AIA Engineering hosted a conference call on November 06, 2023. In the conference call, the company was represented by Mr Kunal and Mr Sanjay.

Key takeaways of the call

Volume:

In Q2FY2024, the company sold 77,725 MT (Produced 75042 MT) as against 74,046 MT in Q1FY2024. Mining volumes stood at 52,093 MT in Q2FY2024 against 53,256 Mt in Q1FY2024. Non mining volumes stood at 25632 MT in Q2FY2024 as against 20790 in Q1FY2023. Non mining volume includes Cement and thermal sales. Product mix of the company helped the realization and margins of the company in Q2FY2024.

Realizations stood at Rs 162/kilo as against Rs 163-164/ kilo in previous quarter. The company expects realizations to be in the range of 150-163/kg in next one year.

Margins improved by 2% sequentially due to decline in raw material and power cost which will normalize going forward.

Raw material: Raw material consumption was lower in Q2FY2024 as against Q1FY2024. Raw material continues to be volatile. Ferro chrome was at Rs 120/ kg at its peak which went down to Rs 100 and is again back to Rs 110/ kg levels. Pass through will continue going forward when the company witnesses such fluctuations in the future.

Power cost: There is some decline in power cost due to contribution from captive power plants.

Margins have improved also on account of Rupee depreciation. US $ was around Rs 79/ per US dollar in H1FY2023 which is now around Rs 83/ us dollar in H1FY2024.

Freight cost: Freight cost has declined in Q2FY2024. However, there will be pass through which will result in margin adjustment in next 2 quarters.

Cash: Net cash stood at Rs 3135 cr as on 30 Sep, 2023 as against Rs 2757 cr as on 30 June , 2023 and Rs 2568 cr as on Mar 31, 2023.

CAPEX: The company is in tarck to spend Rs 500 cr between now and March 2024, of which Rs 200 cr is towards grinding media expansion, Rs 200 cr towards overall restructuring and debottlenecking, Rs 50 cr towards captive power plant and Rs 50 cr towards line and other requirements. The company has spent around Rs 100 cr in Q2FY2024.

Expansion:

The company is working on brownfield capacity expansion of grinding media. It plans to add 80,000 MT. The same is expected to be commissioned by December 2024.

The company is increasing non grinding media capacity by around 20000 tons

Brazil: There is sunset review going on in Brazil with respect to anti-dumping. March 2024 the new regime is expected to come. The company has done around 6000-8000 tonnes of volume in FY2023 in Brazil and around 10000 tonnes in the current fiscal. There is no disruption as of now.

Acquisition: The company has completed the acquisition of 30% stake in Vega MPS PTY LIMITED. The company will have access to high design capability with this acquisition which will help the company to push to overall mill liners opportunity.

Competition from China: Quality of grinding and approach is not the same of the company when compared to companies in China as such the company does not see any competition from Chinese companies.

In China, the company does not sell grinding media.

Withholding Tax: The company has created a provision of Rs 8.33 cr towards withholding tax and has written off the same due to following conservative approach. However, it has taken all the necessary steps to claim the refund. The same relates to an African country.

Mill liner market: The overall size is 3,00,000 tonnes per annum. Of this the company has current capacity of 25,000 tonnes and is adding another 50,000 tonnes. The company is looking for opportunity for both cross selling and for new customers. Acquisition of Vega MPS PTY LIMITED will aad more capability for the company in this sector.

Mill liners is a long term story and will provide 5-10 years opportunity.

Outlook:

The company has a order book of Rs 693cr as on Oct  1 2023 which is in line with previous quarter. The contracts are usually for long term; however, order book includes only the purchase order received from customers.

The company expects margin to adjust by 3-5% in next few  quarters and normalize to long term guidance of 20-22%. However, the company expects Operating margins to be upward of 23-24% for next one year.

Conversion of forge to high chrome is the company focus. The incremental tonnage will be in similar lines but it might take more time.

The company expects incremental tonnage of 10000-20000 tonnes in FY2024 and 30000-40000 tonnes in FY2025. The decline in incremental guidance of 30000 tonnes to 10,000-20000 tonnes in FY2024 due to delays in conversion and no other reason.

However, the overall direction and opportunity will not change. Volume guidance is not linked to global economic uncertainty.