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

Good day, and welcome to RHI Magnesita India Limited Q2 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Rajesh Majumdar. Thank you, and over to you, sir.

Good morning, everyone, and welcome to the Q2 and H1 FY '26 Conference Call of RHI Magnesita India. We have with us today Mr. Parmod Sagar, Chairman, MD and CEO; and Mr. Azim Syed, CFO of the company, joining us in this call. Kindly remember that any conversation made in this call may be forward-looking and the statutory investor there. Without much ado, I'd like to hand over the call to Mr. Parmod Sagar now for his opening remarks. Thank you.

Thank you, Rajeshji. Very good morning to everyone, and thank you so much for joining us today. RHI Magnesita has an unwavering commitment to safety first. We are continuously working to improve our safety system, not only in our production sites, but also at our customer locations, warehouses and corporate office as well through implementing 7 life-saving rules and enhancing the safety with robotics and automation. I am pleased to report that RH Magnesita India achieved ever highest record quarterly revenue in Q2 at INR 1,035 crores, sustaining the consistent growth momentum. This growth was underpinned by higher volumes and notable market share gains across all business segments. Starting with the broad industry landscape, we are observing promising microeconomic indicators, green shoots across our core end markets. Let me start with Indian steel sector. In the last quarter, the steel production increased by 4% quarter-on-quarter basis, whilst there was an increase in the production and shipment volume, but we saw contraction in margins, which underpin the competitive environment that Indian steel sector is going through. India is still a net importer and most of the production boost came from the safeguard tariffs. The outlook for steel production will come from third round of production-linked incentive scheme for specialty products. On the cement sector, due to unseasonal monsoon, we saw lower production and squeezed margins. We are expecting further improvement in cement production with the recent GST rationalization, which would boost further demand. Aligning with the government's emphasis on housing and infrastructure development and reducing customer cost, which would provide imputes for further cement production and expansion. One of the key areas of focus was to ensure that we gain market share opportunity in the areas of steel and our strengthened drive in 4PRO or TRM contracts are yielding results. We have secured long-term contracts that we set out to do. We received price increases in specialized markets and secured market share in some areas of commoditized market as well. We were able to execute key seasonal cement orders. We are also continuously gaining market share in iron making, Coke Oven, DRI and pellet business. And with the current results, we are happy to report that our strategic initiatives are progressing well. We are also pleased to report that we have successfully completed the product transfer of ANKRAL and [ Redx ] cement bricks from our group technology into India. This will provide opportunities that will unlock further value for our shareholders. Our integration with Ashwath Technologies is also progressing well. Crucially, our growth is not just quantitative. It reflects a deliberate strengthening of our market position. This quarter's results affirm the effectiveness of our business fundamentals to reclaim market share. By aligning closely with our customer needs and executing effectively, we deepened engagement with key accounts. Quarter-by-quarter, we are gaining momentum, driving growth and navigating a challenging environment with agility and focus. I would like to underscore that while we remain pragmatic about the current headwinds, we are equally confident in the positive trajectory that lies ahead. Our margins are still under pressure, and this is an industry-wide issue with the headwinds that our end customers face. However, with focused cost optimization efforts, ongoing product innovation and improved outlook on raw material pricing and a shift towards a better product mix, we expect margins to improve progressively in the coming quarters. RHI Magnesita India plays a vital role in fact in the nation's industrial foundation, facilitating safer and more efficient steel and steel production to advance India's $5 trillion economic vision through resilient self-reliant supply chain. With a well-defined strategy and a high-performing team in place, I'm confident that our continued commitment and growing customer trust will enable us to transform through these challenges into sustainable growth opportunities. Thank you very much, everyone, and I will now hand over to our CFO, Mr. Azim Sayed to walk through the financial performance in detail.

Thank you, sir. Good morning to all. Let me now walk you through the financial results for the second quarter of FY '26. Despite market headwinds, we achieved highest ever quarterly revenue from operations of INR 1,035 crores. This reflects a sequential growth of approximately 8% over Q1 FY '26 and a year-on-year increase of nearly 19% versus Q2 FY '25. Shipment volume stood at 141 kilotons, marking a 9% quarter-on-quarter increase and an 18% year-on-year wise, driven by strong underlying demand and significant market share expansion. The main levers for growth are steel industry -- in the steel industry, orders from integrated private players as well as from public sector steel producers for new converters and ladle business. The cement industry also contributed to growth, fueled by one project orders and seasonal maintenance demand as expected. Broad-based improvements across flow control, 4PRO and TRM and pellet, as mentioned by Parmodji. And as Parmodji informed, we are also seeing strategic initiatives in 4PRO TRM also delivering tangible results. Turning to profitability. Our operating EBITDA for Q2 FY '26 reached INR111 crores, reflecting an EBITDA margin of 10.7%. On an absolute basis, this marks a 7% improvement over the previous quarter. Sequentially, we have sustained our margin performance. However, on a year-on-year basis, there has been a decline as the year-on-year is not comparable. In Q2 2025, we had onetime release of warranty provisions, and there was a continued impact of elevated raw material costs comparing to the prior year. Despite reduction of cost in alumina, our raw material costs remained flat quarter-on-quarter. This was due to change of product mix of sales, wherein higher cost of magnesia-based raw material and U.S. dollar and euro foreign exchange depreciation. As Parmodji mentioned, we are expecting to better our margins in the upcoming quarters with further lowering of raw material prices, recipe optimization and future performance bonus expectations. The profit after tax was INR 38 crores, up 9% sequentially from INR 35 crores in Q1. Our net debt-to-EBITDA ratio is at 0.45x, which is higher from last quarter, majorly due to working capital tied to revenue growth and dividend payout. We consider this to be manageable and with continued impact of last year's debt reduction efforts, we expect interest expenses to trend downward in the period ahead. Our balance sheet remains absolutely robust and liquid. We maintain strict working capital discipline. In short, we have the discipline and resources to fund our strategy without undue leverage. Looking ahead, we remain confident and realistic. Our order book remains robust for the upcoming quarters, particularly in the steel sector, where major mills have confirmed substantial CapEx expenditure plan. The Cement segment also shows strong momentum supported by upcoming large-scale expansions and scheduled plant turnarounds. We are witnessing positive developments on the raw material front also. While it's premature to declare full success, the trajectory is promising. As Mr. Sagar mentioned, we anticipate a consistent quarter-by-quarter upswing rather than a sudden spike. Our intention is to close the year with the EBITDA margin similar to last year's level, and we remain confident in that goal. Business fundamentals have positioned RHI Magnesita India for success to strong industrial demand, solid execution on strategy and a healthy balance sheet. We believe these fundamentals will enable us to deliver on our FY '26 targets and long-term goals. Thank you to all our stakeholders for your continued trust and support. We will now open the line for questions. Back to the operator.

[Operator Instructions] The first question is from the line of Pankaj Agarwal, an individual investor. The line for Mr. Pankaj Agarwal has been disconnected. We move on to the next. The next question comes from the line of Ashish Kejriwal.

Sir, quickly, 3 questions. In your remarks, you mentioned that we are soon going to be margins -- EBITDA margin similar to FY '25 level. So you are expecting that to come in fourth quarter or you are talking about overall FY '26 EBITDA margin to be similar to FY '25, which was around 13%?

Yes. So we are expecting the full year number to be the same as last year. We are expecting some onetime payoffs, which we received just like in the last year, we'll expect this. So this will be higher than what our current run rate is in the upcoming quarter. Our expectation is that we will end -- as we said in the earlier calls, between 13 percentage and 14% is what we still are doing for full year '26.

Okay. And sir, this is being driven by what -- because when you said that we are able to take some price hikes in some of the specialty markets. But overall, if you look at the prices this quarter, it was also somewhat lower than last quarter. And second thing is, earlier, we were expecting that because of lower alumina prices getting hit in P&L in second quarter, we may end up with the margins of 13%, 14% this quarter only. But now we understand that magnesite cost has increased so much that margins had got affected. My question was, one, how much price hike we were able to take in roughly what percentage of our volume? And second, if you can say about alumina and magnesite cost, how much is this is combining with the total cost?

One is we were expecting that alumina prices has gone down, and we will have advantage in this quarter, as you said, rightly. But unfortunately, our inventory is still at a level of finishing even in November. So the impact we were expecting unfortunately could not materialize because the pipeline of shipments was higher already. The order was placed and when we are in a contract and as market leader and ethical company, we were not forcing our suppliers to cancel those contracts and go into a new contract. So it was hit us badly, but at the same time, we honor our contracts. And secondly, magnesia rate has gone up, which also impacted us adversely. But second one?

How the margins will [indiscernible].

Yes. So margin, we now -- as I said in now onwards, alumina prices will be the market prices, whatever high alumina inventory was there, it will vanish in that number. So next 4 months, we will have advantage of lower price of alumina. On magnesia front, we are doing some product optimization, SP optimization to compensate the price increase of used magnesia and DBM. So that will also be giving a dividend or positive results from December onwards. Thirdly, we have some product optimization, productivity improvement and some automation, which Azimji saying, which will give a substantial uptick in coming 3 months, 4 months time. So we are confident because of these 3 lever, 4 lever, we will be able to deliver similar to last year's EBITDA.

Last was the price hike percentage, I can also answer that. If that's okay?

Yes.

So we received mostly price hikes in the area of [indiscernible], which is approximately 28% of our revenue. We are -- I mean, we basically got, let's say, single-digit price increases, and these are long-term contracts. So we believe that this will sustain at least for the next upcoming [Technical Difficulty].

Understood, sir. Sir, lastly, in terms of the market -- overall market, are we still seeing intense competition in non-specialties business?

Absolutely. competition is going strong to strong. Many players small players are just trying to enter even so small. You have seen the results of one of our competitors who is also listed. They are also coming in many product areas. And just to enter the market, they are also offering a really not sustainable price. But it put pressure on us and other established player also to reduce their prices to just remain in the market. So I see there's heavy trust on overcapacity. People are trying to now fill up their plant with whatever price they are getting. So it is not a healthy situation for the industry overall, I would say, but this is the reality.

If I may add one more point on top of what Parmodji said, if you look at even our end customers' margin also, there's a quite a bit of a squeeze, whether it be steel or cement, you can look at the EBITDA per ton also reducing. So there is a -- so it's a buyer market as well. So that is -- so there are a lot of quite a bit of headwinds, but we are confident with our strategy in terms of long-term relationships, diverse portfolio, TRM and 4PRO, end-to-end solutions, which will hopefully improve the productivity of our customers. That's the way we will differentiate ourselves because we believe in not in a cyclic market, but in a long-term commitment to our customers performance.

Understood, sir. And this is very encourage that despite this kind of scenario, you are guiding for around 13% EBITDA margin similar to last quarter -- last year, sorry. So that is very commendable.

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

Yes, sir. So I had a few questions. One was that why have the receivables gone up so much in this quarter? Is there any cause for alarm? Or is that position better now?

So Rajeshji, one of our key account very big group, they changed their technology of services contract where they have some -- you need to give this backup paper to give them what we say process improvement. So that impacted us heavily -- and last 2 months, 3 months, we were not able to get the payments. So then everything was streamlined. And fortunately in October, I think we have recovered everything. It was a record collection. I would not say the number, but it was a record collection ever. So whatever was a shortfall of last quarter, it is compensated now.

So we should see second half cash flows going back to normal levels, right, what we've seen in the last few quarters.

Absolutely.

Okay, sir. My second question is, if you look at the performance of Dalmia, it is still like Y-o-Y decline. And even after acquisition after 2 years, the turnover is still nowhere near INR 1,000 crores. So what is happening with this asset? If you could give us some more granular idea about where we can see this business down the line in terms of top line margins and what steps you're taking for the same?

Margin-wise, Rajeshji, I would say we are very well placed. It was around 11% plus margin for last quarter.

Right, 7%.

Comparative to last quarter -- last quarter was 7%, 8%. So we have improved last quarter -- last quarter was 8.7% EBITDA. And this quarter, it is 11.4%. And if we talk about volume, it is 26% growth in volume. And also this revenue has gone up from...

That has come from standalone, sir. But if you subtract the consol from standalone, then the subsidiary has not done so. That's what I was asking about the subsidiary [Technical Difficulty].

I'm talking about only subsidiary, Dalmia plant.

Okay

[Technical Difficulty] You clarify the number, Q2 FY '26 was INR 264 crores and Q2 FY '25 was INR 216 crores. So there is a substantial increase in the revenue and also on the shipment, as we mentioned, 38 kilotons to 42 kilotons is what we have done. And the EBITDA percentage, if we compare Q1 FY '26, we are at 2.7%. -- we are back to 11.4%. So there has been an increased effort. Now we are talking about year-on-year quarterly performance, as mentioned earlier in my speech also that we had a onetime performance bonus in Q2 FY '25. If I exclude that, our margin percentages are still in double digit, which we have maintained. So bottom line, the main point, Rajeshji, basically is that our performance is getting to some bit of a sustainable level. All the improvements that we have put across is kind of paying us dividends in terms of our performance as well.

Also, we are shifting 2 products, 3 products from our global to India, which will effectively be [indiscernible] our Dalia plant. So further growth in this Dalia plant will happen in, let's say, next 6 months' time or so.

Okay. And one last question from my side. are there any efforts to increase the business from the nonferrous or glass side or this where you have kind of investment? Do we have any orders which could give us some kind of fillip on those businesses other than feed and cement?

Actually, there's a lot of efforts going on. And first, let me give the background. Nonferrous and glass, which is a cyclic thing. Unfortunately, in '25, there was not a single project of glass and nonferrous, which impacted us badly. In '24, it was there. And we are expecting 2 projects, 3 projects are coming up in '26 and maybe 5 projects, 6 projects are coming up in '27. So we can see an upward trend. projects are coming back, and these are comparatively better margin projects if compared with the normal cement and steel business. So we are very positive about this, and we have, I would say, increased budget of these products in '26 as compared to '25.

We're talking about calendar year [Technical Difficulty].

The next question comes from the line of Mayank Bhandari from [ Asian ]. line Mayank Bhandari has been disconnected. We'll proceed ahead with the next one. The next question comes from the line of [ Yash Shah ].

This is Yash Shah from [ YPSPMS ]. We have been invested in the company since last 11 years. So we have seen multiple cycles of the company. But one thing is very clear before the Dalmia acquisition, I would not like to go into the verticals. But before the Dalmia acquisition, we had almost reached a PBT of around INR 100 crores per quarter on a very low turnover, say, around INR 750 crores or INR 800 crores turnover. With this acquisition, we are nowhere near to it. Like earlier, the EBITDA margins were 15%. If you see them now, it's coming to around -- PBT margins are now coming to around 5%, 6%. So plus the equity dilution, which we spoke around, I guess, 15 months back that the equity dilution was opted because the promoter company had debt on its book instead of going for debt. So the equity has gone up so much and the profit has not paid up to the mark. So that has been clearly reflecting in the price share price as well over the last 3 years. And yes, that is it. So are we looking for good times ahead? Are the bad times still going to prevail for some more years? Or how is the business picture looking overall?

I tend to agree with you. Yes, stand-alone RHI Magnesita India before acquiring Dalmia, we were doing exceedingly well. And if we check that segment, we still are doing exceedingly well. There's no doubt about that. Dalmia, we wanted to increase our footprint in industrial area, nonsteel area, which successfully we did. We enter it in iron making area, we were 0. And in last 2 years, we entered into it. Only thing is this we did not convert this or we could not convert this market gain in good margin because the market of these type of [Technical Difficulty] cement or DRI or other ironmaking products, which came along with Dalmia acquisition are low margin or volume product -- somebody is there -- so what we are doing now is we are bringing products which are having high selling price with high margins from our parent company to Dalmia Group company, which is now RHI Magnesita India Refractory Limited. So I would say -- I would not say bad time or good time. I would say the challenging time is almost over. But still, the market is so dynamic overcapacity, everybody is putting up capacity in India without seriously thinking of what will be the repercussion of these capacity. So this is impacting. If you will check, I will not state the name, but other listed companies, refractory listed companies who has declared their results in last 2 days or 3 days, everybody's EBITDA has come down. We still could manage to maintain EBITDA of last quarter. And in absolute value, 7% increase in our EBITDA. But if you check the others, so it is a headwind for everyone.

Just to interrupt. So if you say that the business has been good, so the PBT on a quarterly basis was INR 100 crores before the Dalmia acquisition. If it has come down to INR 50 crores, it can be only because of 2 reasons. Either the Dalmia business is making losses or the current business margins has gone down. There cannot be a third reason, right?

There is a huge part, which depreciation is playing. That we cannot ignore because of this buying price or whatever you say...

So let me do this.

Yes, please. I would like the CFO to pitch in, yes, please.

Yes. So basically, the first thing is that our -- if you look at our realization rate before 11 years versus now would have dropped quite significantly, okay? I'm talking 11 years before because...

No, I'm thinking just 3 years back when we said the INR 100 crores profit PBT. So I'm just asking that INR 100 crores is now INR 50 crores. So that can be only because of 2 reasons, either the realizations have gone down of the existing business that we used to do or the new business is becoming a drag on it, right? So I just wanted that what is the -- why has that gone down? So because sir says that the business is going -- still it's doing good. So at least it should have a INR 70 crores, INR 80-odd [Technical Difficulty] INR 90 crores PBT. But the Dalmia business is doing poor, then that is dragging it down to INR 50 crores.

Yes. So can I answer it now.

So, if have the figures, yes, if you have the figures, please.

Okay. So basically, the first element basically, we look at it from a business perspective. From a business perspective, as you know that with the PPA that we paid, it carries a depreciation cost. On -- if you look at our Dalmia entity, there are some accruals that we are doing from an indirect perspective, wherein we have some losses there, which we will get after 2 years, okay? So you will see quite a bit of profitability coming back in 2 years once we get the tax credits that will flow through...

5 years of acquisition.

After 5 years of acquisition. So this currently, you are not able to see in our P&L. Second part -- so there is a little bit of a profitability. If you look at it, if you kind of put it back ahead, you will come back to a closer number where we are performing now. Now the second thing is that...

Can we have some number on this profitability figure, which we might get after 5 years?

I mean we would don't give some long-term guidance as you basically can see. But if you are happy, we can send -- if you can send some assumptions that you would like to make over an e-mail, we are happy to confirm or deny those assumptions.

Yes. But it is a substantial amount. That's what we can say.

Exactly right. The second part, basically, what we are also talking about is that the reason for acquisition of business -- I mean, the rationale behind acquisition was the following, right? Number one, basically is that we want to gain our cement market share. So we grow from 17% to 43% because of this, which basically means we are ready to serve the growing -- ever-growing capacity expansion on the market. This will give us further accretive profitability that we didn't have before. Having said that, this also is a drag on -- the realization rate on this is much lower than what we were doing in the steel business because of the nature of the product mix that we sell. So this will come through also in the future. The third thing and all the depreciation that we are carrying forward will be fully absorbed once this capacity flow through. And this is what you are seeing quarter-on-quarter, our improvement in the Dalmia business.

Okay. Fine. So as you are saying how much time can we take to get back to a PBT earlier figure that you used to have, not considering the max figures, 2 years more or 3 years more?

2 years to 3 years is a good time frame for your assumption though. We are investors in the long time, we are future investors, but look for good times ahead.

The next question comes from the line of Mayank Bhandari from Asian Market.

My first question is on like you spoke -- Azim sir spoke about the flow controls contribution, 28% of the total revenue. So is this for the quarter or for the first half...

For the quarter, sir.

And what would it be for the first half?

So for Q1, it was close to about -- okay, for 29.6% -- I mean 30% you can assume.

So just [indiscernible] what has been the growth in the Flow Control for you if we look at Y-o-Y for the first half?

So basically, last year, I mean, our percentage remains. I would say the growth in the first half of this year was flattish. We get market share gain from July onwards, right? So its market share, I would say, in one of the group from 22%, it is 30-plus percent now market share in one of the bigger group, okay? So likewise, in other groups also. So there is, I would say, 8% to 10% market share gain in Flow Control in second half of this year, which will continue till, say, end of June before we have a go for again, negotiation, et cetera.

Yes. But the volume as such has not grown, but you gain market share is what you are telling me?

Yes. Actually, flow control is not a volume game. It is more a piece game. So even if you get a 10%, 11% market gain, it will not reflect in the thousands of tons. It is a few hundred tons.

Okay. Because one of the competitor has highlighted issues with the small furnaces, small blast furnaces, which we are facing in the Indian market. So I was just checking, I mean, how flow control has grown. So basically, it is flat Y-o-Y, you're telling?

Till now, first half, it was flat. July onwards, we got market share, but you are talking 2 different things. Blast furnace has nothing to do with flow control. So somebody is either they are not clearly telling you that story or blast furnace, mini blast furnace, small blast furnace, I think you are talking about induction furnace -- right, induction furnace flow control, I think our competitor is entering into it in a way. But that market is sluggish. I would say, in the last 4 months, 5 months out of, say, 500-plus customers, 150 customers has reduced their production temporarily because of monsoon and keep import from Vietnam, Thailand, China, et cetera [ Italy ].

Just to give you a little bit of -- I mean, if you do year-on-year comparison, probably you will not get the right figure because to know what is a significant gain that we have made. If you look at, okay, previous 2 quarters versus last 2 quarters for us. So for example, previous 2 quarters, we were -- our average revenue was close to about 27%. Now we have done 28%. Again, it's a good margin increase. And quarter-on-quarter, we have done 11% increase. That gives you a little bit of the momentum and velocity that we are talking about in terms of what we have. This is despite the sluggishness in the induction furnace, which basically states that we have gained some market share in some of the large steel mill providers.

[Operator Instructions] The next question comes from the line of Pankaj Agarwal, an individual investor.

My question is with respect to the recent news on the production capacity decrease by Chinese steel companies and expected price increase so that Indian steel industry comes at par with Chinese steel production industry in the next 2 years to 3 years. So how is RHIM going to benefit from this? And are there on-ground capacity enhancement by Indian companies in the view of expected price increase in steel in the next 2 years to 3 years?