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Good day, ladies and gentlemen. Welcome to the IFGL Refractories Limited Q4 and FY '21 Earnings Conference Call.This conference call may contain forward-looking statements about the company which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Navin Agrawal, Head, Institutional Equities at SKP Securities Limited. Thank you, and over to you, sir.
Good afternoon, ladies and gentlemen. On behalf of all of us at SKP Securities, it is my pleasure and privilege to welcome you to the financial results conference call of IFGL Refractories Limited. We have with us Mr. Kamal Sarda, CEO and CFO. We'll have the opening remarks from Mr. Sarda, followed by a Q&A session.Thank you, and over to you, Mr. Sarda, for your remarks. Thank you.
Thank you, Navinji. Good evening, ladies and gentlemen. Thank you all for joining us on IFGL Refractories Limited Q4 FY '21 Earnings Conference Call. I hope you and -- all of you, all your friends and relatives are safe and good health. Along with me, we have SGA, our investor relations advisers and SKP Securities Limited.We have uploaded the press release and the results presentation on stock exchange, and I hope you have had a chance to go through the same. Let me give you a small brief of the business highlights. I'm very pleased to announce that our company has recorded its ever highest yearly revenue and EBITDA in FY '21. On the adjusted basis, we have also recorded highest-ever yearly PAT in FY '21. We have also achieved a significant milestone on surpassing INR 1,000 crores yearly revenue in FY '21 on a consol basis.Demand for steel continued to be strong and broad-based along -- across all the steel-consuming sectors. Kick starts of CapEx cycles, spending infrastructure, resumption of real estate and construction activities, revival of partially auto industries are key factors behind the sustained demand. Domestic steel capacity has witnessed higher utilization level on the back of continuous order inflow and exports. Steady demand for steel also led to steady demand of our refractories. Domestic and export markets both remained favorable for us during FY '21.However during the end of FY '21, due to second wave of COVID-19, lockdown restrictions were brought in, in order to control the spread of virus. The industrial oxygen which is required to produce steel was partially diverted to hospitals for a good cause, which is expected to impact steel production, which is getting back to normal now. However, we believe the demand has been quite strong and has just being postponed. Many parts of the country have already started unlocking, and hence, we expect the demand to revive back with the increased economic activities.With respect to our CapEx plan, work is on track at our greenfield expansion in Visakhapatnam, which will start commercial production hopefully in this quarter. The Phase 2 of the expansion plan is also expected to be completed by quarter 1 of FY '23. Going ahead, we expect the demand to be steady with the unlocking of economy. With enhanced capacities of new product capability, we expect to improve the scale of business, which will lead to scale benefits and operating leverage playing out in long term for the company.With strong results and positive outlook ahead, the Board of Directors has recommended a dividend of INR 4 per share and a special dividend of INR 6 per share, totaling INR 10 per share for FY '21, subject to shareholders' approval. This is 100% dividend in total.Let me come to the financial highlights for Q4 and the full year FY '21, starting with standalone. Total income increased by 50% year-over-year to INR 176.8 crore in quarter 4 FY '21, while it increased by 29% to INR 655.8 crore in FY '21. EBITDA increased by 111% Y-on-Y to INR 37.1 crore in FY -- sorry, quarter 4 FY '21, while it increased by 83% in FY '21 full year. EBITDA margin expanded by 600 basis points in quarter 4, and expanded by 640 basis points in FY '21.Before going ahead, let me spend some time on the onetime tax impact which we had on account of goodwill during the quarter 4 FY '21. You all must have seen the results. Following the merger of erstwhile IFGL Refractories with the company under the amalgamation scheme, goodwill of INR 267 crore had arisen in the books of the holding company in 2016, which was being depreciated or amortized over a period of 10 years. As per the amendments in the Finance Act 2021, goodwill on amalgamation is no longer a depreciable asset and goodwill -- sorry, depreciation on goodwill is not allowable expenditure effective 1st April 2020.Company has, therefore, recognized onetime deferred tax charge of INR 21.6 crore for quarter 4 FY '21 and INR 20.2 crore for the year, consequent to the reduction of depreciable amount of goodwill for the tax purpose to 0. This deferred tax charge does not involve any cash outflow, either in the current year or in the future also.Coming back to the financial results. Adjusted PAT increased by 72% to INR 10.7 crore, while it increased by 119% to INR 65 crore in FY '21. Adjusted PAT margin expanded by 80 basis points, while it expanded by 400 basis points in full year.Coming to the consolidated financial results. Our consolidated financial highlights also include our international subsidiaries in the U.S. and Europe. I'm pleased to share that all our subsidiaries are now profitable even at the PAT level. Total consol income increased by 28% Y-on-Y to INR 288 crores at quarter 4, while it increased 12% to INR 1,042 crores in FY '21. Consol EBITDA increased by 111 basis points -- sorry, 111% to INR 48.5 crore in quarter 4, while it increased by 72% Y-on-Y to INR 176 crore in FY '21.Consolidated EBITDA expanded by 660 basis points in quarter 4, while it expanded by 590 basis points in FY '21. Adjusted PAT increased by 186% to INR 19.1 crore in quarter 4, while it increased by 114% Y-o-Y to INR 85.8 crore in for full year '21. Previous period profit also had been adjusted by an exceptional item on account of impairment of goodwill pertaining to German operations for better comparison. Adjusted tax margin expanded by 360 basis points in quarter 4, while it expanded by 390 basis points in full year '21.Coming to the individual international businesses. EI Ceramics, our U.S. subsidiary, total income was $17 million, down 12% in full year. EBITDA was $2.31 million, down 2%. PAT was $1.74 million, up 8%. Monocon, our U.K. subsidiary, total income was GBP 25.9 million, up by 4% year-on-year. EBITDA was GBP 1.07 million as compared to EBITDA loss of GBP 1 million last year. PAT stood at GBP 0.8 million as compared to PAT loss of GBP 1.36 million last year.Hofmann Ceramic's total income was 6.5% (sic) [ EUR 6.5 million ], down 18% year-on-year. EBITDA stood at EUR 0.56 million as compared to EBITDA loss of EUR 0.48 million last year. PAT is EUR 0.12 million as compared to PAT loss of EUR 1 million last year.With respect to liquidity position, we remain net debt free with a strong balance sheet and a strong cash flow. Cash and cash equivalents as of 31st March on a consol basis was INR 322 crores.So this is brief about the company and financials. I'll now leave the floor for any questions. Thank you.
[Operator Instructions] The first question is from the line of Chirag from HDFC Asset Management.
Congratulations on a great performance for the full year. Sir, I just had 2 or 3 questions. One was, obviously, we've seen a very sharp improvement in profitability in the stand-alone business. And if you could point out what you think is long-term sustainable margins in stand-alone? So that's my first question.The second is the Visakhapatnam Phase 1/Phase 2 expansion, once it is completed and when it is eventually fully operational, what kind of revenue can it possibly generate? That's the second question. And if you could just touch upon the performance outlook for the subsidiaries, that would be helpful.
Okay. On the performance coming from the back side, performance, I think I gave you the performance. I think the U.S. subsidiary has always been the highest profit-making company, and that will continue to remain like that. The U.S. is now recovering very fast. And I'm sure this year will be significantly better than last year. Last year, the first 2 quarters of EI Ceramics was bad, not only EI Ceramics, the other U.S. company was also bad. So I hope with the recoveries now, this year's performance in the U.S. will be better.U.K., we are also hopeful the current financial year should be better. The last year also it's partially impacted. So that's our view there. I'm not going to give you any figures as such. That would be wrong for me. But yes, they would be doing better than last year. That's our assessment.And Hofmann, we are continuing to work towards it, and we hope that we will be in a position to improve it further. Because it's the first time after maybe a couple of years we have had profit. Last few months, we have had profits. So I hope this year should be better there. So in nutshell, the overseas operation also should do better in the current financial year. So that's the last question.Coming to your first question, we did discuss I think a couple of months back on this. See, there are few factors which helped us this financial year. One, obviously, that during the entire lockdown period in the initial, the first lockdown, we were in operations. Our Odisha plant was in operation. Barring about 20 days shutdown of our Gujarat plant, we were in full operations. And fortunately, we had some backup of raw material, so we could serve the customers better. There was a very strong demand from our overseas customers during that period. So that's there.And in the whole of the year, our export sales have been also very, very good. So in a nutshell, our exports to total turnover ratio has also been -- the exports have been higher compared to the domestic. So domestic also increased, but the export increased much more. The other factor was, fortunately, we had a favorable ForEx on our -- because if you look at the last March dollar and euro rates, rupee depreciated thereafter, and I'm talking very specifically in rupee to euro was favorable to us.There are a lot of work which we had been doing in the last couple of years or maybe last 2 or 3 years on the raw material or the input cost side, and which is, I think, I'm sure this year, FY '21, it favored us. We could do a lot of improvements. And earlier, we had only ISO -- not only, the ISO was a major product basket. Now in the last few years, last couple of years, we have tried to increase the other product ranges also like slide gate, purging, precast and the monolithic side. And this year, the percentage of these products have grown much faster than ISO. So -- and this -- there also, we have worked on the raw material costs, and our margins have been much better where earlier, the margins used to be lower.On the expense side, yes, we have done a lot of expenses rationalization. And one of the major savings in the last 1 year, I'm sure it is applicable to all of us, there was hardly any travel cost. Our travel costs were normal -- normally at 1% of the case. So there was hardly any travel in the last quarter of last year. I think if you accumulate all these factors, it will help in the reasons for our increased margins.
And what kind of margin broadly, without giving any particular specific guidance, how much -- what kind of -- because you've been at 15%. You've jumped to 20%. So what is the level that you are seeing to sustain?
Ladies and gentlemen, the line of speakers got disconnected. Kindly stay connected while we reconnect them.Ladies and gentlemen, thank you for patiently holding your line. We have the line of Mr. Sarda connected back. Thank you, and over to you, sir.
I'm sorry, the line got -- there was a call drop here. I'm on a mobile. So Chirag, I think margins last year were good. I will not put any kind of figures there, but we are trying to keep the margins for this year also.
And sir, the last 2 questions. One was on the Visakhapatnam expansion and the second was where -- the one I didn't -- which I didn't ask earlier is what kind of steel output increase are you expecting for the country for the full year?
Okay. Visakhapatnam plant will get, I think, the first phase, as I mentioned, I think in this month, we're going to start the trial production and commercial production. And we've spent about INR 30 crores in the first phase. In normal course, we look at about 3, 3 to 3.5 to 4x CapEx as turnover. So we should be looking at INR 100 crores in a full year operation. It may take 2, 3 years to reach the full year. So this year would be more into more -- first 6 months would be more into tests and trials. And so I'm not saying there will be a lot of sales from this plant in this financial year.But yes, we would be stabilizing that plant, get the plant approved at various customer end. Because all customers for any new plant, they need an approval process to be gone through. So we will try and get all the approvals in the next, say, 3 to 6 months' time. And then thereafter, we'll have some sales this year. Nothing very significant. It could be INR 20-odd crores in this financial year. And the next financial year, I think it would go up. So that's a normal way of looking at things, that 3 to 4x the CapEx.And the next year, somewhere around quarter 1, we should be completing the next phase, which should cost us around -- somewhere around INR 20-odd crores. That, again, we will go through a similar process. That may take a slightly longer time because that is a more shaped product. So that will take a slightly longer time for test and trial. It may take about 6 months to 8 months. So that -- benefit of that would be coming in the subsequent year. Now coming to the steel outlook, Chirag, if you go to the World Steel figures and the World Steel figures say that this year -- this calendar year, India will go back to the normal steel operation of last year, almost like. They are projecting almost 20% growth compared to last year. Last year, we had about 14% minus, negative. So that's my -- our assessment also. We are seeing a good demand, good uptake from the steel plant. We're all running full capacities. And it should be good in the next few years also.
Next question is from the line of Viraj from Securities Investment Management.
Congratulations on good set of numbers. I just have 2 questions. First, you said on the demand that we expect around the industry, the steel industry to grow close to 20% in CY '21. Now this is despite the kind of impact in production, if any, we would have seen in the current quarter. Am I right in thinking that way?
No. I've just mentioned the World Steel Association's steel outlook figures. And I have not projected it on my own. So that's the last projections which I have in front of me. There could be ups and downs, but there could be severe ups in the next few months also when things go back to normal. But I've just gone and said what has been said by the World Steel Association.
Okay. But for us, even in the current quarter, which is Q1 FY '21, are we seeing any considerable moderation in terms of refractory consumables or any indicators?
You're right. You're right. Some steel plants are -- have shown some moderation. Some steel plants have asked us to defer some dispatches, but nothing very, very significant. Like Steel Authority or the large steel mills could produce almost full capacity. It was the smaller players, they had some issues.
Got it. And...
They've all gone back to or I think are in the process of going back to normal now.
Okay. And second question was again on the demand. A certain part of the demand was met by imports from China, Korea, in the unshaved and other refractory products. So has that now largely moved to the domestic players? Is that already -- so has the large part of that already moved to the domestic vendors?
So in the last 6 to 8 months' time, the ocean freight between China to India had gone up significantly. I think I mentioned in my last conference call, the freight from China to India was somewhere around $400 to $500 per container. Now it's hovering around $2,000 to $2,500 per container. It's gone up at least 5 to 6x. It had gone up beyond $3,000 at one point of time. So obviously the freight cost per tonne has gone up significantly. So some products, which they found it's better to make in India, but I'm not saying that this has significantly shifted, but yes, there is some shift which has happened due to this fact that the costs have gone up, the logistics cost.Freight plays a very, very significant role. And mind it, all the products which were imported from China was a moderate-valued product, not very high-valued product. So the freight cost on them was significant. So there are some products like magnesia carbon bricks that a lot of players have started manufacturing in India. So that shift will happen in the next 1 or 2 years more and more when the capacities come up, but not in our range of products. Our range of products, we were always making them. There was hardly any competition from the imports.
Okay. Okay. Just one last question was on the raw material price front. Is there any perspective you can share? And even in this quarter, we have seen a gross margin expansion for us. So I think a quarter or 2 back, you were talking about industry loss sharing and end customers not giving us price increase despite them having a very healthy spread. So I mean, are we now getting a price increase from customers? And is that enough to account for the raw material inflation which we are seeing?
See, any price increase -- giving any price increase by any customer is a tough job, okay. The customers also understand the costs have gone up. As I mentioned, freight and other things, even the -- there has been RMB appreciation over a period of time, over the period of last 8 to 10 months, about 7% RMB appreciation has also happened. So the customers are aware of this fact, but it's a competitive market. Even if I am asking for a price increase, if somebody else goes and bids for it at the same price or slightly lower than our price, then it's a competitive market.But in nutshell, yes, customers are -- we have got some price increases, but that will only happen when the ordering -- that order completes or a new order comes in. But yes, there are price increases which are happening not only in India, across the world. Whether it will meet the full costs or not, only time will tell. It's a timing mismatch that happened, okay? So only the time will tell, but every customer is aware of this fact, and they are willing to listen to us. So that's a good part of it. Maybe we'll get some price increases, but it's a competitive market.
[Operator Instructions] Next question is from the line of Manan Shah from Moneybee.
Congratulations on good set of numbers. Just a couple of questions on my side. I just wanted to understand the revenue potential of the CapEx that we are doing, specifically the Kandla project, INR 10 crores, and the -- with the respective commission in H1 FY '22 and the -- another INR 30 crores expected to commission in Q1 FY '22. What sort of revenue can these CapExes generate?
See, generally, on a thumb rule, on a greenfield, you're talking of anywhere between 3 to 4x. And on a brownfield, it can be about 6 to 7x.
Okay. Okay. That was helpful. And then just a couple of bookkeeping questions. So now as we will be writing off the goodwill, the depreciation amount going forward will be in the range of INR 20 crores to INR 25 crores. Is that understanding correct?
No, no, no. How do you say depreciation amount will be INR 20 crores to INR 25 crores?
No, I was referring to your Slide #15, which shows the bifurcation of depreciation and amortization and the goodwill amortized. And now as we will be writing off the goodwill against our results, so going ahead that will not be forming a part of the P&L, so...
Yes. So the balance depreciation is about INR 22 crores.
Yes.
So that will continue. This INR 27 crores will not be there.
Yes, exactly. So as we are...
This is subject to the approval of NCLT. And it is not that we are doing this unilaterally because this scheme was approved by NCLT. So we have to get -- go back to NCLT for approval. Once NCLT approves, so then we can adjust that with the share premium. It's just a process we have approved in our Board, but this is subject to NCLT approval.
Yes. Yes, I understand that. Then coming to the performance of our subsidiary, specifically EI Ceramics and Hofmann Ceramics. So in both these subsidiaries, there was a drop in revenue, but a substantial improvement on the EBITDA and PAT front. So just wanted to understand that what led to this sort of improvement? Was it a change in the product mix or were we able to get better prices? Or is it due to cost controls? If you can just throw some color on that?
Okay. On the EI Ceramics, the sales was down because the first quarter and second quarter was very bad. We had a loss in the first quarter. Second quarter was also a low sales, and thereafter, the U.S. market picked up from the second quarter itself. So that's the reason why sales is low.On the profit, how did we maintain the same profit? Last year, if you recollect the quarter 3 results of our -- wherein we mentioned that in U.S., we got a $1 million grant from the government of U.S., which was an employment protection plan. I think something they call that people protection plan or something like that or pay protection plan. And then that grant was initially given as a loan, but then subject to certain conditions, that loan was waived. So that $1 million in the U.S. company -- so there are 2 companies in the U.S. EI Ceramics, I think, got about $0.7-odd million. So that's the reason the PAT is higher. Otherwise, the PAT there also would have been lower to that extent because of the sales is lower.And on the Hofmann Ceramics, there are various reasons. One, there's some product group, a more profitable product we could sell, although with margins that will be lower product -- lower-margin products, there's hardly any sales there. But then we could reduce a lot of costs there because of this various lockdowns and restrictions put in. There 3 or 4 people who resigned, we did not replace. There were some furlough scheme, also the German subsidiary got. So there's some money grant received from the government there also. But then more was the expense control and the high-margin products.
Okay. So going forward, should we see some revenue growth in our subsidiaries? And if then, what is giving you the confidence for that?
Revenue growth, yes, because the last year, the initial quarters were bad, and then this year should be better. I think I mentioned this thing to...
Sorry to interrupt, the line of the speaker got disconnected. Please stay connected while I reconnect them. Ladies and gentlemen, thank you for patiently holding the line. We have the line of Mr. Sarda connected back. Thank you, and over to you, sir.
Yes. Sorry, I have been -- I'm connected on mobile, the line gets dropped here sometimes.
Yes. No issues.
Yes. So as I said, the first 2 quarters had impacted due to COVID restrictions in the various countries. I hope this year will be better than last year.
Okay. So on the U.S. subsidiary, so U.S. has also announced that they'll be spending heavy on CapEx, in fact, that's immediately. So do you think we can get some price increase because of the increase in demand over there and which will help improve the profitability of our U.S. subsidiaries?
So there also we are getting some price increases on -- primarily on the front of the input cost increase, not because what the U.S. government is spending. As I mentioned, it's a very, very competitive market. So it has to be based on competition. The prices is not based on what we want. The pricing is based on competition. We're getting price increases. And hopefully, we're trying to see that if that can offset our cost increases so that we are able to maintain the margin. And the market is aware of these price increase, yes.
Right. And just last question on my side. What will be the tax rate going forward?
Where?
The blended tax rate for the consolidated business?
I've not calculated, but it should not be very significantly lower than what it is now.
The next question is from the line of [ Hitesh Kumar ] from Bharti AXA Capital.
Sorry, this is Hitesh from AXA Capital. I just wanted to understand the nature of contracts that we have with our clients. Is it a simple supply arrangement that we have? Or do we also have throw service contracts where we take care of the entire refractory requirements of the particular mill?
We have both the type of -- both types of contract.
Okay. So if I have to understand the mix in the domestic market, probably could you please share what would be the mix between...
In the domestic market, the -- we call it, along with application. So application and supply contract would contribute -- constitute about 60% to 70% of the total domestic business.
Okay. Okay. And what would be this mix in your overseas market?
Overseas, there are no application contracts with us.
Sure, sure. Got it.
It's purely supply.
Sure. So when you say 70% mix on the application of the contract base, what would be the tenure of these contracts where you will have these prices reset?
Usually, it is 1 year up to 3 years term.
Okay. So in the interim, if there is an RM increase, that is not a pass-through. It has to be absorbed as part of the contract term?
So if it is 1 year contract, it's almost a fixed price contract. And if it is a 3-year contract, at the end of the first year you can ask for the price increase with proper justification.
Got it. Got it. And this would be a calendar year contract, is it? How would the pricing be...
No, no. No. No. There are no fixed rules for that. It can be from any date to any date.
Okay. Sure. And sir, if I look at your gross margin, historically, our margins -- gross margins were -- I'm looking at the stand-alone operations alone. So about 48% is where our margins have been, about 45% to 48%. It is only this year where we have seen a 53% gross margin. Just wanted to understand if this -- of course, you did mention about those products that there was a product mix in your export business. But besides that, is there anything that has led to this significant improvement in gross margin?
As I said, we have worked on various input costs in the last couple of years. So this year, we have been able to use this data, and that's one of the reasons there. And one of -- and few product groups where our margins were lower in the last few years, this year, we have had good margins in that also. Plus in the export market, as I mentioned, export is more than 60% this year. The ForEx rate also played an important role, where the top line went up, and the input cost, because we all import in dollars, the rupee-dollar was pretty stable.
So at least we should not go back to that 48% kind of margins, right, except for that 100, 200 bps because of the spread movement?
That -- as I said, we are trying to maintain the margin.
Okay. And this is despite the fact that in the recent last 2, 3 months, where we have seen a significant increase in zirconia and also your graphite orders. So that -- we should still be able to maintain a margin somewhere around this 53% odd?
We'll try and see how best we can maintain the margin.
[Operator Instructions] The next question is from the line of Abhisar Jain from Monarch AIF.
Congratulations for superb set of numbers in FY '21 in a very tough year.
Thank you. Thank you.
Sir, I just wanted to understand that on the domestic operations side, I believe that we have been making a lot of efforts on the client acquisition side also. And we have been able to add a decent chunk of clients in the midsize and the mini mills. Would you suggest what kind of client addition would have happened in say last year or last 2 years?
See, on the mini mill segment, there are very various, small, small customers. In mini mills there are small customers. But on the large side, we have added few customers like Tata BSL, which was the Bhushan Steel earlier. We have added JSPL Angul, which was -- which is a very large customer for us as of today. So these are the 2 large customers. Our business has increased with various customers like, Bhushan Power and Steel, which in now JSW Group part. We have had new businesses with JSW Dolvi and then JSW Salem. So these are some of the customers, I would say, on the large mills side. But in the mini mills segment, there are various customers, which have got added, Abhisar.
Sure. And sir with SAIL also, we are maintaining our share or we've been able to take it up a little bit because that has been one of our oldest customer in the large mill.
SAIL, we are maintaining some share, but in some -- it's a competitive game again. But I would say, nutshell, we are maintaining our share, yes.
Yes. So sir, actually, I wanted to understand that since SAIL's volume was stuck in a range for a very long time and now because the other mill's capacity expansion is yet to come on board, right, because Tata's expansion is still 2 years away and even JSW's Dolvi plant has got delayed a bit. So what I understand is that the SAIL volume in the interim has started picking up quite strongly because there was a lot of expansion happening in SAIL for the last 7, 8 years. So we are maintaining that share in that large volumes.
In the expanded capacities also. In the expanded capacity also, we have got a decent share.
And sir, as I understand, is that we are making very strong efforts to also acquire one of the other -- the large mills on the western side of the country, right, which we still don't have on board, right?
Yes. We're undertaking trials. And possibly in the next few months, we'll be able to enter into that plant with a regular business.
Right, sir. That will be great. And [indiscernible].
That's the biggest plant we are not having in our customer book so far.
Correct, sir. Correct. Correct. Correct. That will be one of key things for our volumes. So also, sir, I think what I understand is that IFGL stand-alone was also making a lot of effort in increasing the recycled refractory content in the raw material source -- raw material input, right? So could you indicate that what progress we would have made in the last 2 years since the recycle content in the RM?
I would rephrase the word that I will not use the recycle. I would say alternate material. The recycled material is a bad word for the steel plant. They will say that [Foreign Language]. I would say alternate materials. Yes, our usage of alternate materials have increased. I will not mention any percentage, Abhisar. That's something which is of course more to be worked upon. But we have been -- we have definitely worked very hard and improve on the usage of alternate raw materials.
And sir, it will be fair to assume that as we're increasing this alternate material proportion, it continuously keeps our gross margin better or allows us to fight the RM volatility better, right?
Yes, yes.
Okay. Okay. And sir, just one -- sorry.
Yes. Please go ahead.
Okay. And sir, just one clarification. On this goodwill adjustment that we are taking the approval for, so till the time we don't get the approval, you will keep accounting for the INR 6.7 crores write-off in the quarterly numbers?
Yes, yes. Yes. We have to. Right. So maybe as and when the approval comes in, it will be written back in that particular quarter or if it comes in the last quarter, that will happen in the last quarter. Until such time, the write off continues.
Sir, any time line for the completion of this process? Is it going to be 6 months or it can be even higher than that?
It's a court process, Abhisar. But we are expecting anywhere between 6 to 9 months, it should happen. But nowadays, courts are also working online, so I don't know how this will happen. But it should take more than 6 months' time.
Sure. And sir, just last one on Hofmann. Do you expect that the -- now performance can be a little bit stable, because it's been all over the place? This year we have done very well in FY '21. But can you maintain this?
Yes, that's the target. Yes, that's the target to maintain this momentum.
The next question is from the line of Pratiksha Daftari from Aequitas Investment Consultancy.
So I just wanted to understand, currently, you've mentioned that our export contribution has increased. Do we expect to maintain this kind of export contribution? And what would be the factors that we've been able to increase our exports so much?
I think we'll be able to maintain this because overseas market is very, very strong as well as the domestic markets. We will be able to maintain export what we have. All our customers are producing in almost full capacity, if not more. And so I don't see there is any reason why we should have a different kind of proportion in export and domestic.
Sir, what has led to this increase in export demand?
The production levels at the various steel mills where we have our customers, I will say. So they are running more and so we'll be able to sell more. Barring one or two places where we have been able to supply more because I think the customers, they found us more competitive and have given us more orders.
Okay. So sir, any difference in the -- like our competitiveness like -- are our prices lower than the [ competitors' ] prices or if there is a material difference there, if you can elaborate on that?
Difficult to answer this question. But definitely, we are competitive in the international market. That's why we are there in the market, and we have significant wins, not only the price but also the quality. There have been places where our quality is superior than our nearest or the largest competitor. It's not only the price. The price only doesn't factor, because the refractory costs per ton of steel will be insignificant. So people are looking at more the quality part of it than the price part of it. So our quality is superior in various places.
Okay. Okay. And does our export business command a differential margin than domestic business?
We don't calculate our margins based on the domestic and exports. I'll not be able to tell you.
The next question is from the line of Nilesh Doshi from [ GL Capital ].
Sir, couple of questions from my side. Firstly, you did mention that at the country level, I think we are reaching at full capacity utilization of steel industry. And we have also heard in the media that a lot of new CapExes coming. I think overall, they are talking about 20 million tonne new BOAs coming in over next 3 to 5 years. So this new CapEx, does it help for more business, especially on the CapEx side?
So we -- our refractories are more consumable. It's only after the commissioning the plant, we come in, not on the CapEx side. So once it starts running, our refractories are being used.
Okay. Second is, sir, on the technological upgradation, I mean, are there any products or high-value chain products, which we don't have, and are we working towards that? Can those be a bit more for us over the next 3 years? I mean, because I don't understand this industry that way.
Yes, there are a lot of products. We don't make all the range of products. Refractories have very wide range of products. There could be tens of thousands type of products. We don't make all the types. We are only into the steelmaking side. We're not in the bricks. We're not into the tonnage refractory. But even in the special refractories, there are some refractories where we are working on it. And possibly, when it's 1 or 2 years, we will try to improve them in our portfolio, which will add some more value addition to the customer as well as to our top line.
So these are what long drawn process to develop the products and then take approvals?
No, the approval process, the customer will be there, definitely there. It's not that we have made a product and customer will agree to buy it. It has to be a trial and -- trial procedure with the customer. So that may take -- as I mentioned, that may take anywhere between 6 to -- 6 months to 1 year time to get approval processes from customers. So that will be there. In entry barrier, as far as technology is concerned, it has to go through a rigorous trial at the customer side.
Okay. And other than steel industry, we are not into any other kind of industries like glass or -- we don't make refractory...
No, not -- we are in the non-ferrous in a very, very small manner, not a big way.
But what is the opportunity over there?
No, no. The opportunities are there. The technology is different.
And it would take -- so we need to develop those R&D for those kind of technologies.
Yes, We have always remained focused to the steel industry. Gone very small, sold to aluminum, very, very small with copper, but not very big. A very small portion of that.
The next question is from the Sanjay Nandi from Ratnabali.
So just what is the current utilization level for this quarter on a consol basis?
At the India level, we should be somewhere around 80%, 85% in some product group. And some product group, it could be about 75%. And in the overseas, towards the end, the utilization was good, I would say.
Sorry, sir?
Towards the end, the last quarter, the utilizations were good. Maybe it could be somewhere around -- maybe 70% levels.
70% levels. So what will be the blended utilization for the Indian operations, sir?
Pardon?
What would be the blended utilization for the overall Indian operations? Is it 80% kind of?
Blended?
Yes, yes.
Yes, yes. 80%.
80% kind of. Okay. So what is the outlook, sir, for this next fiscal FY '22 for the utilization front, sir? Like you are thinking above 90% kind of steel growth.
Apart from utilization, we are also adding and debottlenecking our capacity. So we are also gearing up our capacities based on demand. Capacities will never be a bottleneck for us. So the outlook is -- of the steel industry, you all know, it's very good.
Exactly. So sir, if we presume a 20% kind of growth, so what kind of the effective demand that might like boost up for 20% kind of steel consumption growth?
You can assume. For the new capacity, in the steel industry, you can assume a similar growth.
Okay. Okay. So -- and sir, one next question is like you just mentioned like on a greenfield thing, CapEx turnover issue is 3 to 4x whereas for brownfield, it's 6 to 7x. So what might be different in these 2 things, sir, like the difference is...
Brownfield, it could be, because you are in a position to use, you apply a lot of carbon resources. So the CapEx is slightly lower. And on a greenfield, you have to take a land, you have to create building. In a brownfield or expansion projects, you don't have to buy land.
Okay. The land cost is making the difference.
Certain basic facilities like utilities and all other would be [ recorded ] in common. There is no additional expenditure for that.
And sir, where are you procure raw materials from? Is it from China? Because the ocean freight is as expensive from China to India. So do you procure anything?
From various places. China continues to be our major source of raw material.
So going forward, sir, we might face some problems in procuring raw materials. Do you feel like that?
We have not found any problem so far, and we don't foresee any problems as such. At a price you get your materials. We don't foresee any problems.
The next question is from the line of Viraj from Securities Investment Management.
I just had 2 follow-up questions. One is you talked about us gaining share in large steel customers. So what product or segments in the steel-making value chain where we have managed to gain share? Can you share some perspective? And a second related question is...
Can you please a bit more clarify the question what you want?
So we talked about us in gaining market share by adding new customers in the large steel category. So can you give some perspective what products or segments have we gained? And who we have gained the share from?
So I -- so in various customers, the gain could be from various other suppliers. It's not 1 supplier. There are very few suppliers in India. You can count on your fingers. And only the product ranges where we supply what we make. It's like the isostatic, slide gate, purging, precast. These are the only product ranges where we are. And in the customers which I have named, the product could be different, somewhere it is slide gate, somewhere it is tundish refractory, somewhere it could be other refractories also. These are the product range. Our product basket is this only.
Okay. And yes. Okay. And second question was, you talked about us getting some price increase now. If you look at the overall refractory industry space, the industry had seen some overcapacity up in the last couple of years. And earlier there was a case of margin and pricing discipline. But then given the kind of variation in our end, industry was seeing some pricing pressure as well. So given now we are seeing the demand coming back. Is there now rationality in terms of pricing? Or do you see -- there's a change in competitive behavior still, which is more permanent in nature?
It is broad-based question, but I don't see any change in this aspect in the last possibly 8 to 10 years. Very much the competition will remain as it is.
[Operator Instructions] The next question is from the line of Sahil Sanghvi from Monarch Networth Capital.
Congratulations for excellent numbers, sir. Sir, I had 2 questions, sir. One in the raw material cost, sir, whatever we are importing from China, have you seen any surge in the costing lately or maybe in the last 2 quarters?
Yes...
Not because of the freight, sir, but because...
Because -- so whatever raw material costs you are saying because you are saying the total cost, the ocean freight is a part of that cost.
Okay. But ex of freight, there is no -- no -- not much.
No, no. That also has changed.
That also has gone up. Okay.
I think as I mentioned earlier, there's an RMB appreciation also of about 7%. That also has changed.
Okay. Okay. And regarding, sir, RM costs as in -- if you keep aside, I mean, currency ForEx is something not you can guide on. But otherwise, the actual cost and the freight, how do you see that going ahead -- moving ahead?
My understanding is that I think we are almost at the peak of the stress levels. So it should stabilize and only come down in the next quarter. But we need to understand how the shipping industry strategizes itself. They are unpredictable completely today.
Okay. Okay. And my second question is, sir, what will be our current market share in the Indian market as such? I mean now that we have shown a lot of earnings growth this year and probably some new customers and some new product additions. So what would be our current market share, sir, in India?
This would be very similar, 12%, 13% of the market in which we operate.
Okay.
Anywhere between -- anywhere between 12%, 15%. There is no authentic data available, Sahil, in the refractory -- of refractory. But on a thumb rule basis, I think we should be anywhere between 12% to 15% levels.
And this is the market of the flow control refractories? Or how do you...
I'm talking about the flow control refractory, very specific flow control refractory. Not on a total. On a total basis, it should be very small.
The next question is from the line of Rahul Sony from SMIFS Capital.
Just one question on my side. I want to understand what quantity of refractory that is required to produce 1 million tonne of steel?
So 1 tonne of steel you require anywhere between 10 to 12 kgs of refractory.
The next question is from the line of Kamlesh Bagmar from Prabhudas Lilladher.
Just a question on the part of our -- like the guidance that we would be able to maintain the margin. So as we are seeing China now the -- whatever the product which they used to export, there have been significant pricing increases. And it seems that, that would continue to be there. So would we be able to maintain margins given the fact such a sharp increase in the Chinese prices and we are seeing currency appreciation there. So all these factors suggest that and we have highlighted that it's a very competitive world for the refractory business to take the price hike. So what is the rationale or the thesis behind maintaining these margins? Is it because of the product mix? Just wanted to have some idea on that.
Yes. So on the competition front, let me tell -- I think, let me tell all of you that the competition, this strict, severe competition has been there for the last 20 years that I'm in the industry. I've not seen a lesser competition in the past also. So that high, that will always remain. There will be a fight for the orders and fight on the prices. That will always remain there.Now on how do we -- what's our advantage? We have good products. We have good service setup. And we have our own goodwill in the market. So that will keep us slightly above the others, and that's how we have been.
And sir, any color on -- any color on the part of the product mix? Is it going to change significantly? What are the CapEx coming out and...
Nothing, nothing. We will remain in the flow control refractory segment mostly, I would say. I'm not able to comment immediately, but I think in the medium to long term, we should get into brick business also. That's one segment where we are not present, although we are doing some brick business by -- on a trading basis. But that's one part of the business, we should be getting into in the next 2 to 3 years' time.
And sir, how different could be the margins on that particular product segment as compared to today which we are doing?
We need to understand that. See, it all depends on customer quality of bricks you are supplying, what kind of guarantees you are giving. So I don't see significantly lower than what we get -- what we are having. But there could be slightly lower because that's a tonnage business, okay? That's not a specialized flow control type of -- it's a tailor made. They are more off the shelf type of bricks. So the margins will be slightly lower than our current specialized products. And then that will be incremental business.
That was the last question in the queue. As there are no further questions, I would now like to hand the conference over to Mr. Sarda for closing comments.
Thanks, everyone, for participating. I think it was a very wonderful question-and-answer session. And I hope I've been able to answer most of your queries, and I look forward to interacting with you in the next call. For any further queries, you may contact SGA, our investor relations advisers. And I also thank SKP Securities for organizing and participating in this call. Thanks a lot, and wish you all the best and stay safe.
On behalf of SKP Securities Limited, that concludes the conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines. Thank you.