CARBORUNIV — earnings call
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Prepared remarks
DIRECTOR, CARBORUNDUM UNIVERSAL LIMITED · MR. SUSHIL BENDALE – CHIEF FINANCIAL OFFICER,
MR. SUSHIL BENDALE – CHIEF FINANCIAL OFFICER,
CARBORUNDUM UNIVERSAL LIMITED · MR. G. CHANDRAMOULI – ADVISER, INVESTOR
MR. G.
CHANDRAMOULI – ADVISER, INVESTOR
RELATIONS, CARBORUNDUM UNIVERSAL LIMITED · MR. DENESH KUMAR – ASSISTANT GENERAL
MR. DENESH KUMAR – ASSISTANT GENERAL
MANAGER (STRATEGIC PLANNING), CARBORUNDUM · UNIVERSAL LIMITED
UNIVERSAL LIMITED
Moderator · Conference Operator
MS. BHOOMIKA NAIR – DAM CAPITAL ADVISORS Carborundum Universal Limited} February 14, 2025
Questions and answers
Moderator · Conference Operator
Thank you very much.
We will now begin the question-and-answer session.
Anyone who wishes to ask a question may press "*" and 1 on their touchtone telephone.
If you wish to remove yourself from the question queue, you may press "*" star and 2.
Participants are requested to use handset while asking a question.
Ladies and gentlemen, we will wait for a moment while the question queue assembles.
The first question is from the line of Harshit Patel from Equirus Securities.
Please go ahead.
Harshit Patel
Hi, sir.
Thank you very much for the opportunity.
So, my first question is on VAW.
As you mentioned, we won't be able to transact, both in U.S. dollars as well as in euro.
So, is there that much of an appetite in the local Russian market that we will be to absorb those lost sales?
Or what exactly could be impact of these measures, both in the near term as well as how do we plan to mitigate this over a medium to long term?
Sridharan Rangarajan
So, Harshit, we said that we will not be able to sell and we will not be able to compensate.
We will only be selling what we were selling domestically.
And we are just looking 1 quarter at a time to see how this whole thing develops.
So, that is why we said that as far as the next quarter, we have made this adjustment.
That is why we are bringing down the top line also in our projection.
So, that is what we are looking at, at this stage.
But we feel that given what they have been doing in domestic, they should be able to continue to do the same.
Harshit Patel
Understood.
Just a follow-up to that.
You have also mentioned that the cash worth around INR 123 crore, which is not available for use by any entities within the group due to the temporary repatriation restrictions.
So, is this the entire cash balance of VAW or just 1 portion of it?
And why can't we repatriate that to India?
I mean we can at least transact between Ruble and INR, right?
There shouldn't be any restrictions on that?
Sridharan Rangarajan
Yes.
So, Harshit, just an accounting technical term is being used.
This represents the cash in VAW.
And typically, the cash repatriation means that Rupee-Ruble trade is possible only to the extent of the trade-related transaction.
CUMI India doesn't own VAW directly.
It is owned by Cyprus, and it has to come through Cyprus.
And that is where we feel that at this point in time, it is not repatriable and hence, it is mentioned so.
Harshit Patel
Understood, sir.
Perfect.
Sir, my second question is on our Ceramic segment.
While the standalone business has done exceedingly well, the growth has been more than 20% after quite a long period of time.
However, the margins seem to be weak.
Our understanding was that when the Engineered Ceramics business will revive, there would be a decent margin expansion on that.
First, that is not visible.
And secondly, even the Ceramics margin at the subsidiary level seems to be very weak.
So, is there any one-off impact of the consolidation of that American entity, which is silicon carbide products that we have consolidated for the 2 months of this particular quarter.
So, what was the revenue and PBIT contribution from that acquired Company in this particular quarter?
Carborundum Universal Limited} February 14, 2025
Sridharan Rangarajan
So, to start with, there are some one-off issues in Australia and America.
Australia is largely there are provisions in terms of the inventory, and in terms of the receivables.
And that is the broad reason.
Plus, there is also product mix change in terms of the lower project-based orders.
That is the reason for that.
As far as the Americas is also concerned is that we used to ship them, including the freight, but now we have changed the terms.
The freight is absorbed by our American entity.
And hence, there is a drop in the margin from their level.
So, I would say, these are not relating to operations side of the business.
More at this point in time, one-off I would say.
Now as far as the margins that you are looking at, in terms of the PBIT, we had a standalone Ceramics margin of 25.3% of Q3 FY '25 versus the last year at the same period, about 23.7%.
And sequentially, we were at 27.2% and moved to 25.3%, showing improvement in margin as you observed that the volume is going, mix is better and the margin percentage is also better.
Harshit Patel
Sir, just on that Silicon Carbide Products, Inc...
Sridharan Rangarajan
So, that Company is fine.
We will share more details, it's a very small english Company.
They are in line with our expectations.
Harshit Patel
Perfect.
Sir, just a small 1 question, if I can squeeze in.
The standalone EMD margin had benefited from the higher fused alumina prices in the last quarter, that is second quarter of FY '25.
So, how was that particular situation in 3Q FY '25, because we see a sequential margin drop in this particular aspect?
Sridharan Rangarajan
So, to start with, if you look at always EMD, the Q3 PBIT margins were lower than the Q2. It's a seasonality effect.
You can check many quarters and you will see this trend, right?
Second is that there is a cost pressure.
Definitely, alumina price increase versus our ability to put on the price is a continuing process, plus the competition from China is also a factor that puts us also pressure in terms of putting up the price.
So, that is what I would look at it largely, and that is where you see this margin about 9.1% compared to last year's same period at 7.8%.
So, that's a broad thing.
The drop from 10.3% to 9.1% is more a seasonality linked basis.
Harshit Patel
Understood, sir.
Those were my questions.
Thank you very much, and I will get back to the queue.
Sridharan Rangarajan
Okay.
Thank you.
Thank you, Harshit.
Moderator · Conference Operator
Thank you.
Participants who wish to ask a question, may press "*" and 1.
Next question is from the line of Amit Anwani from PL Capital.
Amit Anwani
Hi, sir.
Thanks for taking my question.
First question is on Abrasives.
You mentioned that the guidance has been lowered to 6% to 7%.
And also for consol, Abrasives RHODIUS has been lowered to 6% to 7%.
So, domestically, you have been highlighting in the past that standard Carborundum Universal Limited} February 14, 2025 Abrasives have been facing Chinese impact.
I wanted to understand more color post the tariff wars and slowdown in China continues, what is the outlook in domestic market for Abrasives?
Will it be 6% to 7% for longer period of time or there's some improvement affecting it?
And also, what is the status on now RHODIUS and AWUKO as well with respect to sales?
Are we sticking to what we guided, because in 3 months' time, we changed the guidance drastically?
So, just wanted to understand more details on Abrasives side and subsidiaries.
Sridharan Rangarajan
Yes.
See, Abrasive demand is largely, I would say, at this point in time, holding on.
Definitely, the market industrial activity is showing pressure in terms of the demand, that is there.
And also at the same time, there's an increased infrastructure spend.
The government also has announced, so should be able to again put up some demand for the Abrasives one.
So, it is going to be a period where we need to watch, in terms of how the demand is going to play out.
So, as far as the tariff type of question, I am not going to do crystal ball guessing now.
So, let us see how this is going to pan out, and then we will take it if it comes, because it's going to be tough to do this.
AWUKO and RHODIUS, in terms of the top line, so as I said that I think it's AWUKO, we have just revised from €2 million to €1.3 million.
That is the only revision that we are doing.
But a large portion of the RHODIUS is a challenge of cost pressure rather than the top line.
And I would say that in terms of the top line, we are still feeling that what we said earlier versus now is still holding.
Large issue is in terms of the pricing pressure and some logistics costs going up, and employment of contract workforce.
A combination of this is what is pulling the margin down.
But they should be in a position to address.
We will share more colour as we meet in the month of May.
Amit Anwani
Again, on the VAW, you said 12% of sales is happening, USD.
That has impacted.
And I recollect, we were doing a lot of sales in Europe, which is 60-40%, 60% was Russia, 40% on Europe.
So, any color?
So, shall we assume that large part of the sales will be impacted or you'll be diverting more towards Russian markets or some other geographies?
If you could give more colors on the business aspect of VAW now, how should we read?
Sridharan Rangarajan
So, I told, Amit, in my opening remarks, 60% is domestic sale and 40% is export.
And of that, 12% is dollar-denominated and 25% is euro-denominated.
We feel that euro on dollar, they will not be able to export.
And the focus of the Company would be more on Domestic side of the business, which is what they used to do, 60% of the business.
And we are looking now quarter- by-quarter.
For this quarter, whatever we are feeling for the remaining 2 months, we have made this adjustment.
We have worked on that.
That is why we are sharing this adjustment.
Beyond that, we will have to wait and see as things develop.
There are many developments happening every day.
There's lot of development.
So, let's wait and see without making a broad-based guess for the future.
Carborundum Universal Limited} February 14, 2025
Amit Anwani
Sure, sir.
Thank you.
Thanks so much.
Sridharan Rangarajan
Thank you.
Moderator · Conference Operator
The next question is from the line of Aditya Mongia from Kotak Securities.
Please go ahead.
Aditya Mongia
Thank you for the opportunity.
Again, 2 questions on VAW.
Firstly, when you say that the euro- denominated businesses will also go down and it will only be a Domestic business, is this coming in from the customers?
Or is this a thought process that you have at this point of time?
Sridharan Rangarajan
So, it's largely coming from the fact that the bankers are not in a position to transact in dollar or in euro.
So, that is the basic problem that they are facing.
Aditya Mongia
Okay.
Understood.
And let's assume, as you were saying, the revenue levels fall to 60% of where things are today in VAW.
Could you give us a sense of how does it a, impact the profitability in local currency, because there will be fixed costs that have to be taken into account?
And then secondly, from a repatriation perspective, what are the needs that we have of extracting the incremental profits and the cash from there?
Sridharan Rangarajan
Sorry, could you repeat the second portion of the question, repatriation?
Aditya Mongia
So, of whatever incremental money we make in VAW, I am not clear whether we can repatriate them or not because of the comment that was made on the call on cash.
We're just trying to get a sense of both aspects; a, what will be the profitability?
And b, what will be the means to make it come to us, incremental profit that is?
Sridharan Rangarajan
Sure.
So, Aditya, first of all, as I said earlier is, we are taking 1 quarter at a time.
The model of the business will be Domestic business.
And obviously, the business have to be sized for that, which means costs have to reflect that volume of the business, right?
So, all those aspects needs to be looked into that.
The team is definitely looking all these aspects of it.
As we go and meet in the month of May, we will have better picture emerging and we will share what we are looking at going forward.
But as I said, Domestic business is possible.
Domestic space is there.
They have been doing this for the last 3 years, as you know, as they change their product mix and positioning of the product.
And we feel that that should be in good stead for them, once they have resized their operation accordingly.
And we have considered, when we talked about this year, the impact of that for the, let's say, the 3 months of Q4 is part of that consideration.
But beyond which, I would like to wait to see how this is going to play out.
We feel that some better picture should emerge.
Aditya Mongia
Sure.
Again, just to a clarity, is repatriation a problem or not?
A simple question on incremental profit.
Carborundum Universal Limited} February 14, 2025
Sridharan Rangarajan
So, repatriation of dividend is a challenge, because you cannot repatriate using dollar or euro.
So, that is the issue.
And the money they have to make use of it for their own investment purpose.
And we will have to wait and see once better days comes.
Aditya Mongia
Sure.
And if INR 100 is the volumes or revenues of this Company, how much are being consumed internally, let's say, coming to India and then being used up?
Is that any meaningful proportion?
Sridharan Rangarajan
Question is not clear.
Could you repeat the question?
Aditya Mongia
Are there any sales that happened from VAW to standalone entity?
I am just trying to get a relevance from an internal perspective.
Sridharan Rangarajan
No. We have very, very little sales to CUMI India and has no impact to CUMI India business.
And there will not be any transaction between CUMI India and VAW.
Aditya Mongia
Noted.
I have more questions, but I will get back into the queue.
Thank you.
Sridharan Rangarajan
Yes.
Please.
Moderator · Conference Operator
Thank you.
The next question is from the line of Bhavin from SBI Funds.
Please go ahead.
Bhavin Vithlani
Good afternoon.
Yes.
The question again is on VAW.
Now that it is a restriction, is there a thought of because the acquisition was made with a thought process of security of raw material.
Now that is not possible.
Is there a thought of divesting this business completely as repatriation also is getting challenged?
Sridharan Rangarajan
Yes.
Bhavin, it's a good question.
From our point of view, we need to allow some time to understand what this means to us, right?
And we don't want to extend our thinking beyond the current management of what we are doing.
These things can change.
It's a geopolitical issue.
So, we need to wait and see.
So, we will have to give some time to see how this development will turn.
So, I will focus more on 1 quarter at a time and see how do we take this forward.
Bhavin Vithlani
Sure.
Could you give us an update on the projects within the Ceramics division, the couple of expansions which were underway in terms of armored or the semiconductor one?
And also, a couple of quarters back, we had issues with respect to the new energy hydrogen SOFC related.
Where are we in that?
Have we seen a ramp-up on that front?
Sridharan Rangarajan
Okay.
So, as far as the projects are concerned, they are very much on track, and we are tracking to the time as well as to the cost.
We feel that it should progress as per our time line.
No challenges, no issues.
Carborundum Universal Limited} February 14, 2025 I am not clear about your second comment in terms of, we have not shared any challenges relating to hydrogen-related stuff.
I am not sure where you are coming from.
Bhavin Vithlani
Okay.
So, we had seen a drop in sales, because the customer...
Sridharan Rangarajan
Okay.
So, that is not hydrogen related, probably let me come in.
It is a solid oxide fuel cell manufacturer, and they are not into Hydrogen business.
So, they would basically generate electricity out of that, and that is what is their core business.
That business is back.
As we communicated, this is from Q1, that is calendar year Q1 onwards FY '25, which is what, like Jan to March, what currently we are running, which is Q4 for us.
Their order intakes are fine, and they are very much in line with the trend what they have communicated to us.
Bhavin Vithlani
Okay.
Just a couple of follow-ups on the 2 expansion projects, especially on the armor side.
If you could give us like, are the customers for which we are building, are their projects also in line because we would be Tier 1, Tier 2 suppliers.
So, if you can give some update on that front on both the projects?
While we may be ready, the customers also should be correspondingly ready.
Sridharan Rangarajan
The customers are ready, and they are definitely very much part of this progress, and they have been updated.
They also keep updating us.
And it is progressing as expected.
Bhavin Vithlani
Perfect.
So, ramp-up could be pretty quickly as soon as we see expansion getting commissioned.
Would that be a fair assumption?
Sridharan Rangarajan
So, first, let's start the project, kick-start the production, start our sale, and then we will share more details as we progress.
Bhavin Vithlani
Great.
Yes.
Those were my questions.
Thank you so much.
Sridharan Rangarajan
Right.
Thank you, Bhavin.
Moderator · Conference Operator
Thank you.
The next question is from the line of Lakshminarayanan from Tunga Investments.
Please go ahead.
Lakshminarayanan K. G.
Sir, I have 2 questions.
First is that if I look at India made and India sold, what has been the last 9 months sales growth, made in India and sold in India?
Sridharan Rangarajan
It's roughly at about around 8%.
I don't have a precise number, but indicatively, what Abrasives, refractories and some of the Electrominerals sales put together, I should look at it that way.
Lakshminarayanan K. G.
And if you look at this segment, what has negatively surprised you in the last 3 months or maybe 6 months?
Sridharan Rangarajan
Negatively surprised is definitely Volzhsky Abrasive Works...
Lakshminarayanan K. G.
No, I am just looking at the India made, India sold.
How does that actually stand out?
Carborundum Universal Limited} February 14, 2025
Sridharan Rangarajan
I don't think there's any major surprise, I would say, either positive or negative.
We feel that it is continuing to be the same, and we expect probably the momentum might pick up because of this renewed commitment from the government of India in terms of the CAPEX programs, infrastructure spend, et cetera, should probably also more money put in the people, the demand driving could also happen.
And so it should probably look at as more positive.
Lakshminarayanan K. G.
And in this business, what is the mix of direct OE sales versus distribution?
And which has actually grown faster between these 2 segments, India made India sold?
Sridharan Rangarajan
So, we have the entire Electrominerals, Refractories for business to business.
And as far as Abrasives is concerned where the dependence on the distributor is high.
So, that, I would say, for example, is the biggest distributor-led business.
The rest is all business-to-business-led growth.
And overall, we are looking at more similar experience.
Maybe in the distributor side, there are pressures in terms of their collections and probably some inventory piling up, all those we are looking at.
Other than that, I don't think any significant observation, which I can have.
Lakshminarayanan K. G.
Correct.
And my second part of the question is in terms of India made and exports, what has been the growth for the last 9 months?
And how do you expect this year to conclude for the Export business from India?
Sridharan Rangarajan
Export has significantly grown than the domestic growth.
And I will feel that should continue the same way.
I don't see this as a challenge
Lakshminarayanan K. G.
You have a number, sir?
You have a number in terms of how much is the India made and exported from India?
For the last 9 months, what is the revenues and then how it has grown over the similar period last year?
Sridharan Rangarajan
Yes.
We have grown almost about, say, 18% to 20% in the export side of the business.
Lakshminarayanan K. G.
And how much of that is the total business, if you look at India, India made?
Sridharan Rangarajan
We will share more details to you, Lakshminarayanan.
Yes.
Lakshminarayanan K. G.
Okay.
Thank you, sir.
That's all my questions.
Sridharan Rangarajan
Right.
Thanks.
Moderator · Conference Operator
Thank you.
The next question is from the line of Mohit Pandey from Macquarie.
Please go ahead.
Mohit Pandey
Yes.
Good afternoon, sir.
My first question is on Ceramics subsidiaries.
Sir, if you could please provide more color on the challenges that were faced in this quarter in the subsidiaries, especially CUMI America that impacted the margins?
Because historically, as per my understanding, this has been a very profitable subsidiary.
So, that would be very helpful.
Carborundum Universal Limited} February 14, 2025
Sridharan Rangarajan
Yes.
Mohit, we covered this, largely 2 businesses, Australia and America is where we had some of the one-offs.
There's a provisioning on the inventory receivable plus big business mix change in Australia.
Logistics costs going up in America.
And these are the broad drivers, and probably some higher employee benefits, because of the law change in Australia.
Other than that, those are all normal.
And we still feel if you exclude them, their business performance is good, and we feel that these are one-offs.
Mohit Pandey
Okay, sir.
So, sir, provisioning, et cetera, you think is more or less done in this quarter for inventory and receivables?
Sridharan Rangarajan
Yes, yes.
Yes.
They are done, yes.
Mohit Pandey
Okay Sir, secondly, on RHODIUS margins, so you indicated the cost pressure that is hurting profitability, but you also said demand seems to be holding fine.
So, going forward, do you see possibility of passing on the cost pressures?
If you could also give more color on the nature of these cost pressures, that would be really helpful
Sridharan Rangarajan
So, I said that there's a price pressure, which is basically the expectation from the customer is a price drop.
And at the same time, there is also a cost pressure.
That is the combination of it.
And I don't think cost is a significant portion.
It's mainly the market price is where the challenge comes.
Mohit Pandey
Okay, sir.
Understood.
And sir, last question on VAW.
So, fixed cost notwithstanding, is the Domestic business inherently more profitable on the gross margin compared to whatever exports have been done so far from VAW?
Sridharan Rangarajan
Yes.
So, we feel, as I said in my earlier response also is that Domestic business, they should be able to do fine.
And they are readjusting and repositioning themselves as far as the fully focused Domestic business model is concerned.
And we feel that, that should be helpful for them, and they should be in a position to manage it.
Mohit Pandey
Okay.
And sir, last question on the unallocable expenses.
So, any outlook if you could provide here?
So, these project costs that were mentioned, these are linked to the newer R&D works that you're undertaking.
Is that a fair understanding?
So, this can remain elevated?
Or how should we think about it?
Sridharan Rangarajan
See, this could change.
Last year, we spent about, say, - INR 58 crores of total unallocable costs.
We should expect should be in the range of about around INR 60 crores plus.
So, that's the broad expectation one can have.
Mohit Pandey
Okay, sir.
And so last question was on the longer-term plan that you briefly alluded to.
So, any time lines you have in mind around when you're looking to announce that?
That would be my last question.
Sridharan Rangarajan
Yes.
We will share more details when we meet again in the month of May.
Carborundum Universal Limited} February 14, 2025
Mohit Pandey
Okay, sir.
That's it from my side.
Thank you so much.
Bye.
Sridharan Rangarajan
Okay.
Thank you.
Moderator · Conference Operator
Thank you.
Ladies and gentlemen, this will be our last question.
It's from the line of Bhoomika Nair from DAM Capital.
Please go ahead.
Bhoomika Nair
Yes, sir.
Just wanted to ask on the Abrasives business.
In terms of the end market, we saw Precision was quite impacted.
But now there seems to be some improvement.
So, if you can talk about the outlook for Industrial, Retail and Precision?
And because this quarter was fairly muted in standalone from a growth perspective, how do we see the growth coming back?
And also some comments on the Chinese competition.
Sridharan Rangarajan
So, Bhoomika, I talked about the overall Abrasive business.
We feel that it will continue to be in that range, 8% to 10% growth.
Industrial is doing fine.
Retail is doing fine.
Precision is largely in terms of the dependence on how the industrial outlook is there.
So, to some extent, it is linked to, I would say, like say, bearings and some of the high-end auto components business turnaround.
So, that should also be doing fine is my own guess.
So, overall, I should say that they should be able to travel around 7% to 8% type of a growth.
Bhoomika Nair
Sure.
Sir, on the other side, in terms of Ceramics, you talked about the one-offs that we saw in Australia and in Americas.
When you mean one-off, does that mean that this will not recur going forward and it will normalize to the business level margins as we move ahead into the next quarter or the next year?
Sridharan Rangarajan
Correct, correct, correct.
That's correct.
Bhoomika Nair
Okay.
Okay.
And lastly, on VAW, with exports being a challenge, which is 40%, and as the revenue scale comes down, will there be a hit on the profitability because of the fixed cost and lower revenues?
Sridharan Rangarajan
So, as I said, the business is relooking at the model, and repositioning themselves the cost also accordingly, because you cannot afford to run the business at the same level with 100% business possible, whereas you are only doing domestic.
So, that repositioning is parallelly happening, and they have to resize this operation accordingly.
So, they are very much aware, and they are definitely on the job to do that.
Bhoomika Nair
So, how long do you think it will take to resize the business and cost structure accordingly?
Will it take like 3, 6 months or longer timeframe?
Sridharan Rangarajan
My own guess is that they should be able to reposition this in this quarter.
Bhoomika Nair
Okay.
Okay.
Fair point.
Got it, sir.
This was my questions.
Thank you very much for giving us an opportunity to host the call and also the participants for being there.
Thank you very much, sir, and wish you all the very best.
Carborundum Universal Limited} February 14, 2025
Sridharan Rangarajan
Thank you.
Thank you.
Thank you so much.
And I'd just like to say that if you exclude the exceptions arising out of the Russia challenge, we feel that the business has performed, operation-wise, quite decent, and that should continue is what we feel.
As far as Russia is concerned, we are keenly watching and see how we need to respond to each of the situation.
And as I said, we will take 1 quarter at a time, and see how do we tread this part.
It's a geopolitical issue, and we need to see how this will evolve.
And you're all keenly watching the news.
So, you must also be tracking this parallelly.
So, I feel that other than this, the business is doing fine.
The balance sheet in good stead.
We feel that we have done a fair bit of work in terms of the future, in terms of how a long-term strategy can be looked at.
And we will share a portion of that when we come and meet in the month of May.
So, thank you for all your patient hearing and asking the right questions, and wish you all the best.
Thank you.
Moderator · Conference Operator
Thank you.
On behalf of DAM Capital Advisors Limited, that concludes this conference.
Thank you for joining us, and you may now disconnect your lines.