RHI Magnesita India Limited (534076) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the RHI Magnesita India Limited Q1 FY '27 Earnings Conference Call. [Operator Instructions] Before we get started, I would like to point out that some statements made or discussed on today's call may be forward-looking in nature and must be viewed in conjunction with the risks and uncertainties that we face. The company does not undertake to update these forward-looking statements publicly. I now hand the conference over to Mr. Parmod Sagar, Chairman from RHI Magnesita India Limited. Thank you, and over to you, sir.

Thank you very much. Good morning, everyone, and thanks for joining us. It is a pleasure to welcome all of you for this earnings conference call for the first quarter of financial year '27. Safety remains our highest priority at RHI Magnesita. We will continue to invest in our safety programs and make safety progress for Zero Harm and the well-being of our people. We delivered a strong start to financial year '27 with revenue growth and a significant improvement in profitability despite a volatile operating environment. This performance underscores the resilience of our business model, the effectiveness of our execution and the strength of the strategic foundation we have built over the year. Our Q1 performance reinforces confidence in our ability to create long-term value while maintaining disciplined growth. Let me briefly share our perspective on the industry environment. The refractory industry continued to operate in a competitive environment characterized by pricing pressure, rising input costs and increasing competition from both domestic and multinational players with greenfield and brownfield expansion. Nevertheless, our differentiated business model, technical expertise and customer-centric approach position us well to navigate these challenges. Encouragingly, demand across all our key end markets remain healthy. In the steel sector, major steel producers reported steady growth in production and volumes aided by strong domestic demand and high capacity utilization levels. From a refractory industry perspective, continued investment in blast furnaces, steelmaking facilities, rolling mills and capacity expansion projects are expected to sustain demand for refractory products. Our production levels and capacity utilization across steel plants typically support both project related and maintenance refractory requirement. Our requirement for advanced refractory solution to improve campaign life, reduce downtime and enhance thermal efficiency create opportunities. The cement industry maintained strong growth momentum in Q1 '27, supported by robust demand and capacity expansion programs. Industry players remain committed to significant brownfield and greenfield investments, reinforcing a positive long-term demand outlook. While the cement industry experienced margin pressures due to elevated fuel, energy and raw material costs, manufacturers continue to focus on operational efficiency, productivity improvement and cost optimization initiatives. While the operating environment remains dynamic, the structural growth drivers across our end market remain intact. And we remain focused on leveraging our technological leadership and strategic partnerships to consistently outperform the underlying market. Our sustainability agenda continue to translate into enable business initiative through formation of our joint venture with Khemka Refractories. MINPRO to establish a greenfield mineral processing facility in Odisha, which will be a subsidiary of RHI Magnesita India Limited. We see this as strategic investment that deliver both environmental and economic value over the long term. Overall, the progress across these 5 pillars reinforces our strategy of driving profitability, growth through market expansion, technology leadership, cost excellence, sustainability and long-term value creation for our customers. Before I conclude, I would like to take a moment to address an important leadership transition for the company. After having the privilege of leading RHI Magnesita India over the past several years and working alongside a highly committed team to build a strong platform for future growth, I'm delighted to welcome Mr. Pankaj Malhan as our new Managing Director and Chief Executive Officer, while I continue to serve as Chairman. Pankaj brings the industry experience, deep customer insight and a strong commercial track record. His customer-centric leadership style and strategic vision make him ideally positioned to lead the company through its next phase of growth. I look forward to working closely with Pankaj as we continue strengthening our market position and advancing our vision of building a high quality differentiated in the systems and solutions business for our customer while generating value for our shareholders and all stakeholders. With that, I would like to invite Pankaj to share his thoughts and perspective on the opportunities ahead. Thank you very much.

Thank you, Parmod, and good morning, everyone. It's an honor to address today as Managing Director and CEO of RHI Magnesita India. I'm joining a company with a strong market position, deep technical expertise and a proven track record of creating value through innovation, operational excellence and longstanding customer relationships. As we look ahead, we remain focused on 5 strategic pillars that are going to drive our next phase of growth. First, we would love to outpace the market by strengthening our presence in high-growth segments such as ironmaking DRI & pellets, flow control and selected industrial applications. We are very confident this will be supported by new order wins and deeper customer engagement. Second, we continue to expand our 4PRO model, moving beyond traditional product supply to deliver tailored solutions and long-term strategic partnerships with strong momentum coming in both the steel and cement markets. Third, we are accelerating digitization and technology adoption to enhance customer value and operational excellence, including investments in advanced automation and energy optimization initiatives. Fourth, we remain focused on driving cost competitiveness through backward integration, progress in quartzite mining and increasing recycling rates, which would strengthen both our resilience and sustainability. Finally, sustainability remains at the core of the strategy. We continue with reductions in energy consumption and CO2 emissions. This reinforces our commitment to responsible and profitable growth. With a very resilient business model, trusted customer relationships, a talented team and a very clear strategic priorities, I think we are very well positioned to deliver sustainable and profitable growth over long term. With that, let me hand over to our CFO, Mr. Azim, who will take us through the financials. Over to you, Azim.

Thank you, Pankaj and Parmodji, and good morning, everyone. Let me now take you through our financial performance for the first quarter of FY '27. We began FY '27 on a strong note, delivering healthy growth in both revenue and profitability despite a challenging industry environment. Revenue from operations for Q1 FY '27 stood at INR 1,014 crores, representing 9% quarter-on-quarter growth and 6% year-on-year growth. Growth was primarily driven in steel business, supported by favorable realizations and healthy demand across key applications. Cement segment also recorded a recovery during the quarter, benefiting from seasonal maintenance demand. EBITDA for the quarter is at INR 147 crores, reflecting a strong 42% year-on-year increase. EBITDA margin improved significantly to 14.5% compared to 10.8% in Q1 FY '26. This improvement in profitability was driven by strong execution across our steel marketing -- steelmaking portfolio, favorable price realization, operating leverage and ongoing productivity initiatives. Despite inflationary pressures in raw materials, logistics and energy costs, disciplined cost management and operational efficiency measures are supported healthy margin expansion. In addition, initiatives around recycling, vertical integration and supply chain optimization continue to contribute to cost competitiveness and long-term margin sustainability. As a result, profit after tax nearly doubled during the quarter, increasing from INR 35 crores in Q1 FY '26 to INR 65 crores in Q1 FY '27. Our balance sheet remains strong. Working capital remained well controlled even as we strategically increased inventory levels to strengthen supply continuity and support customer requirements in the upcoming quarters. We remain focused on maintaining supply chain resilience while preserving capital discipline and liquidity. We have cash and cash equivalents of INR 452 crores, and our balance sheet shows a strong improvement in working capital. Our balance sheet remained net cash positive with strong KPIs. Our confidence in the outlook is supported by the resilience of our business model, strong customer engagement, healthy order visibility and the progress we continue to make across our strategic initiatives as outlined by Pankaj. Looking ahead, while the industry continues to face competitive intensity, excess capital and geopolitical uncertainty, we remain confident in our ability to outperform the underlying market. Our confidence is supported by customer engagement, order book and continued progress across our priorities. We remain encouraged by the momentum in our business and expect to deliver profitable growth while maintaining disciplined focus on margin, cash generation and returns. Overall, the quarter reflects the strength of our business model and our ability to deliver profitable growth despite a challenging environment. With that, we conclude our prepared remarks, and we'll now be happy to take your questions. Thank you. Back to the operator.

[Operator Instructions] First question is from the line of Varun Jain from Dolat Capital.

So I have a couple of questions. So starting with the realizations. I think realizations grew close to 12% year-on-year in this quarter. So could you split this in what came from price increases versus product mix versus currency? And what is the sustainable realization for this year?

Normally we don't do this split of what is coming from price increase and other areas. I'm sorry, we don't have the split as of now.

But on a high level, what we can say is that most of the price increases were nothing but a war surcharge. So you can basically say that primarily it is driven by the product mix, if that helps.

Sure, sir. And sir, on the CapEx side, I think we did INR 8 crores of CapEx only in Q1 versus INR 150 crores guidance. So we are running kind of slower than the run rate. So do we want to revise the CapEx guidance? Or is it intact? And can you just give us a split of the CapEx in the 4PRO [indiscernible] modernization, et cetera?

Actually, the long term of whatever we said, INR 80 crores to INR 100 crores CapEx every year, we are maintaining still the same statement. It includes modernization of Dalmia plants, some 4PRO machinery robotic solution and maintenance projects.

Got it, sir. And sir, on this MINPRO JV, sir, what is the planned investment and how will we be funding it, commissioning timelines? If you can throw some more light on the entire economics of this.

First 2 years, we and our JV partner Khemka as per the shareholding, 51% we will infuse, 49% they will infuse in CapEx well as in working capital for first 2 years and then the JV will have self-sustainable money and from that they will do further expansion or ramp-up of the facility.

Sir, my question was how much investment is planned and what are the payback period, EBITDA margin, ROC? Like, how are we thinking about it?

It is roughly INR 35 crores initial investment in next 2 years' time. And we believe EBITDA should be around 8% to 10% and payback period should be less than 3 years or so after [indiscernible] production.

Got it. Sir, just a last one, sir, on the volumes front. I think we have a guidance of close to 9% for '27. So since this quarter, we didn't deliver that, so we'll need close to 14% for the balance 9 months to meet that guidance. So is that much possible?

I don't think I have ever committed 9% volume growth. I normally say 7% to 9%. And you are taking upper side of it, I can take lower side of it. So my dear friend, it all depends on the situation, dynamic situation, like cement season is almost going to be over by end of September. I would say we will be having a healthy run up equivalent to market growth, okay? So I still believe we can deliver 7%, 8% volume growth but not 9%. I think it's a bit of stretch but definitely if we can get some good order with the high volumes, why not. But as of now, I'm not in a position to say 9%, only 8% enable volume growth for rest of the year.

Next question is from the line of Sahil Sanghvi from Monarch Networth Capital.

Yes. Excellent set of numbers team. Congratulations to the whole team. Secondly, just wanted to convey my best wishes to Parmod sir. I mean, there was a time when the Irma team used to say that how to do profitable business from Parmod sir. So congratulations, sir, and best wishes.

Thank you for your time.

Yes. Sir, my question is, how should we look at margins, sir, for the business? I mean I'm more of understanding structurally and over a medium to longer term, what could be the levers for the improvement? And this number that we have delivered this quarter, I understand, sir, the price hikes are something which will be renegotiated and depends on how RM cost moves. But I mean, if you can also split the margins between the Dalmia business and the other businesses because as we understand, the other businesses are flow control, heavy and high margin. So structurally, how should we look at the margins for this business?

Sahil, if I talk about Dalmia and rest-wise RHI Magnesita India, it is mostly Dalmia is flat and the growth has come from IN. Why IN? Because in IN or RHI Magnesita India part, most of the products are flow control products, be it the Bhiwadi plant or Jamshedpur plant. And that was our focus area where we could manage to get price increases. So the growth has come from IN whereas IR remains flat. What else? Sorry, I could not get you, too many questions you asked.

Yes. So I was asking for a medium to longer term structural view on the margins. Where do we see the numbers, maybe a range, and what initiatives we'll work on to reach that range?

It's Pankaj Malhan, if I was to take this question. First of all, the team has delivered a wonderful quarter 1. We should appreciate this. I think going forward, there are a couple of things that Parmodji also discussed about. One called some structural changes coming up because of this MINPRO joint venture that we're looking at. Then of course, we are looking at some of the mines starting for us. So these are the structural changes that we are looking at in terms of making sure the margins sustain. And we are very positive about the Indian context, specifically in terms of the continuing industry growth rates, the way the CapExes are planned. We are very hopeful, going forward, the price should also look sustainable over here. So net-net, we are hopeful in medium to long-term basis, we should be able to sustain the past.

Next question is from the line of Rajesh Majumdar from 360 ONE Capital.

Congratulations on a good first quarter. I just wanted to know a couple of things. One is, what is the impact of project orders in the first quarter results, whether any project orders are reflecting in the first quarter numbers? And if so, what is the quantum of that?

Rajesh, we don't have any project in the first quarter, so there is no impact of any particular project delivered in the Q1.

So this is entirely from steel operations, mostly?

Yes, it's operation fully. So mainly steel. And industrial was a bit weak because whether it's non-ferrous or glass, there's hardly any project come up in first half of the year, I would say. And there are some projects coming up second half of the year.

So because we were expecting some project orders this year, but some things seems to have materialized so far. So is that expected to be still down the line?

Yes. We are still expecting in second half.

And is there any...

Silica and glass orders will still come through in Q3 and Q4, and we'll normally see this as seasonal as you are well aware of it. So it is still in our pipeline. This is why we are emphasizing our order book visibility because these are long-term projects for capital market and we will be able to execute this and this is in our pipeline. Yes?

Right. And is there any impact of softer alumina in this quarter in terms of the margin because the gross margin standalone has gone up quite a bit? So I was wondering that impact is positive from the alumina price.

Alumina price has stabilized from last 6 months to last quarter, both quarter of last financial year and first quarter of this year. It was static; there's no movement, significant movement. I would say there's always movement a little bit here-there, but not a significant movement. So it's stable as of now.

Right. And sir, what is the output for magnesite prices in terms of you already have some price increase in 1Q? But will we see cost increases again in 2Q which will again be a problem and you need further price increases or you think the margins are going to be stable by and large given the impact of raw materials and everything? Yes.

So magnesite price has already gone up by 6% to 8% from, say, 2 months or so. We are trying to see how we can absorb this and how we can pass on to our end user. So both way we are working on how we can further optimize our product processes, recipes, circular economy and whatever is not possible how we can go to our end user customers and ask for a price adjustment.

Right. And sir, my last question is you mentioned in the presentation that the flow control market share has gone up. So what is the contribution of flow control in this quarter?

It's difficult to say what is the contribution, but I can only say in one of the big group, our market share has gone up almost double in the last 6 months or so.

[Indiscernible] 35 percentage is coming from core business, our total revenue. I think that has...

[Operator Instructions] Next question is from the line of Rajakumar Vaidyanathan from RK Invest.

Congrats for the good set of numbers. So the first question is this margin improvement that we have seen in this quarter, is that sustainable?

I will take this question. So we have given a guidance of 13%. We still remain firm with that guidance earlier.

Okay. Okay. The reason is, see, I think your parent company, in their commentary, they have said that they are looking at a EUR 42 million EBITDA improvement for 2026 coming from pricing efficiency and product mix combination. So I just want to know how much of that will be contributed by the India entities?

So our guidance -- our parent company has given for the entire group on the total pricing initiatives that it will come. It will contribute to EUR 45 million. This includes all the regions. A part of it is India. However, as you know that very clearly that we give guidance on these 2 aspects, one is on volume growth, which we always have said that whatever steel, cement, those plus 1% to 2% is what we have always given a guidance. So this is on the volume side. On the profitability side, again, we said 13%. So we continue to remain at 13% year around.

I can only add out of this EUR 45 million worth that global has said, we are going to contribute significantly proportionately, I would say, they are the 6 reasons. So we will be contributing proportionately. Okay?

Yes. And sir, sorry to labor on the point. So of this EUR 45 million, you said you are going to contribute significantly. So is that already reflected in your Q1 or we will be expecting some more in the...

No, it is already reflected.

Okay. So that's going to kind of sustain in the next quarter, right?

Again, I'll go back to my earlier remarks. We'll pay at 13%. Of course, right, if there is any upside in the raw material pricing and the war uncertainty gives us a little bit of a cost headroom, of course this will be some kind of an upside. But we don't -- we cannot comment or predict on this geopolitical uncertainty we have. So I think we will still -- despite all these challenges, despite all these inflationary pressures and volatility in the market, we're still firm on what we had said in the last 1 year that we will still sit on the guidance for the 13%.

Okay. Got it, sir. Sir, the second question is your competitor, Vesuvius, has recently moved into the crucible market through the Foseco Morganite to build out the non-ferrous industry exposure. Sir, the question is does RHI see Crucible or a broader foundry consumable as a white space opportunity?

Actually, if you talk about our good friend Vesuvius, they are from the very beginning with Foseco. They are quite with Foseco 30 years back and this crucible business was there throughout. It is not a new diversification, as per my knowledge. We, as RHI Magnesita India, are open to anything and everything. If it fits into our scheme of things, we are really looking at various options.

[Operator Instructions] Next question is from the line of [ Chetan Doshi ], an individual investor.

Now my first question is regarding in the coming quarters, see, this quarter you have performed very well as far as RHI is concerned. But in coming quarters, what kind of product mix you are going to concentrate wherein you will see a similar growth? And second is that in spite of the raw material cost and the other challenges, what active steps you are going to take to nullify them? And second question is regarding MINPRO. MINPRO, actually the production is going to start. And are you the only company to which I shall bid, or any other competitor is also capable in this segment?

Doshiji, first of all, thank you very much for welcoming me. Your couple of questions, if I have understood well. First of all, thank you very much for including sustenance in the team's performance in quarter 1. Of course, we have just touched upon our guidance has remained strong. We have, actually as you can see, in terms of profitability, our guidance for the year will be standing. Of course, we are also looking forward to have some structural changes in the process, which we have just touched upon. And we are very hopeful we will be able to deliver the numbers that we gave as a guidance. Number 2, you spoke about MINPRO model. And number 2, you want some kind of product mix changes. Of course, our endeavors of the management is also there in terms of making sure the product mix is always on richer side which is the flow controls and the steel technology side. So going forward, we would look forward how we can further enrich our product portfolio, and of course, actually the profitability. Third one where you wanted to understand MINPRO. What are the expected timelines of this project to start? We are very hopeful. We will be looking somewhere towards the quarter 4 of this financial year to start.

And you have any competition in that, or you are the only one to do this type...

Our peers is always welcome. We cannot comment on that, but competition is always there and we believe in healthy competition as always.

Next question is from the line of Praveen Jayaraman from Avendus Spark Institutional Equities.

Congrats on the good set of numbers and welcome Pankaj sir. Pankaj sir, in the opening remarks, you mentioned something on quartzite mining. Can you give more detail on what we are doing there? And what would be the idea here? I could not get that earlier.

Okay. The company is planning to have some backward integration specifically for quartzite mining. There are 2 minings that we are working on: one is Chiraipani and other is Bhikampali. So we are very close to opening up this mine and now our take is towards the end of this quarter, we should be able to open these mines. So this would definitely give us a solid structural benefit in terms of cost structure. The benefits we expect should start coming up from next quarter.

If I may add a little bit. So this mine is something that we got as a part of our Dalmia deal. Now we have licenses to operate this mine. So this will, as we said, as Pankaj rightly said, this is most for supply resilience Make in India initiative, which we have always targeted upon with you, right? So this is where I think it's all coming to fruition now and this will make us completely self-sustained. And also most importantly to serve our public sector in its steel players especially.

Understood, sir. My second question is on the rise of project orders. So, we were saying that we didn't have any impact on the revenues as of now. In the earlier con calls, I came to know about the coke oven-related project orders, which we are anticipating. So, what is the outlook on the same? And whether we will be having impact in this year?