
On the mineral side, the work that we have done is in 2 parts. One, what we are doing in Russia, which is, again, the -- while the contract is on, we still have not lost sight of what we want to do there. We will continue to leverage those opportunities to invest and grow volumes and silicon carbide being a material which is not so easily available today, it is going to be very, very valuable. In the case of EMD, which is a standalone EMD on India, our focus is on building a fused alumina complex and significant volumes, which has happened over the last 2 years now. Our investment, both in terms of fusion facilities and in conversion facilities are going as per plan. And we hope to hit our volumes of about close to 100,000 tonnes over the next 3 years. So raw material security and raw material availability is going to be key to the world, and that's how EMD is preparing itself.
Ceramics is a completely customer-driven customer co-created business and whether it is in the energy, alternate energy space or in the electric vehicle space, we have been progressing quite well. So yes.
Sorry to interrupt, may I request Mr. Kothari to please rejoin the queue. We have participants waiting for their turn. The next question is from the line of Bhavin Vithlani from SBI Mutual Fund.
Good performance amidst the challenges. The question one is, there was a loss of 150 million on the subsidiaries EBIT for the abrasives segment. If you could just help us understand what were these in the opening remarks you mentioned about the one-offs.
This is what we said. I think when we acquired AWUKO Abrasives, we had to make a settlement of the existing employees. So about close to 180 employees were there. And we said that we will not be able to run the company with that size. We can only run with about close to 95 people. So that restructuring costed us about EUR 1.8 million, and that has to be booked as an expense, and that is -- it's a onetime and that is how this is shown. So roughly about INR 20 crores.
I understand. But the -- so the negative INR 15.4 crores -- about INR 20 crores is one-off, but still the margins were considerably below the averages. So were there any other implications of either the cost or is it something which is to worry about?
See, I feel that the full year margin is about 12.2% consolidated level. We feel that if you put this one-offs back, it should get to 14%, slightly higher than the last year number of 13.5%.
Second is on the acquisition, you mentioned about RHODIUS' return on capital. Could you help us with what was the EBITDA margins on a revenue of EUR 61 million and what is the expectation for the current year?
Yes. I think -- so I would -- I will comment more from an EBIT point of view rather than an EBITDA point of view is that they are in the range of 7.5% to 8% EBIT margin and ROCE is on the high-teens currently. And we feel that for us to get back to an EBIT margin, which is comparable at this point in time, what we are looking at, we would be getting back to the level of, say, 12% to 14% in '26. And the ROCE will also be at the same level as what -- prior to acquisition because our -- their capital employed versus our cost of acquisition to be compensated by the growth path and the margins that we will deliver, and that would take that much time. So we'll get to that level by '26.
Sure. And the other question is on the opportunities that you were evaluating. If you could just help us understand where are we in this. So 3 opportunities, One is the high-purity silicon carbide, second is the ceramics and the opportunity for the battery division. If you could just give us an update where are we. And on the hydrogen opportunity, we were looking at a newer product where our content are expected to be significantly higher. So if you could just give us an update where are we in these 3 opportunities.
Yes. So the high-purity silicon carbide work is happening in 2 phases. One is in the raw material side of it, which means that the input material for making the crystal itself, that's happening in both India and in Russia, where we have made good progress. We also made progress in converting the material into single crystals of silicon carbide and that is in Russia. So currently, these are under evaluation, and we hope to see better progress in terms of a commercial sized volumes coming out towards the later part of this year. In the high purity quartz, I mean, graphite part of it, which is what is going into a battery material, just to clarify that we are not into battery manufacturing but more into battery materials manufacturing. And that evaluation and working with battery manufacturers is under progress there and so is the case of the graphene where we have been working on not only battery operations, battery applications, but also in combination with the graphites, we are adding value to the battery manufacturing itself in terms of improving energy densities.
Sure. Just last question. In the month of March, what was the capacity utilization at the Russian operations? And what are we seeing as the capacity utilization currently? That's my last question.
I think both in March as well as in April, I would say, no drop in capacity utilization, what they were doing, and we are operating at an optimal level.
The next question is from the line of Deepesh Agarwal from UTI Asset Management.
Sir, my first question is on standalone side. There seems to be a moderation on sequential basis in top line, whether it's in Abrasives, Ceramics, Electro minerals despite the possible price hikes and seasonally strong 4Q. So is it that demand momentum is slowing down or the competition, especially the imported competition is coming back?
See the -- in Abrasives, I won't read too much into this top line because we have also been pretty careful about choosing those product segments which are more profitable. So to that extent, we could have sacrificed some sales. As I mentioned earlier, there has been a little bit of a softening in the mass market segments consequent to -- there has been a -- you would remember that in Q3 and also in Q4, we had to take price increases. And this is not very normal that we take price increases on almost every second month. So there has also had some pushback from the market in terms of offtake. So possibly that could be one reason. In Ceramics, we have -- yes, we have grown in Q4 compared to Q3 sequentially and in Electro Minerals as well -- [indiscernible] marginal. That's a normal volume that we are seeing.
The next question is from the line of Harshit Patel from Equirus Securities.
So my first question would be on the Ceramics segment. Could you [ read ] the Ceramics segment revenues between refractory and industrial ceramics for FY '22 [ as a whole ]? And also, how would have been the margin variation between these 2 subsegments [ or for the entire ]?
I mean the audio is not so clear, but I presume your question was relating to the margins of the Ceramics segment and whether it would hold.
Sir, is it audible now? I can repeat the question.
Much better.
Yes, sure. Sure, sir. So sir, my question was if you could bifurcate the overall Ceramics segment revenues for FY '22 between refractory and industrial ceramics. Also, what would have been the margin variation between these 2 subsegments? That was my first question.
So I think normally, we club this as a Ceramics division. I would encourage you to look at it that way and making a view on a ceramic basis as we report as a segment is a better way of looking at and whatever historical margins will help you to even forecast the future as well.
Sure. Sir, directionally speaking, would it be true that the industrial ceramics would have grown at a faster pace than the traditional refractories products? Would that we true?
I would say the last year, I think it is -- we are seeing good growth opportunities available even in refractory. So it is -- it's mixed at this point.
Sure. Sir, secondly, you had earlier mentioned that you would start seeing revenues from the silicon carbide build ceramics from FY '23 onwards. We had already received approvals from the foreign customers. So are we on track in commercializing these products?
Oh yes. Yes. So we have started getting approvals, and we have progressed pretty well on that, both in the chemical, what I would call, a chemical process industries and also from the [ wear ] industries. So quite a bit of a progress there, I would say. But still the volumes -- when I say the infrastructure to build those volumes have to be continuously built. So the last year has been one of proving the products, proving the applications, yes.
Sure. And sir, just the last question, if I can squeeze in. You had a shift in your field from liquid fuel to natural gas. Now I understand that even natural gas prices have shot up now. So on a sustainable basis, do you think will there be a margin improvement because of this shift?
So there are 2 parts to this. One, traditionally, we have always seen that the liquid fuel is always a little more expensive than the natural gas. But more important to us is that the natural gas is much clean burning fuel and which leads to lesser emissions and also less leakages, et cetera. So to manage an operation with gas fuel is much, much easier and much better environmentally. So that's the focus we have today.
The next question is from the line of Deepesh Agarwal from UTI Asset Management.
Sir, my question is, is there any currency translation loss on the Russian operations?
Yes. The Russian operations loss is around INR 4 crores. From -- compared to last year, the rates are almost same from INR 1.01 to INR 0.97. The loss has not been felt much.
Understood. Understood. Sir, secondly, what is the extent of the sales or the mix in the sales to new region after the conflict period?
There is no impact on the sales. The sales -- top line is still continuing at the same levels. We see no reduction in the top line.
Okay. The proportion of the sales to -- remain same as in conflict period?
Yes. There is no difference at all. It is same.
The next question is from the line of Amar Mourya from AlfAccurate Advisors.
Majority of my questions have been answered. Just on this, as you indicated that the net imports are in dollar and exports are in euros. So any cross-currency headwinds we will be facing because of this?
We are a net importer in dollar terms, and we are a net exporter in euro terms. We have natural hedge, almost the exports and imports are almost the same. And only the net, we are taking hedges and doing it properly. Therefore, we are not getting any losses.
Okay. Because euro is depreciating against dollar. That is the reason I'm asking.
That is why I'm telling that the imports is separately in dollars, and the exports are managed in euros. We don't have a mix of it.
And sir, say, exports are in euros and -- but euro is again depreciating against INR also. So because of that also, we will not face any cross currency?
The volatility is not much.
The next question is from the line of Khadija Mantri from Sharekhan.
Most of my questions have been answered. I just would...
Sorry to interrupt you, ma'am, but your voice is sounding muffled. Can you please check?
Is it okay now?
Better ma'am.
Yes. So sir, I wanted to check for FY '23, what would be the debt level and the CapEx also? And also would we be looking at any more acquisitions? And if yes, then in which geographies we should be targeting for FY '23?
As far as the debt level, what we have reported is about roughly INR 200 crores, which is normal for working capital debt, that's what we have. I don't think these are quite [indiscernible]. It will go in and around that. I think it could even go to 0 depending on the type of working capital that we will manage. There is no long-term debt. There's no debt relating to the acquisition. So we expect that trend to continue. As far as the acquisition opportunities, we just shared the broad template of opportunities that we are looking at. So we will be sharing with you as and when we are able to close a deal. It will be too difficult to give any cadence on that at this point in time. But as we said, that clearly is within the business in which we are currently working on is where we are looking at opportunities. As far as the CapEx for the next year, Padmanabhan, do you have any...
Yes, it will be in the same range. Usually, the policy is to take CapEx at the depreciation level, it will be around INR 100 crores. At the consolidated level, it will be around INR 180 crores to INR 200 crores.
Okay, sir. Sir, one more question I had. So we said that consolidated managed standalone would be the subsidiaries number. So if I look at Q4 FY '22, the reported stat, there is a loss of about INR 5 crores at the PAT level, if I just do the calculation. So is it safe to assume that it is occurring because of the INR 20 crore settlement that we have done?
Correct, correct.
Okay. Okay. So there is -- so none of the subsidiaries are incurring losses.
No. I think your view is correct. We need to take that INR 20 crores off to understand the normal profitability.
The next question is from the line of Aditya Mongia from Kotak Securities.
My first question relates to the INR 660 crores that has been spent on investments -- on acquisitions, pardon me. Is it fair to assume that this investment would be yielding a single-digit return in year 1? And have you suggested probably a double-digit, mid-double-digit kind of return in year 5?
Yes. So I would look at it this way is that -- so we have, between these 2 investment, RHODIUS and abrasives, roughly about, give or take, about INR 550 crores to INR 600 crores. Next year, will get added to the current capital employed of roughly about INR 570 crores of capital employed of abrasives. So we expect that this return that what we will have because we have to address the issue of AWUKO, we expect that breakeven will be '24. And RHODIUS is running profitable business, but then we need to start working on growth paths as they have laid out. So we feel that this will give -- will probably -- you will see a drop in capital -- return on capital employed in the next year. But we feel that in '26, as I said, that we will get back to a better return on capital employed once we address these issues.
But what we have not considered in this is, how are we going to address the synergies that we are looking at. We laid out 6 areas of synergies, and we have not considered anything coming out of that. So if we have to work on those synergies, we feel that this could be much earlier than this '26 -- this is '26 view that I am presenting to you is, as the individual companies, how it is progressing and without considering the synergies. So if you have to consider the synergies, this could be much earlier, and I don't want to hazard a guess at this point in time in terms of how early. But we are keenly working on this because these are very well defined areas, and we can clearly work on the quantification of it, which our team is working on.
Understood, sir. The next question that I had was more on this comment made by you that raw material security is becoming more and more important in the marketplace. Should we see through this benefit coming to you as margins over time or as market share gains and some quantification, if you could give on that count?
So you are talking about this Gati Shakti program that we...
No, no, no. What I'm trying to say is you made a comment that raw material security in the marketplace is becoming important. The fact that you do Abrasives, Ceramics, EMD, everything put together, everything -- you win acquisitions today, but I just want to kind of see it from an incremental perspective, does it add to your margins because we were better off or does it active market share and some quantification?
Yes. I think definitely, it would help to address the margin part. That's clear, because not only to us, I think including the 2 acquisitions that we have done, we are seeing this impact us because they are able to provide them those security, hence they are able to meet that. So it's going to help. Obviously, because of that, I think their capability to serve the customer also increases, hence, would probably increase the market share. But I think we should look at it more in a longish term. I don't encourage you to look at it more a 5-year term. This security will help, one, on the margin, 2, on coming up with better products through working -- co-working with our team in Electro Minerals. And 3 is that it will definitely help to address their own market share and customer satisfaction levels.
Understood, sir. Just a data point from my side to end it off. Could you give us the market share in silicon carbide that your [ subsidiary ] has in Russia, Europe, ex Russia and in India?
Market share means, in our products, what we sell within that geographies or?
Basically, silicon carbide specifically, half of the market in Russia is -- Europe ex Russia is in India, as you said, a lot of imports you have inside India. Of these 3 markets, what would be the ballpark market share that you would be having as you supply out of Russia?
See overall, silicon carbide, if I have to take a guesstimate because there's a lot of materials also coming in from -- produced in China, and we don't have a concrete picture about that. But I would venture to estimate that VAW has about 8% to 10% market share globally. And in India, what we produce as CUMI in Kerala contributes to about, I would say, less than again, less than 10%. So the -- on a global level, about 10% from Russia and that should help when we bring in material from Russia into India.
Sure. Sir, just one more thing from my side. It will really help. So you've been talking about the EMD capacities and there being a China plus one global kind of effect that will make you invest more in capacities. Given what is happening in Russia in terms of uncertain political environment, does that impact your growth plans for the EMD segment out of Russia? Or would you still want to go ahead with those plans from Russia?
So it's an interesting question. We should remember that Russia is one of the largest deposits or sources of very competitive power and also resources. And the resources, what we need for making silicon carbide is definitely in Russia. And this current conflict will take a few years, no doubt. But I guess the world would need access to the minerals or the resources from Russia, and people will find a way. And being in Russia, having invested, having experienced Russia and what it can do for our business, we are still bullish about Russia.
Sorry to interrupt. May I request Mr. Aditya to please rejoin the queue. We have participants waiting for their turn. The next question is from the line of Bhavin Vithlani from SBI Mutual Fund.
The question is on abrasives market in India. Your peer in the earnings call mentioned that between GNO plus CUMI, the market share has increased to about 58%, 59% versus 3 years ago, which was about 49% to 50%. Could you just help us understand and confirm that 2 players have seen a significant increase in the market share over the last 3 years?
Sir, we -- I would be able to not quantify it in such precise terms, but what I can possibly share is a direction that we have seen over the last 2, 3 years in terms of the products that we have been able to put in the market. I think possibly, there is an impact which the -- I would say, the availability of material from China or the less availability of material from China has had an influence on the market share of both the companies. And having said that, we have -- while we are seeing volume growth in these segments, we have to see how China responds to it and what the logistics or the supply chain disruptions, if any, can have an impact on this.
Sure. The last question is, could you help us understand what is the total addressable market for abrasives in Europe, Germany and in the U.S? So just to gauge an impact, how large are these entities from the European perspective.
Yes. I mean, it's -- depending on the reports that we read, it can go -- it can be anywhere between $35 billion to $40 billion. And again, the definition is conventional abrasives, bonded abrasives, coated abrasives, super abrasives and minerals as what we call as loose abrasives. So the market size is quite large. The addressable market, if you look at from a conventional abrasives point of view, I would guesstimate at least a couple of billion dollars or more in Europe. So we do have sufficient headroom to grow in both the geographies.
Sure. Would you be able to quantify what is the size of EU addressable market for abrasives and maybe German market for abrasives?
I mean, I would not be able to share right now, just to suffice to say that Germany is the largest consumer of abrasives in Europe.
Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to Ms. Bhoomika Nair for closing comments.
Yes. Thank you, everyone, for being on the call and taking time out and especially the management to give us an opportunity to host the call. Wishing you all the very best, sir. Thank you very much.
Thank you so much again.
Thank you. Yes, sir, any closing remarks from your side?
Yes. So -- okay. So this last year has been a very, very volatile year and very uncertain. I would say if I would look back at the last year, we have been kind of 4 quarters of uncertainty, I would say. Of course, starting with the COVID and then we saw the demand coming back, but raw materials not being available, then we saw the prices going up significantly. Then again, the COVID struck. So it's been a yo-yo of sorts. And we expect that this coming year would also see lot more inflationary trends across the economies. Having said that, we had a very exciting time in terms of putting together these inorganic opportunities. And we will continue to focus on improving our volumes, market share and building our capabilities to address the future opportunities. So thank you again for joining on this call and looking forward to sharing with you more information possibly in the next quarter.
Thank you. On behalf of DAM Capital Advisors Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.