AIA Engineering Ltd. Q4FY18 Conference Call Notes

Q4FY18 Conference Call Notes: While full care has been taken to maintain the accuracy, please refer to the original conference call recording for more insights.

66 kT in this quarter up from 51 kT from Q3 & 58 kT from Q4 last year. 37 kt from mining. The full year is at 228 kT of sales, around the 230 kT we guided last quarter.

2375 cr of Revenue, Q4 was 720 cr, up from 556 cr from Q3 & 608 cr from Q4 last year.

108 Rs/Kg realization based on partially, price increases, RM volatility pass through, product mix etc.

RM is at 35 days. WIP is at < 60 days. Receivables at 80+. WC cycle is at 100 days.

Mining FY18 was at 139 kT. Was at 100 kT in FY16.

This year tax was at 25% of PBT because of tax reversal on 3+ year of treasury income.

EE Mills Solutions Collaboration

We offer mill solution in cement space, for power saving and process optimization. This tie-up helps us to provide save improvements for grinding mills in mining segments. We will be one of the very few companies who will be able to offer such solutions.

This gives us an additional touch point to engage with the miner, it improves our relationship with them, power is a big cost for miners as well. It makes us a formidable player as a solution provider to the mining industry. This was one area, process efficiency, we were not able to focus on. With this patented technology we become a one-stop shop and improves our positioning.

This is a very unique patented technology, it makes dramatic improvements in the processes and costs for mining grinding circuits. It helps us in getting a lot of customers for liners and in the process opens avenues for us to sell our GM solution to more customers at a quicker pace.

We have been slowly evolving and improving our positioning with the miners. We started 4 years back as a pure cost equation, then we focused on downstream efficiencies, like reduction in costs of other consumables like cyanide etc., then we wanted to optimize the whole grinding process.

Like we say we are experts in cement grinding, we want to be in the same position for mining where we cater to every requirement of the customer.

It is an exclusive agreement, Customer acquisition is less time intensive than HCGM. Revenue opportunity can be $2-3 per Kg, Scheduled 250 cr CAPEX (1st estimate) which will complete in 18-24 months and have a capacity of 50000 MTPA. We already have the land and pollution permissions.

Will be based on royalty. They will be HC liners. They help mines save 8-10% of power costs. The focus will be on improving power costs and throughputs not wear costs.

For steel liners, annual market consumption could be 300-500 kT annually. We have 2 large suppliers and 2-3 smaller ones supplying the conventional design. This tie-up will be for all geographies. Current mill liners are already all chrome but it is low chrome which is a standard product.

Competitors: Bradken, Elecmetal and 2 others. Market Share: 60-70% by these 4. We are offering a different solution, which has to do with optimization. Their product has nothing to do with the process. We believe we will be pioneers with this tie up.

We will design the mill lining and load it with our GM. It will become a whole package. Reduce power costs, optimize the mills, improve throughput, increase recovery. This is a strategic move for us to engage at a different level with the customer to become a one-stop solution. Most of the other competitors are not in HCGM so we will be the only ones who can offer the complete package.

We do have limited production capability (5-10 kT) for this product currently and we can start servicing a few clients. Trials have started. We are not going to wait for initiating the sale of this product while we wait for the commercialization of the capacity.

There is no difference in product, it is a different patented design solution. The cost to manufacture may & may not be same. We expect but cannot generalize the benefit. It will depend on the milling conditions of the mill we target. It will not be that everywhere we go, we can offer a solution and benefit, we believe the benefit will be significantly more than 8% but that is something we will know after studying individual mill conditions in different geographies.

Cost of consumables will remain same for customers, but the total cost of ownership will reduce. This is not a standard design, it will depend on mill conditions. JV partner is not a manufacturing company. It is owned by a professor in the USA.

We will pass on the royalty expenses with the pricing.

CAPEX

Spent 138 cr this year 50 kT increase. One of the suppliers of this project, a European company went bankrupt. We expect to get this up by next quarter with the equipment we have. Should complete by Dec 2018. Next phase will be in next 18-2 months.

Considering to invest in 8 WTGs, as power is one of the biggest costs for us. Bought 2 already and signed Letter of Intent for next 6. This will be 100 cr CAPEX. Total CAPEX will be around 800 cr. Will spend 400-500 cr this year and balance next year. Includes maintenance CAPEX for 2 years, 400 cr for GM expansion and balance land.

Guidance for 40 kT additional volume this year. That would mean 270 kT production, well within our current capacity.

Aiming to add 80-100 kT volume in next 2 years.

Currency depreciation has helped us but some exports are cross currency and so if that currency depreciates move than INR we are at a disadvantage.

Brazil ADD

Have requested for an in-person hearing, to be announced in June, Have made public their technical analysis based on which duty comes to be around 12% from 32% at this time. This is an internal technical note, not the final duty decision.

Exports continue currently.

Depreciation

Has reduced because one of our biggest plants commissioned in 2007 has been fully depreciated and fallen from the depreciation schedule. Was running the new plant in one shift and will soon start more shifts in it and depreciation will increase.

Margins

The price change is a continuous process, every new order is at a new very very competitive price. There will be a slow increase in price with customers who have become steady. It will keep on happening. Margins currently in a reasonable range. There will be pressure as we have to make greater inroads into the mining segment. There is no formula.

Sales guidance is over years, not quarters, our business is not like that, we have been very clear. You can’t divide annual guidance by 4 to get quarterly guidance.

Currency

The benefit of the currency will come in Q3, we have taken hedges. Our position is to be FOREX agnostic. It may be an extra tailwind or headwind in our BM but we work without its help.