RHI Magnesita India Limited (RHIM.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the RHI Magnesita India Limited Conference Call Q1 FY '26. [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 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, Managing Director and Chief Executive Officer from RHI Magnesita India Limited. Thank you, and over to you, sir.

Thank you very much. Good morning, everyone. Thank you for joining us for RHI Magnesita India's Q1 Financial Year '26 Earnings Call. We have had a very good start to the year, reinforcing the robustness of our operating model even in the face of market commoditization and volatility. Our resilience in transforming into tangible gains reflected in increased market share and stronger financial performance. While the refractive market remains competitive, we are confident in our business fundamentals, positioning and strategic levers to drive growth, improve productivity and maintain safe operations across all sites. Today, I'm pleased to present our first quarter results and forward-looking along with the dynamic industry landscape filled with opportunities. We are at the heart of India's steel, cement and various industrial sectors, which has continued to see robust growth supported by government infrastructure spending and a strong economy. The union budget raised the infrastructure outlay by INR 11.2 lakh crores. This is a promising indicator for the steel and cement industry. Refractories, the heat resistant material that we produce are the unsung heroes, enabling this industrial growth. Around 65% India's refractory demand comes from steel sector and together with cement, around 75% of refractory consumption. This underscore our critical role in India's industrial ambitions. The overall market environment remains challenging and highly commoditized. Global geopolitical uncertainties from supply chain have increased the refractive input costs, in particular, raw material costs. This has intensified margin pressure across all industry. Despite these headwinds, RHI Magnesita's fundamentals have proved remarkably resilient. We continue to focus on customer satisfaction, product performance, leveraging our scale and innovation capability to stay ahead of the curve and meet the need of the customer. We have navigated these obstacles by focusing on our business fundamentals and strategic initiatives, which helped drive a 13% shipments and 9% year-on-year growth in our revenue for this quarter. Maintaining excellence amid the trust, pricing environment speaks to our commitment to expand across diverse end markets. On the operational front, several key initiatives progressed well in Q1. Number one is strategic projects in iron making. Our strategic investments in iron making, particularly for blast furnace truck mass, DRI hot matters in this quarter are progressing on schedule and are expected positioning us for future growth in these areas. Number two, successfully regained market share almost across all segments. And finally, as communicated in last quarter, we had productive discussions with our customers and secured key price increases, and we are expecting to see these benefits in the coming quarters. The other is cost optimization. We have launched focused program across all our plants to focus on cost efficiency through recipe optimization, uses of circular economy, productivity and energy cost efficiencies, and I'm happy to report that we are on track on execution of these programs. We are also working on automation and robotic in operation. We are making progress in the area of these initiatives. And we -- with the introduction of 4 Pro business model, we have made steady progress in this area. Last year, we introduced our 4 Pro model, which is a total solution to the customer and integrated solution approach building products, process, performance and digital solution. This quarter, we have moved from planning to execution and the early results are very encouraging. Our teams have achieved multiple operational milestones at customer sites, demonstrating how our solution improve their processes. One particular highlight is the deployment of India's first complete robotic solution in a continuous casting plant, the first such installation in Indian steel plant. By proving this capability in India, we are strengthening our reputation as the go-to partner for advanced refractory solution. As a result, we expect to expand our market share through more 4 Pro long-term contracts, where we manage entire process flow for customers. Our commitment to innovation, be it through robotic, digital monitoring or R&D in refractory formulations is transforming how we and our customers operate. We also enhanced our steel flow control capability through a small acquisition of Ashwath Technology by our subsidiary, Intermetal Engineers, effective from 1st August '25. In summary, RHI Magnesita India Limited has demonstrated that we can and we will continue to deliver in a tough environment by staying agile and sticking to our strategy. We are building momentum quarter-by-quarter. Our role in India's industrial landscape is evolving from simply a material supplier to a strategic solution partner for steel and cement producers, contributing to the nation's drive for manufacturing excellence. By enabling safer, more efficient steel and cement production, we are strengthening India's industrial backbone and supporting the 5 trillion economy vision with self-reliant supply chains. I'm confident that with the continued dedication of our team and the trust of our customers, we will convert the current challenges into opportunities for long-term growth. Thank you very much, and I will hand over to our CFO, Sir Azim Syed, to walk through the financial performance in detail. Yes, Azim.

Good morning, everyone, and thank you, Mr. Sagarji. I will now walk you through the financial performance of RHI Magnesita India for the quarter ended June 30, 2025, where we have delivered growth across key metrics while navigating market challenges. Let me begin with FY '25 performance, which was marked by intensified competition in the refractory market and rising input costs, especially in raw materials, but first quarter results of this year marked by growth and stable profitability that reinforces the effectiveness of our business fundamentals in complex operating dynamics. I'm pleased to report that our revenue from operations for Q1 FY '26 stood at INR 950 crores, which represents circa 5% sequential growth quarter-on-quarter and about 9% growth year-on-year. Shipment volume grew to 129 kilotons by 4 percentage quarter-on-quarter and 13 percentage year-on-year. This growth was primarily fueled by regained market share in almost all segments. Production for Q1 FY '26 stood at 85,000 tonnes, increase of 11% quarter-on-quarter and 9% year-on-year. Capacity utilization improved to 66 percentage, ensuring that additional market demand was met through planned inventory increases. Our operating EBITDA for the quarter was at INR 103 crores, a 10% increase over Q4 FY '25, a sequential improvement in EBITDA margins to 10.8 percentage from 10.2 percentage last quarter, highlights stronger operational performance and the initial gains from our pricing initiatives. Profit before tax for the quarter stood at INR 48 crores, reflecting a 27% increase over the previous quarter, supported by disciplined execution and tighter cost controls. Whilst our profitability has increased, our margins year-on-year declined by 51 percentage. This is primarily due to high input costs, particularly in raw materials. The reason for this is due to the elevated high-cost alumina prices moving from our inventory to P&L, and this will taper down in the upcoming quarters as the alumina prices have fallen down. On the employee and other expenses, we are able to manage this well with productivity programs that we have implemented across our plant network, which has already started to yield results. We expect to keep the same momentum. Profit after tax for the quarter was INR 35 crores, reflecting a 3% decline compared to the previous quarter -- to the previous quarter. As in the previous quarter, tax credit was recognized based on the ITR filed for FY '24 pertaining to certain acquisition-related provisions. We also remain disciplined in our operation and working capital management. By optimizing receivable and payable days to their lowest level, we generated robust cash flow and further strengthened our financial position. This reflects consistent improvement in our net debt-to-EBITDA ratio from 0.3 to 0.2x quarter-on-quarter. We generated INR 88 crores in operating cash flows in Q1, increase of 36 percentage quarter-on-quarter and invested INR 28 crores in capital expenditure, all funded through our balance sheet. Our balance sheet remains strong with low net debt and with adequate liquidity, positioning us to pursue growth opportunities and focus on our strategic initiatives. Looking ahead, we are optimistic for the growth and profitability for the upcoming quarters driven by our robust order book, pricing initiatives, input cost optimization through our productivity initiatives and normalizing raw material costs, as mentioned by Parmodji. We'll continue to optimize working capital and maintain financial discipline, a sharp focus on operational excellence, innovation and differentiated offering, ensuring continued profitability. As mentioned by Parmodji, our business fundamentals remain strong, and we'll continue to focus on strategic initiatives aimed at long-term growth, that is gain market share and strategic advancement in iron-making segments and targeted investment in 4 Pro business model, further usage of secondary raw materials. In conclusion, our commitment to shareholders was that we will see an improved quarter-on-quarter results that will underpin our business fundamentals and the strategic initiatives. This is what we have demonstrated in this quarter. Our financial position remains stable, continues to strengthen, place us in a strong position to capitalize on market tailwinds and progress of our internal transformation. We remain committed to delivering long-term value to our shareholders by focused execution. Thank you for all your continued trust and interest in RHI Magnesita India. We can now take questions.

The first question is from the line of Jai Chauhan from Trinetra Asset Managers.

Yes. So my question was pertaining to management has highlighted the margin is expected from both secured price increase and lower input costs. Could you provide some color on the balance between these two drivers, specifically how much of the anticipated margin improvement in Q2 and Q3 will come from sustainable price hikes? And how has the competitive environment evolved to allow for these price increases now as I remember management mentioning that it was challenging just a few months ago. This is my question, sir.

Yes. So basically, the market is still very commoditized, and it is not easy to get price increases in commoditized market. We have some 4 Pro as me and Azim was also talking about this full solution business where we add value to the customer in those areas, we are getting price increases where we are also adding value to the customer and the business is not that much commoditized, okay? So if you talk about Q2 and Q3, I would not be able to give you the number, but I can say it will be upswing. It will not be hockey stick, but it will be upswing quarter-by-quarter. Our intention is this full year, if we could manage to the last year's EBITDA, that will be ultimate satisfaction to us. Hopefully, I'm clear to give you the answer.

Right, sir. Understood. So sir, can we assume that this lower cost RM, alumina prices that you might will be -- is sitting in the inventory will be consumed from Q2? And what kind of margins can we expect in the coming quarters?

That's what I'm saying. I cannot give you the margin percentage. I'm saying it will be upside. By September, this high-cost inventory should be consumed. And Q3 will see -- Q2 will also, I assume from Q1, there will be some uptick on Q2 and Q3 will still be better. That's what I can say.

So we can talk to our full year guidance that, as Parmodji mentioned that our aim is to be achieve the profitability percentage that we had last full year results. So this is what we are aiming for this year's full year results, which basically that's -- you can use that probably for modeling for sure, but we don't want to give a quarter-on-quarter guidance at the moment.

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

Congratulations for a really good set of numbers, keeping aside the margins, which will definitely recover. Now my question is regarding the 4 Pro model. I mean, just wanted some more details about what new are we doing in this model? How different is it from the total refractory management contracts that we had earlier? And is this something which gives us more margins than the usual way of selling these products?

Okay. Sahilji thank you very much for your kind words and support. The thing is this 4 Pro earlier was TRM. So TRM was total refractory management. So it was more focused on maintaining inventory and running the steel plant or cement plant on a per tonne of steel basis. But now we add a lot of other elements where we provide them robotic solution, scanning solution, checking their erosion patterns. We provide them slab detective systems. We provide them artificial intelligence, digitalization of their processes. There are many things, and apart from this, even we are providing or talking with them about their metallurgical problems and how refractory can contribute in that also. So this is a wholesome solution for any steel plant. So this differentiates us from our competition, and as far as margin concerned, yes, automatically, if we will go in this model, the margin will be better in long term. But as I'm saying this, don't expect that next quarter, it will happen. For this robotic solution for JSW, it took almost 2 years to really did feasibility study, has a tough competition with our competitor who is also very strong in flow control, you know to whom I'm talking about, and we had to showcase our capability to JSW management that we can do it, then we got this contract, which is a 5-year long contract, and now JSW is asking us to do feasibility study in another 2 plants and similar groups are also asking us to do feasibility study. But it will happen if we start now, probably after a year or so, we will have upswing of this type of solutions. It is not immediate solution. But long term, this will differentiate us from our competition. This will add value to customers, and they will believe us as a partner, not a supplier.

Sahil, you can look at our investor deck on Page #14, we have provided a link wherein you can click on to understand the 4 Pro model. What does it mean? A lot of details have been provided with customer testimonial not only for India, but across the world. As Parmod said, it's the next evolution of TRM model where will help us to -- it's a new business model. That's the way you need to model it.

Sure, sure, sir. Sure, sir. This is helpful. And good to hear that we are doing something over and above how the industry works. Secondly, on exports, do we have sort of a new understanding as to how we want to ramp up exports? I mean, I believe we were working on some new ways of doing it. I mean, maybe through our entities or something else, but anything on -- any progress on the export front?

Yes, there is a progress, but still, I would say we are advanced stage of trials for outside world apart from India. So it should happen in '26. We have quite a reasonably good plan to increase our export in flow control in '26.

So another 6 months or so.

[Operator Instructions] The next question is from the line of Sucrit Patil from Eyesight Fintrade Pvt Ltd.

I have a specific question for Mr. Azim Syed. Are you there online?

Mr. can you please be a little louder? We can't hear you properly.

I have a specific question for Mr. Syed, so is Mr. Syed online?

Yes, yes, I am.

My name is Sucrit Patil, and I just want to understand your view, and my question is, as RMI is trying to scale its India operations, how are you evolving your capital allocation framework to balance refractory capacity expansion, sustainability linked investments and potentially inorganic growth, especially in light of margin volatility across end markets? And do you think this will have some positive impact on the company in the next 2 to 3 years?

Yes. So your voice was not clear, but let me see if I got your question correctly. You're asking about our capital allocation strategy in conjunction with inorganic growth and what would be the impact of it in the medium term on the profitability. Is this correct?

Correct. 100% correct.

Okay. Exactly. So our CapEx allocation strategy follows the -- let me kind of explain how we think about our capital allocation strategy. So first thing, we will do capital allocation if we have a positive cash flow. That's the first requirement. If it is there, our first investment would be on the maintenance CapEx because we believe in safe operation. Second is to provide dividends for our shareholders. Third thing, we always link our CapEx investment within our plants where we can enhance, and after that is where we think about our mergers and acquisitions or joint ventures based upon our strategic fit, okay? So this is how our capital allocation strategy comes in, and after that comes buybacks and so on and so forth. So this is the order of priority for us. To kind of give you some color on this aspect, one thing is that we will invest if it is fitting in our strategic initiatives, which we think we did it in the last 2 years quite effectively. So we wanted market share in cement and in industrial. So that's kind of justified our acquisitions with Dalmia. And then we wanted to kind of have stronger presence in the flow control market, especially in the thin slab. So that's where we went for Hi-Tech, and we did the Ashwath Technologies current acquisition, again, completely funded by our balance sheet because this kind of fitted in our strategic investment in terms of how we can strengthen our flow control on the machinery side. So this was a good linkage for us. So that's the rationale for the past. For the upward looking, we believe that at the moment, our investments will be more towards CapEx in terms of plant modernization and productivity-related investments. So this is where we'll do much of our investment. That's where you see a little bit of a CapEx increase from last quarter to this quarter, almost by 90%. Again, we are trying to kind of improve our input cost improvement. That's where we are kind of focusing at the moment. So profitability, more than profitability, we always measure KPI called ROIC. This is what we try to check our investment capability. If a ROIC is passing certain threshold that we have internally, you can assume to be -- it depends on business segment to business segment. On an average, you can assume that if it's more than 10 percentage, this is where we kind of put our money there because we believe not in a quarterly profitability game because of our broad and wide portfolio, we look into a long-term investment in terms of what's the payback period and how -- if the ROIC is meeting a very stringent internal criteria that we have. So that's how we kind of come to this decision-making of if it's a good investment or a bad investment. By the way, it's not only for acquisition, we do the ROIC decision-making. We also do for any kind of a CapEx initiatives that we deliver, even for maintenance CapEx as well. I hope that clarifies and answers your question.

The next question is from the line of Arijit Dutta from Kotak Mutual Fund.

Congratulations for a good set of numbers. I have 3 questions, starting with the first one, which is on the volumes. Sir, this quarter have seen some bit of volumes growth, which is admirable. I just want to understand in the volumes, if we have any one-off kind of thing, which is related to commissioning of a blast furnace, which will not be kind of repetitive, which will come after a while again.

So first question, the answer is it will continue like that. So we have a very strong order book, and as in my last investor call, I said we expect 8% to 9% volume growth. So this is in line with that.

And onetime it was actually the Q4 numbers to answer your question more specifically. So in this Q1, we didn't have any.

Perfect. Good to hear that. Sir, second question is on the pricing part. Domestically, how you are seeing the competition level because there are a lot of overlapping capacity with everyone entering each others territory. Last quarter, you have given a very, very robust -- very, very categorically answered that the competition is increasing. How we are seeing on the overall market scenario now undercutting the prices and the intensity of competition, sir?

You are absolutely right. There's overlapping, undercutting pricing, everything is happening in market. Only solution is or you can differentiate yourself from the competition or you can provide additional service or sport or quality, the competition is not able to provide. So we are -- as I said, as Azim was also talking about 4 Pro. So we are working on differentiation and also how much we can be more cost competitive, how good we are in our plant production cost management, how we can reduce our reduction levels, how we can increase our circular economy. So we want to be ahead of our competition by many initiatives which we are taking. But of course, this is 80% of what it is still commoditized, and we have to be step ahead if we want to maintain our growth -- volume growth with sustainable margin.

Perfect, sir. Sir, third question is on the OCL part of our operation. Sir, do you see that there is -- there were challenges in the cement industry per se or even we are planning to upgrade the infrastructure in OCL plant because I believe that's a very old machinery and in absence of a better word, it's a bit inefficient also.

I think it's a combination of both. We have increased our market share from 12%, 13% prior to acquisition of Dalmia to almost 42%, 43%, but there's too much commoditization. Everybody enter into this and there's a price cutting, et cetera, et cetera. So then we start working on our product optimization or we can be more competitive. We have market share. Now we have to improve margins. So we are working on that. At the same time, as you said, the infrastructure in Dalmia plants are too old, and as Azim said that we are putting up almost double the CapEx, what we were doing in these plants to modernize these plants so that we have more efficient operations and reduce our in-house rejections, improve quality, et cetera, apart from product optimization.

Perfect. Nice to hear that. Sir, last question is on export part. In the export market, what we understand that there are a lot of Chinese competition and the lucrativeness of that market is slowly going away, like we see in domestic and export also, the situation is same because of the Chinese presence. Any update on that, how you are looking at it?

I don't see China as a threat or challenge because our export is based on flow control products, and China is mostly into magnesia carbon bricks, et cetera. So I don't see them as a challenge for our export initiatives.

Understood, sir.

The key factor on export would be the demand must pick up in the export market. So as you can see that there's quite a bit of geopolitical challenges. So there's not a lot of production happening in the key export market in Asia, so I think this is also -- needs to pick up apart from our own capability as well. So that's where you will see quite a bit of an upswing. But yes, I think we are ready, as Parmodji mentioned, that our trials are going on pretty well and in advanced stages. But yes, this also is a key factor as well.

Sir, this -- right. On the magnesita part, do you see there has been Chinese import that is happening because China has been pushing on the magnesita off late a lot.

It is magnesia, you are trying...

Magnesia. Yes. Yes, sir. Magnesia best refractories.

Yes, absolutely, absolutely. almost 50% of the commodity business, if we talk about the ladle business or so, the Chinese traders are coming because China is having overcapacity, and their aspiration is very small. So they undercut the pricing. They are traders, if they get some 2%, 3% margin or so, even then they are happy to get orders, right? And at the same time, many Indian players have jumped into magnesia carbon brick ladle business. So almost, I think, 8 or 9 small players, which probably you never heard the name of, are now producing magnesia carbon brick. So there is overcapacity, particular for this commodity business. So we are working on our way how we can be more competitive in this segment and keep our market share not intact but improve. Now we are very confident we will be able to maintain this growth, what I'm talking about 8%, 9% volume growth.

Right, sir. The last one is on Hi-Tech specifically. What I believe that our hopes on Hi-Tech products were very high. In absence of better word, the result is disappointing what we are seeing in Hi-Tech. Do you feel the same that it has not delivered as per our original estimate and it is still struggling, the scope that we envisage for Hi-Tech has not actually materialized?

I would say we are not disappointed. It is a bit slow. I can tell you one thing, one of the plants, I just got this information today morning. In thin slab caster, we delivered 26 hour casting time, which is equivalent to the best in the market, who is in thin slab caster, so from Jamshedpur plant. So it means now the results are coming. So it is an initial stage. If we are able to sustain or give consistent product at this level, probably next year, we will be equal for competing in the tender, right? So it will be replica in our plants as well. The confidence of other plants will also go up to go for a trial or for a commercial trial because in India, we were not having the reference. Now we are creating reference with the very good results. Secondly, when we have this Hi-Tech in mind, we are thinking a lot of export from this plant, which due to geopolitical situation could not happen. And as I said, in '26, there will be quite a big upside because market is not responsive. It is a bit slow. European market is almost 40% down. Only West Asia, East Asia and African countries where we are targeting, we're getting a very good response of our trials. And hopefully, next year, we will be able to fill up Jamshedpur plant when it comes to isostatic. We have already ramped up slide gate production capability in Jamshedpur plant. We have created this -- creating this excellence of iron making in Jamshedpur plant. We will be putting up all our machinery division in Jamshedpur plant. So all in all, we have an infrastructure, we have a capability to turn around this plant to the desired level in coming days or months.

Since the technology in this plant is pretty old, that time it was one of the best, but after -- this plant has been underinvested. We are planning for a major overhaul in terms of technology also here?

I would not agree to that, the technology is still very relevant, but at the same time, our R&D is also working on upgrading the already established quality. and technology, so it is not, even in the Bhiwadi plants, we keep on doing upgrading innovation, R&D activities happening across all our plants in the globe. And Hi-Tech also, we are doing that, but still Hi-Tech has a very stable, established quality and technology.

The next question is from the line of Rajesh Majumdar from B&K Securities.

I had a few questions. The first one, sir, is on the employee cost. We've seen a 9% decline in the employee cost. Now we saw a large jump in the employee cost in the last 2 years due to the acquisition and some one-offs as well. So are we to assume that the employee costs will be stable this year or come down a little bit from last year's levels? That was the first question.

So it will be hover somewhere about 10 percentage employee benefit cost is what you can model, Rajeshji.

Negative -- better than last year.

No. So last year, we did 11.5%, right, last quarter. This quarter, we did 9%. So I'm talking about that number. So it will hover around 10 percentage for full year.

Okay. That's great to hear, and secondly, sir, we also talked about the fact that the revenue growth will be along these lines, and also, we've got a little bit of a price hike in the alumina refractories as well. So if you take that and the 14% kind of margin that you've guided for the full year, it would mean that the EBITDA for the year would be somewhere close to FY '24 levels or even slightly better, not FY '25. Earlier in the call, you mentioned you plan to achieve FY '25 levels. But if you do the math, on a 9% growth and 14% margin, it comes to somewhere around FY '24 level. So are we missing something here?