The Q4FY17 Conference Call Recording
Use either of the links to download the file.
Global High Chrome Steel Grinding Media Balls Market 2017 Growth with Current Size, Trends Analysis & Forecast till 2022 ( http://www.ndmcolumns.com/global-high-chrome-steel-grinding-media-balls-market-2017/ ) Do you have this report? please share it.
Magotteaux had initiated a lawsuit against aia in end of May. The claim is for usd60M. Any updates or comments?
Some news on the anti-dumping duty in India for grinding media from Thailand and China.
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It is well known that after Lithium, Cobalt has a major role to play in batteries made for EVs. This article suggests that Cobalt is a by-product of Copper mining, which if true may benefit AIA.
This research is in preliminary stage and will have to research the entire Cobalt production value chain to determine how much of it is from sourced from Copper mines and whether AIA’s grinding media is used before or after the Cobalt has been extracted from the copper ore.
If anyone related to a mining background, or related experience is reading this please do share your knowledge with us.
I have been trying to get competitive picture for AIA and following are some notes ->
To read up, I chose one competitor which supplies Steel Grinding Balls (Molycop) & other from High Chrome Grinding balls (Magotteaux).
MOLYCOP
Molycop is probably largest producer of Steel/Forged grinding media balls in the world. The have installed capacity of 1.7MT and sales of about 1MT. If AIA is trying to convert forged media mills into high chrome media, they would be going after some of the customers of Molycop. Molycop has manufacturing facilities located in Chile, Peru, Mexico, USA, Canada, Indonesia and Australia. it also fully owns two steel mills - one in Canada named AltaSteel and another one in Australia named Waratah.
Molycop also has grinding rods as products which are used in rod mill. I need to check whether AIA makes such an product and whether high chrome rods would provide similar efficiency. Also about 15% of world’s mineral extraction (for gold, copper, iron) happens in Russia (no surprise). Also Latin America, especially Chile also seems to be big mining center along with other geographies in America, Africa.
In 2016, Molycop developed new grinding media balls by the name Moly Cop NG aimed for SAG (Semi Autogenous) grinding mills. The company claims that these balls have higher impact & spalling resistance resulting in overall lower consumption. In some experiments, it seems like consumption reduced by 13% in low/mid impact environments and 20% in high impact environments.
Molycop was actually a subsidiary of Arrium group and it was sold for $1.2bn to American Industrial Group as a part of restructuring plant.
AIA is currently valued 1.5bn$+ and close to ~2bn$. The capacities and business of AIA is at much lower scale compared to Molycop.
MAGOTTEAUX
Magotteaux is an 100 year old company founded in Belgium. The company was acquired by Chilean company named Sigdo Koppers listed in Santiago, Chile in 2011. The company has following capacities in tonnes - High Chrome GM (300,000), Low Chrome GM (55,000), Forged Steel GM (55,000), Castings (66,000). Apart from this, the company has JV with South African company named Scaw which has capacity of High Chrome GM of 100,000T. The company has 15 production units located in USA, Canada, China, Brazil, Thailand & Belgium.
The company had reported full year sales of ~629mn$ in CY16 (692mn$ in CY15). The EBITDA of company went down from 80mn$ to 63mn$ in same period. This was mainly due to product mix being skewed towards low margin products.
If feels like company has reasonably strong R&D department and company spends on average about ~6mn$ on R&D. One can read about various technical innovations done by the company on their website & reports. One interesting thing I found is something called as Metal Matrix Composite (MMC). In this it seems that, some high waer resistant alloy is mixed with other material like Ceramic. The resultant product seems to have wear resistance higher by 3-4 times. This technology seems to have been developed around 1990s and it feels like game changer. I would love to know more from technical experts in this area.
The company formed a JV with chinese steel Supplier named Xingcheng to supply forged grinding media balls.
http://www.magotteaux.com/group-news/strategic-alliance-production-commercialization-forged-grinding-balls/
The products and mill overview pages of Magotteaux are simply beautiful. I learned a few things from them ->
Wiki -> http://www.magotteaux.com/wiki-mag/
Mills -> http://www.magotteaux.com/customers/
Now some questions in my mind -
- Both Molycop and Magotteaux seems to have decent institutionalized R&D. I haven’t found something similar for AIA. Would be great if someone with metallurgy background can comment on this (quality of research, impact, risk etc.)
- The forged grinding players are also not static while AIA attacks their customers. As shown by Moycop NG, even forged media products can be innovated to reduce end consumption. This along with RM price cycles and difference between chrome vs. steel means it is not so straight forward for AIA to win and keep customers. They migt have to sacrifice margins.
- One reason for competitiveness of AIA vis-a-vis Magotteaux seems to be the fact that all the plants of latter are in high cost geographies barring Thailand (50,000 capacity). I have not done research on cost competitiveness of Thailand. Although I could not find financial breakdown for Magotteaux, but AIAs cost advantage might be primarily in employee cost (around 5% of sales). If Magotteaux opened plant in India or other low cost geographies, wouldn’t that change the game?
- Both Molycop and Magotteaux are not simply grinding media/mill parts players. They provide more products along the milling/cement pipeline. Would such ability to provide complete solutions has any advantage?
- Ferro Chrome prices and Currency Fluctuations remain two most important risks for AIA as demonstrated in last 2 quarters.
A lot of information about other competitors is publicly available. Those invested and interested can go through those and share any interesting findings. (Competitors - ME Long Teng Grinding Media, Gerdau, Donhad, Scaw, Arcelor Mittal, Metso and many more)
Disc - No investments.
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Adding a few verbatim notes from previous conference calls, related to the subject of AIA’s competitive intensity and business model. These are just highlights and please go through the entire conference call to get a more informed view.
Competition from Incumbents: Incumbents cannot do anything other than reduce costs, they are operating in high cost geographies. And we believe we are creating a product category, so there is no comparison with forged players. Nobody likes losing market share but that has been the story for every single kilo we have sold. We face same pressures when we were a 50000 tonne company and face the same now.
Margins have gone down due to higher raw materials. It has to passed on next quarter.
Entry Barrier for Molycop to enter HCMI space: Not a business where you setup a line and start producing. You have to build an ability to deliver solutions, your ability to find the right combination of metallurgy, application knowledge and design. You have to try it out at the end of the customer. And you cannot sell to the customer until he is convinced that you are selling the right solution to him. Entails a huge knowledge which is not a recipe but something that you have assimilated over years. This is business of extreme micromanagement at every level. All the key client in 125 countries expect just in time deliveries. Not a product which you can sell through dealers, wholesalers and retailers. Our own people have to be in front of the customer no matter their size. The whole business model is extremely difficult, entry barriers are many. It is a long term relationship business where small small entry barrier assimilate to form large entry barriers. Molycop has no problem putting out a CAPEX, the problem here is that how will they change their business line and do something they have never done before.
Inventory: Only produce on order, we do not produce anything in anticipation. So buildup of inventory not possible. Buildup is not because we have produced and not able to sell. When we get a new account, we need to keep supply of few months.
Business Model: Our whole business model is about converting miners from forged to high chrome. Nowhere in our business plan do we figure at what currency we will convert what. Our BM is that we have a much superior solution tailor made to the client’s needs, that helps them in reducing their wear cost, improving their process efficiencies, improving their throughputs and yields, and reducing the cost of expensive reagents and highly polluting chemicals. We take 6-12 months to develop a solution, demonstrate that it works for the mine. The wear rate we are talking about is 50%,100% and 200% wear rate reduction. So we are talking about structural fundamental savings rather than savings from currency rate at 64,65, and 68. We do not track at what currency rate how much profitable we are. The impact of the currency is marginal and manageable.
When currency moves, we revise our price in the next order, in the past we have been able to pass on variations with a lag of one or two quarters. Today, structurally our focus is on market share. There is an entry level pricing pressure, our customer of big mine expects us to offer a much superior product at a price that is comparable to forged. We have to explain the benefits, we start with a lower price and gradually scale up the price to get back to normal margins. It is a function of the cycle and the maturity of the relationship with the client. These are very very long term clients, once a client is on board generally no one moves back to previous solution.
Definitely impact of currency is their, but we have the wherewithal and the ability inbuilt in the business model to pass it on and normalize over the period of time.
Ferro chrome prices shot up from 65/kg to 100/kg. We will pass it on in FY18. Currency is also unfavorable at 64.58, but these are short term effect which we will adjust in over a period of time.
Business cannot be tracked on a QoQ basis as mining cycles, commodity cycles, new business development is a time consuming endeavour. No trend setting can be spotted in quarterly figures. We take 18 months to gain a new customer, once we gain a customer, in our history we have never lost a customer, forget about one quarter.
Total Addressable Market: The total addressable market of 2.5-3 million tonnes is according to today’s forged figures. Over the last 4-5 years we have been talking about the same figure, there is no organized statistic available, this is our internal estimate. There could be 25-30% theoretical reduction as we penetrate the market, the current penetration is 10-12%, let us assume in the next 5 years we reach 30%, there would be a theoretical reduction by 20-30-40% in the total addressable market. But by that time we would have targeted newer ores, market is growing at 2%. Suppose we reach 50% penetration, we will not see an impact in our endeavour to take new market. It will not impact us until we reach significant market share. There will be new solutions for new set of ores.
Manufacturing Competitiveness: The plant in GIDC, Kerala is the most modern plant in the world, there isn’t any such plant even in Europe.
Difference between forged and high chrome price is around 20-40% depending on chrome content. It is like comparing a normal bulb with LED bulb, there is a payback, you get significant life out of it. It depends on total cost of ownership. We have 30-40% market share in high chrome.
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Nicely covered. I had done a presentation on the AIA in Bangalore VP forum. Attaching the same for reference. https://drive.google.com/open?id=0BwopyxfitAx0OGRIUXhJa3QxNUU
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@Prash good presentation. Do you have such presentation on Vinati Organics or other companies. Please share it for awareness
H2FY18 Notes on Investor Presentation & Conference Call
Investor Presentation:
Production & sales similar to yoy and qoq. RMs costs increased. EBITDA margin at 24% vs 35% yoy. Volume increase from mining. 110k tons against 99k tons H2 last year. H1 CAPEX is 61 cr, guiding H2 to be 120 cr.
Guiding incremental volume growth of 40k-50k tons per yr from FY18 onwards.
Bagged new LT order from Barrick Gold group of 18k MTPA
Order book 656 cr.
Conference Call:
Revenue does not reflect increased tonnage due to FOREX and RM adjustments to prices.
Took 2.5 - 3 years to get Barrick gold order. Has good potential upside. Is a 3 year order. This is new order from an earlier client. Intermittently we have supplied to Barrick. Our entire GM consumption for cement in India is around the size of the Barrick order. So this is a prestigious event. This Barrick volume is next year. Even thought the contract is LT, the price adjustment is revisited every 2 quarters. In mining there is a tendency to have LT contracts. So there is volume clarity, but we will not lock in the price. This order is for Americas.
Many spot orders should change to LT. Pricing products very aggressively. Miners want to operate within their budgets. For few more quarters margins will remain range bound.
Our model has the wherewithal to provide good margins at higher volumes. But time will tell.
We may reach 225 -230k tons this year against guidance of 240k.
We believe incremental 40k-50k ton growth is comfortably achievable.
Collaborative research efforts are bearing fruits.
There are much more tailwinds in orders next year. Quite a few more customers which will become LT.
RM & currency are very volatile. We are trying our best to pass through.
We cannot give margin guidance as above and new tonnage is being added. Difficult to predict the mix.
Tax will be at 30-31%.
FeCr is very volatile. No point even discussing its effects.
HCMI is 20-40% is more expensive than forged depending on Cr content. Not adding any more commodity mining. Enough to gain from Cu and gold.
When we entered mining we decided to enter sectors where Cr was already in use and serviced by Magotteaux. This was a low hanging fruit. Once we got that, we moved to conversion of forged to HC.
We were ourselves climbing up the learning curves. Mining segment needs very custom solutions, no mine is same. Cement the clinker is standard world over. With mining we had to develop our domain knowledge. We started doing more research. We shifted our selling approach from cost based to cost + value added. Where if we target only cost saving, a 10-15% saving in a process that is insignificant to the whole operation, will not convince a miner to shift product. So we looked at more value addition, benefits that FeCr brings to the process. Like improvement in recoveries, reduction in use to hazardous chemicals like cyanide. Where salinity is very high, it leads to corrosion, there FeCr fares better. We have not mastered everything, but we have grown.
We are focusing on bigger sized grinding balls. We are focusing on areas where we have distinct advantage. We have the confidence internally to see sustained growth for the next 5-10-15 years because the market is huge.
Before the miners who were not ready to even talk to us, are not giving us a very serious consideration to the value addition we are bringing to their operations. There is a qualitative shift that has happened over the last 2 years.
Plant manager is completely empowered to take decisions based on yield, cost, throughputs. Winning one mine gives us nothing more than the first meeting at the same groups other mine. Conditions are vastly variable mine to mine. We like that it takes time, but it gives us the stickiness.
Till H1 last year currency was in my favor. Nothing is more relevant than FeCr. We had 5-7% benefit from these 2. Now they are going against us. ST impacts are there, but generally we try to move to a more comfortable position in LT.
We have better visibility now on volumes going forward. We will review in 19-20.
Since last year, currency, FeCr and shipping rates have hit these 2 quarters. We will pass on these cost pressures in future. These variable going against us can go in our favor in future also.
Seeing very good, very very good traction. We see tremendous acceptability in large size 50-90 mm. So much so that we have stopped segmenting internally, it is a normal process now. Primary GM is more than 50%.
Margins are a function of the life cycle of the relationship with the customer.
Still trying to make inroads into Chile.
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Such kind of actions, could have impact on AIA as it produce grinding media 100% in India and export to other countries.
A year back, the company said it would aggressively go for higher volumes at the cost of margins. The volume pick up has not happened and will now take 2 – 3 quarters more. Yet margin decline is already there. I am not sure of the ability to pass through RM hikes even with a lag despite claims to the contrary, at least it doesn’t reflect in the numbers even after 2- 3 quarters. There is no clear roadmap for utilization of surplus cash. Though the business model is strong, not sure if it justifies the valuation of 33X PE and more than 5X P/S on a TTM basis. Anyone tracking the company please share your views.
Disc.: Invested
Q3FY18 Conference Call Notes: While full care has been taken to maintain the accuracy, please refer to the original conference call recording for more insights.
51k tonnes of sales. Production of 56k tonnes. 9MFY18 figures at 161k tonnes compared to 156k tonnes in 9MFY17.
Expect full year at 220k tonnes. Revenue for the quarter at 556 cr, EBITDA at 159 cr @ 28%. PAT at 116 cr compared to 120 cr in Q3 last year. Tax is at a lower rate to PBT because we have cash investments of 260 cr which are beyond 3 years holding period which attracts a tax of 20% with indexation.
EBITDA margin for the full year to be at 26-27%. In RMs scrap cost has risen significantly. FeCr is steady at ~10%.
100k tonnes from mining for 9M. We continue our commentary of a significant increase in volume from next year. A lot of that confidence stems from the Barrick order. In very close negotiations in few other contracts and tenders which will propel tonnage growth next year.
Working capital is in line.
Capex plan has been delayed a little due to vendor issues. Deliveries have been delayed from a European supplier. Phase 1 by June 2018 and Phase 2 by June 2019. We have spent 85 cr in CAPEX this year. Another 50 cr for phase 1 in next quarter. About 200 cr of CAPEX for phase 2 in 18-19.
Commodity prices firming up is good for us as it improves the financial health of our customers.
Chrome conversion is accelerating with bigger ball size segment, due to R&D focus of the company & the exceedingly good response that the product is getting. On the downstream side where leeching and flotation process dominate we are able to demonstrate cost savings or reagents and improvements in recovery.
We have a very strong order book, quarterly volumes do not matter as we are preparing dispatches for the order book. We have a reasonably strong pipeline that is developing. We are confident of 40-50k incremental volume next year.
Continue to guide 100-105 realizations figure.
Volatility in RM prices has shifted from FeCr to scrap.
We are in the period of engaging with the Brazilian government where we share our data and findings with them. Will not be able to share the specifics. Duty is faced by the imported. We expect to get relief and no serious setback. Give us until end of March quarter to get a clearer picture.
There is a little correlation between commodity price increase and grinding volume increase. Price is a function of supply and demand. Suddenly the world is not going to start producing 20% more steel. Supply takes longer to adjust. This is just a sentiment change to demand projection.
We can increase our volumes by another 100k and still not add any more manpower.
1st hearing which may not be substantive is scheduled for August. Lawyers are not cheap.
Will give yearly guidance from now on.
Scrap prices are a function of steel prices, our competitors in forged are also paying the same price for scrap. In most of our contracts, we have a clause of passing on costs with a lag of 3-4 months. Today’s PO is based on today’s price, next month on next. So there is a lag effect. FeCr is more expensive than scrap, FeCr constitutes 40-45% of RM cost. Scrap in terms of volume is higher but in value is lower.
We have been passing on the FeCr prices since they increased. Our margins are stable for past 3 quarters.
Till last year CAPEX cost was 350 cr. At that time it was in one go. Now it is 2 phases and we have the optionality to add 50k brown-field capacity with balance equipment. Actual cost maybe around 420 cr but we have budgeted 500 cr to account for inflation. No more CAPEX planned as the road is visible until June 2019. Will plan any more additions then.
Our 3-year rolling guidance was 120k but we achieved lower. This is uncharted territory. We are prospecting new customers, going to trials. We discussed Barrick order last quarter, we should have gotten it this year. There was at least 30k of business that should have come this year but has shifted to next year. There is an element of timelines extending beyond our estimates.
There is no questing that chrome is a better product, it is a better technology, gives multiple benefits to the customer. But there are various events that come up which distracts the customers, push the projects by few months. But the same challenge and time taking nature of our business provide stickiness.
We are guiding 40k-50k next year. If we extrapolate that is still 120k-150k additional guidance. We see a higher traction in future growth than our 3-year rolling average but what we believe is that it could be even more aggressive than what we are predicting and therefore what we have done is limit our forecast to yearly now and revise it as and when we go forward.
This has been a year of significant transition in sales strategies and focus. We have taken the focus away from cost to other benefits. We have participated in research projects, we have got significant inputs about unquestioned benefits of using high Cr. Worldwide people are encouraging sea water based mining than freshwater based where high chrome studies very very important. It would give us a very good opportunity. We have shifted our gears and will see good volume scale up from next year.
We have 1000+ cr in cash, we are very very hungry for growth. We believe we are still at the tip of the iceberg. The headroom from current 150k tonne to 1-2-3 million in mining is huge. We want to conserve cash until we reach 300k-350k tonnes of sales in mining and then we will see.
The current focus is on volume growth from high chrome and forged. Not on margins. Over 2-4 quarters operating leverage will set in. We will not be satisfied with 25% EBITDA margin.
Within GM we are doing more than 100 alloys. Realizations will not measure profitability for us. Realizations are dependent on the mix of alloys. If we can get the same performance with lower chrome content we would save the cost for the customer. We could be at a cost of 60 and sell it at 95 and our margins would still improve despite lower realizations.
We plan on organic growth only but if an opportunity presents itself we will be open to it.
Our confidence in growth comes from the fact that we are very close to finishing our life cycle exercises, which are testing, proving the efficacy, commercial discussions, with a vast gamut of customers. We are hopeful it will bear fruition. There is a risk of timeline extension like Barrick. We will share more when we get close to signing papers with the customers.
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Thanks for detailed info based on Q3 con call.
I have following questions -
(1) Most of sales for AIA Eng. are from exports. Looking at China’s plan on US Debt bond purchase reduction / global currency war, it is more likely that US $ will not be stronger against INR (Or INR will not get devaluated w.r.t US $). If INR get stronger against other currency, AIA will have FOREX losses.
(2) AIA has manufacturing plant In India and most of product goes outside India (export). Sharp rise in shipping cost also impact margin. Why AIA does not look for plant in other countries where presence of mines are more.
Q4FY18 Conference Call Notes: While full care has been taken to maintain the accuracy, please refer to the original conference call recording for more insights.
66 kT in this quarter up from 51 kT from Q3 & 58 kT from Q4 last year. 37 kt from mining. Full year is at 228 kT of sales, around the 230 kT we guided last quarter.
2375 cr of Revenue, Q4 was 720 cr, up from 556 cr from Q3 & 608 cr from Q4 last year.
108 Rs/Kg realization based on partially, price increases, RM volatility pass through, product mix etc.
RM is at 35 days. WIP is at < 60 days. Receivables at 80+. WC cycle is at 100 days.
Mining FY18 was at 139 kT. Was at 100 kT in FY16.
This year tax was at 25% of PBT because of tax reversal on 3+ year of treasury income.
EE Mills Solutions Collaboration
We offer mill solution in cement space, for power saving and process optimization. This tie-up helps us to provide save improvements for grinding mills in mining segments. We will be one of the very few companies who will be able to offer such solutions.
This gives us an additional touch point to engage with the miner, it improves our relationship with them, power is a big cost for miners as well. It makes us a formidable player as a solution provider to the mining industry. This was one area, process efficiency, we were not able to focus on. With this patented technology we become a one-stop shop and improves our positioning.
This is a very unique patented technology, it makes dramatic improvements in the processes and costs for mining grinding circuits. It helps us in getting a lot of customers for liners and in the process opens avenues for us to sell our GM solution to more customers at a quicker pace.
We have been slowly evolving and improving our positioning with the miners. We started 4 years back as a pure cost equation, then we focused on downstream efficiencies, like reduction in costs of other consumables like cyanide etc., then we wanted to optimize the whole grinding process.
Like we say we are experts in cement grinding, we want to be in the same position for mining where we cater to every requirement of the customer.
It is an exclusive agreement, Customer acquisition is less time intensive than HCGM. Revenue opportunity can be $2-3 per Kg, Scheduled 250 cr CAPEX (1st estimate) which will complete in 18-24 months and have a capacity of 50000 MTPA. We already have the land and pollution permissions.
Will be based on royalty. They will be HC liners. They help mines save 8-10% of power costs. The focus will be on improving power costs and throughputs not wear costs.
For steel liners, annual market consumption could be 300-500 kT annually. We have 2 large suppliers and 2-3 smaller ones supplying the conventional design. This tie-up will be for all geographies. Current mill liners are already all chrome but it is low chrome which is a standard product.
Competitors: Bradken, Elecmetal and 2 others. Market Share: 60-70% by these 4. We are offering a different solution, which has to do with optimization. Their product has nothing to do with the process. We believe we will be pioneers with this tie up.
We will design the mill lining and load it with our GM. It will become a whole package. Reduce power costs, optimize the mills, improve throughput, increase recovery. This is a strategic move for us to engage at a different level with the customer to become a one-stop solution. Most of the other competitors are not in HCGM so we will be the only ones who can offer the complete package.
We do have limited production capability (5-10 kT) for this product currently and we can start servicing a few clients. Trials have started. We are not going to wait for initiating the sale of this product while we wait for the commercialization of the capacity.
There is no difference in product, it is a different patented design solution. The cost to manufacture may & may not be same. We expect but cannot generalize the benefit. It will depend on the milling conditions of the mill we target. It will not be that everywhere we go, we can offer a solution and benefit, we believe the benefit will be significantly more than 8% but that is something we will know after studying individual mill conditions in different geographies.
Cost of consumables will remain same for customers, but the total cost of ownership will reduce. This is not a standard design, it will depend on mill conditions. JV partner is not a manufacturing company. It is owned by a professor in the USA.
We will pass on the royalty expenses with the pricing.
CAPEX
Spent 138 cr this year 50 kT increase. One of the suppliers of this project, a European company went bankrupt. We expect to get this up by next quarter with the equipment we have. Should complete by Dec 2018. Next phase will be in next 18-2 months.
Considering to invest in 8 WTGs, as power is one of the biggest costs for us. Bought 2 already and signed Letter of Intent for next 6. This will be 100 cr CAPEX. Total CAPEX will be around 800 cr. Will spend 400-500 cr this year and balance next year. Includes maintenance CAPEX for 2 years, 400 cr for GM expansion and balance land.
Guidance for 40 kT additional volume this year. That would mean 270 kT production, well within our current capacity.
Aiming to add 80-100 kT volume in next 2 years.
Currency depreciation has helped us but some exports are cross currency and so if that currency depreciates move than INR we are at a disadvantage.
Brazil ADD
Have requested for an in-person hearing, to be announced in June, Have made public their technical analysis based on which duty comes to be around 12% from 32% at this time. This is an internal technical note, not the final duty decision.
Exports continue currently.
Depreciation
Has reduced because one of our biggest plants commissioned in 2007 has been fully depreciated and fallen from the depreciation schedule. Was running the new plant in one shift and will soon start more shifts in it and depreciation will increase.
Margins
The price change is a continuous process, every new order is at a new very very competitive price. There will be a slow increase in price with customers who have become steady. It will keep on happening. Margins currently in a reasonable range. There will be pressure as we have to make greater inroads into the mining segment. There is no formula.
Sales guidance is over years, not quarters, our business is not like that, we have been very clear. You can’t divide annual guidance by 4 to get quarterly guidance.
Currency
The benefit of the currency will come in Q3, we have taken hedges. Our position is to be FOREX agnostic. It may be an extra tailwind or headwind in our BM but we work without its help.
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Recommendation has been made, final decision by FinMin.
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AIA ENGINEERING FY18 Annual Report Notes.
- Sales from Mining = 52%, Cement = 36%, Thermal = 12%.
- Current capacity at 340000 MT. Plan to reach 440000 MT capacity in FY20-21.
- Technical collaboration with EEMS USA. EEMS has special knowledge of optimising energy efficiency and output of grinding equipment like AG/SAG/Ball Mills in wet & dry grinding industries through re-designing of mill internals viz. Head & shell liners, grate liners, pulp lifters. AIA has approved this technical collaboration and has proposed to set up a dedicated plant for manufacturing above products.
- One important announcement that the Company made in this year was around the niche market of “Mill Liners” for the Mining segment where it plans to make inroads. The Company has been making these parts for grinding mills for Cement grinding for more than 20 years. It now plans to oą er these parts for grinding mills used for mineral ore grinding.
- Over the past year, the Company has sharpened its engagement with its customers in the mining sector by offering solutions that improve their operations and reduce their costs. This includes reduction in the cost of other consumables (other than high-chrome grinding media), reduction in use of toxic reagents and thereby improving their environmental footprint and increasing metal recovery, especially relevant for gold and copper mines. This has helped your Company in being able to provide comprehensive solutions to the Mining Industry globally and in creating a unique positioning which augurs well for the consistent and steady growth in this industry over medium to long term.
- Cement: On the whole, in near term, your Company continues to believe that the overall production and sales will remain flat in this segment.
- The Company’s current capacity stands at 3,40,000 Mt of high chrome mill internals. The Company is in midst of expanding this capacity to 4,40,000 Mt by brownfield expansion at its existing plant in GIDC Kerala, near Ahmedabad in two phases of 50,000 Mt each. The first phase of 50,000 Mt has been delayed on account of financial issues faced by one important equipment supplier thereby delaying supply of that equipment. Accordingly, we should be able to reach 3,90,000 Mt in FY 2018-19 and 4,40,000 Mt in FY 2019-20. The incremental Capex to be incurred for this expansion is estimated at around Rs. 350 Crores.
- The Company has also announced plans to set up a Greenfield facility to manufacture 50,000 Mt of “Mill Linings” at a cost of Rs.250 Crores and to be commissioned in two years, i.e. in FY 2020-21.
- To help reduce the cost and also mitigate risks against an increase in power cost, the Company has made plans to invest approx. Rs. 100 Crores in wind mills.
- Mining space includes customers in gold, platinum, iron ore and copper ores.
- In FY 2017-18, there was considerable volatility in the commodity prices, particularly Ferro Chrome prices. Thus, while the Ferro chrome prices were quite low in the first half of FY 2017-18, towards the end of the financial year, the prices moved up significantly in line with increased purchases from China. In the current fiscal year FY 2018-19 while the prices of Ferro Chrome have moved down slightly, the volatility still continues, though in a subdued manner. Along with raw material prices, shipping rates also saw a significant increase in most sea routes on account of major consolidation in the shipping industry. Operating margins declined majorly due to increase in material cost.
- Commodity Price Sensitivity: Rs 1 increase in commodity price decreases PBT by Rs. 19.64 cr. (Rs. 20.29 in FY17) and vica versa.
- In Fiscal Year 2017-18, 25.23% of its total sales came from India while balance 74.77% came from sales outside India.
- In China, the Company currently maintains a limited presence by marketing specific products.
- Production (MT) = 229815 (233122).
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Aia Engineering gave good results for Q1 FY19 showing growth of 25.48% yoy in sales and 18.70% in net profit. Company gave a good investors presentation also.
Key Points
- Total capital outlay for Grinding Media, Mill Liners and WindTurbine will be Rs. 800 crore in which Rs. 500 crore during F.Y.2018-19 & Rs. 300 crore during F.Y. 2019-20.
- Capex incurred till Q1-FY 2019: Rs. 40 crores.
- Incremental volume growth in Mining estimated to be in the range of 40,000-50,000 MT per year from FY 2018-19 onwards.
- Order book as at 1st July 2018: Rs. 835 Crores.
- Sale of 64211 MT for Q1 FY19(P.Y. sales was 56706 MT). Good thing was that sales in March 2018 quarter was 66374 MT. Though there is a seasonal effect in working of AIA and June quarter is weaker than March, this time around the sales were very close to March quarter.
Regards
Harshit
Disclosure: Invested
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