Release Date: August 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- RHI Magnesita India Ltd (BOM:534076, Financial) recorded the highest quarterly operating margin since the acquisition of Hi-Tech & Dalmia.
- The company secured three new contracts in the blast furnace segment and onboarded five new customers in tap hole clay.
- EBITDA increased by 3 percentage points to INR157 crores, driven by a better product mix and one-time high-margin customer orders.
- Net debt to EBITDA ratio improved from 0.6x to 0.3x, contributed by strong cash generation and efficient inventory management.
- The company is optimistic about leveraging growth opportunities in iron making, DRI, and the pellet business, with a focus on sustainable growth and better return ratios for shareholders.
Negative Points
- End-user industries such as steel, cement, and industrial interests are experiencing subdued customer activity due to seasonal slowdown and cheap imports from Southeast Asia and China.
- Rising freight costs and increased raw material costs are expected to persist in the coming quarters.
- Capacity utilization remained flat, with some plants experiencing lower utilization due to reduced production in the cement sector.
- The company faces challenges in passing on increased raw material and freight costs to customers, which could impact margins.
- The integration of acquired entities has been slower than expected, particularly in the Hi-Tech segment, due to external factors like the war in Ukraine and reduced steel production in CIS countries.
Q & A Highlights
Q: Congratulations, Parmod, for the promotion and the new designation. You mentioned three new contracts for blast furnace casthouse and five new customers in tap hole clay. What is the market size for this, and by what time will you complete these contracts? Also, regarding pellet, you have increased your market share by backing three new projects. What is the market size for this?
A: Thank you very much. The execution of the blast furnace casthouse contracts will start by October and take three to five months to complete. The pellet plant order is significant, around 5.5 million. The market size for blast furnace iron making, including tap hole clay, is about EUR220 million (INR2,000 crores), and for pellets, it is about EUR25 million.
Q: Regarding iron making OEM projects, are you in advanced discussions with OEMs for coke ovens and blast furnace stoves?
A: We are in advanced discussions with some OEMs, and there are several projects coming up in the next two to three years. We already have good business in the pipeline for stoves and coke ovens, but nothing is finalized yet.
Q: Can we expect any new CapEx plans or inorganic acquisitions to enhance market share further?
A: We are open to acquisitions if they fit our strategy, but nothing is on the table currently. We plan to ramp up CapEx to about INR80 crore to INR100 crore annually for the next three years.
Q: What is the capacity utilization for Dalmia OCL and Hi-Tech for this quarter compared to the last quarter?
A: Our consolidated capacity utilization remained flat at 61%. Including Jamshedpur, it was about 72%, and excluding Jamshedpur, it was 75%. The Jamshedpur plant improved from 54% to 58%. Dalmia's utilization dropped due to lower cement production in South India.
Q: How often can we expect high-margin customer orders that improved EBITDA this quarter?
A: These high-margin orders are performance-bonus related and unpredictable. They depend on customer requirements and are noncyclical. However, we are confident in maintaining a sustainable EBITDA margin of 15% plus.
Q: What is your outlook for the domestic steel refractory market for FY25?
A: Long-term, the market will grow due to government infrastructure projects. Short-term, steel production is subdued due to low selling prices and cheaper imports. However, we expect a good last quarter due to seasonal demand and festival season.
Q: How are raw material prices trending, and how does it impact your margins?
A: Magnesia prices have increased by 3% to 5%, while aluminum raw material prices have gone up by 30%. This puts pressure on margins, but we are confident in maintaining a 15% plus EBITDA margin due to operational efficiencies and better product mix.
Q: How much of your production is exported, and how does it compare to domestic sales?
A: About 9% of our production is exported. We don't provide specific numbers for domestic versus export sales, but we focus on sustainable growth and better returns for shareholders.
Q: What is the market share for tap hole clay, and how big is the market in India?
A: We have about a 16% to 17% market share in tap hole clay. The market size in India is approximately INR600 crores to INR700 crores.
Q: How do you plan to mitigate the impact of increased raw material and freight costs?
A: We are focusing on operational excellence, productivity improvements, and better recycling to mitigate cost pressures. We are also leveraging our global supply chain to ensure a steady supply of raw materials.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
