Carborundum Universal Limited (CARBORUNIV) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Carborundum Universal Limited Q4 Full Year FY '21 Investors Conference Call, hosted by AXIS Capital Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Aditya Bagul from Axis Capital Limited. Thank you, and over to you, Sir.

Thank you, Malika. Good afternoon, everyone, and a warm welcome to the Q4 FY '21 and the full year FY '21 conference Call of Carborundum Universal Limited. Before we begin, I just wanted to congratulate Mr. Ananthaseshan and the entire management team for a brilliant Q4 performance and wish them all the very best for the coming quarters. We have the senior management of CUMI here with us, Mr. Ananthaseshan, Managing Director; Mr. Padmanabhan, the Chief Financial Officer; and Mr. Chandramouli, the Senior General Manager, Investor Relations. I won't take too much time, I'll hand over the floor to Mr. Ananthaseshan for his opening remarks, post which, we will open the floor for Q&A. Thank you, and over to you, Sir.

So good afternoon. And ladies and gentlemen, it's a pleasure talking to you all. So before we begin, as a factor, we will now have Mr. Chandramouli read out our disclaimer, and then I will take the call.

Good morning, and [indiscernible] . 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 the management's current expectations and are associated with uncertainty and risks are more fully detailed in our annual report, which may cause the actual results to differ. Hence, these statements must be reviewed in conjunction with the risks this company faces. Thank you.

Thank you, Mouli. So before I start, I sincerely hope and wish that every one of you and the families and friends are safe. I know that there are terrible stories that we are hearing from all over India, whether they be in Mumbai or Delhi or Bangalore or now even in Chennai. I do sincerely hope that we have a control on this very quickly and then we move on. Okay. So I would like to start with giving a context to the year. All of you guys well know that the beginning of the last year, honestly, was started off a year in FY '20 -- FY '19/'20, was a very poor under performance and a lot of uncertainty regarding the [indiscernible] and the insurance costs, et cetera, and we saw a significant [indiscernible] in upcoming years. And while we thought that the subsequent year, which is, '19/'20 would be better. We were taken, in March, with the pandemic, right? So early that year, we heard about the SARS-like virus spreading in China. But subsequently, in March, when we had the pandemic announced and then the lockdown implemented, all of it led into a completion now. So unlike many of the others, CUMI'S plants also were shut down. And progressively, we started operations sometime in June, July. So we've had, effectively, lost about a couple of months of sales while we had to absorb costs. So progressively, the plants resumed operations, crossed over 50% utilization in Q1, while dealing with labor shortages, and also the utilization levels were not so great. Among our businesses, the rental business was the first one to come back or rather start off after the lockdown lifted or lockdown lifted in a partial amount. The joint ventures and subsidiaries were more resilient, as I would believe, while the businesses -- our largest businesses, which is the Abrasives business, picked up a little later than the other 3 businesses. So while the Ceramics business, which is which is largely an export-oriented business and more a B2B business and the Electro Minerals business, which riding on the shortages that are coming in from China, because they have their lockdowns, pick up faster. We saw the Abrasives business starting up a lot late. And subsequently, in September, October, then, while the [indiscernible], the demand grew, our top line also started growing. We also saw during the same time the auto other component construction, the home renovations, all of them beginning to pick up. So Abrasives then started -- did start doing well, right from that period on, and a combination of both the mass market segments, which was largely reengineering, the construction is working and the physician segment, which is driven by the [indiscernible] component started doing well. Sometime in November, December, we also saw the beginning of the second wave in Europe and other parts of the world as well. U.S., Australia, which is back initially, but -- and also, of course, Russia. So many of these countries did have their own versions of lockdowns, which for the U.S. and Europe in a much more stringent fashion than the others. While that happened in also the country, we saw the domestic market continue to do that. And most of us thought, knowing the pandemic is behind us. And all of this, we're also very positive. When the government announced a slew of initiatives like the PLI schemes on electronics, we also saw the union budget getting a big [indiscernible]. So that was a big positive news for the entire country. And at about the same time, we also saw a much faster rollout of the vaccinations. And I say much faster roll out, our expectation was that the vaccine will come later, but the fact that it came a little ahead of time was also a very big positive. So while we were all looking at these things, now we are hit with the second or third wave, and we have now become the worst affected economy in the world, or country in the world. So that is where we are coming from and other performance should be seen in that context. As of year 2021, while it has been testing on so many fronts, it has also taught us a lot of lessons and how to manage in a virtual world. The business managed to record a 1.4% growth at the consolidated level and a 1.6% growth at the standalone level. So we had the PAT growing by about 4.5% at the consol, whereas at the stand-alone level, it declined marginally by 3%. Now if someone had told me, these are the numbers that we going to look at the end of the year, when we set out our scenario planning in [indiscernible], and have gladly taken it. That's the kind of situation we were in, in Q1, and Q1, where we did not think that this demand will come back so fast, and we will be able to do these numbers. So overall, the stand-alone businesses drove the top line growth and the subsidiaries drove bottom line growth. So while we saw that the pent up demand coming back in Q3. In Q4, we also saw another set of challenges, which is basically on shipments, delayed shipments, containers not being available, the commodity prices going up. Raw material prices consequently going up. So these were where uncertainties and ambiguities which flowed by in Q4. But there has been a visibly higher demand in Electro Minerals segment over the last year. The company level growth we see in sales and the stand-alone and the consol came from the mineral segment. So not only did it help us overcome the slowdown in other segments, it also helped recover our top line growth. The Abrasives segment managed to remained flat at the stand alone level. So this is coming from a slower start. So what we have seen in this segment is a dramatic shift in the pattern of sales in between quarters. So the overall volume of sales did not come down, and we were able to maintain FY '20 levels. However, the performance of our overseas entities, divesture segments, both at America and Russia, was impacted by their domestic markets. And their lockdowns, which impacted the auto component business. So consequently, their top line saw a marginal decline. But the big positive, I would say in the segment has been the profitability. So while we had a flat top line, the operating profit grew 19% year-on-year. So we had taken a slew of measures, cost controls, both on the material costs and on the efficiencies and on the fixed cost, which has helped us clock double-digit growth rates. And towards Q4, a more favorable product mix in terms of higher potential investors also help. Obviously, many of the expense related travel, communication, exhibition, et cetera, came down, and that has also helped. So these are what I would call, possibly one-off but this year also, it seems like most of -- many of these costs will have to be -- will not be incurred if the situation continues like this. So marginally the segment improved by about 300 basis points. Now going into FY '22, the focus will be to retain some of these structural changes in costs. We know some of them will come back. And now the investment work we have made in automation and mechanization actually start paying off. Electro Minerals has seen a very good performance this year. At the consol level, the business grew by 4% in the top line. This year, it is pertinent to say that our Russian subsidiary, VAW, though was impacted by in the COVID, the plant and in the market there, continue to do well throughout the year. They churned out the volumes. They did not have even a single month of slowdown. So they managed to keep their material lean. It also helped that they came under the essential services or essential materials in their geographies. So stand-alone growth was higher at 7% and this segment was one of the earliest to see revival in demand. And this is also due to the fact that some of the export customers are seeking to base from China. And also the domestic customers who were sourcing from China are looking at local opportunities or opportunities to source from India or local opportunities. So this segment has seen a strong demand in white fused alumina and is liking [indiscernible] has also been strong. But as in all segments, we have been phasing into cost pressures here too. So what we are seeing is a 30% growth in consolidated operating profits and a 46% growth in stand-alone operating profits for a single-digit top line growth. And there's not just [indiscernible], very active business development, ensuring that we address markets which we are not been there before. And this is evidenced by the high volumes in specials, efforts at fixed cost reduction and the variable costs have also luckily [indiscernible] work through this. The Ceramics segment had a very mixed year. In the technical and alumni ceramics, we saw record volumes, they did much better than ever. Let me assume the volumes also recorded very good growth, and we have completed expansion activities in this line. The other major breakthrough this year is the entry into the electric vehicle component space. So for the electrical parts of EVs, we have started our supplies. So that's a good initiative which has been started, and looking forward to doing in this space. However, the rare ceramics and the refractory's performance was relatively muted. This is largely due to the project, defers and co sectors. And hopefully, the further orders will come back this year. Because we believe that these plants, these process plants which are highly dependent on these kind of materials, would have taken up only a repair job or an odd job, as we call it, but definitely, the project orders are due this year. But on the positive side, the rare ceramics or the rare materials part was able to onboard new customers and prepared to make new space. Especially many customers have had to start and stop operations intermittently, and this led to more wear and tear. Overall, the consolidated segment declined by 0.3% and the stand-alone businesses declined by 2%, but despite them, the PBIT grew by 3% at consol level and a much higher 6% at [indiscernible] level. So the lower fixed costs, higher volumes from continuous process lines and a more favorable product mix had the standalone profits. Australia's performance. That's part of the rare ceramic and was impacted by a host of factors, which included a setback to the domestic iron ore industry as political tensions between China and Australia that is floating for a while. So this business has seen a 5% decline in top line. The ceramic segment of Russian subsidiary, VAW, was a real success story. And we have been seeing strong growth in the metallurgical grade silicon carbide in the factory space, which falls into the nonferrous industries. We have also been putting up capacities here, and another [indiscernible] earlier this month. The ceramic portion of [indiscernible] is also seeing growth and also negated domestics to some extent. In American markets, we have made some victories in the mining sector over the last year, and that toggles well for the future. At the full year level, all [indiscernible] were in possible margins, except for the [indiscernible]. But the [indiscernible], they have halved their losses from last year's levels and the lower losses come over a 30% growth in top line. So also in Q4, we saw positive margins. A quick look at the other subsidiaries, we have selling investors of the other subsidiaries over the year. It's under work. So this business has grown by almost 9% this year and saw a volume growth both in Agri and industrial segments. [indiscernible] grew about 20%, while China also did very well. Profits were also positive. Overall, the share of profits from rating was lower by about 15%. So [indiscernible] ceramics and event performed very well and recorded growth [indiscernible], which is more a project base, the business had a very tough year. And on top of that, it comes over a higher base than last year. Therefore, to sum it up, what we're looking at is the consolidated growth sales of INR 2,604 crores, which marks a 1.4% growth and a INR 284 crore PAT, which marks a 4% growth. CapEx over the year, over the year we spent about INR 103 crores, standalone did about INR 56 crores, and Russia did about INR 40 crores. And some expansion CapEx we started before the pandemic has also been completed this year. So we include the second line equipment plant and the new facilities in composites and expansion in the metallized cylinders. We also have commission re term silicon carbide facility in the ceramic business. Going forward into FY '22, we have a few more CapEx plans and our books in India and in Russia. And we will continue our cost and rolling focus. Our CFO, Padmanabhan, will talk more about this, and our balance sheet position is also very strong this year. And we have been able to keep receivables well under control and maintained the net working capital. So this closing my briefing for the quarter and now request our CFO, Mr. Padmanabhan, he take you through the numbers, following which we can open up the floor for questions.

Thank you, Anand. Good afternoon, everyone. Let me summarize the financial performance for the quarter and the year ended March 31, 2021. The consolidated sales for the quarter has increased by 28% from INR 586 crores to INR 756 crores. Of this, the stand-alone had increased by INR 147 crores, thus signifying a 41% growth over last year. The consolidated segment to PBIT was at INR 138 crores in Q4, which was up from INR 94 crores in Q4 of last year, signifying a 46% growth on a quarter-on-quarter basis. At the stand-alone level, the segmental PBIT for the quarter was at INR 84 crores against INR 52 crore, denoting a 63% growth over Q4 of previous year. On a consolidated basis, profit after tax and noncontrolling interest for the quarter was at INR 90 crores as compared to INR 92 crores in the corresponding quarter of last year, a 2% decline. At the stand-alone level, the PAT decreased to INR 58 crores from INR 62 crores, showing an 8% decline on a quarter-on-quarter basis. The margin level, the PAT margin de-grew from 16% during last year at the consolidated level to 12% in the current quarter. At the stand-alone level, it has -- the margins have come down to 11% from 18%. And on the Abrasive segments, the consolidated sales for the quarter increased from INR 213 crores in the corresponding quarter of last year to INR 300 crores this Q4, indicating a growth of 41%. Stand-alone sales increased from INR 174 crores to INR 253 crores in Q4, denoting a 46% growth. At the consolidated level, the PBIT was at INR 50 crores. This is up from INR 23 crores, 119% growth. Out of which INR 22 crores increase is from stand-alone and INR 4 crore increase is from our domestic subsidiary, Sterling Abrasives. Moving to Electro Minerals segment. The Electro Minerals segment's consolidated sales for the quarter increased to INR 290 crores from INR 251 crores in the corresponding quarter of last year, denoting a 15% growth. At the stand-alone level, sales increased to INR 137 crores from INR 101 crores in Q4 of previous year. The stand-alone South African subsidiary and Russian subsidiary contributed to the top line growth. The consolidated Electro Minerals business recorded a PBIT of INR 42 crores against INR 32 crores in the same quarter of previous year. This indicates a 31% growth. The stand-alone contract [indiscernible] the INR 2 crores to the increase in profitability, while the Russian and South African subsidiary showed strong results. Moving to the Ceramic segment. Ceramics consolidated sales grew by 36% on quarter-on-quarter basis from INR 140 crores to INR 190. The stand-alone sales grew by 28% on quarter-on-quarter basis to INR 149 crore. The net sales of our Australian subsidiary grew by 23% on quarter-on-quarter basis. Consolidated PBIT of the ceramic segment for the quarter was at INR 48 crores, higher by INR 6 crores from the same quarter of last year. The stand-alone profitability increased to INR 33 crores, denoting a 38% growth. And as Mr. Anand said, that the balance sheet is very strong, and we have good cash position. There is no debt in the stand-alone books as of March, and in Q3 also, we don't have anything. On a consolidated basis, also the liquidity position and the financial cushion is strong. The debt equity ratio was at 0.02 percentage in March. The total debt on a consolidated basis was at INR 43 crores, and at the net level, it is INR 647 crores. Then the -- to comply with the minimum public shareholding requirement, we divested 2.47% of our equity stake in our associate company brand, and this has resulted in a profit of INR 13 crores during the current quarter. On the Forex cover, CUMI is typically a net importer in dollar terms and a net exporter in euro terms, we cover the net exposure as appropriate in accordance with the Forex policy. And this is the update on that -- from the finance side.

Sir, shall we start the question-and-answer session now?

Yes, please.

[Operator Instructions] The first question is from the line of Bhavin Vithlani from SBI Mutual Funds.

Congratulations to the management team on an excellent performance. Sir, first question is, if you could help break the Ceramics segment into refectories, met cylinders, where and others? And how do you see the outlook of this? In your opening remarks, you mentioned about EV batteries and fuel cells also as an opportunity historically. So how should one think about the Ceramics segment on a 3-year perspective and also on the profitability of these segments? The second question is on the appraisers. Last year, similar time, we had a new facility of coated maker commissioning, which doubled the capacity. So given the current situation, without further Capex, what is the kind of revenue that we could see from the Abrasives facility? These are my 2 questions.

On the ceramic facility, normally, we have what I call the thermal part of the business and the technical ceramics. And we also have a smaller composites business, which is a niche I guess a little bit for the complexity there and the corrosion of the system, so [indiscernible] opportunities. On [indiscernible] ceramics, as I said, it's largely an export-oriented business with customers in the [indiscernible] tubes space, which is for the high-voltage for transmission and also in the automotive energy business. So both these segments are being there. And the outlook for the current year, which is the FY '22 and at least going forward over the next couple of years is possible. So definitely, this is one area where we will continue to invest and create capacities. So the capacity expansion, what we set out in the middle of the pandemic by installing a new premise, which was commissioned earlier late last quarter and then stabilized earlier in this Q4 is now ready, and that is something which we look forward to in the coming year. As to the thermal part of the business, it is more a project-oriented business. And with the -- which I believe there are 2 things which come into play here. One, the -- I think the information now and the intention of moving of the players in the -- whether it is in the steel industry or in refractory industry to source from local sources. I think that we are seeing on -- going on an increase. Which means there are opportunities for the refractory segments to replace competition from -- mostly from China and other parts of the world. So while we are preparing not on the day-to-day which would be consumable refractory, we are focusing on the design, the bespoke solutions, which we offer to customers across various segments. We also see an opportunity to leverage that and grow in global markets. So whether it is the glass, the cement, carbon block. So these are all opportunities, not only in India now, but also going across the globe. Is it still early times, but then, some of these segments in the PLI scheme getting on C-level approval and hopefully, the investments coming in, you do your best, [indiscernible], for example. So refractories would, especially on the [indiscernible] schemes, where more of investment casting, high [indiscernible], et cetera, will come into play. This is something which we are looking forward to as a growth area. On the subject of margins, I would believe that the industrial ceramics part of it would largely continue to be, to stay at these levels plus/minus the percentage. But from the refractories and the composites would be marginally better because the reason it's a project business. On the product business concerns, is it a much better position than a consumable do today the refractory business. On the investors, we will invest in America, in March and got a commission last year during the pandemic. And I'm happy to say that the capacity utilization of that maker has been at a little better rate than what you thought and set out at the beginning of the year. So while the capacity expansion of CUMI America, the capacity utilization of CUMI America is ramping up. And that will definitely drive growth this year. We are also supplementing that with investments in the conversion part of the Coated business, [indiscernible] machines, vise grips, et cetera. So that is what is going to drive growth in Cumi.

Sure. Sir, just one follow-up, if I may. With the current investment that we have, historically, you had mentioned that we could do revenues of about INR 4,500 crores and about 11%, 12% at tax margins. But we have seen increased price levels. So with the current increase high is driven, would it be fair to say INR 5,000 crores revenue potential from the current capacities? Would that be a fair assumption over a 3 year period?

I mean, in price levels, yes, last year, some cases, some product groups had increased price service. But these are commodity prices. So especially in the moving business as it can fluctuate a bit. I would say that, that reason will be fine.

[Operator Instructions] The next question is from the line of Kirthi Jain from Sundaram Mutual Fund.

Yes. Congratulations, Sir, for excellent performance and [indiscernible]. So my first question is, we have seen a very good cash flow from CUMI. We are now sitting on accounting roughly INR 400 crores -- INR 500 crores kind of cash pile as compared to a debt total status, 2 to 3 years back. This year, again, since our CapEx in the existing businesses can take for a thing. So we will again have a INR 300 crores and INR 400 crores kind of cash accruals, which we will have. So with this kind of cash accruals, where will be the money in the sector -- like we will have at the year-end, INR 1,100 crores, where will the money get invested?

So yes, last year was a very -- a year where you want to kind of conserve cash. We just did not know what can pop up, what can come around the corner. So we have to be extremely careful, be prudent about the expense. And I think this year is proving to be no different or very different, but at a different degree altogether. So yes, cash is important, and that is something which we will value, and we will continue to build on this resource. As for investment, we definitely have plans to grow in organic manner. There are segments or areas where the growth potential and the profit potential are in line with our corporate guidelines. And it is in those areas that we will invest. Obviously, the ceramics part of the business is one area where the losses allocation would be higher. We are also -- know that we have opportunities, and we can grow in the Abrasives space only through inorganic acquisitions across the globe. So that being a very -- a business of a global nature. And which we, having already a good brand position in Europe and the U.S., growing inorganically is the way to grow for Abrasives. So that is another area of growth. This is just not only for the top line, but also in the case of Abrasives, it should add to our portfolio, to our RINs, technology and market adds. So these are some of the criteria that we have for straightening our other targets. We're also looking at investing in areas of advanced materials. There are materials which are possibly -- possibility in which we are not currently in, but these are materials of the future. And some of them can -- are becoming storage space. And they have a wide range of applications, including [indiscernible] and food storage or in pharma, [indiscernible], et cetera. So these are temperature storage materials that we will be investing in. So areas where we have what I would call material signs of flavor. At the same time, which makes sense to us, solidity. So that is the area of growth.

Perfect. Secondly, if it like we are seeing crude going up like [indiscernible], of material, aluminum is going up annualized sort of material. Sir, are we intending to take other price increases? And will we be able to meet the cost inflation and take -- maintain the margins in the aggressive segment, Sir?

Yes. So we saw this in Q4, where commodity prices have definitely started going up. And I mean, is that there is only a certain amount of prices, the cost which we can absorb, no work on our efficiencies and onset cost. But if it has to, we pass on the customer, we will have to do it. So that even, we will -- we are seeing that happen as we speak. So the selective price increase is already happening.

Sir, lastly, just one bookkeeping question, Sir. What was the one-off loss, which -- I mean, just for CFO, a bit of a one-off loss expense which we had written off this quarter? If that's only to my estimate?

Paddu, do you want to answer that?

Yes. In -- this is in compliance with the Indian accounting standards, the TAR valuation has been done in respect of the financial instruments, and that is why the commission has been created, and it is netted off against the income from the past state sale in [indiscernible]. And the balance net of around INR 11 crores, I think so.

Okay. So what is the instruments in it?

The instruments, as per the Indian accounting standards, we have to stand by each and every line item of the asset. Like that, we have done the financial instruments in the consolidated level. At the consolidated level will move to the stand-alone level also. Similarly, we have done, and then we have taken this provision. It is still like each and every year at the quarter end, we have to revalue and then the movement has to be done either through the profit and loss account or through the OCA account. If it relates to the current period, then it has to go through the profit and loss account which has been done during the current quarter.

[Operator Instructions] The next question is from the line of Charanjit Singh from DSP Mutual Fund.

Sir, on the top line front, if I see on FY '19 versus FY '21, how we have delivered, so it's kind of 3.5% kind of a growth. And now with a lot of these drivers coming like PLI or even the manufacturing, overall intensity expected to go up. So where do you think that the growth rate, once this situation of COVID stabilizes, how industry can grow and depends on the growth rates?

So the PLI schemes and the infrastructure spend announcements in the budget, both are definitely great drivers of growth for the company. And fair to pick on a few areas. Initially, it was about 10 schemes, which the government has said and then add on another 4 schemes. But then not all the schemes have been approved yet. So we are hopeful that this pick stock, for example, in the areas of auto components. The areas in India can be a very big global player. And the -- if that happens, then auto comp would require the Abrasives and also we found this segment to do much better than what it is doing. So those are opportunities whether it's for Abrasives or for refractories and also for the Minerals part of the business. But that is still not being finalized yet or approved yet, things like the advanced chemistry cell batteries. Again, where the plants are, in terms of big investments. So that has not happened. But we are preparing for that. So we have materials [indiscernible] in the high-performance [indiscernible] is being qualified by potential customers. So we will be ready for that kind of change when it comes to opportunity in [indiscernible]. Similarly, on the electronics manufacturing space. Whether it's the engineered ceramics or the high-purity silicon carbide, which can go into the 5G chips and also high-purity silicon carbide as single crystals. So these are [indiscernible] which our teams are, in Russia and in India, are already working on. So we have been able to hit purities of 99.99% plus. So it is just a matter of time before we hit those desired purities and be ready for those investments. In terms of abrasive, I was talking about pharma [indiscernible] . So it is, like we face in materials. So they are all good materials, science products that we can't have or the live streams. Telecom, developed through composites, and again, [indiscernible] [Technical Difficulty]

I'm checking the line of Mr. Ananthaseshan. Just give me a minute.

Hello? Am I audible?

Yes, Sir. Now it's audible, sir.

Okay. Sorry. So in many of the PLI schemes, we have a play going. It all depends on how soon these capacities will come on stream or the players will come on stream. But we are readying ourselves with those product lines.

Okay. And Sir, on the margin front now, last 3 quarters, we have seen some of that margin. There has been a lot of cost savings and you rightly mentioned that there is a lot of costs, which may not occur in this financial, but they will definitely come back. So from a sustainable margins perspective, we can touch upon like how we should look at sustainable EBITDA margin. And within different segments, especially now ever since we have seen again, EBIT margin jumping to almost more than [indiscernible]. And what has been the driver for that? And even for ceramics, that can be sustained at these levels, what we are currently delivering at more than 20%?

Yes. So the profit margins in Abrasives is not a stand-alone event. I think it's been a systematic improvement in the Abrasives margins and the kind of work which the teams have been putting in, in addressing costs in a much more scientific manner, has been paying off now, I would believe. And yes, some costs will come back and possibly 1%, 1.5% could be the kind of cost that we will not lose a kind of a savings, we will not see. So I would possibly believe a 15%, 15.5% kind of margins will be more sustainable. Specifically in Q4, what also happened was that we had a significant improvement in product mix. So that the automobile industry picking up steeply, then we saw replenished on razors requirements going up. So that being a very custom-built business, obviously, the realizations and the margins are better. So that definitely kind of also took some of the shock from the price -- raw material price increase. Yes. As again, I said, the Coated Abrasives, the capacity utilization of Coated Abrasives and the kind of volumes which we are able to churn out, plus the fact that this -- the new investment is also more efficient, help us save some cost, but that is definitely something which is a sustainable cost. So going forward, I would believe that when the capacity utilization of the coated maker is going, we will be a much more competitive position than we are today.

Okay. So sir, so you mentioned that Abrasives will be in the range of 15% to 15.5%? Is that the correct understanding?

Yes.

And on ceramic refractory, how do you say you see a sustainable margin here?

Ceramics, I would believe, around the 20% margins with the current layer, will be a good base to have.

Okay. And Electro Minerals also has seen, you have quite a lot of variability on a quarterly basis on the EBIT margin. So if you can touch upon that, what is causing so much variability? And do we think that the pricing, which you wanted to see is increasing because of China-related issues, where you see that fulfilling and the margins that remain at a sustained level of 13%, 14%?

See, I would say for the stand-alone minerals business, the desire is to get closer to the 13%, 14%. But the fact is that they did move quite a bit from where they were last year up to now. Which is almost doubling their EBIT margins. Having said that, the Q4, the drop in margins in Q4 was due to a couple of factors. One, an increasing move towards the refractory industry, because the volumes in the refractory industries today are much higher. And that is where most of the customers are importing material from China. So we have been ramping up our volumes in the white fused alumina segment. And that has given us definite push to the top line. And the contributions or realizations are not as high as what we would get from, let's say, a specialty separate light compressors. So while the overall contributions will drop, we would still find that the EBITDA can be higher. But in the case of a rare ceramic minerals in Q4, all of you know that a significant portion of cost is power. And the -- in the month of from the month of -- middle of Q4, generally we have a very low generation from our own power plant. So that has impacted costs a bit. Plus the costs which came on to the raw materials. We have not been able to pass on the same month in the same quarter. So which is what we are now doing in subsequent quarters. So I would say that in the Electro Minerals segment, especially in stand-alone, I would say targeting between 11% to 13% would be a much more reasonable margin targets to take.

[Operator Instructions] The next question is from the line of Sanjay Dam from Old Bridge Capital.

Congratulations. Sir, if you could give us some brief comments on market share gains. A couple of quarters earlier, you said that there have been certain gains in most of the segments that you operate in, especially the Abrasives. Have there been more consolidation and gains after that?

So the numbers what we see -- what we saw in Q3 and then definitely indicated to market share gains in the mass market. So there has also been definitely a drop in imports in some of these segments where we play, and that has contributed to this market share gain. So if I have to see the Q4 numbers as well, that trend seems to continue for 2 reasons: One, the imports from China are traditionally in the month of February, March where it will be lower because of their New Year. And some of the shipments still continue to be delayed from China. So there is definitely a good chance that we would have gained market share in Abrasives.

Thank you, sir. Secondly, sir, in FY '21, our CapEx and depreciation were by and large balanced. And going forward, you said the refractories possibly will create some capacities. So in the next couple of years, the capital allocation that you see organically, any ballpark estimate, sir?

We -- last year, when we set out these plans, we didn't have a CapEx of -- so I remember right, about INR 115 crore, around that. And then within the course of the year, we kind of looked deep into those critical CapExes that we must do, and that's what we did. So we ended up the year broadly around about INR 120 crore, INR 203 crores. And obviously, that is not a very, what they call a good way to drive sustainable growth. So we need to put in growth Capex. And we have made our plans this year to do about between INR 150 crores to INR 170 crores across the company because it was in consol. But having said it again, we did not see when we put on these plans, we didn't see this third wave of COVID or second wave of COVID coming. So we will definitely look deep again into what we should spend but knowing fully well that those areas which -- the spend should happen, will happen, things like the industry ceramics is definitely one area where resource allocation will happen. There are projects in the electro vendor space, of -- largely for the conversion because the fusion capacities are all in place. They can churn out volumes, but those huge volumes have been converted into products. And for that, CapEx will have to happen. We have CapExes coming up for expansion in Russia, both on the -- the [indiscernible] side and also on the refractory side. So these 2 happen. In the case of Abrasives, this time, the Coated Abrasives, the conversion CapEx, which was already planned but kind of planned for next year will be advanced to this year because we see the capacity utilization of the maker coming up faster than we expected. So that conversion CapEx will happen this year. We will also be spending on the modernizing and upgrading of some of our bonded Abrasives, [indiscernible] and prints. So yes, wherever the [indiscernible] CapEx has to happen, will happen. But broadly, currently what we see currently is about INR 150 crores is what we plan.

The next question is from the line of Manish Goyal from Enam Holdings.

Yes. I just want to clarify on the earlier participant where you mentioned we expect margins of 15% to 15.5% on a sustainable basis. And so basically, that is -- so just to correct myself, you mentioned that 1.5% of the cost saving, what we saw during the pandemic time is not sustained. And that is why you believe that the margins can lever to our FY '20 levels?

Yes.

But sir, on other side, like as you also mentioned that with the current capacity, we can go to, say, INR 5,000 crores revenue. What it implies is that we have enough operating leverage in place then, sir, in that case, that is one that we have operating leverage. And I believe, like we have been looking to move towards higher value-added products, which especially in the ceramic space, and with entry into EV battery space and solid oxide fuel cells, and I believe you have many more such products lined up. So I am just wondering that is it very conservative that -- because we have ended up with 17.7% EBITDA margin in -- without other income in FY '21, just want to know why is that...

Sorry, my answer was specifically for the Abrasives segment.

Okay. Okay. Okay. Okay.

Not for the company overall.

Okay. So overall, so can we expect that the margins, what we have currently more or less sustainable going forward, Sir?

Yes, I would believe so.

Okay. And so coming back to the INR 5,000 crores revenue, sir. So I just want to get a sense that are we going to probably, in the next 3 to 4 years are likely to witness higher revenue contribution coming from more value-added products and which will, in turn, help us achieve our -- achieve the higher revenue growth going forward than to what we have seen historically? Do we see a fair degree of change in our product mix, leading to a revenue mix change?

So we would -- I would not completely go with that, because we are, today, very clearly, if you look at the rentals business, we are very clearly leaders in silicon carbide. And that is, [indiscernible], commodity business, right? It's a big volume, high realization business. I mean, a high-volume business, it is not -- there are elements of value-added products there. But definitely, the bulk of the volume will still be for the mass consumption and the raw material. Same case. In the case of fused alumina. So why we are about 1 lakh capacities or [indiscernible] capacities in silicon carbide? We are looking to leveraging our existing capacities, atlas some bolt-ons to have a similar capacity to the fuse alumina business. So the growth will come from regulars, as we call it, and also from the special, which is the high end materials. Whether there's a high-purity silicon carbide, [indiscernible], et cetera. So it's going to be a mix of both. So one will give you the foundation and second is possibly add on to the value going forward. In the case of Abrasives, that's a, it's a very different story there. Bulk of at least 70% of what we are in today is mass market, and there is there we will be going again. So that is where growth is, in fast action growth, housing growth. In India, definitely is coming from that segment. And we will be preparing houses for that. And of course, any opportunities have come along in terms of the PLI and the opportunity to grow in the position, both in commercial position and Super Abrasives is under the area. So there's a blend of both, what I would call regulars and specials.

Sure. So ideally, with the CapEx of, say, annual CapEx of INR 125 crores to INR 150 crores over the next couple of years, we should be able to achieve that number in probably 3 to 4 years, Sir?

Yes. I mean, CapEx would also depend on, I know some of these projects, which in order to have it ramp up faster, so we need to put in a little more money there. But I would say that this is a range on which the CapEx will be.

Okay. And last question, Sir, on micro briefs earlier, we used to have a fairly high degree of sales and profitability from micro briefs sales to the solar TV industry. So are we seeing that product also doing that?

See, that product from the solar TV industry is now -- is declining. But what is happening is, the same product is now being used in semiconductor industry. So the semiconductor industry, both in Europe and in Japan, we are supplying. So we have the capability to supply the industry. And if that is going to come into India as a part of the PLI scheme, so we are well positioned.

The last question is from the line of Bhavin Vithlani from SBI Mutual Funds.

Sir, could you give us an outlook for the super abrasives thing, and for Sterling Abrasive, which is largely on the food and beverage side. How should one think about these companies over the next 2 to 3 year period?

So Sterling Abrasives is a very, a niche player in precision vessels, largely catering to the life processing [indiscernible] segment. So it is a, I believe is a revision proving that we are in. There's food processing, more and more of us prefer to buy food from the store, right? So that, whether it is to all these Phase 3 packaged foods or Aata, the growth is phenomenal. So the -- I see the selling of this is going very well in the agri industries, both for animal processing, or food processing, both in India and in Southeast Asia. They also have a very good product portfolio for the industrial application, some of it, which complements what we do in [indiscernible]. So that's kind of broadens our portfolio whether it's in the [indiscernible] industry or some other component industries and have a good distributorship in markets like in U.S. and Europe. So good process for selling Abrasives in the position last week. The next question was on the super abrasives. I think super abrasives is again kind of globally, many of the applications, are moving into [indiscernible]. We only because of the second situation of the machines. If you want to have a more precision, a precise output plus productivity, then super abrasives is possibly the tool of choice. So a good range of products in Diamond in [indiscernible]. And along with CUMI. So CUMI and Wendt together are working on a few products, which complements each other. So that is something which we are very bullish about.

Thank you. Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to Mr. Aditya Bagul for closing comments.

Yes. So a big thank you to the management team for patiently answering the questions. I would also wish them all the very best and wish them in -- for the quarters to come. Thank you so much.

Thank you, Aditya.

Anand, sir, if you have any closing remarks?

Yes. My only closing remark is that the entire last year, I was just talking to friends of mine. The entire last year was one of needing for demand to come, right? So we are all figuring -- or we're all feeling that sitting at home, for then the demand to come back. And when the demand came back, it was thought that this was a bad investment, right? So today, we are seeing a very new or a different COVID. So the demand is still there. We technically, yes, the manufacturing lines are open, the factories are open. But then there is also a main -- I mean, a major, a fear factor in play. So why we are truly very, very positive about the growth in the gross prospects. We should keep in mind that this situation has to be brought under control soon. And it is up to each one of us to play our part in keeping ourselves safe and the people around us safe. And get ourselves vaccinated as soon as we can. So that is something which we are driving across the company. And for us, seeing in the next couple of months without any on kind of sales balances and the organization with the most -- is the prime thing which is driving us. So business will definitely follow. But ensuring that every one of our team members are healthy and safe. And wishing you also a very safe future and your families too. And looking forward to seeing you all soon again.

Thank you, sir.

Thank you so much.

On behalf of Axis Capital Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.

Thank you.

Thank you.