Carborundum Universal Limited (CARBORUNIV) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Carborundum Universal Limited Q4 FY '20 Earnings Conference Call hosted by ICICI Securities. [Operator Instructions] Please note, this conference is being recorded. I would now like to hand the conference over to Mr. Renjith Sivaram from ICICI Securities. Thank you, and over to you, sir.

Yes. Thank you, Janet. Good morning all. We have the management of Carborundum Universal Limited, represented by Mr. N. Ananthaseshan, the Managing Director; Mr. P. Padmanabhan, Chief Accounts Officer; and Mr. G. Chandramouli, Senior General Manager, strategy. We will have a small outlook by the management, followed by question-and-answer session. So over to Mr. Ananthaseshan for the opening remarks. Sir?

Good morning to all of you. Before we begin at normal chapters, we will have Mr. Chandramouli readout our disclaimer, and then I will take the call.

Good morning, sir. Good morning to all. During this call, we may make certain statements which reflects our outlook for the future or which could be construed as a forward-looking statement. These statements are based on management's current expectations and are associated with uncertainties and risks and are more fully detailed in our annual report, which may cause the actual result to differ. Hence, these statements must be reviewed in conjunction with the risks that the company faces. Thank you.

Thank you all for joining us on this call once again. This last year has been one of tremendous uncertainty and volatility for the Indian economy and also for the world, starting with the global slowdown of the auto sector, the U.S.-China trade war, the increasing focus on nationalism, and finally, culminating in a very debilitating COVID crisis that has ravaged countries and economies. Now during this period, teams across CUMI in India and overseas have shown tremendous grit and resilience in these trying times, and I'm thankful for their uninhibited support. The last couple of months through the lockdown has also been a very hugely humbling and a learning experience. Incidentally, I was reading the book, I'm sure many of you would have read it, it's a fiction, called the Origin by Dan Brown, and I came across this para, which I felt is very relevant to our current situation. It says "We are now perched on a strange cusp of history, a time when the world feels like it has been turned upside down, and nothing is quite as we imagined. But uncertainty is always a precursor to sweeping change; transformation is always preceded by upheaval and fear. The faith in human capacity for creativity and love, when combined, possess the power to illuminate any darkness." I'm sure most of us would have felt this uncertainty, this sweeping change in many of our ways we work, so starting with basically things like working from home and possibly this is the first time in CUMI's history, and obviously, many other companies' history, that the entire financial closing was done when people working from home. So we are going to see many more such changes going forward. Now with all these experiences, I'm very confident that not only we at CUMI, but the entire humanity, will see through this crisis. Now I will move on to discuss the performance of CUMI in Q4 and the full year. At the consol level, for the full year, the company achieved a sale of INR 2,569 crores, which is a 3% decline over the last year. At the stand-alone level, sales was at INR 1,623 crores, which is a 7% decline over last year. At the stand-alone level, the highest impact came from the Abrasives business, which saw a 12% de-growth. Though we were seeing some signs of revival in the month of Jan and Feb, and, of course, we were on track for a strong closing in March, but with the imposition of the lockdown and closure of our plants across the country from 23rd of March, obviously, the year-end revenues took some hit. The impact on our industry has been twofold this year. I don't remember when we have -- when we saw a simultaneous decline of both the auto and the construction industries, and which we know has been caused by a combination of factors, including very poor consumer sentiments. So consequently, we saw a decline in our coated and bonded segments, though our coated segments have been relatively -- been more resilient. Therefore, our focuses over this year has been to strengthen our operations, improve efficiencies and control costs. On the upside, in the Abrasives segments, our margins have held up at the contribution level, but the lower volumes has meant that the fixed cost coverage was impacted. Consequently, PBIT in absolute terms fell by 17% at the standalone level and 19% at the consol level. PBIT margins fell about 110 basis points at the consol. The Abrasives operations at our Russian subsidiary, VAW, also saw a decline. This is largely because they cater to the domestic auto industry, which, in line with the global auto, has been down. Our joint venture, Wendt, was also impacted by the de-growth in the auto and the capital goods sector. And there, we saw our share of profit falling by 1/3. But on the upside, exports saw good traction, whether it was the coated or the bonded abrasives segment. Consequently, our American subsidiary also saw 8% growth, driven largely by Abrasives. The entity there is turning profitable and has posted positive PAT for 4 quarters in a row. Our operations in China were impacted by general economic slowdown over the year and also by the pandemic. We remember -- you'll remember that the pandemic there started sometime in November, December and a few months ahead of the other regions. So despite all this, our belief in the potential of the domestic market remains strong and is reflected in the commissioning of the new coated maker at our Sriperumbudur location in Tamil Nadu. The project has been executed within the budget and time line, and it began commercial production in March. Now coming to the minerals business. The minerals business saw a 1% growth at the consol level. Although the domestic business de-grew by 9%, the positive growth of 4% at VAW Russia helped offset some of this impact. The Foskor Zirconia in South Africa also de-grew by about 7%. Volumes have been flat -- almost flat in our domestic operations, but has grown at VAW. And during the course of the year, we converted the Zirconia fusion facility in Kochi into a white fused alumina fusion facility, where we saw the demand growing and the utilization levels could go up over this year. The top line impact we see is mainly on account of lower realizations this year with a product mix skewed towards refractory-grade minerals because that's where the demand has been this year. The top line and profitability was also deeply impacted by the almost overnight decline of the diesel particulate filter market in the beginning of the year. This has impacted both the profitability at the domestic at the standalone and also at VAW. However, VAW ran flat out, made a product mix switch and addressed opportunities in the refractories and metallurgical segments, both in the domestic and export markets. We also see some signs of stable demand with some customers, who are keen on diversifying the supply chain, coming back. Exports have shown volume growth in this segment too. And on the new products front, our pilot graphene facility was commissioned, and we are working towards establishing applications across battery material, high-strength alloys and composites. A new range of Alumina Zirconia grain for abrasives and composites was also launched. The generation from our hydroelectric power plant at Maniyar has been higher than the previous year, and that has also helped shore up margin. Now coming to the Ceramics segment. It has been a very tough year, both globally and domestically. But despite that, Ceramics posted a 4% growth. Our industrial ceramics segment, which is largely export-driven as about 70% of this business is exports, performed very well. The geographical diversification and good demand from end users and key customers have also helped. Even in Q4, the business was the least impacted as the sectors it caters to, whether that's power, mining, steel, has continued to operate even through lockdowns in various countries. So we have seen a good traction through VAW in China and in the Middle East in the ceramics and refractory space. Collectively, these entities added INR 14 crores to the top line in terms of incremental growth. Our Australian subsidiary, though it de-grew by about 1%, has shown a resilient performance, especially as economy was hurt by the bushfires in Australia and also the gradual slowdown in China impacting their exports. The domestic refractory segment saw a growth until H1. This is also on the higher base of last year. But over H2, we started to see this increasing trend of project deferrals among customers who tend to be from core industries or auto and construction dependent industries such as steel, glass, cement, carbon black, et cetera. So over H2, the business had de-grown, but our composite business has shown good growth and margin, driven by demand for windmill nacelle covers and the flue gas desulfurization spray headers. Our anti-corrosive business launched new products, including hygiene-grade PU flooring for health care, food and pharma industries. In industrial ceramics, we will commission our third metallized cylinders line later this year. We have also commissioned a pilot plant for tape casting of thin ceramics for -- and sputtering facilities for electronic application. And we are working with organizations such as ISRO, CSIR, NAL and others overseas to build capabilities in what I believe is a very exciting area. Our business also received the prestigious CSIR Diamond Jubilee Technology Award 2018 for its innovation in technology and building a global business in the field of metallized cylinders. So overall, it has been a tough year, culminating in this unprecedented and sudden COVID cycles. Our focus has been on containing fixed costs and variable costs. CPM practices are now in place across all divisions, and our heightened focus on operational efficiencies has prepared us for the year ahead. Our operating margins have held us close to last year's level on a consolidated basis, although the top line impact has impacted PBIT in absolute terms. Coming to PAT. The consolidated PAT grew by about 10% and the lower tax rate and higher nonoperating income contributing to this. Later, our CAO, Mr. Padmanabhan, will cover this in more detail as part of the financial. On our CapEx plan for the coming year, we have pruned it down considering the current economic situation, but the focus would continue to be on investing in Ceramics and at our refractory infrastructure in Russia. The other focus areas would be in terms of automation with the intent on reducing our fixed costs in a sustainable manner. We've also gained tremendous discipline as in terms of cash flow management, and this emphasis on cash flows is going to be much more in the post-COVID scenario. Now I will request Mr. Padmanabhan to take you through the financials.

Thank you, Ananth. Good morning, everyone. Trust everyone are safe during this pandemic. Let me summarize the financial performance for the year and the quarter ended March 31, 2020. The consolidated sales for the quarter has decreased by INR 110 crores, which denotes 15% de-growth over corresponding quarter of last year. Of this, the standalone drop was at INR 91 crores. The consolidated segmental PBIT was up by INR 2 crores. It is a 2% growth on quarter-on-quarter basis. The major contributors to growth was from the Ceramics segment, both the domestic as well as the global subsidiaries. The domestic subsidiary, Southern Energy, also contributed to the growth after recovering from a cyclone impact during the previous year. At the standalone level, the segmental PBIT for the year was INR 52 crore, denoting a 20% drop. On a consolidated basis, profit after tax and noncontrolling interest for the quarter was INR 92 crores as compared to INR 62 crores in the corresponding period of last year. At the standalone level, the PAT increased to INR 62 crore from INR 49 crore. At the consolidated level, the PAT margin was 15.8% as against 8.9% during Q4 of last year. And at the standalone level, it has increased from 11% to 17.5%. The increase has been largely due to change in the domestic tax base and higher nonoperating income. Now we move on to the segment-wise result, the first being Abrasives. On Abrasives, the consolidated sales for the quarter decreased to INR 218 crore from INR 280 crore in the corresponding period of last year. Standalone sales decreased to INR 174 crore from INR 231 crore in Q4 of last year. At the consolidated level, the Abrasives PBIT reduced by 28 percentage from INR 32 crore to INR 23 crore. The drop of INR 9 crore mainly came from standalone and our Russian subsidy, VAW. Sterling, our domestic subsidiary, also experienced a slight decline in the top line. However, the margin showed positive return. American subsidiary, CUMI America, continued to perform well in sales as well as profitability. In the Electro Minerals segment, consolidated sales for the quarter decreased to INR 251 crores from INR 270 crores in the corresponding quarter of last year. At standalone level, sales dropped to INR 101 crores from INR 112 crores in Q4 of last year. Sequentially, the domestic Electro Minerals business grew by 4%. The consolidated Electro Minerals business recorded a PBIT of INR 32 crores against INR 37 crores in the same quarter of previous year. However, sequentially, the consolidated Electro Minerals business showed positive trends, both in sales as well as PBIT by 3% and 60%, respectively. In the Ceramics segment, the consolidated sales de-grew by 11% on a quarter-on-quarter basis from INR 166 crores to INR 140 crores. However, on a year-to-date basis, the consolidated Ceramics sales grew by INR 25 crores, indicating a 4% growth. The standalone sales de-grew by 20% on quarter-on-quarter basis. However, at the YTD level, the sales grew by 3%, resulting in a growth of INR 14 crore. The net sales of our Russian subsidiary, Volzhsky, grew by 61 percentage on quarter-on-quarter basis and 16 percentage on the YTD basis. Consolidated PBIT of the Ceramics segment for the quarter grew to INR 36 crores against INR 24 crores for the same quarter last year. Subsequently, the consolidated PBIT also show positive trends. At the YTD level, the consolidated PBIT of Ceramics grew by 22%. CUMI standalone PBIT saw a growth of 22% at the YTD level. VAW PBIT for the year grew by 31%, while the Australian subsidiary showed a growth of 15 percentage for the year. The American subsidiary showed positive trends during the year. Moving on to the finance. As far as the finance is concerned, debt equity, on a stand-alone basis is 0. And on a consolidated basis, the debt equity was at 0.04 as of March. There was no change in the debt equity position which was reported during last quarter. Total debt on a consolidated basis was at INR 66 crores, mainly due to the long-term borrowings, including the current maturities of INR 4 crores and short-term borrowings of INR 55 crores in March. This is in comparison to the position of last quarter, wherein we had INR 75 crores. On the movement of the loan position, we have been repaying all the loans and no significant increase is seen. In respect of ForEx, as you know, CUMI is a net importer in dollar and net exporter in euro, and we take the appropriate hedging in line with our ForEx policy. From the cash flow front, through more disciplined management of costs and operational efficiency, the consolidated operating cash flow, net of CapEx, is equal to the same level of tax of INR 272 crore. Additionally, our strong balance sheet is evidenced by net cash position, net of debt, of -- from INR 300 crores, INR 294 crores this year and a low debt equity ratio. This concludes my update on finance. Over to the Chairman for the summarization.

So in summary, overall, this was a year that has tested our resolve. The diversity of markets, applications and products have proven again to be our strength in a very highly volatile situation. This, coupled with focus on sustainable cost reduction efforts, both on variable and fixed costs, and working capital management, should help us going forward. The Abrasives demand, we believe, will pick up with the industry. So as and when the auto picks up and the manufacturing picks up, Abrasives is in a position to take advantage of that. And our effort and substantial -- in sustainable cost control in this segment over the last few quarters has helped, though it is still WIP. So I believe we can do more. In VAW, Russia, we will continue to invest in the nitride bonded chemical handling in silicon carbide refractories and also in silicon carbide itself. For EMD, the focus this year would be on leveraging the volumes, sweating the assets and thereby improving profitability. We would also like to take advantage of any potential consumer shift from China to local sources. On Foskor Zirconia, we will soon close out. We aim to close this out soon, and this will also help improve vendors' profitability. This has been delayed a bit because of the COVID lockdown in South Africa as well. On Ceramics, as I mentioned earlier, the met cylinders line should come in from the second half, and the margins are expected to be -- to stay strong on account of operational efficiencies and of FC coverage that we are seeing. The new product launches will be in rare materials, expanding from ceramics into other materials as well, composites and also in electronic ceramics. And as Padmanabhan mentioned, the company has a very strong balance sheet and fewer debt, which also offers us the strength to defend and grow in this crisis. So while we do orders, we also know that we do not know how long this crisis will go on or when we will have a vaccine or if there would be a second wave and what would be the impact of that. So in this very fluid situation, we plan to address this on a month-to-month basis, while working on our fundamentals and on the areas that are in our control. Our efficiency, technology and product development with our organizational measures and -- place ourself in a stronger position for the future. So thank you so much. And now we are open to questions.

[Operator Instructions] We take the first question from the line of Rajesh Kothari from AlfAccurate Advisors.

My question is, in Abrasives segment, if I look at the margins, of course, the fourth quarter was a challenge, but even otherwise, the margins are little bit under pressure. So if you can give a little bit color on how do you see this segment, particularly because a lot of unorganized sector also probably would have been significantly impacted. So do you think you'll be able to improve market share at some point of time? And second question is, if you remember our discussion last time, you're talking about review of product portfolio to improve the profitability and Foskor-related decision to maybe at some point of time to review that entire decision. Can you give me some color on that as well?

Sorry, your -- there are 2 questions, one is on Abrasives margin, and second one is on Foskor, right?

Yes. And the related question was, last time, you mentioned that there is a review of product portfolio to improve profitability. And if you have any further, what I would say, more detailed view on that?

This is specifically with related -- in relation to Abrasives or...

Overall.

Okay. Now first of all, let me address this margins of Abrasives. Yes, you will find that, yes, so the margins has been around -- hovering around between 11% and 12%, 12.5%. In this quarter, the end of the year about 13.5%, 13.3% standalone and at about 11.5%, 11.3% for consolidated. Now as you know, Abrasives, most of the Abrasives business is domestic, and this drop in the standalone in Q4 specifically was also due to the shutdown or lockdown which was announced in -- on the 23rd of March. So if we did not have the lockdown, we definitely would have been much better off. So that is -- we have been working on improving the margins in Abrasives over these years, and you will see the trend over the last few quarters being pretty stable, though it is not in the levels of possibly our Ceramics business. We will continue to work on improving the margins there as well, with a lot of work going on in improving the efficiencies in the coated abrasives specifically and the precision business. You will also remember that last year, the precision business overall, which is our more profitable business because it is a customer to customer business and B2B business. So you have the impact of the drop in volumes and consequently on the profitability due to the slowdown in auto industry. So despite that, we have been able to manage to retain our margins, and we believe we can do better once the precision abrasives starts picking up. On the Foskor, recall, as I mentioned, we were -- we are clear that we would exit that business, and we have been working on finding a partner. So we were hopeful of closing out by end of March, but then I guess it takes a couple of months more before we can firm up on that. Product rationalization has been a large focus across all divisions, where we are trying to cull out some of those products which are low in profitability, and that's a conscious effort. And hopefully, we'll see the impact of this in the coming quarters.

We take the next question from the line of Ravi Swaminathan from Spark Capital.

So just wanted to check with you regarding metallized cylinders sales to international markets. So how is it likely to pan out, given the fact that a large portion of it goes to Europe, and that geography has been pretty much hit by COVID, so...

See, the metallized cylinders go into power generation and -- power generation, transmission and distribution business. So -- and power being, what you call, an essential service, it continues to remain strong. So the demand for that and the manufacturing units across the world, across our customer bases, they were working even during the lockdown. In fact, we were under tremendous pressure to supply to some of our customers during our lockdown period, and we also try to manage that. So I see that segment has continued to be strong.

Got it, sir. And the high margin in the current quarter in ceramics and refractories is because of higher share of metallized cylinder in revenues?

The product mix also helped. I'll ask Padmanabhan also to explain a little bit.

See, this quarter was good for Ceramics overall. Met cylinder, met devices and as also the refractories market also picked up this quarter. Therefore, you could see growth both in top line as well as in the bottom line. And we expect that this will continue. And in fact, we'll be commissioning our third met cylinder line this year.

And how much was this expansion, sir, your metallized cylinder, third one, from 1.8 to...

The met cylinder, it is mainly because of the exports, almost -- more than 70 percentage of the sales is the exports. And this -- because of this, the foreign exchange fluctuation is also high and the unrealized ForEx gain is very high. That has also given good realization in the profit front.

No, sir. I'm [Technical Difficulty].

Yes, third level of [Audio Gap]. Thanks for your question on that. The line is about 1.5 million, 1.7 million pieces per year on [Audio Gap] 2.2 million pieces after we commission the second line [Technical Difficulty].

How much it is? 2 point? Hello?

Hello? 2.2 million.

2.2 million? Okay, sir, yes. And my second question is in terms of Abrasives, so basically, at a retail level and at an industry level, so B-to-retail and B2B, what is the current level of sales which is happening? I mean volumes vis-à-vis the usual run rate, say, if you can give an example of May, it will be great.

See, we started the operations in the middle of May in various parts of the plant or at about 33% strength in some plants, and a couple of plants are at a 100% strength. So we're in various stages of startup. So you also understand that our high-temperature processes take some time to stabilize. So as we start off in May, and I would have a better picture of that in June, because some of the sales what we made in May could be to replenish stocks. So if there is some pent-up demand, so there -- so we will know better as we go forward in future.

Got it, sir. And my final question is with respect to the last segment, Electro Minerals. So basically, do you see some threat related to Chinese manufacturers reopening some of the facilities and silicon carbide realization kind of coming under pressure? Because, I mean, China economy itself is likely to remain weak. So whatever they had closed for environmental and other concerns, can they come back again?

See, it's -- one thing which we know what's happening in China is many of the manufacturing units, broadly, the manufacturing has come back about, in some cases, could be 70%, 80%. But we also hear from them that there are lack of orders, because one thing is to produce, but then the next thing is to sell and some of the markets, if you see, are shut down. For example, some of the customers in India, they were down as the closure of [Audio Gap] difficult for them to ship out. So I would think that it is still a very slow situation with regards to capacity utilization. But definitely, there is also a green shoot here. If customers in India are going to be wary of further disruption, they could well start looking at local sources.

We take the next question from the line of Kashyap Pujara from Axis Capital.

Congratulations to the Carborundum team for a decent set of numbers. Mr. Ananth, I had a couple of questions. First is about the gross margin expansion. In Q4, we saw a significant jump, close to 70%, which a normalized run rate for us is around 65%. Now could you explain -- would this be sustainable or it is largely because of product mix that we had more tilt towards Volzhsky and less from, say, Abrasives? So is this more a function of mix? Or is there some sustainable initiatives which explain some bit of gross margin uptick in Q4?

You are talking about -- thanks, Kashyap. You're talking about the whole of -- for the company or specific thing?

Yes. No, for the full company, you had a 70% gross margin in Q4 and versus 65% in the previous year and previous quarter, and normalized run rate for the company is around 65%. So just trying to see whether it's a mix or it is some other initiatives which has driven this gross margin? Or maybe one-off raw material cost benefit?

Yes. I think in Q4, we saw overall the one in the minerals business. Abrasives business, of course, started picking up, as I said early, in Jan and February, so where we saw the movement in terms of the -- even the precision business was doing well. We believe that, that was an impact of customers stocking up or beginning to stock up [Audio Gap] launch and the production of components for that. But however, the last week of March saw a decline there. So Abrasives had a combination of better product mix, increasingly good efficiencies, and as a service, sustainable, I would definitely say, in the case of coated abrasives. And in the case of minerals, there again, the -- both in terms of the power costs and the internal efficiencies at the domestic standalone was very positive. The performance at Russia in Q1 has been very good. So that has also contributed to better margins. The -- also performance in Foskor Zirconia in -- was better compared to the previous year in Q4. So overall, I think the minerals business, whether it is in Russia, in Foskor, was good and in the standalone business as well. As I said, the margins in Ceramics are driven by both product mix and also the benefits we had from ForEx gain also helped. So I would say it's mostly what we are doing is sustainable in terms of efficiencies, but there definitely would be some extraneous factors like the ForEx gains.

Sure. Yes, I think that's helpful, ForEx gains. Just one other extension about sustainability would be about the working capital. Our operating cash flow after working capital has doubled Y-o-Y, and -- which is a very commendable effort. So would the -- and on a similar level of top line, so would it -- how would you kind of comment on that? Do you think that we've used out whatever it is, and it will normalize upwards? Or do you think that the current level of receivable days or inventory days or the current level of working capital is sustainable?

See, in terms of working capital, the effort, traditionally, you would also always see that the number of days of the collection -- the discipline of collection in Abrasives has been pretty strong and that continues. Though we would definitely see an impact on that in this quarter, I guess, because with many of the dealers not opening shop or customers not opening, we would see number of days going up a bit. But all of them, I don't see as a threat now. None of them are bad. We have made a complete evaluation of that. Our work on the working capital, on the raw material inventories, on finished goods and on the work in progress, so that is something which the operations teams have been working on. And as I said, putting in place the CPM practices and the Lean management practices has helped. So we will try and make this much more robust, and that's what we are banking on going forward.

Yes, in order to make it sustainable, we are taking focused efforts to reduce the inventory and then to collect from the debtor and a lot of cost-saving measures have been done. These efficiency measures, coupled with the working capital reduction will help us to make it sustainable for the future products.

Sure. Fair enough. I'll take that offline. Last question was, sir, regarding competitive intensity. If I look at one of our key competitors, in this case, with a similar market share, their reduction in top line for the year and for the quarter has not been as severe. So how would you kind of comment on that? Is it about your thoughts on market share, are we losing? Or do you think it's a product mix issue? What is your commentary on that?

Well, I would -- I mean, there's definitely -- there is a drop in our top line in Abrasives. And I would say that while we have been trying to ensure that there is no market share loss, the last 10 days of no sales in March really hit us. I would estimate another INR 50-odd crores of sales could have come about, and we were on track for that. So I'm seeing this not as a demand disappearance but more like a demand deference. So we would be able to come back stronger. We have also made some -- taken some decisions in terms of pruning down our product portfolio in Abrasives where we have let go of non-profitable product groups, and that has also contributed to this. So the objective is on the long term, how do we make ourselves more stronger, better profitability -- with better profitability, and also, use our capacities to gain market share. So that's the answer for you. I hope I've cleared that.

Next question is from the line of Bhoomika Nair from IDFC.

Yes, sir. Sir congratulations on a good set of numbers in a challenging environment. Sir, just wanted to touch upon EMD a little more. You spoke about some ramp-up in China, et cetera, and some green shoots out there. But just wanted to extend this further in terms of how is pricing moving out there on FIC drains. And are you seeing any upward movement? Or is it kind of moving down because the utilization levels are actually quite low and some of the low-end players also kind of trying to gain market share?

Yes. The major portions or major product groups in electro minerals with what we call the regular products or the commodity products would be a silicon carbide and the fused aluminas. And silicon carbide has, even before the COVID, was under strain in China because of the pressure -- environmental pressures. And also the disappearance of the diesel particulate filter market and the photovoltaic market, curtailing some of their production. So some of the capacities had gone out, and that also helped maintain prices. With the COVID coming in, the demand has further slowed down and the -- at least in a couple of months in early, maybe February, March this year, we saw shipments out of China also struggling. So in silicon carbide, what we now see is that the prices are stable, but maybe marginally dropping a bit, but not too much. So the demand-supply situation is taking care of that. But in the case of the fused alumina, it's a little different. Fused alumina is both the brown fused alumina and the white fused alumina, are seeing a drop in prices, more in the white fused alumina than in the brown fused. So -- but the demand for white fused is more robust. So -- because the white fused aluminas go into manufacturing with factories, while the brown fused aluminas would go into manufacturing abrasives as well. So what you're seeing is a mix. So while the silicon carbide prices are going to be relatively stable, maybe a marginal drop of a couple of a percentage points. We see that the white fused alumina and the brown fused alumina would both be lower. So immediately, I don't see an opportunity to increase prices here as well.

Right. And if we have to compare this, as you also mentioned that some customers will start looking at India as kind of -- apart from a China kind of a sourcing. So in that sense, how would our competitiveness be placed versus, say, a Chinese player to compete and get that market share versus imports?

See, the -- among the products what we have, what portfolio what we have, the largest capacity we have is for the fused alumina, which should be both the white fused and brown fused alumina. And here, we are reasonably competitive with access to good raw materials, reasonable cost of power and very high efficiencies. So I'm confident that we can be competitive in these spaces. So that is one reason why we are trying to leverage our assets, sweat them and maximize volumes for these product groups. The reason possibly some of the customers are looking at India as an alternative, and I'm talking about Indian customers is that there have been -- these are customers who consume large volumes regularly and they have been hit by the disruption of supply from China. So it would be logical for them to start derisking and looking at an alternative Indian supplier. So -- and especially, we do not know whether there would be another, let's say, another second wave, which would again disrupt shipping lines. So it would make sense to have a derisking strategy in place. And that's what we are mapping now.

Sure. And sir, if you could also comment on VAW, how are the current utilizations levels there. I assume we're still running flat out and how is the prices and exports panning out? And I'm sorry, I missed the number, which you said on abrasives at what level we are versus last year at this point?

In Russia?

Yes, sir, both in Russia and in abrasives domestic.

Russian operation continues to do well and continues to do well in the first 3 months of the quarter and continues to do well in the first 2 months of this quarter. We -- though Russia has definitely been impacted by the COVID, and has been one of the countries with the highest infection, and they had a lockdown very similar to ours. The Russian operation continued to operate, given the fact that the product silicon carbide goes into steel industries, which are considered as essential. And so they ran flat out. So the operations in silicon carbide and in the refractory space, again, which goes into majorly the aluminum industries also considered essential, helped them to keep the plant running. The abrasives part of the business in Russia was shutdown, consequent to the shutdown of the auto industry in Russia, because most of the abrasives consumption or the sales from VAW goes into the auto industries in Russia. So while India had a slowdown, VAW was keeping the flat line, so they were going flat out. For your second question?

Sir, on the abrasives, I missed on the domestic market. What was the utilization level? Or what level are we versus last year?

See, the utilization levels, I can only talk about in -- from March. But if you're talking about now, we didn't have any of our plants running in April. And we just started off opening some of them beginning -- end April, mid-May. So the plants are just coming back to operations. And whatever sales we are planning to make would be a combination of the stocks which we have and the production, which we can make out of the rest of the month. So we would have a fairer picture on that, possibly in June when the markets open up further.

We take the next question from the line of [ Chirag ] from HDFC AMC.

Sir, if you can tell us your other income was up sharply this quarter. So the -- why that was? My second question was in terms of the metallized cylinders. The new capacity which comes in, in the first half, how do you see that ramp up? And do you think that this will get fully utilized in FY '22? And assuming it does, what kind of revenue you can have in met cylinders. And my third question was in terms of the ceramics business, if you could give us a breakup between the segments, refractory ceramics, industry ceramics and so on.

I missed your first question. First part of it.

So first question was just the other income. It was up sharply this quarter. So the reason behind that.

The other income was mainly due to the forex gain and followed by the interest income on the surplus fund, which have been deposited with the bank, these are all the main reasons.

So how much is the FX gain?

FX gain will be around INR 4.5 crore.

I'm sorry?

The ForEx gain is around INR 4.5 crores and balance is the interest.

Right. And second question was -- yes?

We will be commissioning the met cylinders line 2.5 as we call it, during the course of this year, the first half of this year. There was a little bit of a delay because of the COVID. The transportation of some of the key equipment did not happen. So they had just been dispatched from our suppliers in Europe and in the U.S. So once we have them in place by firstly end of this quarter and the commissioning will happen in the second quarter. So in terms of the capacity utilization, we are working on the customer base. And we have some approvals in place. So we hope that we can ramp up towards full capacity by end of FY 2020.

Right. And so met cylinders at full utilization for the new capacity, is it fair to assume that you can do about INR 120 crore, INR 130 crores of revenue from that?

No, no. That will be between about, I would say, INR 30 crores to INR 40 crores.

Sir the new capacity is of what size?

0.5 million.

I'm sorry?

0.5 million.

Right. Okay. So it's going from 1.7 to 2.2? Hello?

Yes. Is it clear?

Yes. Yes, sir.

We take the next question from the line of Bhavin Vithlani from SBI Mutual Fund.

Could you just help us with -- in the abrasives segment, one, what is the mix between bonded, coated thin wheels and super abrasives? And what are the capacity utilization during FY '20 for these products? And second is on the coated side, you will have a new facility, which will come up. How do you see the incremental revenues from this? And last is really actually the question of the earlier participant. What is the mix of the Ceramics division between met cylinders, refractories and the other products?

Yes. The -- on the abrasives, the bonded abrasives is typically about 55% to 60% -- 55%, I would say. And the coated abrasives is about, yes, between 40%, 45%. The sales of bonded abrasives, we would not largely give you a split on the thin wheel or the super because, there would be a mix of these products. So we normally give a classification of the custom build products and the mass market of retail products. So the thin wheel, the blade, super blades, et cetera, would come under the retail segment, so that will be about overall of the 70%, which includes the coated abrasives, and the 30% would go into the custom-built products. On the ceramics, okay. Before that, on the capacity, which has come up on the coated abrasives, we have just commissioned the coated abrasives. It's double the existing capacity. So we are talking about similar capacity. So the capacity will go up twofold. And as I said, the trend, which we have built into the coated, both in terms of the product range, in terms of competitiveness and the inherent market size itself, it makes us hopeful that we would be -- we can leverage this to gain market share both in the domestic and in the export business. And as you all know, the coated maker, the capacity utilization does not come up in a said jump. It is always a ramp. So while our efforts are to build customer bases, so the capacity utilization would be -- the full capacity utilization would happen over the period of 5 to 6 years. On the ceramics business, the ceramics includes largely the industrial ceramics and the refractory part of the business. So the -- on a consolidated basis, broadly the industrial ceramics would be little more than 50%, 55%. The refractories would be the balance.

Understood. And how would be the FY '20 capacity utilization of bonded and the coated abrasives?

See typically about 60-odd percent is the capacity as such. In coated, obviously, the capacities were much -- the capacity utilization was much higher. And that is the reason why we put up the new maker in the first place. We were running at about 85%, 90% capacity utilization in the maker previous year. So it had taken a little bit of a drop because of the drop in volumes in FY '20. So I would get that the capacity utilization in coated would be around 80%. While in the bonded, it's in the region of about 60%.

And does the newer facility is going to be a replica of the existing one? Or there are certain newer products, which is the import substitution that you're looking to cater because we have seen imports rise considerably to about INR 1,700 crores from INR 600 crores, INR 700 crores over the last 3, 4 years. So a bit more color on that will be helpful. That's my last question.

The capacity, I mean, the infrastructure itself is a replica. But obviously, the learnings from running the specific machine over the last 10 years has been factored in when we designed and implemented the new one. So there is an improvement in terms of the capability of the machine to run a wider range of products of thicknesses, steel, et cetera. So that puts the leverage to design and develop products for a specific market. So we also already developed products and ready for rollouts. So to see more of it.

We take the next question from the line of Ashwani Kumar from Nippon India Mutual Fund.

Sir, my question to Mr. Ananth is that in the businesses abrasives, industrial ceramics and minerals, you have these adjacent products and you have transformative products, basically where you intend to enter. So what will be the critical factor for ramping up of this? And where are you in this journey? What kind of time frame do you see both for the adjacent products as well as the transformative products to be a part of Carborundum Universal stocking?

Yes. Thank you, Mr. Kumar. The answer to that is a little complex, because the -- one -- each of these divisions have their range of what we call the core businesses, the transformation products and the addition products and the transformation products. So the -- in terms of the position where they are in, there are different levels of maturity. Obviously, the largest chunk of the transformational products are in the ceramics business. But we are trying to put together the transformation businesses as more an ecosystem of products and services. So while the -- while we are working on, let's say, a 3D printing, 3D printing would encompass machines, the consumables and as components, so it will impact multiple divisions. So what would drive us this transformation is obviously some of the industries which we are targeting in, which would be the aerospace, the defense industry. And a lot of them will see, hopefully, traction when what the finance minister spoke about in terms of investments in electronics, manufacturing, for example, take shape. So that's one reason why we're so invested in pilot plant in industrial ceramic and electronic ceramics. So we are hopeful of that.

And second, sir, in terms of the -- currently, if you have, let's say, if IIC grows at 5%, grow at maybe 6%, 7%, now your participation with your existing customers, particularly in India, which is maybe autos, general engineering and these are 2 large areas. How do you increase your participation that -- is there scope for you to increase your participation? Or, let's say, the content of work with these current customers in these 2 segments?

See for the abrasives industries, obviously, auto is a big player. So you have auto, general engineering, construction, infrastructure, woodworking also after. So these are all -- and also in terms of the core industries like steel and cement, also where we have a play. I would -- seeing that the speed at which auto comes back, we'll definitely have a say on abrasives overall, especially on the product division side. And we constantly are working with our customers in terms of making them -- offering to them products which are local. So in a situation where some of these products which were imported all these years, so we can be seen as a much more viable local alternative. And that is what we are doing with the business customer. To the retail segment, we are -- we have already started our journey in terms of expanding our reach and making -- taking our products a little more into the rural space. So we hope that these 2 initiatives will help us gain market share back in abrasives.

We take the next question from the line of Harshit Patel from Equirus Securities.

Sir, my first question would be on the industrial ceramics front. So sir, what would be a new product that we are currently developing or we would be introducing maybe over the course of next 1 or 2 years? And who exactly would be our competitor in such products, both in India as well as on the international front?

In the industrial ceramic space, we're broadly looking at wear ceramics and the technical or engineered ceramics. And the wear ceramics and the wear material has a much broader market globally, because these are products which are used to protect equipment and protect process lines and plants from wear. So it's a combination of ceramics, combination of rubber or combination of polyurethane, et cetera. So we are looking at expanding the definition of wear ceramics into wear materials, and this is where our new product development focus is now. So we would be seeing a lot more in terms of wear material itself and not just wear ceramics. We are also looking at the entire ecosystem of wear protection in terms of offering their management services. So it's a combination of product, product innovation and service innovation. In the case of the technical or the engineered ceramics, our focus has been on, as you know, the metallized cylinders and the engineered components for the fuel delivery applications. We are also looking at expanding from the alumina based ceramics into carbide-based ceramics, which is what we have invested in, and we would see some of those equipment in place this year. So the silicon carbide, bonded silicon carbide or the reaction bonded silicon carbide, which would be the newer products, which would address what I would call the tribological properties or the wear assistant properties would come into play. So the end use, the markets would largely be -- it's global. So I would not -- the competition, obviously, will definitely be global in nature as well.

And sir, my last question is a bookkeeping one. So if you could give us the revenue, EBITDA and price numbers for both Volzhsky as well as Foskor for FY '20, then it would be very useful sir.

Yes. As far as the -- you require the YTD?

Just for FY '20 full year number, sir.

Full year. Okay. Full year, as far as -- see, generally, the mix up is -- as far as the electro minerals is concerned, we can say that VAW will be around 60 percentage and Foskor will be around, say, 12 percentage. There is no change in the percentages, it has almost remained the same.

Okay. Sir, what I was looking for was the EBITDA and price numbers as well for both VAW as well as Foskor. In Foskor, you have already given that in your press release, but especially for VAW what was our EBITDA as well as the price numbers for FY '20. That was what I was looking for, sir.

In the overall year for this segment it will be around 70 percentage.

We take the next question from the line of Manish Bhandari from Vallum Capital.

My question was on the Ceramics division. You answered a part of it between the breakup between industries and refractories. I just wanted to understand for this year, which subsegment would have been a major growth driver for the business.

The -- while the industrial ceramics has definitely been one of the fastest-growing segments in the company, over the last year, we're also seeing the refractory segment along with the composite picking up. Because these segments are, again, very design intensive and technically intensive, so we are seeing that there is a good amount of synergies between what we see in technical, industrial ceramics and also the refractories. And I guess, though not at the same pace as industrial, the refractory has also been growing.

And the application for both divisions, was it mainly project order driven? Or is it repairs and maintenance? Any color on that?

It's a combination of both. Mostly, it would be the project orders, especially in the case of the factories units. While, the MROs or what we call the repair opportunities do exist, [indiscernible] what we call the monoliths.

Understood. Understood. And sir, in the Abrasive segment, for the year, have you seen competition from low price imports from China, at least in the domestic market?

Sorry?

In the Abrasive segment, in the domestic market, are you seeing competition from Chinese products on the lower value price points?

Do you mean to say in this quarter or...

For the year. For the year.

Normally?

Yes.

Hello?

Hello? Yes, am I audible?

You're just breaking a bit.

Is it clear now? Am I audible? Hello?

Much better. Go on, please.

Yes. Just the query was on the Abrasives segment for the year, did you witness competition in the lower price point segment from Chinese products in India, imports from China?

Definitely. China is -- I mean, over the years, China has been a competitor, especially in what we call the mass market segment. So they have always been competing in that segment. The coated abrasives or in the thin wheels or the diamond plates, et cetera, they have always been a competitor there.

All right. And just a clarification, sir, the -- we have 2 markets, we -- the channel, which is the B2C, like you just mentioned, and the direct, which is B2B, so this would be about 35% of your sales for abrasives? And this would be a higher value-added product, which is the auto space that you cater to?

About 30-odd percent, so that's the auto auxillary sales. Cement, so power plants, so these are direct customers, yes.

All right. Understood. Understood. So the main competition from China would be in your channel distribution, thin wheels segment? Hello?

Yes. The competition is within the retail business.

We take the next question from the line of Ashish Kumar from Infinity Alternatives.

Congratulations for a good set of numbers despite the COVID situation. What I wanted to understand was from a more strategic perspective that given the fact that we have a strong balance sheet, and do you think there's an opportunity for us to increase our growth rate significantly over the next 2, 3 years either through consolidation of smaller players or a more aggressive growth plan? Do you see that happen compared to historically? Or do you see that we will continue to kind of be in line with history.

So the -- all right. Traditionally, CUMI has always grown through acquisition, grown through alliances. And with our current trend in the balance sheet and our cash reserves, we believe this could be the good time to look at value buys. So definitely, a part of our growth strategy is also inorganic growth. And we would be looking at opportunities indefinitely in the ceramic space and in the abrasive space as well.

We take the next question from the line of Bharat Sheth from Quest Investment.

Sir, I mean, on the Chinese competition on these lower end product in channel distribution, so now with the kind of I mean this sentiment, which is developing in the whole world against China, so how do we see this as any opportunity? Or really, how do we want to encash this opportunity?

Sir, I'm looking at it, let you know pragmatically. Okay. Definitely, there was an anti-China sentiment and a little bit of anger towards China. But I do not know how deep or how long it will last. Definitely there is a sentiment. So maybe people would stop buying or defer to buy not for initially maybe for reasons of nationalism, but I don't think that will last. It would be more from a practical point of view in terms of making or having products available at shorter notice, protecting themselves against ForEx, the unfavorable ForEx for imports and also to have products available at short notice, because all of us should remember that we are all fighting for cash, and none of us want our inventories to be blocked, our money to be blocked in inventories. So it would make great sense for people to buy locally and not pile up inventories as well. So I'm hopeful that this is the -- this is what we are also pitching in with the customer, saying that we can be as competitive as any of the companies in the world. We are available here locally. And we also give great service.

So are you seeing some kind of any positive outcome? And second, on that same line, I mean, in other international markets where we were, like U.S. and all, you are competing against China in some of the products, not only abrasives, but our electro minerals. So how that is playing out?

We -- in the -- especially in the electro minerals and in refractory businesses, we have seen some customers coming to us looking to realign their supply chain. So I'm seeing that, again, not from anger against China, but a very, very practical viewpoint of ensuring that their operations are not disrupted in the future because of their overdependence on one country. Okay. We are seeing some positive line from that.

Okay. Great. And sir, I mean, how do we see -- I mean, some of the products, I mean, where niche technology, which we were working and we were expecting some kind of a commercialization. So any light on that?

A couple of new products, which we have worked on in the minerals space. So one on last year, we had installed our pilot plant for graphene. And that plant has been commissioned, and it has started producing, let's say, producing products for trial, and an establishment process is going on. So with the increasing use of light weighting in automobile and also for refractory material, I think these 2 products, which is both the specific graphite and graphene would see demand going forward. Now how soon is that demand going to be? Because we also -- it also is a factor of how soon auto industry overall will shape up and come back. Now when it comes back, it will be -- will it be more for IC engines or will it also move into EV and how soon. The EV is going to be there. That's something which all of us are convinced about, but how soon will that come in is the question. But we are getting prepared for that. So all these areas and ensuring that we have the right amount of approval is the first step, and we are there.

And sir, on the ceramics also, we were evaluating some of, I mean, health care area and all. So any update on that?

As I mentioned earlier, we had invested in pilot plants for what we call the tail casting, which is very, very thin ceramics for electronics packaging. And also our adjacency or learning from our metallized mineral operations where we can coat metals on ceramics. So these are some of the technologies, which we want to leverage when the electronic manufacturing starts in India for other parts of the world.

Next question is from the line of Bhavin Vithlani from SBI Mutual Fund.

Just continuing with the earlier participant's question. On the innovation, if you can just summarize into the 3 divisions, the product that you introduced last year and maybe the products that you expect for the next 3 years. So you spoke about graphene. You spoke about ceramics. But maybe if you can give more color on the innovation front that would be helpful. You also spoke about some process-related innovation. So some color on that will be very helpful.

Okay. I'll first start off with abrasives. Abrasives, the innovation has been -- we are working on 2 areas: one in the process area and on the product area. The process area innovation is more towards redefining the way we are currently manufacturing products, which would lead to a substantial reduction in energy costs. So that is work in progress, and that is what we are going to maybe -- we should have a better picture about it over the next 2 or 3 quarters. In the product area, the -- we have been working on both the coated abrasives and on the super abrasives. And the coated abrasives, as you well know, since we have the new maker in place, it also gives us a chance to work with expanded capabilities of that maker and address applications not only for the domestic market but also for the international market. And on the super abrasives part, we have now a range of photonics with refined CBS, that would help us move up the value chain. So that has been working on the last 2 years. And we have seen greater acceptance of it over the last one quarter. So that is what we are doing in Abrasives. In the case of the Ceramics business, the range of products which is going to be more in terms of the non-oxide material, which is both the silicon carbide or the SCA, as we call it, on the nitride bonded silicon carbide. These are both for the wear application and also for the electrical applications. In EMD, we spoke about the products, which are the ultra fine for the technical ceramics. We also worked on the fine powders, which are specifically meant for 3D printing. So those are the areas we are working on. So as a feedstock material for 3D printing and also for the -- as I said, for the battery materials will play a big part in graphene, at the moment those products we have now.

Well, ladies and gentlemen that was the last question. I would now like to hand the conference back to the management for closing comments.

So thank you all so much again for listening in. So what we -- as I said, it is going to be a crisis, which we do not know how it will pan out. But from our side, what I meant that if we build our organizational muscle now, as I said earlier, and work on these areas which are in our control, then we are in a better shape for the future. So that's how we look at it. So thank you again for joining on this call.

Thank you very much. On behalf of ICICI Securities, we conclude today's conference. Thank you for joining. You may now disconnect your lines.