Carborundum Universal Limited (NSE: CARBORUNIV) Q4 2025 Earnings Call dated May. 13, 2025
Corporate Participants:
Unidentified Speaker
Sridharan Rangarajan — Managing Director
G. Chandramoul — Head of Investor Relations
Sushil Bendale — Chief Financial Officer
Analysts:
Harshit Patel — Analyst
Mohit Kumar — Analyst
Amit Anwani — Analyst
Mohit Pandey — Analyst
Nidhi Shah — Analyst
Manish Goyal — Analyst
Aditya Mongia — Analyst
Bhavin Vithlani — Analyst
Presentation:
Operator
Please wait while you are joined your conference. The conference is now being recorded ladies and gentlemen, good day and welcome to Universal Limited Q4 FY ’25 Earnings Conference Call hosted by DAM Capital. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need during the conference call, please signal an operator by pressing star then zero on your touchstone phone. Please note that this conference is being recorded. I now hand the conference over to Ms Bhoomika from DAM Capital. Thank you, and over to you, ma’am.
Unidentified Speaker
Thanks Managing Director; Mr Sushil Bendale, CFO; and Mr Jee Jan
Operator
Ma’am sorry to interrupt your voice is not audible. Could you please go again
Unidentified Speaker
Today is being represented by yeah let’s get on with the call you can connect to the main calls
Operator
Yes sir you can go-ahead
Sridharan Rangarajan — Managing Director
All right okay good morning to all of you.
G. Chandramoul — Head of Investor Relations
Yeah. Good morning. Good morning, I’m. Before getting into the call, I will read-out the disclaimer. Good morning. During this call, we make certain statements which reflect our outlook for the future or which could be considered as forward-looking statements. These statements are based on management’s current expectation and our associated with risks and risks are fully — more fully detailed in our annual report, which may cause the actual results to differ. Hence these statement must be reviewed in conjunction with the risks that the company faces. Thank you.
Sridharan Rangarajan — Managing Director
Good morning to all of you. I hope I am audible and a very warm welcome to our 4th-quarter and full-year earnings call 2024 and ’25. In today’s call, I would try to cover as much as possible to give you all the facts that the company has gone through in the last couple of quarters so that you get a better picture of the performance and relate to that appropriately. I’ll start with consolidated sales. Consolidated sales on a full-year basis was INR4,834 crores with a growth of 4.4% compared to the last year. This growth was driven by ceramics 7.7%, abrasives 3.3% and electro minerals 1.9%. At standalone, the sales grew at about 7.3% and the challenge at the consolidated level is largely coming on account of the softer VAW growth in Q4, which I will describe more in detail . Besides this, in we reversed the deferred tax credit to the extent of INR342 crores, plus we have not taken deferred tax credit for the losses in FY ’25, which is roughly about INR18 crores. So these are the broad reason for the shortfall. So consolidated PAT was lower on account of these exceptional items. There are two broad items. One is VAW, which is relating to sanction and post sanction the lower-volume. So all of that is relating to sanction related. And the second one is the deferred tax credit reversal in we feel these are reversible once the situation improves. So that’s how I read this situation. PBAT on a full-year basis was about INR541 crores compared to INR621 crores in the last year. This was lower by 13.4% over FY ’24. PB80 from Ceramic was marginally higher. Our PB80 from electro minerals and abrasives were significantly lower. The drop of INR84 crores was mainly due to was to the extent of INR36 crores and to the extent of INR31 crores. So overall PV8 margin decreased from 13.5% to 11.2%. On standalone basis, full-year, the sales was at INR2,784 crores with a growth of 7.3% compared to the last year. This growth was contributed by electrominerals at 10%, Ceramics at 6.5%, abrasives at 3.9%. Standalone profit-after-tax on full-year basis was INR322 crores as against INR350 crores in the last year. This is due to higher and relocable expenses, the details of which will be covered by Sushil later in the section. I will cover the segmental performance. Abrasives to start with, on a consolidated basis, sales in FY ’24 was INR2,159 crores. This is a 3.3% growth compared to last year. Standalone contributed 3.9%, 6.4%, 11% showed good growth compared to FY ’24, whereas the selling had a small de-growth, largely relating to their agro business. Standalone abrasive sales on a full-year basis was INR1,195 crores with a growth of 3.9% compared to the last year. The growth was majorly driven by volume, both in industrial and retail. Precision was a bit softer. That’s how the overall growth was about 3.9%. Rodius on a full-year basis achieved net sales of EUR67 million compared to EUR63 million during FY ’24. This represents a 5.5% growth over the last year. This was mainly due to volume growth. On a full-year basis, Rhode has incurred a loss after tax of EUR0.2 billion against the loss of EUR1.5 million last year. So the losses have come down significantly. If we exclude the PPA write-off of EUR2.8 million, they delivered a profit-after-tax of EUR1.8 million. So this is — this is what we were also earlier communicating with you. Moving to Avoco, OUCO achieved a sales of INR10 million on a full-year basis. This is a growth of about 10% compared to the last year. The losses before-tax on a full-year basis was EUR6.6 million compared to EUR3.3 million during FY ’24. The difference is on account of two things. One, there was a gain in FY ’24, which is not recurring, plus an inventory provisioning in FY ’25. So put together is the difference that we are seeing. This we have besides is we have also stopped taking deferred tax credit. This resulted in a reversal of INR3.5 million of deferred tax asset. This is deferred tax asset until FY ’24, plus the 3/4 whatever we took that also we reversed in Q4. Besides not recognizing for this year, which is roughly about EUR2 million. So in total, on a full-year basis, the loss after tax was EUR10.2 million against million. So the swing is majorly driven by the reversal of the deferred tax asset. The reason why we took this decision was we wanted to see a delivery of profit before we continue taking this deferred tax asset credit and hence we reversed this asset so-far what we have taken. Now I’ll cover the PBAG performance in the business segment. Consolidated abrasive PBEG on a full-year basis was lower by 17% at INR151 crores as compared to the last year. The major drop is coming from due to the inventory pushing and one-time gain that I just talked about. Standalone was low by 1.3%, mainly on account of product mix. On electrominerals, consolidated sales in FY ’25 was INR1,574 crores, showing a growth of 1.9% compared to the last year. Standalone business grew by 10%, grew by 14.8%, all of them showed a good growth. The performance of EAW ratio was impacted in Q4. The specifics of which will be covered in the subsequent section digital later. Standalone electromineral sales on a full-year basis was at INR815 crores with a growth of 10% compared to the last year. This was on account of the increase in volume and a price realization, price realization was much higher compared to the volume growth. The other feature of this growth is that we have a higher exports compared to the last year as a significant growth in export. BAW until nine months ending December 2024, the company’s operations were slightly better compared to the last year. We delivered a growth of 2.2% in the first-nine months as communicated earlier as per the press release of United States. BAW was put on sanction on 10th of January included in the SGN list of OFAC. As a result of this designation was business in Q4 got impacted, silicon carbide volume came down by 30%, abrasives and refractories were almost flat. In Q4 made a sale of 1.2 million in Q3 FY ’25 and Ruble INR2.31 billion in Q4 FY ’24. They made a profit-after-tax of INR11 crores in Q4 ’25 compared to INR35 crores in Q4 ’24 and INR38 crores in Q3 ’25. These are all excluding exceptional items. On a full-year basis, made a sale of INR9.4 billion against INR9.7 billion in FY ’24 and delivered a profit-after-tax of INR119 crores, excluding exceptional items. This means that whatever the deferred — the provision that we made is not considered part of INR119 crores against INR149 crores in FY ’24. So roughly INR30 crores of profit is lower compared to the last year. On a full-year basis in Zirconia, we witnessed a sales growth of 9% compared to the last year. The growth was majorly driven by the volume. On a full-year basis, incurred a loss after tax of roughly about INR12 crores as compared to INR7 crores last year. Now I will cover the PBET of this segment. Consolidated electro Minerals PBAT on a full-year basis was lower by 25% at INR177 crores as compared to the last year. The major drop is coming from VAW. Standalone PBAT was lower by 11% on account of higher input costs. Now I’ll cover the ceramic section. Consolidated ceramic sales on a full-year basis was INR1,160 crores. This represents a growth of 7.7%. The growth is mainly driven by Kumi India, and Indian ceramic business, standalone ceramic business on a full-year basis were at INR939 crores. This is higher by about 6.5% compared to last year. In Industrial ceramic business, Metalized Engineered Ceramics grew substantially well, almost double-digit growth, while the ceramics remained flat. Due to the absence of major orders in Ceramics, this remained flat. The fire and mono refractory business grew well, again high-teens growth. Corrosion-resistant business, which is highly project dependent business has a degrowth and this resulted in a net growth of 6.5%. Now I’ll cover the PBED performance of the business segment. Consolidated ceramic PBAT for the full-year basis was almost flat at INR286 crores. Standalone PBT was better by 5.5%, mainly on account of better volumes and price. Now I request Sushil to cover the PBAT margin, their positions, capex and cash-flow.
Sushil Bendale — Chief Financial Officer
Thank you. PBIT margins consolidated on a full-year basis was at 11.2% compared to 13.5% during the last year. Standalone EBIT margin on a full-year basis was at 15.3% compared to 18% last year. The abrasive consolidated margins on a full-year basis decreased from 8.7% to 7% and standalone abrasives margins were at 16.1% against 17% in FY ’24. Rhodeous reduced their losses, but PBIT was lower in FY ’25 due to a one-time gain of EUR2.2 million in FY ’24 and inventory provisioning of EUR0.7 million in FY ’25. Now electrominerals, the consolidated PBIT margins of electrominerals on a full-year basis declined from 15.4% to 11.3%, primarily due to VAW.
The standalone PBIT margin was at 7.7% compared to 9.5% in FY ’24. This drop is mainly due to higher input costs and the pricing pressure in the market. Ceramix, the consolidated Ceramics margin on a full-year basis decreased from 26.5% to 24.7% and standalone PBIT margins declined by 28 basis-points to 24.8%. Profits from Qumi Australia and Qumi America were lower compared to last year. Now the debt position, there was no debt in our standalone books and total debt at a consolidated basis was at INR120 crores at the end of Q4 ’25 compared to INR109 crores at the end of Q3 and INR113 crores at the end of Q4 ’24.The debt-to-equity ratio was at 0.03 at a consolidated level.
In FY ’25, our capex investment was INR282 crores at a consolidated level. Free-cash flows on a full-year basis at a consolidated level is 22% to PAT compared to 86% last year. The decline in free-cash flow was on account of higher working capital and higher capex investments. The return on capital employed on a full-year basis at a consolidated level is 14.2% compared to 18.5% during last year. At a standalone level, it is at 16.6% compared to 20.3% in FY ’24. For consolidated segments, ROCE in FY ’25 for the abrasive segment decreased from 13.1% to 10%. Ceramix decreased from 46.9% to 35.5% and the electrominerals decreased from 26.7% to 18%. For standalone business, the ROCE on a full-year basis for abrasives has decreased from 44.2% to 36.2%.
Ceramix has declined from 52.2% to 43.8% and electrominerals has decreased from 26.2% to 18%. Now about the unallocable expenses. On a full-year basis, the unallocable expenses for the standalone were at INR63.1 crores in FY ’25 as compared to INR19.8 crores in FY ’24. This was higher by INR43.3 crores, primarily due to lower dividend, higher project-related expenses, higher employee costs on account of new headcount additions, ESOPs and leave benefit valuations. Now I request Mr to talk to you about the future outlook.
Sridharan Rangarajan — Managing Director
Thank you. I will cover now about two things. One is what we look at FY ’26 given what we have seen. I also would like to share more about the long-term strategy that we have been working for the last 18 months. We expect the full-year consolidated sales growth could be 6% to 7% in FY ’26. Consolidated sales growth in abrasive would be 5% to 6%, majorly driven by growth in standalone abrasives, which would be 68% and then and. Sales growth in consolidated ceramics would be 16% to 18%, majorly driven by growth in standalone ceramics and then supported by Australia and America.
Sales growth in retro minerals could be about 1% to 2% because of the drop-in sales in VAW Russia. For VAW, we expect the sales drop to the extent of somewhere between 25% to 30% in FY ’26. Standalone electro Minerals and to grow in the range of 8% to 10% and 6% to 8% respectively. In FY ’25, we delivered a PBAT margin of 11.2% at consolidated level. In FY ’26, this could drop by 100 to 150 basis-points because of the softer performance in VAW. Consolidated margin was about 7% in FY ’25. We expect this could improve by another 100 to 150 basis-points. Consolidated ceramics in FY ’25 was 24.7%. We expect this could drop by 100 basis to 120 basis-point.
Consolidated electro minerals in FY ’25 was 12.5%. We expect this could be dropped by 500 to 600 basis-point in FY ’26. This is again arising from VAW. Capex could be in the range of about INR300 crores to INR350 crores. This is what we are expecting. Just to sum-up here, I think we feel that VAW’s performance will have a deeper impact in FY ’26. We feel that the profitability could drop at least by INR100 crores and that is why we have factored in the numbers, whatever I’m telling. But it all depends on the recovery. Basically, if the sanctions gets lifted sooner than later what we are looking at, then this could change. And I’m expecting whatever I communicated as if the sanctions are continuing.
I’d like to share more about the long-term strategy, which is the five-year program that we are looking at. Has a strong legacy in industrial material and has great starting point to capitalize the growth opportunity available in India and across the globe. Building on our rich legacy, we have spent dedicated effort in detailing out where to play and how to win for all our businesses, creating a clear trajectory of bold long-term strategy for the next five years by identifying opportunities in the existing and emerging sectors. Our clear long-term aspiration has been built ground — grounds up with cumulative effort of over 150 leaders across Kumi subsidiaries and joint-ventures. This will gain our focus and investment for the next five years. At the highest-level, we want to grow by two times in this period. With sustained profitability. Our aspirations will be met with the right level of investment to fuel this growth in India As well as globally. This strategy will also be supported with the structured execution roadmap to help us drive on-the-ground change effectively. We have ensured that our long-term growth strategy is fully stick and is anchored on three strategic vectors. One is scaling up our core existing businesses, entering relevant adjacencies and exploring step-outs. Today, I would like to share more details on the first vectors of the Group is about scaling up our existing business going-forward. In abrasives, we built on our strong position to become the leading player in a growing INR10,000 plus crores of domestic market, while further scaling our presence in the key export markets. We are reshaping our go-to-market model and investing in frontline capability building. We are investing in digital capability to enhance customer engagement and robust data-driven execution. We have a strong industrial distribution base. Our goal is to deepen the engagement with customers across both retail and the B2B channels through our distribution base. We would gain market-share in underpenetrated states and gain customer share to nearly double our domestic market-share over the next five to six years. To drive this growth, we are strengthening our product pipeline across both corporate and bonded segment, shaping a dynamic customer-centric portfolio. This would be through our R&D as well as through an appropriate sourcing strategy. To serve the growth — growing infrastructure and construction industry, we are also investing in expanding our thin wheel capacity using the synergy with Rhodius and Droneco, which is both the asset as well as the technology and asset that we bought. In electromineral division, we will evolve from a minerals player to a specialty material player. Our focus area would be we will scale-up alumina capacity from the current level and increase the share of treated gain. This treated grain means heated — heat-treated grain treated, treated, blue heated and zuconia coated grains. Thereby the increase the share of value-added products in the alumina portfolio. We will also focus on export markets. Our current share would almost double in this space. Secondly, we will focus on expanding our zirconia portfolio. We want to add capacity. We also want to add products like alumina zirconia,, stabilized zirconia, monoclonic zirconia and zirconia for thermal spray powders using the synergy that we will have with zysponia. And lastly, we will aim to enhance our product development capability to serve the high-grow sectors like semiconductor, aviation, clean-energy by venturing into advanced materials such as thermal, powders, both oxides, it could be aluminum, aluminum titrate, metalized zirconia, stabilized zonia and. Thermal spray powders for solid oxide fuel cells, HPSIC, graphene, silicon nitrate and aluminum nitrate. These are the newer portfolios that we will add. This strategy will allow us to completely reorient DMD’s business strategy. We plan to increase our specialty minerals to 40% share in the next five to six years. In Industrial ceramics, we will scale-up leadership in high-margin advanced ceramics while strengthening the core segments like scaling up metalized cylinders, engineered ceramics, wire production. Growth will be powered by innovations for specialized sectors such as semiconductor, aerospace, defense and e-mobility. We are expanding into ceramics for semiconductor, wafer fiber equipment, opening opportunities across the broader and higher-value segment of the value chain. At the same time, we are aligning the long-term global priorities as well as national priorities entering new areas such as aerospace and defense vehicle and body armour, both alumina, ZTA, RBSIC and Boron carbide and as well as in electronics sector which would involve tubes, substrates, brace assemblies. To reinforce this, we are investing in the manufacturing facilities, strengthening our global footprint, establishing a strategy collaboration with leading technology partners, positioning us for the long-term differentiation. A significant share of our overall investment will be directed towards our effort in expanding industrial ceramics to be truly global ceramic powerhouse. In super refractories, we will target to be relevant and scaled player in India’s large and growing INR15,000 crores plus refractory market. We’ll continue to push the borders of addressable market by adding newer products in mono and market capabilities and gain share both domestic and export markets. We’ll use our competence in glass, CPI, carbon black, cement and addressable global market. We will ensure our focus on cost excellence considering increased global competition in the domestic market, while continuing to grow our overseas footprint. We are also expanding our structural composite capability to advance composite capability. To support this journey, we are building a future-ready capabilities across key functions. This — we will scale-up our investment in R&D in-line with the required growth. We expect to increase our R&D spend four to five times over the next five to six years, if you will, the innovation across-the-board. Building a high-performance organization that embodies and demonstrates a set of behavior deeply rooted in the highlights of Murgapa Group, signaling a culture of being even more performance and collaboration-oriented. The highlights of the Murgapa Group are integrity, passion, quality, respect and responsibility. We also redesigned the role of the functions, various functions to support the truly global organization. Lastly, we will be comfortable in funding these investment for our growth through our cash flows. To summarize, the entire organization of Kumi is energized by this vision of our long-term growth and we are supported by robust governance framework to ensure and track progress. We look-forward to providing an update on specific projects as we realize the maturity. So just to sum-up, I think for the time-being, we are focused on FY ’26. We have given a line for you. But at the same time, we are preparing well for the five-year journey for which we have broadly given some of the programs and what we are looking at. And just to sum-up, the FY ’25, two major issues that we faced with the sanctions in VAW, which had a significant impact. The second one is the reversal of deferred tax credit. These are the two extrenuous factors. The rest of them are normal business, which we feel that we are getting into. There are issues that we need to focus and address. We feel PAW, as I communicated you one more year, we have kept this at least at a lower-volume of 25% to 30%, which brings the profitability also down. That is what we have factored in the guidance that we have shared with you. Thank you and we will now open up for Q&A.
Questions and Answers:
Operator
Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on your touchstone telephone. If you wish to withdraw 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
Thank you very much for the opportunity, sir. Sir, my first question is on VAW. I missed the sales and profit number that you provided in the robot terms. Could you please repeat on that, please?
Sridharan Rangarajan
Yeah. I think VAW, on a full-year basis, VAW made a sale of INR9.4 billion against INR9.7 billion and they delivered a profit-after-tax excluding exceptional items of INR119 crores. And you should net off INR90 crores of impact on this. So 119 minus INR90 crore would be the profit-after-tax post this one-time adjustment. If you exclude the one-time adjustment, it is INR119 crores against INR149 crores of FY ’24.
Harshit Patel
Understood. Sure. So on these 4Q margins, which are very weak And you explained that our volumes were drastically down in the 4th-quarter. So is this weak margin performance just because of the operating deleverage due to lower volumes or are there any other one-offs? So what I’m trying to understand is that where the gross margins intact over there at VAW?
Sridharan Rangarajan
Yeah, yeah. So Ashish, I think this is exclusively coming out-of-the volume drop. And as I said, it is 25% to 30% volumes are down in Q4 and we have factored in the similar volume drop for the full-year next year as well. So that is what I communicated. So it’s a pure volume drop.
Harshit Patel
Understood. Sir, my second
Sridharan Rangarajan
One was relating to VAW were earlier communicated in Q3 itself.
Harshit Patel
Perfect. Understood, sir. Sir, my second question is on Ceramics. With the normalization of supplies to a large US-based clean-energy customer, we thought that the standalone revenue growth would be in high-double digits in the 4th-quarter. However, it has not happened so. So was it due to delayed ramp-up at this particular customer or was there any other reason for the same?
Sushil Bendale
No, I think the ramp-up with the customer is happening as communicated, no challenge at all. Just to give you a perspective, the entire Ceramics segment, let’s look at it in three broad areas. 65 percentage of the business grew at about 18%. 23 percentage of the business, which is VAS ceramics were flat. And then 12 percentage of the business de-grew at 36%. That is how the overall mix you are seeing about 6% to 7%, right? Now the camouflages the real growth, what is happening. The 12% is a business which is highly project-driven business and there are delays in project which really caused this degrowth. So it is nothing to do with the high-margin ceramic business and you know whatever we have communicated is very much in-line. We feel this project-led growth would come back next year.
Harshit Patel
Understood. So what are these 65% and these 23% parts? Could you explain these two?
Sridharan Rangarajan
This consists of inengineered ceramics, metalized cylinders, those are the components and also the fired refractories, all that put together is the component that consists of 65%.
Harshit Patel
Okay. And 23, 23% would be the ceramics business. Would that be right understanding?
Sridharan Rangarajan
That’s what I told.
Harshit Patel
Perfect, sure. Sir, just lastly from my side. The standalone EMD margins have contracted sharply both on Y-o-Y and Q-o-Q basis. So could you please explain the reasons for the same? There is also a steep jump-in the standalone other expenses. So are these two things related to each other?
Sushil Bendale
No, so I think in the EMD margin, the way I would like to look at it is that we practically passed on the cost increase of to the extent of, say, 85% to 90% cost push. The rest we could not push because of the pricing pressure coming from China. So that is what you’re seeing in the margin drop.
Harshit Patel
Understood. Perfect, sir. That was all from my side. Thank you very much for answering my questions. I’ll come back-in the question queue.
Sridharan Rangarajan
Thank you.
Operator
The next question is from the line of Mohit Kumar from ICICI Securities. Please go-ahead.
Mohit Kumar
Good morning, sir. Sir, my first question is, is, how much is the capex and employee expenses you expect to incur to achieve the strategic objectives which you’ve laid out for the next five years?
Sridharan Rangarajan
So thank you, Mohit. We are not sharing this at this stage, the capex program I would have loved to share at this stage. But next year capex I have shared with you broadly. So that is what at this point. But as I said, we have a clear program to deliver this 2 times top-line growth. So we feel that we have enough program to deliver this and should not have an impact, should not have an issue for us.
Mohit Kumar
And is it possible to share the R&D capex which we incurred last year?
Sridharan Rangarajan
I don’t have really probably at a later point we will share with you.
Mohit Kumar
Understood, sir. And my second question is on the Abrazis. How is the competition shaping up? Are you seeing the easing out-of-the competition? Because you’re saying at the same time, you guided for the market-share. So how do you think you achieve a double up higher-growth and higher market-share in the next five years, given the competition, yeah.
Sridharan Rangarajan
So I broadly described the program that we would increase the market-share. Right now, we are looking at-the-market into four broad categories. There is a first category like ourself and you know that’s local manufacturing players the second category is largely know people who either manufacture here or import in and then sell-in their brand-name. These are good brands that they are selling. Then the third category is the non-abbressive companies who import for their own industrial use, right, direct import from that. And the fourth category is the basically the international players, which you know, they import and then sell-in their brand.
So we feel that we have enough room in these three other category to take a share and that we can grow in the market. And the growth strategy is largely two but the broad strategy is that one is wherever there are product gaps where we have identified product gaps and that are going to be met both out-of-the new product to be developed and introduced or sourced where required. And the second one is strengthening the go-to-market. There are — clearly there are certain states where we are not present or we have a very, very low market-share where we would like to expand know the market-share plus the customer in a certain in Class-A and Class B customer, we would like to improve our wallet share that we work with them. So based on these two broad and there are sub-elements to this approach, but that’s how we are looking.
Mohit Kumar
Understood, sir. Thank you and all the best, sir. Thank you.
Sridharan Rangarajan
Just a second, I think my team says that it’s about R&D spend, I’ll get back to you.
Mohit Kumar
Sure, sir. Thank you, sir. Thank you and all the best, sir. Thank you.
Operator
Thank you. The next question is from the line of Amit Anwani from PL Capital. Please go-ahead, sir.
Amit Anwani
Thanks for taking my question. My question pertains to your remark about the strategic plan and you highlighted that we’ll be focusing on aerospace, defense vehicles and I think defense electronics also and investing in manufacturing facilities and collaborating there. So if possible for you to share more details of what kind of product, any target we have in this space and will it be higher-value product export or domestic market? Any more color on this space?
Sridharan Rangarajan
I would broadly touch upon this. One is, it’s basically both vehicle and body armor are the two space that we would work because that is where the ceramic has got a play. So that is how we are looking at and that’s why I said that we will be focused on that would be based out of either alumina or ZTA or reaction bonded silicon carbide or boron carbide. These are the materials that we would be using and the product outcome would be either a broad E order or a vehicle or.
Amit Anwani
Sure, sir. Sir, second question again on VAW. So you said the FY ’26 also will be hit by a decline of 30% 33% on VAW and impacting the PAT by almost INR100 crore for FY ’26 as well. So wanted to understand how one should look for VAW? Are we in a wait-and-watch that these things which are dependent on external controls will be better-off ? Or is there any strategic thinking which has gone into VAW while you know devising the three to five-year plan for us
Sridharan Rangarajan
So I think since the time of the sanction in January, early-January 2025, right? So we are almost say kind of four, five months since sanction has happened. There are a lot of developments which are very positive, right? There is a multiple ceasefires has happened between Ukraine and Russia. There are open comments made by both the governments that they would like to-end this conflict and then reach a settlement. There is also a lot of facilitation being offered by various countries across the globe. And every other country has expressed that this should end. So we hope, I think there would be a logical conclusion sooner than later. I’m not an expert on the geopolitical happening, but we positively look-forward to that.
Amit Anwani
Right. So finally, on the Chinese impact, which we have discussed throughout last year also that there has been a pricing pressure and we tried to device distribution strategies across segments where it was impacted, including the low-end abrussives and alumina? And we talked about at least five to six quarters for things to be better-off. Are we on the similar or has the things further deteriorated or improved from the company’s dumping side
Sushil Bendale
See again the time we talked versus the time we are now talking. There are many things that has happened. You know, there is a global trade itself is undergoing a reset. So obviously, it is better to wait-and-watch and how this whole thing would develop. We expect that the competition from China will continue to be tough and will they will have you know upper hand in terms of the bringing down the costs, ability to compete in terms of our prices, which no one can match. So those issues will continue is what our current thinking is. And obviously, we are preparing ourselves to work against that.
Amit Anwani
Thank you, sir. Thank you for taking my question and all the best.
Sushil Bendale
Thank you.
Operator
Thank you. Thank you. Ladies and gentlemen, if you wish to ask a question, you may press star and 1 one. The next question is from the line of Mohit Pande from Macquarie. Please go-ahead.
Mohit Pandey
Yeah, good morning, sir, and thank you for the opportunity. Sir, my first question is on the five-year outline that we have shared. Sir, please correct me if I’m wrong, but as I can — I could understand the bulk of the incremental growth as per your current projections will be from incremental domestic investments. Is that understanding correct?
Sridharan Rangarajan
Right. That’s correct.
Mohit Pandey
Okay. Okay. And sir, I just wanted to hear your thoughts on the turnaround strategy for and Rhodius, especially in-line of the stimulus that is being announced by the economy there on the infra side is Avoco and likely to have a second order impact there
Sridharan Rangarajan
So as far as the is concerned, as I said and communicated in the call also, they are profitable after you exclude the PPA, which is our own write-off that we are trying to do that, right? So it is profitable and it is the growth trajectory. There is no issue on the RoDS side. What we are facing is on the side. We feel that the growth opportunity, which you are talking about the second order benefit that would come, we feel that this would help them. Definitely this is what we are also looking-forward to. So there would be a better cement is what we are looking at.
Mohit Pandey
Okay. But for this year’s guidance, so clearly it’s too short-term. So you’re not building in any impact because I heard you said a bit largely driven by domestic. Okay. Okay. So that’s clear, sir. Sir, secondly on Ceramics, if you can please confirm, you said for margins, your — the guidance is a drop of 100 to 125 basis-points. Is that — is that right, sir, if I heard it correctly for FY ’26?
Sushil Bendale
Yeah. 100 basis-points to 120 basis-points, right.
Mohit Pandey
Okay. And sir, what would drive this, please? Yeah. What is
Sushil Bendale
Coming from the — again, there is a small portion of the business from Russia, so that would get impacted, hence we are building that.
Mohit Pandey
Okay, okay, okay. Okay, sir. Sir, and across the three businesses or maybe across the abrasives and Ceramics, as per your current assessment, over the next five years, there is clearly a much higher-growth, would that be ceramics and what would that mean for margin for rupee.
Sushil Bendale
So I’m not sharing any margin guidance on the future, but broadly, I explained that our overall trajectory, we are looking at doubling it. A second is that we programs that what would drive the growth is what we have shared. I would like to stick to that.
Mohit Pandey
Sure, sir. Sir, one last question on the minerals to specialty minerals, a greater push towards specialty minerals, sir, if you could please if it is possible to elaborate what is different this time because I understand for past several years there has been an ambition to increase salience of specialty minerals in the overall business. So what’s the right to win now? Given that if I understand correctly, we have already been trying this in this area for quite some time.
Sushil Bendale
Absolutely, great question and I think thanks for asking. Three different things. One is within alumina, we are increasing the treated grain and export of alumina is going to go up. That’s the first vector, which is different. Second is increasing the zirconia portfolio. This is the second vector of difference because our right to win is very-high because we have established operation in — in South Africa, plus we are also having a small operation here. So with this, we have to increase the portfolio. As I said, it’s just not only all varieties of zirconia, whether it’s, zirconia, zermol, stabilized zirconia, monoclinic and zuconia for thermal spray powder.
So it’s entire range. That’s the second difference. The third difference is focus on thermal spray powders using oxides. That is the third difference where we have established our capability and we are trying to ramp-up with a few anchor customers that we have. The fourth area that we would like to focus, which is on two, three different materials. One is — one is the HPSIC and the thermal spray powders for solid oxide fuel cells and the alumina nitrates, which is both silicon hydrate as well as aluminum nitrate. These — the last alone would take about three, four years before the real benefit of this would start coming. The first three where we have established the right to grow and that is how we are planning to grow. These are the difference between the earlier program and this program.
Mohit Pandey
Okay, sir. Okay, sir. Wish you all the best. And yeah. Thank you. Thank you so much queue. Thank you. Okay.
Operator
Thank you. The next question is from the line of Nidhi Shah from ICICI Securities. Please go-ahead.
Nidhi Shah
Thanks so much for taking my question. So my question is mainly around employee expenses. We see employee expenses have — have kind of shot up this year and I understand that some of this bit is from ESOP. So how much is ESOPs, how much is not? And then what can we expect in FY ’26 in terms of employee expenses?
Sridharan Rangarajan
So broad grade line is that employee expense as a percentage is still very much under the comparable range only. So there is no change into this. These are minor blis that happens on A year-on-year basis. They’re not significant. So since you are making a forecast, I would encourage you to look at it that way.
Nidhi Shah
Okay. And could you give out the number that was this year in the employee expenses?
Sridharan Rangarajan
Not much, Madam. Anyhow in when annual report comes, you will have lot of details on the ESOP.
Nidhi Shah
Thank you.
Operator
MS. Nidi, does that answer your question?
Nidhi Shah
Yes. Thank you.
Operator
Yeah. The next question is from the line of Manish Goyal from Wealth Managers. Please go-ahead.
Manish Goyal
Yeah. Thank you so much, sir. Sir, I have two questions. First on your Five-Year plan sir, we aim to double sales. So does it include any inorganic initiatives? And if yes, then probably in which areas or what would be the focus on that? First question. Second question like just would like to know on, have we probably started realizing any gross leveraging benefits on acquisitions with and Aguko maybe geography-wise in terms of leveraging sales and distribution? And also on the product-wise. Thank you so much.
Sridharan Rangarajan
So the numbers that we looked at and shared does not have any acquisition as part of these numbers. And as far as clearly we have looking at a lot of synergy arising and in fact we are setting up a good someone typing be slow on that, yeah. The thin wheel facility that we are setting up will be using the technology of and that would help us deliver quality products and at the cost that the market would like to have. So this is the synergy I would say as an example from at this point.
Manish Goyal
And would it be able to like the challenges what we face from China in terms of largely on the pricing front, will this probably technology help us to address that and that is how we are probably looking at you?
Sridharan Rangarajan
Yes. So we have looked at what is the cost, imported cost and what is also this technology would bring, plus, we worked on a cost model where we should still be competitive, you know, if we have some dumping happens from China, we should be able to counter that.
Manish Goyal
Sure, sir. Thank you so much.
Sridharan Rangarajan
Thank you.
Operator
Thank you. The next question is from the line of Aditya from Kotak Securities. Please go-ahead.
Aditya Mongia
Good afternoon, gentlemen, and thank you for the opportunity. I had a question from my side. The way you have split the Ceramics business in terms of components and growth, could you do the same for the aggressives and EMD standalone portions in terms of what is being impacted by China and what is not? It will be good to know that the relevance of Chinese competition in terms of revenues are impacted and the real impact being seen given whatever has happened right now last one year.
Sushil Bendale
So as far as abrasive is concerned, I don’t think we have any — I mean, that’s an universal growth that we are having. If you look at — I’m sure you would have looked at other published results in this space. So we both are traveling give or take about 4% growth. And you know — so the way I look at it is that almost say 50% plus market is getting imported into India. Of that 60% comes from China and the rest is coming from other countries. So that constitution, we have not seen any big difference compared to the earlier position. And that’s why I felt that there is — you continue to have this challenge and then you are looking at that.
So we’re countering that two things. One is come up with your own new product to be delivered or source for the time-being and then develop the product as you become ready to launch this. So we have now looked at a whole lot of sourcing strategy to counter this and that’s the program that we are looking at. As far as the mineral is concerned, I think where we are having a challenge is the entire electro — sorry, the alumina space is where the challenge that we will have, which is all we talked about so-far in the earlier calls also. My guess is that the entire alumina spaces could be about 30% to 35 percentage of our business. It could be in that range.
Aditya Mongia
Sure. Just to kind of complete this question. So if we only focus on areas between addressive and ceramics that are not impacted by Chinese, what will be the kind of growth patterns that you’re seeing in those kinds of markets on a blended basis?
Sushil Bendale
Yeah. We are not sharing anything like that. I’ve given a broad next year growth. I’ve given my expectation in terms of that. So I would like to stick to this, Aditya.
Aditya Mongia
Okay. Okay. The second part on this would be then that see the electro Minerals segment at a standalone level, margins were low. As we see-through the next year, how should we think through them as in you’ve been able to pass-on 85%, 90% and this aluminal kind of division is a sizable part of that business. So how to think through whether there is scope of further pushing the pricing up or should we be assuming low-single digit margins in that portfolio.
Sridharan Rangarajan
So overall, I guided that the EBIT margin on the will come down by 500 to 600 basis-points compared to this year, 12.5%. And I feel that it would take care of some portion of this passing on benefit or cost push also. I feel that in the initial Q1, we will continue to have this pressure in India and then we will slowly start getting this better in Q2 onwards. So that’s how I’m looking at it.
Aditya Mongia
And would there be a strategy that we can follow the way we are doing in other areas wherein we’ll be in a better positioning in the alumina space from here on? Or is it just depending on? Yeah. So what’s the strategy over there and how soon can it benefit us here?
Sridharan Rangarajan
All right. I just discussed this strategy is supplying more treated grains in alumina, which help us to have a ability to counter this. This is what is our strategy. I enlisted all the types of treated grains and we are very much on it. In the next one year, we should be able to start launching these products and going-in that trajectory.
Aditya Mongia
No, those are my questions. Thank you for responses.
Sridharan Rangarajan
Thank you.
Operator
Thank you. The next question is from the line of Bhavin Vithlani from HBI Funds. Please go-ahead.
Bhavin Vithlani
Yeah. Good afternoon,.
Sridharan Rangarajan
Yes, Bhavin.
Bhavin Vithlani
Hi. So I have three questions. First, if I look at the Abrasives business on a standalone basis where 11 quarters we are seeing low single-digit growth. And there were three couple of quarters in the early part of calendar year 2024 where we are seeing some acceleration, but we have now seen deceleration back. So if you could help us understand breaking it into two-parts. One is what part is the slowdown in the end-market? And I understand Abras is over over-indexed to commercial vehicles and that segment of the market has slowed down? And second is what we are seeing is acceleration in the thermal power manufacturing, especially when we look at BHCL order book, etc. So if you could help us understand that the underlying market slowdown? And second, what part of the market is impacted by the Chinese competition? And that part we understand has already should have been anniversarized. So that is my first question to understand the standalone oppressives better.
Sridharan Rangarajan
So the industrial distribution is moving growing at about high-single-digit, right? And we see that that’s a very positive one. Retail is growing at about Mid-single-digit . The challenge is largely in the precision side where you know the industrial growth led precision side is where the challenge is. And I think you pointed out some of the industries and you have clearly articulated that. So that is where the — we see this deceleration is happening. So as the industry picks up, we feel that this momentum will start picking-up. That’s how I read this.
Bhavin Vithlani
Okay, great. The second question is on Russian piece. And when we see this quarter, revenues declined by about 16-odd percent, but we’ve seen a sharp drop-in the margins. In this, if you could help because this is a continuous process industry. So slowing down or stopping of production is difficult. So we would have been forced to sell-in Russian market. So what part — if you could just help us understand the kind of pricing pressure that would have happened and the kind of volumes impact that was there in the Russian piece because of force selling into the home market and exports kind of getting impacted due to the sanctions.
Sridharan Rangarajan
So honestly, there is no force selling. We feel we are currently not able to sell. Hence, we are not producing. So hence, as a result of that, the unabsorbed cost because you carry a lot of cost of this whole manufacturing process, that is what is getting impacted. And as I said, it is not 16%, it is about almost 25% to 30% volume drop-in Q4. We expect a similar drop for the next year as well. So there is no, I would say, say because of that, we are trying to push this into the market, hence the price falls, et-cetera. This — it’s largely — we are not able to sell, hence we are not able to produce, hence we are an issue in terms of the profitability.
Bhavin Vithlani
I understand that. The last question is on the Ceramics piece. So if you could just give us a where we had seen a slowdown last year in some of the specialized piece which was going to — was we are selling to the hydrogen sales. How has — how has that market now shaping up given that when we look at your end-customer, they are seeing increased order booking? Second is on — especially on the Metalized piece where transmission and distribution as a segment world over we are seeing very strong growth. So on that, if you could give us an outlook in terms of what we are seeing in the specialized piece and how — and what it does to the growth outlook for the next year in the standalone ceramics piece?
Sridharan Rangarajan
Yeah, no, great observation. So I think as I said that 65 percentage of the ceramics segment has grown about 18%. This includes the sectors that you talked about and so they are growing, including metalized cylinders are growing well. So it definitely you are right in your observation. As I said, the 23 percentage of the business is flat and hence, the average is coming down. That is that is what I earlier also told.
Bhavin Vithlani
Sorry. So just a follow-up here. This piece is basically the refactories piece, which is slowing down due to the underlying steel production demand.
Sridharan Rangarajan
No, it’s a side of the ceramic business, which is what is flat.
Bhavin Vithlani
I understand that. Yeah. Yeah, those were my questions. Sir. Thank you so much.
Sridharan Rangarajan
Thank you. Thank you.
Operator
Thank you. Ladies and gentlemen, that was the last question for today’s conference call. I now hand the conference over to Ms Bhoomika Naya for closing comments.
Unidentified Speaker
Yes, I would just like to thank all the participants as also the management for giving us an opportunity to host the call. Thank you very much, sir and appreciate it. Any closing comments from your side?
Sridharan Rangarajan
Thank you. So as I said, I think just to give a brief closing comment is that this year, there are two extraordinary factors. One is largely driven by Russia sanction, which eventually has got two types of impact. One is a provisioning impact, which we feel that once this sanction gets lifted to in a reversed back. The other one is the volume drop as a consequence of that, which happened in Q4. The second major challenge that we face is the reversal of the deferred tax credit in. So if you take this two factors, which is the substantial portion of the difference that accounted for.
We feel that the business is doing fine and we have spent a good amount of capex this year. We have also spent 18 minutes of time in creating a good structured long-term strategy. We’ve communicated the broad direction in which we are trying to travel. We’ve also broadly looked at considering the current global trade-related issues and the geopolitical issues, we feel that what we are looking at as the next year we communicated, we said that we’ll have a 6% to 7% growth and we also broadly communicated PBAT margin in how it would span out. We feel highly focused on our execution in terms of the long-term strategy. So we will see improvement strength-to-strength every quarter. Thank you for your support and thank you for your patient hearing.
Operator
Thank you. On behalf of DAM Capital, that concludes this conference. Thank you for joining us and you may now disconnect your lines. Thank you