Carborundum Universal Limited (CARBORUNIV) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Carborundum Universal Limited Q3 FY '22 Earnings Conference Call hosted by Kotak Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Aditya Mongia from Kotak Securities. Thank you, and over to you, sir.

Thanks, Melissa, and good morning to all. From the side of the company, Carborundum Universal, the management is being represented today by Mr. N. Ananthaseshan, the Managing Director; Mr. P. Padmanabhan, the Chief Financial Officer; and Mr. G. Chandramouli from Investor Relations. I thank the company for the opportunity for us to host the call, and I would request him to make opening remarks that cover not only the performance of the quarter gone by, but also some sense on the recent acquisitions that they have done and certain geopolitical events that are happening in the leadership sector. Thank you, sir. Over to you.

So good morning to all of you. Before we begin as a practice, we will now have Mr. Chandramouli, readout our disclaimer, and then I will take the call.

Good morning. 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 uncertainties 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 that the company faces. Thank you.

Thank you all again for joining on this call, and I hope that all are keeping in good health. Again, good morning to all of you, and wish you all a very happy and safe new year. I guess we are meeting for the first time in this year. Hence, looking forward to a great year ahead for all of us. So we meet after a very exciting and difficult quarter for CUMI. On the performance front, this quarter has been CUMI's best so far in terms of the top line and the bottom line. This was possibly achieved amid tremendous supply chain challenges and a relentless cost push in terms of input costs. At the same time, this quarter has been very exciting. In terms of executing our strategic growth plans through acquisitions in India and Europe. On October 6, 2021, the company acquired 72%, 71.99% to be exact of the Equity Stake in PLUSS Advanced Technologies Private limit. PLUSS along with its wholly owned subsidiaries in Netherlands have become subsidiaries of CUMI effective from this date. PLUSS is a specialty materials research and manufacturing company involves in the fields of Phase Change Materials for thermal energy storage, like in use and cold chain logistics in the upcoming EV battery space and specialty polymeric additives for enhancing mechanical and barrier properties of products like in packaging. During the quarter, the company also initiated plans to acquire the assets of Abrasives Wandmacher GmbH, popularly known as AWUKO in Germany for a total consideration of up to EUR 8 million. So this includes land and building, plant and machinery all fixed assets, leased assets, brands and trademarks, patents, technical know-how and other intangible assets, after the closing conditions having been met. AWUKO is 120-year-old leading brand in Coated Abrasives business and is a market leader in Leather, Lacquer and Wood polishing applications. So this is -- this acquisition is very much in line with our plans in Europe. The transaction is now complete. And since first of February 2022, AWUKO is part of the CUMI group. We have also done work during the quarter in terms of identifying and adopting due diligences of another company in Germany and through a newly owned step-down subsidiary and turn into a Share Purchase agreement for acquiring all shares in the German company, RHODIUS Abrasives of February 2, 2022. This was for an enterprise value of EUR 55 million. The transaction is expected to be complete by 31st of March 2022. RHODIUS for your information, is a leading Abrasives brand in Europe and is into the manufacturing and sale of Abrasives tools and ancillary products. Cut off wheels, grinding wheels, diamond tools, coated abrasives, carbide cutters, et cetera. It has presence outside of Germany, in Brazil, South Korea and in a couple of other -- and the U.S. These acquisitions provide to me a stronger and a wider global presence. So both companies come with their distribution channels as well. Entry into new products and Leather, Wood, Lacquer applications through AWUKO. And on a synergy benefit, CUMI being a major producer of Abrasive grains of silicon carbide and fused alumina would also provide these new partners with raw material security. So that has been the busy quarter with operations on one side and driving the growth plans on the other side. At the meeting held yesterday, the Board of Directors have declared an interim dividend of INR 1.5 per share, 150% on the face value of the shareholders of the company. Coming to the performance in October, December quarter at a consolidated level, sales recorded INR 891 crores. This translates to a Q-on-Q growth of 23% and 7% sequentially. And at the stand-alone level, the company recorded sales of INR 596 crores, which marks a 22% increase over Q3 of last year. On a sequential basis, this records an 8% increase. The growth was driven by all 3 segments. And all the major subsidiaries, overseas have performed significantly. When it comes to the bottom line performance, profit before tax was INR 141 crores as against the INR 114 crores at the consolidated level. And profit after tax and noncontrolling interest grew by 16% to INR 102 crores against INR 88 crores in Q3 of last year. At the stand-alone level, PAT increased to INR 67 crores from INR 66 crores in Q3 of last year. Despite increase in sales and profits in absolute numbers, the margins were lower by 2.3% due to partial absorption of increasing input costs, largely in the Abrasives and in the Ceramic space. Coming to the Ceramic segment. The consolidated sales recorded is INR 213 crores. Sorry, before I go into Ceramic segment, I will come to the Abrasives segment. So when we look at the consolidated Abrasive segment, it recorded INR 341 crores 13% up quarter-on-quarter, and the operating profit was INR 47 crores or by about 6% quarter-on-quarter. Stand-alone operations performed well despite challenges of chip shortages and increasing fuel prices faced by the Auto and Auto Component sector. The margins were impacted due to the increasing raw materials and energy costs, but were managed through price increases and cost control innovations. All subsidiaries performed significant in terms of top line compared to the same period of last year. The Indian subsidiary Sterling Abrasives had a maximum impact on the margins. Coming to the Ceramics segment, the consolidated sales recorded INR 213 crores, marking a 33% increase in top line quarter-on-quarter. Operating profit was INR 43 crores, 25% up quarter-on-quarter. The demand scenario continues to be good, both at stand-alone and global operations. Stand-alone Ceramics business performed well and registered double-digit growth despite slowdown in export market due to the third wave of COVID. Subsidiaries in Australia and America registered significant growth as well. However, the margins were impacted -- but we do through cost innovations like transitions of kills from liquid fuels to natural gas. The refractory segment continued to perform better on back of good orders from repair and maintenance as many core industries are beginning to invest in these areas. In Minerals, the consolidated sales recorded INR 361 crores, marking a 24% increase in top line on a quarter-on-quarter basis. Operating profit doubled to INR 63 crores when compared to the same period of last year. The demand outlook remains positive for Minerals business due to production cutbacks in China, owing to environmental concerns and leading to better realizations. Stand-alone businesses and subsidiaries in Russia and Africa also registered double-digit growth in top line and significant improvement in bottom line. Increasing input costs were offset by price increases to some level in most of the product segments. We also had a good run in terms of our in-house power generation at Maniyar. And that has helped shore up our bottom line. We have a good order bank at present and expect the demand to be robust in coming quarters for all 3 business segments. However, maintaining or increasing margins will be a challenge, considering higher input costs, but will be managed -- will be managed through price hikes and cost innovations. In terms of CapEx at consolidated level, we have made considerable progress and spent INR 118 crores in the first 9 months. On the COVID front, like in many parts of the world and the country, there is as such in COVID cases among our employees in many of our factories. But the performance was not impacted as the businesses are well prepared with safety protocols and the vaccination drives. We believe the new variants of COVID are the key near-term risk but an increase in the pace of the vaccination with nearly 99% of our workforce having see at least one dose and around 86% with double doses should contain any disruption. The Union Budget 2022, which was presented on first February, down amid high expectations. The economic survey also forecasts a 9.2% of the GDP growth in FY 2022 followed by an 8% to 8.5% growth in FY '23. So the government has continued its course to improve the quality of its expenditure, we're focusing on investment growth. This should all go well for CUMI. CUMI has continued its focus on growth from core businesses, expansion through acquisitions and working on emerging areas like clean energy, electric mobility and advanced manufacturing. So with industrial output, increasing sequentially and the high-frequency data depicting return to pre-pandemic levels, except possibly in the auto sector, our businesses have also recovered. But the challenges of increasing costs and the uncertainties regarding the COVID still persist. So now I will request Mr. Padmanabhan, our CFO, to walk us through financials.

Thank you, Ananth. Good morning, everyone. Let me summarize the financial performance for the quarter ended December 31, 2021. The consolidated sales for the quarter has increased to INR 891 crores from INR 727 crores, showing an increase 23% in the corresponding period of last year. This is mainly driven by the steady performance across all the business segments. Of this, the stand-alone has increased by 22% to INR 596 crores from INR 488 crores. The consolidated PBT was at INR 141 crores, which was up by INR 27 crores and about 24% growth on a quarter-on-quarter basis. At the stand-alone level, the PBT was -- for the quarter was at INR 88 crores against INR 85 crores during Q3 of the previous year. On a consolidated basis, profit after tax and noncontrolling interest for the quarter was at INR 102 crores as compared to INR 88 crores in the corresponding period of last year. At the stand-alone level, the PAT increased to INR 67 from INR 66 crores. At consolidated level, the PAT margin dropped from 12.1% during the previous year to 11.4% during the current year, mainly due to the cost push across all the businesses. At stand-alone level, it has decreased from 13.5% to 11.2%. This is also mainly due to the increasing input costs. Moving on to the segments on Abrasives consolidated sales was for the quarter increased to INR 341 crores from INR 303 crores in the corresponding period of last year. Stand-alone sales grew to INR 280 crores from INR 253 crores in last year. The stand-alone business, Russian subsidiary and the American subsidiary registered significant growth at the consolidated level, the PBIT was INR 47 crores decreased from INR 50 crores on account of the partial absorption of the cost inflation. The Electro Minerals division, consolidated sales for the quarter increased to INR 361 crores from INR 290 crores in the corresponding period of last year. At the stand-alone level, sales increased to INR 177 crores from INR 130 crores of last year. The stand-alone Electro Minerals segment, African subsidiary and Russian subsidiary grew in double digits. The consolidated Electro Minerals business recorded a PBIT of INR 63 crores against INR 30 crores showing a significant growth on the back of volume growth and higher realization. Profits were also aided by the higher power generation at our hydel following good rainfall. Consolidated sales of the Ceramics segment grew by 33% on a quarter-on-quarter basis from INR 160 crores to INR 213 crores. The stand-alone sales grew by 27% on a quarter-on-quarter basis to INR 178 crores. Stand-alone Ceramics business performed well and registered double-digit growth despite slowdown in the exports market due to the third wave of COVID, Australian subsidiary and American subsidiary registered significant growth. Consolidated PBIT of Ceramics segment for the quarter increased to INR 43 crores from INR 34 crores in Q3 of last year. This is mainly on account of the volume growth, better product mix and cost innovations to absorb the increasing input costs. On the finance front, CUMI stand-alone continues to be a debt-free company. And at the consolidated level, the debt-to-equity ratio was at 0.015% as of Q3. The total debt on a consolidated basis was at INR 38 crores as compared to INR 42 crores as of September. On the ForEx cover, CUMI, typically a net importer in dollar terms and net exporter in euro terms. We covered the net exposures as appropriate and in accordance with the ForEx policy. The balance sheet is very strong, and the -- it is also evidenced by the net cash position and low debt equity ratio. The cash and cash equivalents, including deposits with tenure not exceeding 3 months, net of borrowings was at INR 616 crores. This concludes my update on finance.

Sir, would you like to begin with a question-and-answer session.

Yes, please.

[Operator Instructions] We have the first question from the line of Ravi Swaminathan from Spark Capital.

Sir. Congrats on a good set of numbers so my first question. With respect to the kind of volume growth that being -- that has been seen across all these segments, can you give some color, it will be great. I know multiple products are there across all the -- each of the 3 categories. But if you could give us a sense on the volume increase vis-a-vis the price increase will be great.

As you pointed out volume increases has happened across all segments. And let me start with the Minerals business first. So the Minerals business had been preparing itself on its capabilities to increase its volumes over the last year, 1.5 years. And given the fact that we saw during the course of late last year and early this year, that the disruptions of supplies from China were increasing and both because of the emission requirement of their operations, tightening emission requirements, the energy demand going up and which has also made people to shut down some of our operations. It was an opportunity for EMD and customers also were looking at an alternative to China. So this is definitely help. And EMD has also been working on moving away from what we call a traditional raw materials to [indiscernible] raw materials, which gave them higher volumes from the same infrastructure. and also better efficiencies or cleaner operating conditions. So that was the one change which happened -- this has happened not only in India but other minerals businesses as well. So the Minerals businesses are enjoying a good run in terms of the market offering a better pricing. So that is good news and hope it continues to be this way. In the case of Abrasives, obviously, the precision Abrasives has been doing well in Q2 and definitely in Q3. So how long will this the volume demand last has to be seen given the Q4 numbers, which -- or the Q3 numbers, which many of the auto industry captains have been reporting. So because we'll come later in the line and have a lag effect for the auto industry for us later. The factories has been driven both on the repairs and maintenance and also on new projects. So hence, on the fire component, definitely, there has been a volume growth. There has also been a pass on of costs to some extent across. So I would think that on an overall basis about 3% to 4% would be your about the price increase impact.

Okay. Got it. And with respect to -- I mean, this quarter, Electro Minerals margins stood at 17%. Is it some kind of a new normal? Or -- so basically, it will be in the range of 12% to 13%, which we used to do earlier. So to again give some clarity on the margins, it will be great.

See, the margins in the Electro Minerals has definitely been positively impacted by 2 things. One is, I would say, in terms of the prices of commodities going up overall, whether silicon carbide or fused aluminas, so that has naturally pushed up realizations and consequently, the margins. So the margins have also been helped by the CapEx that the business did in terms of choosing to go the rate synthetic raw material way, which has enhanced its cost position. The business also has been helped by an extremely good rainfall this year, so which has been a record generation of our hydroelectric power. So [indiscernible] definitely contributed to increase margins. As to your question whether these are the -- this is the new normal. I would say there's -- we are progressing towards that, but 17.5% would be will be a very difficult thing to replicate. I would rather stay at around 14% at this time.

Got it, sir. Got it. And my next question is with respect to the acquisitions that we have recently done. At least for the major acquisitions, if you can give what kind of growth that we can achieve and the margins which are there in that, it will be great.

Ravi, on the acquisitions front, I would not like to comment right now because, one, we just closed down the acquisitions. We are -- I mean, all of us should realize that these things were done in a pandemic situation where we have not visited any of these plants, right? We have been meeting people, discussing with them, got the transaction done all through the teams virtually. So we would need some time to go and get in much more detail. So I would rather say that maybe possibly for our April earnings call, we will have a better understanding of the acquisitions.

Got it. And sir, with respect to the Electro Mineral the supply of possible supply of silicon carbide for electronics, what is the progress in terms of purity improvement and on all the other things.

There has been quite some work happening there. So while both Russia and India has been working on the raw material front. We are now in a position to -- because what we realized is that the chemistry or the purity of these materials have to be tested at international labs, which are standard. And today, we are working with an international lab in the U.S., we can tie these materials first. We know exactly where we stand, but we are making progress there.

Okay. And so basically, will it be market-ready in, say, by the next financial year? I mean FY '23.

That's our target. That's our target.

[Operator Instructions]. We have the Next question from the line of Ankur Sharma from HDFC Standard Life Insurance.

Yes. Just 2 things. One, if you could comment on the whole geopolitical situation in Russia, obviously, we have our manufacturing facilities there. So any impact either on production or supplies into EU or rest of the world, how things progress in there, please?

So I mean, I think it's a very, very valid question given the times. And we have been in constant touch with our teams in Russia and also taking inputs from people in the no and in the political spectrum, what we see on the ground is possibly different from what we see in the newspapers. The transactions or the businesses, what we have with the EU or even with Ukraine, for example. So we do supply materials into Ukraine. We buy materials from Ukraine, and we don't see any problems with that happening. So our team there, Mr. Sergi [indiscernible]. So he is -- he has been very closely following up and updating us. We believe that things will -- things will be more business as usual on the business front. And unless something dramatic happens, a little danger of any disruption. That is as of now. So -- and in a political situation like this, when Tempers run hot, none of us character anything, but we hope that good sense prevails.

Okay. Fair. Second, sir, on the 2 acquisitions we've done so while you highlighted overall in terms of the values you're paying and the areas they operate in. What does CUMI, if you could just detail a little more -- is it technology? I'm obviously assuming we get access to more distribution, geographical areas? And as you said, supplies from Russia, the raw materials for these are companies, but if you could just tell us a little more -- I know you've said you can't talk about margins at this point. But a little more on synergies, what do we to take up these companies would be very helpful.

Sure. See, the Abrasives business. It's a very global business, but very local. And CUMI has been a very strong player locally in India. But with global -- when I say global presence through 8 subsidiaries in CUMI America, largely for the precision Abrasives, which goes under the auto automobiles, aerospace, defense, et cetera. In India itself, you will find that the fastest-growing segment in Abrasives is also the, what I would call the power to driven productivity linked Abrasives business, right? So these are power tools access service, which goes on to power tools. And all of us see that there's a big shift in the way that people are using Abrasives so they don't want to do it faster. And this is a trend which you are going to see across the world. So when countries and countries are investing in improving the infrastructure, whether it is in India or in America or other parts of the you will find an increasing use of the power tools and its accessories. Now while we have our product group in India, the RHODIUS acquisition brings about a significant change in terms of its technology profile in the terms of it's, the brand perception and the brand visibility that it carries not only in Europe but in other parts of the world. It's among the leading manufacturers of these products. And what we gain -- what we hope to gain out of this is, one is it also has distribution, a nice distribution network across Europe. So it helps CUMI either way one with getting the RHODIUS products into India and building for the future. And also using the RHODIUS distribution channels to distribute our range of distribution-led products, whether there's a [indiscernible] or whether there's a coated abrasives as well. So that's one synergy you're looking at. The other one is same thing in the case of AWUKO. AWUKO Is a very strong brand in specialty leather, woodworking, where they can grind. With [ position ] very wide products, which is like in plywood or the MDF for infrastructure and housing performance. So those are the advantages that so kind of an extend of our product portfolio brings in technology, brings in a distribution network in Europe and also addresses some of the gaps that we have. Back home in terms of our product profile. So that's the second thing we are looking at. And the third, of course, is in today's world, any embraces manufacturer would love to have raw material security. And the fact that both in Russia and now in India, we have significant quantities of raw materials business grades fused aluminas and silicon carbide will only help those companies as well.

Fair. Okay. That's very helpful. And just one last one, sir, on the Abrasives business, again, while you did highlight some slowness in demand, possibly from the auto side. Could you also talk about some of your other key end markets, industrial machinery fabrication, construction and so on and so forth. So how are things looking on those end markets result is?

See, the -- I can no -- I cannot tell you the trend, what you're seeing in. While the chip shortages may have some disruptions on the auto sector and also the auto component sector PLUSS. We're also seeing definitely a slowdown in the 2-wheeler sector. So the 2-wheeler sector driven by possibly fuel price increases, the increasing in prices. So it affected the rural offtake of 2-wheelers significantly. What we see now as of now on the mass market led products, whether it is the infrastructure for the housing. All of them, as I've now seen stronger -- and again, this could also be not only to deal with the demand of these -- from these segments, but also the availability of material from a channel. So getting these products out and filling up shelves would be one way of ensuring that we meet the competition and prevent the competition, especially from China, making a bigger headwind. So that's how we are looking at it.

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

Good morning, everyone and thank you for providing this opportunity...

Mr. Patel I'm sorry to interrupt but the audio is not coming through clearly, sir, from your line. Could you use the handset?

Is this more clearer?

Much better.

Yes, sure. Sir, now that we have acquired a couple of Abrasives companies in the Europe, and we were also looking to expand our presence significantly in the North American market. where we had indicated that we would like to be closer to the customer. So is there any thought process on that front and also on the similar lines, I mean power tools, I mean you have just indicated that, I mean, the usage of those tools is increasing at a rapid pace, and that is also resulting into the higher penetration for Abrasives. So is there any thought process to expand our presence in the power tools? I mean, if I remember correctly, we also have a small business on this front, where we also sell power to, but we have really not been able to scale up that business? So that would be my first question.

So on the power tools, we -- power tools is a completely different business in the sense that the capabilities that are required to build our tool business is very different from that of an abrasives consumable. So the power tools what we have today is very, very limited in terms of range, and it's largely been used as a marketing tool for us. Where power tool carries the brand for much longer than a consumable. So we are very clear that the power -- we are not in the power tool business as of now. We are only in the in the accessories business. Coming to your question in terms of growth outside of Europe. We have always been mentioning that -- we have to be in markets which are closer to the customers, whether it is in Europe or in U.S. And opportunities crop up. So when opportunities crop up, then we have to take advantage of that. And that's precisely what's happened in Europe, though our overall strategy of expanding our Abrasives footprint still continues. So if there are opportunities coming up in the U.S., we would definitely look into it as well.

Sure. Just a small follow-up on the acquisition part. So out of the EUR 55 million of the enterprise value that we would be paying for 2 years, what would be the debt levels for that particular company?

At this point, I would not like to share these details. We will have our detailed sharing of the information on both RHODIUS and AWUKO at the April calls.

No problem, sir. Sir, my second question would be on one of our growing segments, that is alternate energy. So recently, one another Indian company who's also a supplier in this particular segment, they have positively strong growth. So, are we also witnessing the same kind of outlook? I mean, if you could give some flavor on what would be our current level of sales towards this particular segment and where we could reach probably the next 3 to 4 years, then it will be very helpful.

Alternate Energy is definitely one of the fastest growing segments. And we have been working with this customer for the last 10 years. And definitely, we see much faster growth with these customers in the solid oxide fuel cell space. We are preparing ourselves, and we continue to build our capabilities in this direction. And I can only tell you that the reports what you have read and what you have seen in terms of the growth rate of this segment is definitely on. So our capability building is also in the same lines.

Sure. Understood. Sir, if I could squeeze in the last question. On the solid-state batteries. So, I think a couple of earnings calls ago, you had mentioned that the trials were going on. So these were some elements to preventive thermal runways. So essentially, we were doing these 2 of tape cast ceramics. So is there any progress on that front?

We have not started supplying those, what we call the ceramic products on semi fiber products for these battery thermal runway protection. And it is still not scaled up. It is still undergoing testing, but we see some possibilities there.

Sure. And sir, next year, we would be seeing some revenues from the SIC based ceramics. I mean I think we are undergoing the pilots as of now. So can we see, sir -- yes.

We would, we would because the progress what we have made there again is very positive in terms of getting our approvals done in both not only in India, but also in customers in Japan and in Europe. So we would definitely see progress from the silicon carbide components, yes.

We have the next question from the line of Bhoomika from DAM Capital.

Congratulations on a good set of numbers. So we're working with a lot of new areas. If I look at ceramics, we're working on fuel cells, energy storage, construction chemicals, 3D printers. Within EMD, there is graphing et cetera. As you said that within EMD high purity really starting the commercial applications next year. All these new initiatives that you're doing, what is the status of all of them? And where do we see the revenue scaling up in the next 4 to 5 years, which will drive much more stickiness in terms of revenue, there's also a better margin profile?

Yes. So Bhoomika as you know that we are looking at this business as broadly 2 segments. One is what we call the regular businesses or the commodity types of businesses, which are the workhorse materials that we need to run our current businesses. The second is high performance materials. There's a bunch of them, and this is across divisions. So whether it is, the VAW the high purity silicon carbide or the stabilizer [indiscernible] that will finally go into electrolysis. So these are some of the projects that are in the pipeline. And we can't scale both of them simultaneously. So the effort has been on scaling up the regular materials, and that is what we saw last year, and we continue to see in the next year as well. On the High Performance Materials, the growth would not be as rapid as in terms of the scale as normal regular material. So because most of these are specific to customer applications would require a lot of qualifications with them, and then we get into a scale of phase. I would presume that we are while we have small amounts of commercialization and which are more for the things in the market across these products. I won't call it, as a significant to the state as of now. But I would possibly believe that over the next 2 years, we should see higher participation of these products in the portfolio. As to the volumes, as to the realizations or margins, I would not comment on that now.

Sure, sir. Sir, while I understand that you want to speak about the acquisition at a later stage, if one was to just talk about not specifically on the company or anything of that sort, but more about the addressable market that expands for us given that we're entering into Europe with the power tool accessories, which you're not present in, what is the market size that is possibly there which through these acquisitions, we can kind of tend to explore further and grow within that?

Broadly, Europe itself is a EUR 1 billion EUR 1.5 billion market or more. Then we are talking about the benefits it can bring to India and specifically in segments where we are not strong as CUMI. So CUMI has always been more focused on the vitrified position and the vitrified standard products, whereas resin-bonded cut-off wheel in wheels. While our presence has been there for many years, we are not strong across the portfolio. And that is one of the reasons why we were looking for a company like [ Odius ] to bring in technology to bring in a globally acceptable brand and the -- which help us leverage the opportunities in the Indian market. So I'm pretty bullish about what we can do together.

Sure, sure. Sir, just one thing on the EMD segment. If I look at it, the South African entity has kind of turned around and done quite well in the current quarter. So is this sustainable? And what is our long-term strategy on this entity given that we were looking to kind of find it down, et cetera. So where are we on the status of thought process on the entire South African entity.

To be very honest with you, we have been -- we are taking it quarter-by-quarter. So working with the teams there and ensuring that we have stable volumes for us because given the current conditions where the markets for minerals is largely very positive, and the demand for especially materials like the fused zirconias are increasing significantly. Obviously, there has been an impact of the scenario in China because China has closed down high energy-consuming materials. And zirconia is one of the large energy-consuming products. So that has given a breather for zirconia. So why saying that, the team there has ensured that the operations are run much better. So cutting down on the shutdowns and getting the volumes to be consistent. So that has been the effort over the last 3 months or 4 months. And that has definitely started paying off. So to answer your question whether this is sustainable, we are going to take it quarter-on-quarter. We will work with the team there to ensure there is a more stable operations and hopefully build a stronger business before we take a call.

Sure. And if I may just squeeze in one more question. On our current capacity utilization across segments, broadly -- and given all these new initiatives that we're looking at, what kind of CapEx or capacity you will need to kind of expand or in terms of capacity you can speak about?

Capacity building would differ between segments. So if I were to talk about the Electro Minerals business obviously, the capacities in Russia are already stretched, though we are adding a couple of fusion cells, as we call it, so that would give us some capacity, but that is not a very significantly large capacity. In India, we have done work on increasing capacities and also increasing the conversion capacity. So that will come into -- has already come into play partly this year and will come into full play by next year, 1.5 years. So we are looking at building up the fusion capacities which would possibly be also maybe another 25%, 30% of what we have today. So that will give us a good position in the Electro Mineral space in India. And then in aggressive, again, it depends on the product groups. So like I mentioned, we would have, let's say, invested earlier significantly on the thin wheels. But now with the acquisition of [ Odious ] we do have capacities, PLUSS that's worth for Germany, but we also have to work with the teams in terms of building thin wheels capacities for India based on the rodeos technology. So that is something which we will be doing over the next year or later this year. The silicon -- I mean on the ceramics capacities, there's been a continuous focus on building the metallized cylinder capacity. So with both the lines running reasonably well, we now have to start looking at increasing the capacities there. The Ceramics for mobility applications, whether it is for the IC engines and for EV, that is also getting -- so that will be largely a kiln firing capacities. So that will be modular that can be coming up. And in terms of the thermal products, refractory products, again, it will be the kiln firing capacities that will go up. So it is not a one large big bank kind of a capacity building, but identifying those capacities in a modular fashion that would both debottleneck and also for specific product groups, increase increased volumes.

We have the next question from the line of Sanjay [indiscernible] from Ampersand .

I wanted to clarify, I heard someone in the discussion that you feel the current EBITDA margin of somewhere around 17.5% is not sustainable and could fall to something like 14%. Did I hear it correct?

He asked 17.5% and you said 14%.

That's on EMD.

So that is on the Electro Minerals division. .

Okay. So sir, other company, you are moving up the value chain, I believe. So considering all that and also your focus on electric vehicles and many other things, how do we really, I mean, articulate our growth trajectory as well as margin from here on, sir?

As I said, broadly, there are 2 segments, which is across product groups, we have what we call the cost competitive segments. So whether it is in the minerals business or [indiscernible] business, and that will be driven by control on costs. And by design, how can we be more competitive. And that's how the margins will be driven there. While on the specials, the across businesses, it would be more on a variety or a variant and also trying to get the realization up. So that's the combination that we are working on in all businesses. .

Sir, if I can just ask the same question differently. Do you -- is the cost base or the negative headwinds for margin a peak for you or there is more to come? And also, are you more confident of demand than margin at this point in time?

Sorry?

Are you more confident of the demand outlook rather than margin at this point of time?

So on the legacy businesses, yes, we are more confident on the demand because the margins are based on the input costs also significantly and how much of it can be passed on because the kind of volatility we see on the prices on raw materials. It is -- it has not been seen before because we all know that the commodity prices, input prices will go up and are going up, but not the frequency which we saw in the last few months. So I must be cautious here in terms of saying that, yes, why do you see the demand is there, but then there is also the input cost uncertainty, which has a uncap margins.

We have the next question from the line of Sujit Jain from ASK investment Managers.

If you were to explain the capabilities that you bought through this acquisition to a layman. So for example, PLUSS, which manages the negative or low temperatures. Does it mean that in areas where there is no refrigeration that is where it is useful and to that extent, its application is limited number one. Number two, Rhodius, again, what kind of products and what applications? And number three, all of these new things stabilizer, zirconia, high-performance SIC ceramics that leads to acquisitions, how much percentage to the top line it will add on a regular basis on a compounding basis going forward?

PLUSS is a thermal energy storage material. They also deal with specialty polymer [indiscernible]. There are 2 parts to that business. And today, the one part of the business, which is the thermal, the specialty additives business goes into making barrier films for medical packaging, for food and pharma packaging and for improving the strength and water qualifier resistance of the components in automotive and other mobility solutions. So that's one part of the business. The PCM business or the [indiscernible] business deals with a cold chain transportation, refrigeration as the last mile energy last mile deliveries. We also have that in building [indiscernible]. So it is definitely an application intensive business, but can deliver significant savings in terms of energy usage. So that's something which is exciting for us as a thermal materials company. So at one end, where we protect materials at 2,000 degrees centigrade, we also have the other in materials, which can -- protect and sale energy at minus 60, minus 70 degrees centigrade. So that's a big spectrum that we are working with. In the case of Rhodius, it's very clear, very focused on the [indiscernible] portfolio for grinding cutting. And this would address the requirement of, let's say, engineering, fabrication, infrastructure, wood working stone cutting. So these are all regular industrial consumables. On the new businesses, for example, there's a cornea which goes into the electrolyzers for hydrogen fuel cells or [ SOECs ] as they call. And on the graphing, which goes as additives into batteries. So these are some of the newer businesses. And as of now, honestly, I cannot give you a top line growth for the businesses, right?

I'm asking all of these initiatives put together, would they add 2, 3 percentage to growth for a long time to come?

I would believe so. I would believe so.

And on to the negative temperature that you manage with PLUSS acquisitions, does that mean you said last mile? So where refrigeration is not there, you would use it or even where refrigeration is there cold storage is there. It can be used.

For example, in trucks, which has a refrigeration, right? So in using a PCM panels, you can reduce the cost of energy, which goes into running those refrigerations and for PCM deliver the same -- the temperatures or the cold room temperature that is needed to keep the trucks on the road. So you are reducing the energy, the fuel that is burned PLUSS also reducing the carbon that is emitted. So we said it's a double impact that we are creating. In the case of last mile storage or vaccine transport where you don't have a refrigeration, these panels work as well. So they can be designed to give you a temperature range, sustain the temperature range over a period of 10 hours or 12 hours. So that's what the quite a bit of savings there. .

Right. And in terms of margins, 17.4% margin 9 months for the company, this is at the higher end at what we've achieved previously, would these margins be sustainable given new initiatives and given the supply chain security that we have compared to the other companies.

I always said that we -- of course, everybody's desire is to ensure that the margins go up -- but we -- all of us know that there are always some headwinds, which we don't anticipate. So none of us anticipated the kind of rise in shipping costs that we saw in the last couple of quarters. And -- so why we will try to have multiple mitigating initiatives in terms of whether passing on the cost or looking at alternative ways of transporting material I would say is speaking conservative because there's too many unknowns in the place still. So 17.4%, we are happy that we are able to deliver those numbers right now. But I would believe around that is what we would be looking at on a stable basis.

We have the next question from the line of Aditya Mongia from Kotak Securities.

Am I audible to you, sir now? .

Yes, very much.

Great. You made a remark suggesting that you are more confident of demand versus margin. I wanted to kind of check with you on demand visibility across the key segments that you operate in? And where you are, let's say, the most position, where you are seeing at some signs of some slowdown kind of happening. I just wanted to kind of cover across segments in terms of demand visibility.

We broadly believe that the Electro Minerals business, which is the raw materials business, is in a much better position as far as the demand visibility goes. So this is a combination of both the project orders picking up and also has an impact on the China one because of the China one strategy. So that is giving us a higher demand visibility on the Electro Minerals business. On the ceramics business, the part where we are dealing with in the steroid fuel cells and the engineered Ceramics that was pretty is reasonably good because these are our contracts which we generally tie up with customers. So hence, for us that visibility is much better. On the high temperature side, we did see a significant rise in inquiries in terms of project orders over the last 3 quarters. But we have to see whether that momentum is sustained. While we do see -- do hear about projects being announced, especially in the solar renewable space, how much of that will translate into projects on an ongoing basis is to be seen. So there could be some slowdown in that part of the business. While abrasives, we are, as I said earlier, the demand slowdown would largely be on the precision side of the business rather than on the mass market side.

Sure. similar comment, if you can make, let's say, from the perspective of ability to pass on cost to the end customer across segments? if there's more room to do so in certain segments versus the other where you may be sitting back sales [indiscernible] cap?

I would believe that it would be relatively easier to pass on the cost push on the raw material side because people want -- I mean, people need raw materials, and it is evident that if there is an input cost in the raw materials, it would impact the product cost for us and people can't live without raw materials. And definitely, there would -- in terms of whether it will happen quickly or whether there will be a little bit of a lag or people accept obviously, there will be a push back. Nobody is going to say that, yes, I will accept raw materials immediately the price increase is immediately. So -- but in a relative term, I would believe that the Electro Minerals has a better chance of passing on the raw material cost portion on their input costs. It could be a little more difficult on the ceramic side because many of them are or kind of a contracted and it takes a lot more effort in terms of communicating and getting customers to agree to regular price increases. On the Abrasives side, again, while definitely, there will be a pushback on the mass market or distribution side could be a less challenging and possibly position Abrasives.

So what I want to kind of -- the confusion statement to me on the call was that you were saying that yes, we can take more price increases, but sustaining current margins may become a challenge. So I just want to kind of get it right. Are you kind of hitting a kind of a cap in terms of the kind of price increase you've been taken or you be making that comment that margins will not go further up and actually go down?

For example, if the raw material someone came in some cases, raw materials went up by 30%, 40%, right? So we can't pass on all that cost in one shot. So that's what I was meaning. So while we would definitely try and get the cost passed on, the entire cost can't be passed on in one shot.

I'm just trying to get at there is an upward bias to margins from here on, given that you have not taken what you could take a price increases? Or is there a downwards -- that is the simple question I'm trying to [indiscernible].

At the same time, we're also not sure about how much of price increases is going to happen for input cost, prices are creeping up. It has not been -- it crosses $100. So one side, yes, we would continuously drive the markets to get [indiscernible] up and at the same time the input cost will play a part.

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

Just a small follow-up from my side. Sir, I noticed that we have included the results of PLUSS into the other segment, the sales and the margins rather than the Ceramics. What would be the reason for that sir? And are we going to do the same going ahead in our results.

See it is not a ceramic material, so it's a polymer material. And for the present, we don't have a segment may be Padm can answer it much better.

Yes. See, it depends on the application, while it's in the nation stage, while move on -- it depends on the application, we will change that. At this point, we want to monitor it closely. That is why we are parking it in other segments.

Sure. Understood. And sir, when we had acquired that business in August 2021, at that time, we had reported that the EBITDA margins for this business in FY '20 were around 10%. So do you think it can move up to around, let's say, 15% to 20% closer to the blended margins for the company level or maybe closer to 20%, which is the margins for Ceramics. So is there a scope to increase margin to that much or it will continue at probably around 10% kind of the margin .

The expectations to increase the margins will be there. We need to consider the rising input cost, fuel costs. Therefore, it's a mix up of all. And if the demand increases, we will certainly increase the prices also.

[Operator Instructions] We have the next question from the line of Jason Soans from Ashika Stock Broking. .

Most of my questions have been answered. But just wanted to know, I mean, you have -- you did specify about some slowdown in demand visibility in the pathogen segment, which basically caters to the auto and auto component segment. Now I just wanted to understand, I mean, how do you -- if I have to say this from a medium to long-term sort of picture. Do you think the chip shortage thing is transient in nature, it might be sold in more than 12 months, and you could see a strong recovery in abrasive volumes? I mean if I were to paint a sort of a positive picture to this, -- so just wanted your sense on this on the auto sector demand rebounding because if there is a chip shortage, I'm sure there will be a lot of demand, which could be back-ended once everything sorts out. So just wanted your sense on this.

No, I think you're right. So if the chip shortages play out and then we have a much more stable outputs from the auto industry is coming up. Yes, we would definitely benefit in terms of our increased volumes on the precision side so that's on the positive. So how long it will last, how many years it will last, it's something to be seen. While at the same time, we're also recognizing the fact that the EV adoption definitely on the 2-wheeler side, will have an impact. I mean we also saw even last month, about 2% of all the 2-wheeler solar EVs today. So EV adoption will have an impact. But on the 4-wheeler adoption, it will still a little time away, I would guess. So with the overall demand for auto components exports and also for the IC engines, which would be there for some time. We do see this -- we do see a positive requirement, a positive trend for the position of dresses. But this will have to pan out after the semiconductor shortages also impacting EVs as well today.

Sure, sure. So I mean in terms of EVs, I think -- so is there something like in terms of your IC regular engines and EVs, precision appraisers would have more usage in EV 2-wheelers or something like that? I mean, is that the correct assumption? Or is it the same usage across whether it be IC or EV?

No, no. IC obviously has more usage of Abrasives. than in an EV. It's very, very clear. So whether it is a 2-wheeler or a 4-wheeler, the usage of Abrasives will come down, will have to come down. Where it will still continue to be effective used as in your 1 is the body, which is supported Abrasives and also in the brake lining, the bearings or forklifts, I mean the forced shock absorbers, et cetera. So that continues.

Okay. Okay. And sir, just wanted some color on your mass market segments, engineering, construction woodworking, there is a lot of focus on the budget as well on infrastructure creation. And all over, there is a lot of impetus on government CapEx or infrastructure. So in terms of this mass market segment in terms of an end user demand for engineering construction would work in, how do you see the demand panning out? Housing cycle also, we talked about an up cycle as well. So that will also aid demand in these sectors as well. So just wanted your sense on this? .

So we -- as I said, in the mass market, if you look at the products which we supply into these mass markets, on the wanted Abrasives, we vitrified standard Abrasives goes into the engineering side, application side. In terms of the foundry sector or in terms of the fabrication sector through the thin wheel business, the stone cutting through the diamond blades, the woodworking, infrastructure, et cetera, through all the coated Abrasives. So those are the mass market range of products which could be different it could be shields, rolls, disks, et cetera. And these are all the mass market products. And that is -- it's a big retail channel that is emerging over years. And that is one area where we are strengthening ourselves. So what I would thing that the capacity is what we have built last year on the quoted side has definitely helped and will definitely help in addressing these markets on the quoted. And similarly, now with the both the acquisitions and the further investments that we are making on the thin wheel side would help us address this again in the future.

Sure, sir. And sir, just about the engineered Ceramics part, I mean -- you didn't speak about starting your suppliers to EV manufacturers on your engineered Ceramic parts and to EVs as well as renewable energy applications. So how is the demand for that end of market looking? Is it looking as healthy? Or is it strengthened? How is the demand for that [indiscernible] is looking.

What we see is on the EV -- Ceramics for EV part, it is largely -- I mean most of the EV activity in India is in terms of assembling the components and putting together the vehicle itself and not so much in terms of creating the ecosystem of partners required. And that is still happening in countries like Japan and Taiwan. And that's why we are working with customers in terms of building our EV range of ceramics portfolio. And that's [indiscernible] us definitely well over the last year. And hopefully, when we see more of adoption of these parts happening in India. And we're also seeing the requirement of ceramics just about coming up for the mobility -- high-speed train mobilities. High-speed trains are also acquiring ceramics, and that is one area we started working with.

Okay. Okay. And sir, just my last question. Just wanted some brief outlook on your metallized cylinders as well as your industrial wear ceramics. Again, in light of a lot of impetus on metal CapEx and we can probably see metal CapEx also going ahead, some good traction on that front. So that basically has a bearing on your refractory, which is a thermal refractory business and some color on the metallized cylinders outlook as well.

Metallized cylinders they are into the vacuum interrupters. And that is something which is a growing business. I mean, as an interrupter, right? So it's largely used in electrical transmission, generation and distribution. And whether it is in the fossil fuel base or any energy base you need distribution. And that is where these interrupters are used. And definitely, we see that as a steady business going forward.

Okay. And what about the industrial ware Ceramics some industrial ware Ceramics factory? Some color on that? .

So today, ware Ceramics is a supply as either a Ceramic stand-alone Ceramic products or in combination with steel as the line equipment is designed. So that's why we work with both CUMI Australia and CUMI America. So we are specialized in addressing the design and institution of wear components and extending ware ceramics to ware materials, whether it rubber-based ceramics or rubber back ceramics or with PU back ceramics. So that is giving us a larger player now. So ware ceramics is an application which is universal ware management is an application which is universal.

Okay. So the demand outlook is looking quite steady at this stage. .

Yes.

We have the next question from the line of Mohit Pandey from Citi.

Just 2 questions. Firstly, on metallized cylinders, what would be the current utilization, the new [ metallized cylinders ]? And secondly, in terms of Ukraine, if you can please help quantify the exposure that BAW has currently in terms of top line contribution.

What was the first question, please?

Utilization levels to the new mix met cylinder line.

So the utilization, we have 2 lines of met cylinders, and we had installed the second line during the last year during the course of the Pandemic. And progressively, we have been able to utilize other lines and first line is about 85%-- and the second line is also running close to about 80% now. So that is -- that has made quite a bit of progress, both in terms of customer acquisitions and approvals. So yes, I would see that both the lines are steady. And in terms of expanding these capacities, we're also looking at how do we do it now, more modular fashion and debottlenecking some of those capacities in the process stages. So that would definitely release some capacities for the next year. In the case of [ Ukraine ], -- so this is -- I mean, overall in the CIS, we do sales of silicon carbide. I would say, about 40% of our sales gets done in Russia CIS. And Ukraine is part of the sales group. We also buy raw materials from Ukraine for our braces in Russia. So we commissioned with the Russian suppliers, customers are pretty normal as of now. And that's why I said they don't see a major disruption happening on the ground. While there are definitely a lot of noise in terms of the geopolitical equations.

All right, sir. Sir, just to second reason for metallized cylinders, in terms of export geographies, what would be the top 2 one for you?

We do quite a bit to Europe. Europe is a big chunk, of course, and also to Japan. Yes. Europe broadly, Japan and a little bit of the U.S.

Ladies and gentlemen, due to time constraints, that was the last question. I would like to hand the floor back to the management for closing comments. Please go ahead. .

So thank you all so much for joining in today's call. I know it's been kind of a difficult call for most of us, a difficult quarter for most of us. There has been -- the Omicron COVID has taken its toll, not -- happily -- I mean, I would say, fortunately not as bad as of course in the COVID 2. But then it has had an impact across industries, across even our own companies. We just hope that this is now tapering towards being in pandemic. We've also seen challenges in terms of chip shortages, energy costs going up, increasing input costs and also the supply chain disruptions and all of them is expected to remain there for some time. And despite the government and being very positive looking in terms of infrastructure spend. So -- so let's hope that all the opportunities that we have worked on, we are working on as a company, addresses most of these opportunities. And while we are quite positive about it, but it's also, I think, realistic to be cautious in our approach to building businesses. So we -- our effort here would be to ensure that the business is what has came in terms of profitability and growth will be [indiscernible]

Thank you, members of the management. Ladies and gentlemen, on behalf of Kotak Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.

Thank you so much.

Thank you.