Carborundum Universal Limited (CARBORUNIV) Q4 FY23 Earnings Concall Transcript

Carborundum Universal Limited (NSE:CARBORUNIV) Q4 FY23 Earnings Concall dated May. 09, 2023.

Corporate Participants:

N. Ananthaseshan — Managing Director

G. Chandramouli — Advisor, Investor Relations

P. Padmanabhan — Chief Financial Officer

Sridharan Rangarajan — Director – Finance & Strategy

Denesh Kumar — Senior Manager, Strategic Planning

Analysts:

Bhoomika Nair — Analyst

Bhavin Vithlani — SBI Mutual Fund — Analyst

Ravi Swaminathan — Spark Capital — Analyst

Nitin Arora — Axis Mutual Fund — Analyst

Rahul Gajare — Haitong Securities — Analyst

Deepesh Agarwal — UTI — Analyst

Saif Gujar — ICICI Prudential — Analyst

Alok Ranjan — IIFL — Analyst

Harshit Patel — Equirus Securities — Analyst

Mihir Manohar — Carnelian Asset Management — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Carborundum Universal Q4 FY23 Earnings Conference Call hosted by DAM Capital Advisors Limited. 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. [Operator Instructions] Please not that this conference is being recorded.

I now hand the conference over to Ms. Bhoomika Nair from DAM Capital Advisors Limited. Thank you, and over to you.

Bhoomika Nair — Analyst

Yeah, good morning, everyone, and welcome to the Q4 FY23 earnings call of Carborundum Universal Limited. We have the management today being represented by Mr. Sridharan Rangarajan, Director of Finance and Strategy; Mr. N. Ananthaseshan, Managing Director; Mr. P. Padmanabhan, CFO; Mr. G. Chandramouli, Advisor, Investor Relations; and Mr. Dinesh Kumar [Phonetic], Senior Manager, Strategic Planning.

I’ll now hand over the floor to the management for their opening remarks, post which we’ll open up the floor for Q&A. Over to you, sir.

N. Ananthaseshan — Managing Director

Good morning, everyone. Before we begin, as a practice, we will have Mr. Chandramouli read out our disclaimer and then I will take the call.

G. Chandramouli — Advisor, Investor Relations

Good morning. During this call, we may make certain statements which reflect our outlook for the future or which could be construed as a forward-looking statement. These statements are based on management’s current expectations, and are associated with uncertainties and risks, are more fully detailed in our Annual Report, which may cause actual results to differ. Hence these statements must be reviewed in conjunction with these risks that Company faces. Thank you.

N. Ananthaseshan — Managing Director

Yeah, thank you, Mouli, and thank you all for — again for joining us on this call. Welcome to our fourth quarter FY23 earnings call. Today, we are joined on the call by my colleagues, Mr. Sridhar Rangarajan, Director of Finance and Strategy; Mr. Padmanabhan, CFO; Mr. Chandramouli; Investor Relations; and Mr. Denesh Kumar, Strategy Planning.

I will start by providing an overview of the Company’s performance for the quarter and for the full year, followed by a commentary on the outlook. And Mr. Padmanabhan will cover financial performance, after which Mr. Sridhar will take you through the performance of the subsidiaries, especially the Russian ones and the newly-acquired ones in Germany.

All of us are aware that the year started with the Russian — Russia-Ukraine war and its attendant consequences, inflation, raw materials availability, supply-chain disruptions, currency fluctuations, interest cost, etc. Many economies across the world, including India, face inflationary pressures. Now, despite these challenges, the Company’s performance has been robust and yet again speaks about its resilience.

As Sridhar will share later, the most impacted subsidiary in the face of the reluctance of customers — from Western customers especially, has been the VAW one and the team there has managed the situation very well. They are focused more on serving the domestic market and increase that share, which used to be above 45%, for now 58%.

So — in addition, during the first-half of the financial year, we also had some COVID cases, especially in Germany, but thanks to the vaccination drives and the COVID protocols, we have [Technical Issues] confidence of the workforce and not too much of a production of — back to the loss.

Towards the second half of the year, we saw sustained recovery in domestic demand. We also saw government impetus to infrastructure, export growth, some softening in commodity prices, and all of which led to a strong rebound in business performance.

Some segments also witnessed a higher share of exports, with incremental growth coming in from customers wanting to derisk their supply chains. All three businesses also registered a high-double digit growth on topline. And in the Abrasives segment, the growth also included additional sales from Rhodius and AWUKO. The Ceramic business continued to perform better in terms of topline and margins due to strong demand of value-added products, better realization and favorable product mix.

I’m pleased to inform you that in the Q4 quarter and for the full-year 2023, the Company has performed well despite the many challenges, which I just spoke about. Revenue has grown for the full year by 40% to INR4,601 crores at a consolidated level and by 13% INR2,473 crores at a standalone.

For the year, at a consolidated level, profit after tax and non-controlling interest grew by 24% to INR414 crores and INR333 crores respectively. At a standalone level, the PAT increased by 30% to INR331 crores and from INR254 crores during the last year. So, this was possible by the higher capacity utilization, better product mix, growth in volumes and realization.

PAT margins improved from 11.6% to 13.4% at a standalone level, and at a consolidated level it dropped down from 10.1% and 9.9% — to 9%, mainly due to the integration costs and the establishments — re-establishment of the businesses at AWUKO.

The — I will now touch — I mean I would have Sridhar describing you in much more detail regarding the overseas subsidiaries, but what I can tell you is that all of them did well except the small ones in Middle-East and China, where we have a conscious decision to de-grow our operations there.

The sales from the subsidiaries which we acquired last year was INR673 crores compared to INR29 crores in the last financial year. So, on the other hand, all the domestic subsidiaries have grown significantly, except the SITCO [Phonetic] which is energy transition company which was impacted significantly due to the rise in gas prices.

The external environment for the year 2022 grew by about 3.5% and is expected to grow at 2.5%. And we saw that this was primarily due to the global monetary policies which were implemented to contain inflation along with geopolitical tensions. So, India performed much better in FY23 on the back of a sustained recovery in domestic demand, and hopefully the infrastructure push by the government and private players also adding to the momentum.

So, as we become the world’s first largest economy, in real terms, the economy is expected to grow at 7% for the year ending March 2023. And the fundamentals, we believe, are sound. And this outlook gives us a cautiously optimistic position for many of the sectors that we cater to. In terms of capex, at a consolidated level, we spent about INR294 crores during FY23.

I now the question Mr. Padmanabhan, our CFO, to walk us through the financials.

P. Padmanabhan — Chief Financial Officer

Thank you, Anand. Good morning, everyone. Let me summarize the financial performance for the quarter and the year-ended March 2023. At the consolidated level, sales for the quarter increased by 38% to INR1183 crores from INR859 crores in the corresponding quarter of last year, mainly driven by strong performance by all the segments, including the sale of around INR176 crores AWUKO-Rhodius which was INR10 crores during the Q4 of last financial year.

For the full year, sales have grown 40% to INR4,601 crores from INR3,290 crores in FY22, which includes sales of INR673 crores from AWUKO-Rhodius and plus in FY23 compared to INR29 crores [Phonetic] in FY22. On a consolidated basis, profitability for the quarter recorded a strong growth across Minerals and Ceramics segments. Profit after tax and non-controlling interest for the quarter grew by 26% to INR137 crores against INR109 crores in Q3 of the current financial year and grew by 141% compared to Q4 of last year.

On a full-year basis, profit after tax and non-controlling interest increased by 24% INR414 crores from INR333 crores and the PAT margin dropped 9% from 10.1% because of the cost inflation and the acquisition costs related to the recent acquisitions.

Coming to the standalone performance, sales increased by 8% to INR628 crores from INR580 crores on quarter-on-quarter basis and was almost flat sequentially. For the quarter, PAT grew 84% to INR114 crores from INR62 crores on quarter-on-quarter basis and increased by 58% sequentially. And profit margin — and the PAT margin increased to 18.2% from 10.7% quarter-on-quarter and better sequentially also from 11.4%.

On a full-year basis, sales grew 13% to INR2,473 crores from INR2,192 crores, in fact increased by 30% to INR331 crores from INR254 crores during last year. PAT margin improved from 11.6% to 13.4% year-on year.

Coming to the segmental performance, Abrasives consolidated revenue for the quarter grew by 53% to INR525 crores compared to INR344 crores in Q4 of last year and grew 2% sequentially. Standalone Abrasives was almost flat sequentially as well as quarter-on-quarter at INR280 crores.

The sales from Rhodius and AWUKO for the quarter was better by INR31 crores compared to Q3. There has been significant growth from subsidiaries in Russia and America. On full-year basis, consolidated sales grew by 59% to INR2035 crores for — and standalone, it grew by 5% to INR1,107 crores. The sales from AWUKO and Rhodius for the year was INR619 crores compared to a mere INR10 crores in FY22.

For the quarter, profit before finance cost and tax at consolidated level was better at INR38 crores against INR27 crores in Q4 of last year and INR21 crores in Q3 of current financial year. And at the standalone level, it improved sequentially by 10% to INR44 crores after some easing on the input costs and was almost flat quarter-on-quarter.

On YTD basis, consolidated PBIT degrew by 33% to INR105 crores and for standalone it did grow by 7% to INR151 crores. The lower profit is due to higher input cost and due to integration costs related to Rhodius and re-establishment costs relating to AWUKO.

In respect to the Electrominerals division, Electrominerals consolidated revenue for the quarter was at INR405 crores versus INR340 crores in Q4 of last year, resulting in an increase of 19%. Standalone Electrominerals grew 6% quarter-on-quarter INR178 crores from INR168 crores in Q4 of last year and grew by 3% sequentially.

Our Russian subsidiary, Volzhsky Abrasive Works, and South African subsidiary, Foskor Zirconia, registered significant growth for the quarter. On a full-year basis, consolidated sales grew by 25% to INR1,634 crores and for stand-alone, it grew 13% to INR702 crores.

For the quarter, profit before finance cost and tax at consolidated level was at 60 — INR44 crores in Q4 last year and INR82 crores in Q3 of current financial year. And at standalone level, it grew significantly by 236% to INR14 crores quarter-on-quarter and degrew 46% sequentially after easing in commodity prices impacting realization of our products, low generation from Maniyar hydel power plant, increase in power tariff from KSEB.

On full-year basis, consolidated PBIT grew by 42% to INR275 crores and for standalone, it grew significantly by 61% to INR99 crores. The profitability growth was due to strong performance at standalone as well as overseas subsidiaries, on account of higher realization with increasing demand of minerals.

In respect of the Ceramics, the consolidated revenue for the quarter were higher by 31% at INR265 crores as against INR202 crores in Q4 of last year and sequentially, it was almost flat. Standalone Ceramics grew by 24% to INR211 crores on quarter-on basis on account of strong demand across end-user industries and geographies, but de-grew by 4% sequentially. Subsidy [Phonetic] in Australia, there is a significant growth.

On full-year basis, consolidated sales grew by 29% to INR1,027 crores and for standalone, it grew by 26% to INR834 crores. Profit before finance cost and tax at the consolidated level grew by 73% to INR62 crores from INR35 crores on quarter-on-quarter basis and degrew by 7% sequentially. And at standalone level, it grew significantly by 65% to INR51 crores quarter-on-quarter. This was majorly on account of growth in volume realization and product mix. On full-year basis, consolidated PBIT grew by 57% to INR251 crores and for standalone, it grew significantly by 56% to INR205 crores.

On the finance side, there was a debt of INR104 crores in the standalone books and the total debt on consolidated basis was at INR231 crores as of March 31, 2023 as compared to INR384 crores as of December 2022. The debt-equity ratio was at 0.8 for consolidated and 0.5 fee for standalone. On the ForEx, CUMI is typically a net importer in dollar terms and a net exporter in euro terms. We cover the net exporter as appropriate and in accordance with the ForEx policy.

On the cash flow front, our strong balance sheet is evidenced by the net cash-flow position and low debt-equity ratio. The cash and cash equivalence, including deposits with tenure not exceeding 3 months, net of borrowings was at a surplus of INR166 crores.

This concludes my update on finance. I will now request Mr. Sridharan, our Director, Finance and Strategy, to walk us through the performance of the overseas subsidiaries, mainly covering war and the recent acquisitions.

Sridharan Rangarajan — Director – Finance & Strategy

Good afternoon to all. I think it’s a pleasure meeting you once again on an earnings call. I would cover quite a few key subsidiaries and I also would provide abroad summary. First to start with VAW, as you all know that we started the year in February 2022 with a conflict between Russia and Ukraine. And economic sanctions were imposed on large parts of the Russian economy, businesses, banks and individuals.

This disturbed the entire world in terms of increasing inflation, higher energy and food prices, geopolitics, uncertainty, supply shocks and many more. Thankfully, the impact of war was not as much on our Russian subsidiary. The team at VAW managed the risk well and took suitable actions to mitigate them.

Just to update, the products of VAW are not under any sanction, neither Volzhsky Abrasive Works as an entity nor its directors or its employees are under any sanction. VAW is having a timely collection from its customers with no challenge. Suitable logistics arrangements to Europe, India and other geographies complying with all regulations were made. There has been no impact on the operation and the installed capacities are being utilized at the same level as it was before the war.

On a full-year basis FY23, we did about RUB8.1 billion compared to RUB7.3 billion last year. And the profit after tax was about RUB1.2 billion compared to last year at RUB1.1 billion. Both topline and the PAT grew in double-digits. These were converted in FY22 at an average rate of RUB1 is equally INR0.97. This resulted in net sales of INR704 crores of topline and PAT of INR106 crores in FY22. In FY23, these were converted at an average rate of RUB1 to INR1.23. This resulted in net sales of INR990 crores and a PAT of INR152 crores.

They continue to be debt-free and having enough liquidity to manage their business as well. The volume share in Russia, which was normally around 45%, moved up to 58%. The overall performance of VAW in FY23 was very good. The outlook remains positive, as demands are on increasing trend. But there will be pressure on maintaining realization at current levels considering softening of the commodity price globally. The team in Russia will continue to explore all possible options to maximize opportunities. However, we are cautiously optimistic and we plan the next year accordingly.

Now, coming to Rhodius, we acquired Rhodius and in control of the company since April 2022. We have put in place a leadership team. They have also insourced accounting, human resources and IT services, which was provided by the holding erstwhile company. So, I would say that practically the organization is in good shape.

Rhodius in Q4 achieved net sales of EUR17 million compared to EUR15 million in Q3. On a full-year basis, we have told earlier that they will be doing around EUR68 million to EUR70 million. They managed to achieve 95% of the plan and did about EUR65 million.

Russia-Ukraine conflict did have lot of impact on EUR’ operation. There were shortages in production volume, also delayed deliveries, backup transportation capacities and energy costs going up.

Coming to the bottom line, the performance, we expected the full-year loss to be about EUR3.5 million to EUR4 million, as commented during our last earnings call. We ended up at a loss of EUR3.7 million. On our operational side, the business was impacted due to material cost push, freight cost increase and energy cost increase in Q4. Energy cost increase is only in Q4.

We could not fully recover — offset this cost increased by higher realization. This impact was roughly about EUR3 million. There is difference between realization and cost push. Other than that, the losses include integration cost of EUR1.5 million. Most of this is a one-time and will drop-off, then intangible and goodwill write-off of about EUR2.8 million. This will continue for about 7 years to 8 years.

Major portion of it will be written-off in 5 years. Besides this, they also need to pay compensation to employees as recommended by the government to offset the inflation, that was about EUR0.5 million. So in all, the normal profit would have been EUR3.8 million to EUR4 million, which is very much comparable to pre-acquisition profit.

So that — I would say the business is fine. We are going to bring leadership team in place. All that is all going fine. Cost push versus price is a challenge and I think this way we are taking lot of effort.

FY24, Rhodius is planning an 8% to 9% growth. Major portion of the one-off cost will drop. However, the energy cost increase which we faced only in Q4 FY23 will be there for full-year FY24. This could be in the range of about EUR2.2 million to EUR2.5 million. But our team is trying their best to offset this. Level of market is facing a headwind. They are cautious of these facts. They are taking every effort to bring back profit. As we told earlier, we expect FY24 a small profit after setting off of the intangible depreciation. And from there on, we’ll progress towards PBIT margin of 12% by 2027, as communicated in the earlier calls. The plans are in place accordingly.

And in summary, Rhodius is in good shape. Leadership team is in place. Topline is coming through. There are some unexpected cost push, largely come out of the Ukraine crisis. We’ll progress from here well towards achieving the profitability. Broadly in line with our expectation.

AWUKO, this quarter they achieved EUR2.6 million sales against EUR2.2 million in Q3. The full-year was about EUR9.4 million against EUR10 million that — what we communicated to you earlier. Losses at full year, it was EUR3.7 million against EUR4 million that we communicated to you earlier. Given the fact it’s taking time to reestablish the business, we feel in FY24 for the last could come down from euro — come down to EUR2 million, EUR2.5 million.

We will break-even in FY25 only. We earlier said we will breakeven in 2024, that we are revising to FY25. However, we are taking lot of effort to accelerate better performance, so hope we do better than what we are communicating to you.

As far as PLUSS, on a full-year basis, we crossed INR50 crores. As communicated during our last call, we registered INR53 crores. And we told earlier that PLUSS will breakeven in FY23 but it ended up with a minor loss. The last year, focus or some business developments and establishing strong customer base. We feel that I think they will make profit in FY24. And I think they are growing strength-to-strength. We need to give some time to re-establish the whole thing as far as AWUKO and PLUSS is concerned.

So just to summarize, I think we finished FY23 with INR4,600 crores plus topline. We grew at 40% in comparison to FY22. Roughly 50% of the growth came from acquisition. The balance came from our existing business.

We acquired three companies, Rhodius, AWUKO and PLUSS. These were funded from internal accruals. At the end of the year, we are having net cash position. Rhodius is a strong brand with high-end quality products. Our reason for acquisitions is good stead. We will be realizing these benefits in the next 3 years to 5 years.

In India, we feel we have a good market opportunity for Thin Wheels. We will make use of it. AWUKO will take a year more to stabilize. Our Russian team has managed the situation well. Ceramics business has done well. It’s stand-alone and they have given an ROC of 48%. Electrominerals business at have done an exceptional job of improving their topline margin and ROC. You would note that they’re having an ROC of about 39%.

Our Abrasives business at standalone could have done better. They had a small growth. ROC is at 41%. Overseas Russia is doing fine. Foskor has done well. They’ve kind of become debt-free at this point in time. Our American operations are doing well. We’re moving out of China. Recent acquisitions will take couple of years to stabilize.

Our standalone free-cash flow is at 57% if you exclude some of the capex that we did over and above the depreciation, largely the land acquisition at about INR48 crores. Our free cash flow conversion is about 80%. Obviously, we can do better.

Now that we can — what we can expect for FY24. Domestic abrasives will go strong this year. They have put in place the right plans. There will be moderation in growth of Ceramics. Overall, we aim to grow 15% to 18% in domestic business. Standalone we had an EBIT margin of 18.1% in FY23. This should improve in FY24.

At consolidated level, we aim to grow 12% to 14% and at consolidated level, we had an EBIT margin of 11.2%, this should improve in FY24. At consolidated level, the ROC of Abrasives went down to 7.8%. This should improve in FY24. At consolidated level, ROC of Ceramics business was at 42%. We should be able to maintain it in FY24. At consolidated level, ROC of Electrominerals business was at 30%. This should also be stable around that.

So overall, we are cautiously optimistic about FY24 and we have done our best in FY23, and consolidate our position in FY24, that’s what we will do in this year. And thanks a lot for all your patient hearing. We will now open up for question and answer.

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Our first question comes from the line of Bhavin Vithlani from SBI Mutual Fund. Please go ahead.

Bhavin Vithlani — SBI Mutual Fund — Analyst

Thank you. Good afternoon, gentlemen, and congratulations for great performance, especially amidst the uncertain environment. So two questions, one is on the Abrasives side, we’ve seen slowdown in the revenue growth rate, especially on the standalone front. If you could help us understand, is it the slowdown in the market because we are seeing the similar trend in GRINDWELL as well? How do you see the trend next year?

The second question is on the Electrominerals business where we saw volatility in the EBIT margins in the current quarter — standalone Electrominerals business. What has driven this and what do we see as sustainable margins going forward? These are my two questions.

Sridharan Rangarajan — Director – Finance & Strategy

Thank you, Mr. Vithlani. The — I’ll take the first question in Abrasives. In — as all of you know that we have three broad segments in Abrasives, which is the precision, the industrial consumables and the retail segment. What we saw over last year is strong and continuing demand for the precision business, not only in India but also in other markets as well, especially in the North American markets. So, we believe that segment would continue to do better.

In the segment in those — the segments, which we don’t address in the domestic market — I mean in the industry the standalone business, but we address through one of our subsidiaries is also the agro processing and which has done extremely well. So, while the — overall I would say the precision business in our Group, also seeing in auto, non-auto segments, steel industry, has contributed very well into growing that part of the business.

The industrial consumable business which had — this is largely there SMEs, MSMEs, the foundry segment, has been a little muted. And obviously, the cost pressures and — the raw material cost pressures which impacted the abrasives and which we were not able to pass on to this segment, also impacted I guess some of their offtake.

The retail segment which is the largest one, which is which is the fastest-growing one, also saw quite a bit of competition from lower-priced imports and that has been one area where we can definitely focus on. And we have been taking some corrective actions in terms of like from a product development for that particular segment, the channels and the organization structure, which would address that specific segment.

So, we do — we are hopeful that we would see a good turnaround in the Abrasives going forward.

N. Ananthaseshan — Managing Director

As far as the EMD business, I think you’ve done a right observation. I would like to gain you as follows. FY22, we did 9.9% and FY23 we did 14%, but then there is a margin — in quarter there is a movement which is what you were asking and also where would we stabilize.

First point is the 9.9 of FY22 should be read as 14.7 on a normalized basis because we have written off certain legal expenses relating to our Maniyar business. So, that needs to be normalized. And we also feel that FY23 should be read as — 14 should be read as 15.6 or 15.5, in around that.

So — and the last 2 years is where we have done significant changes in the operation and productivity improvement and also conversion from a traditional way of manufacturing brown fused alumina to our renewal way of manufacturing brown fused alumina, which is what caused the whole change in their performance.

Now, if you look at it, going forward we expect it should be in the range of 14.5% to 15% EBIT margin going forward. And there could be some –because of mix changes, etc., there could be quarterly ups and downs. But I think, broadly, it should be in that line.

Bhavin Vithlani — SBI Mutual Fund — Analyst

Sure, just one more question if I may. So in the last year’s Annual Report, there was a target set off, 2x revenues and 3x profits, which is roughly INR1,000 crores by 2025. Do we believe we are on track or the certain higher losses in the AWUKO and Abrasives, as you outlined, can push that some bit?

N. Ananthaseshan — Managing Director

I must get — I must tell you background of this. This was set out in 2019 as part of our long-term 5-year LTS strategy and every 5 years we do drop LTS, so this was set out then. And then subsequently, we also had the COVID hitting us and that also impacted. But I’m glad to say that from that time on what we had set out to do, both on our consol basis and standalone basis, we are there.

Sridharan Rangarajan — Director – Finance & Strategy

But I think just to make it clear that the INR1,000 crores that you are talking about as a number, I don’t know where you are getting, but I think that will not be the case.

Bhavin Vithlani — SBI Mutual Fund — Analyst

Okay, got it. Thank you so much for taking my questions.

Operator

Thank you. Our next question comes from the line of Ravi Swaminathan from Spark Capital. Please go ahead.

Ravi Swaminathan — Spark Capital — Analyst

Hi, sir, congrats on a good set of numbers. I have two questions. One is on the Ceramics and Refractories segment. If you can give the breakup between ceramics, refractories, metalized cylinders for the full year that will be great. And which are the sub segments in which you are most positive on in terms of growth? That’s the first question.

Second question, with respect to the Electrominerals business, in the Russia entity we have seen good growth. Is it because of the currency depreciation? I mean I’m just wanting to know what was the kind of volume growth that we had seen in FY23 vis-a-vis 2022? And if you can give the growth outlook for Russia, that will also be great. Thanks.

N. Ananthaseshan — Managing Director

Okay, on the Ceramic segment, I can tell you broadly, I mean we don’t give the split between refractories and ceramics, but I can tell you broadly, these two — the thermal management part of it and wear and the engineering part of the Ceramics segment addresses customers, large customers, and the project orders coming in from the end-user industries, whether it is the mining, [Technical Issues], power generation, the solid oxide fuel cells, that continues to be robust.

What’s also happened in the West Ceramics business is that while the manufacture Ceramics parts in India, the value addition happens in The Americas and in Australia where we addresses — address all the mining industry. So, that has grown pretty strongly in both these geographies and that has been another reason why Ceramics has done pretty well. The customers like in steel, carbon black, glass, ceramics, both in India and in North America where exports go and become a side, also has done quite well and we see that demand continuing.

On the Russia side, the capacities and even the production volumes have remained very close to the 90% odd despite the blip what we saw in the beginning of the year because of the war. Subsequent to that, the volumes what we have been producing are also being helped by better realization for the silicon carbide and also product mix for — when I say product mix, it’s basically market mix, and that has also helped the Russian operations.

Did I miss any — that is…

Sridharan Rangarajan — Director – Finance & Strategy

I think the exchange is the biggest reason and I think we initially told that the rate at which we converted last year versus this year, that is FY22 versus FY23, which is 0.97 versus 1.23, so obviously that is helping. Plus there is a depreciation that happened in between the year, suddenly the ruble became very strong. And then again, end of the year it started weakening.

So, these fluctuations also helped, sometimes did, sometimes did not help, but I think overall, there is a net gain and that is also contributing to the topline.

N. Ananthaseshan — Managing Director

The promising thing is that we stayed with the volumes, so volumes did not [Speech Overlap] and capacity utilization was strong.

Ravi Swaminathan — Spark Capital — Analyst

Got it. And the outlook for growth for these two segments at a consol level, both Ceramics Refractories and Electrominerals? I mean, last year Ceramics had seen 30% growth. Should we estimate similar growth or we have kind of — I mean that’s a very bumper year and you might need to tone down the growth. Is it something like that?

Sridharan Rangarajan — Director – Finance & Strategy

As I told you, we should expect a moderation and I think that’s what — I mean broadly, I commented in terms of concluding remarks. So, we should see a moderation in growth.

Ravi Swaminathan — Spark Capital — Analyst

And same is the case with Electrominerals, high single-digit growth is something that we should expect?

Sridharan Rangarajan — Director – Finance & Strategy

No, I think Electrominerals also you could see — see, because as I said that the domestic Electrominerals grew substantially well in the last 2years, but I think we should see there’s going to be a competition, because there is a softening of input material more material could come from China. And Russia is already fully optimized and there is nothing much can grow at that point, there could be some marginal growth. But I think there will be — that will be the stay-in Electrominerals. Foskor can grow, so overall we should expect a moderation.

Ravi Swaminathan — Spark Capital — Analyst

Okay, and that broad breakup, sir, percentage breakup, ceramics, refractories, met cylinder, will you be able to share?

Sridharan Rangarajan — Director – Finance & Strategy

I’m sorry, Ravi.

Ravi Swaminathan — Spark Capital — Analyst

Okay, thanks.

Operator

Thank you. Our next question comes from the line of Nitin Arora from Axis Mutual Fund. Please go ahead.

Nitin Arora — Axis Mutual Fund — Analyst

Hi, sir, thanks for taking my question. Just on the Ceramics part, is it possible to quantify the growth you are getting from your new businesses> I’m talking about the EV, the alternative energy. And you said the moderation here in the business, but can you throw some light over the next 2 years to 3 years, because now Ceramics is almost like 20%, 21% of our overall sales on a consol basis, in the next 2 years to 3 years where do you see this proportion going up?

And also if you can help us in terms of profitability, because I’m assuming if it’s 20%, 22% of sales, it is closer to 30% for the — on the PAT, you can correct me if I’m wrong, so nothing number specific, if you can quantify where do you see the direction of Ceramics going into the next 2 years to 3 years and how the new business is growing on the Ceramics side? These are the two questions.

Sridharan Rangarajan — Director – Finance & Strategy

So, Ceramics, I think when I say moderation is that see we have been — last year we grew at about 26%, that — from that moderation would happen, that’s what my comment is, largely coming from the refractory portion of it where we feel that standalone we expect both these businesses would grow well and we feel that it should be high-teens. We should — they should do that. But I think there will be some headwind in other parts of the business.

So overall, we should be able to grow these two businesses, that is refractory and ceramics put together, as well as our overseas business in Australia and America, which are also growing really strong. We should see a trajectory of at least kind of a 20% CAGR going forward. I’m talking — you’re talking a 3-year window, so I’m just giving a broad number here.

Operator

Thank you. Our next question comes from the line of Rahul Gajare from Haitong Securities. Please go ahead.

Rahul Gajare — Haitong Securities — Analyst

Yeah, good afternoon, sir. You’ve given — you’ve had very strong performance from your Russian operation. Can you talk about your ability to transfer money from Russian subsidiary to Indian parent, given the sanctions and all those issues which are there?

Sridharan Rangarajan — Director – Finance & Strategy

So, I think we don’t have any issues on all the purchases that we make. We also have no issues in terms of the sale that we make to Russia. We are able to collect as well as pay, not only from India, from other geographies, and that is not an issue. As far as the dividend outflow from Russia, there are restrictions purely by import imposed by the Russian Government. So, we are going as per the policies of the Russian Government, which definitely is — I mean, we are able to transfer but unable to transfer fully because there is a cap in terms of what they can transfer.

So, we are trying to make use of that money more in the local capex programs and develop the business as much as possible, but I think you should expect some stability forthcoming and that impact should come forth.

Nitin Arora — Axis Mutual Fund — Analyst

Okay. Sir, my second question is on the capex. You’ve spent nearly INR300 crores in this year. Over the next couple of years, could you touch upon your capex plans and where specifically would you want to spend money, including M&A activity? Thank you.

Sridharan Rangarajan — Director – Finance & Strategy

So, let’s divide this year’s capex, though we spent about INR300 crores, of that close to INR50 crores is the purchase of the land in Hosur which we did in December. And so, these are one-offs, I mean we can’t expect these to continue. And then the capex at this point in time, if you exclude, that stand-alone will be about INR100 crores, but I think lot of this is probably bottleneck — debottlenecking of certain capacities that we have and certain process improvement related capex is what we have spent.

So, I feel that we can’t expect this kind of a repeated capex program going forward. This is a broad gateline, I would say. So if you look at that, we have broadly about INR180 crores of depreciation at consol level, right. So somewhere in that range, INR180 to INR200 crores of capex is normally one can expect.

And there are some extraordinaries, as I told, this time that we had INR50 crores of land that we bought. So, if you exclude that, I think we are still very much in line with broad depreciation that we have incurred. Well, as far as the acquisition, we don’t have a number in mind. But as we progress, as we get something good, we will continue to look at it.

N. Ananthaseshan — Managing Director

Just to add on, over the last couple of years, we have spent — invested in minerals business in terms of increasing capacities and that continues in terms of modernizing the plants there. You know that minerals business means a lot of emissions, and that’s also something which we are very clear about, that we need to have very clean processes. So, we’ll spend money on that as well. We would focus investments obviously in the Ceramics part of the business and also on Abrasives in the domestic market.

Nitin Arora — Axis Mutual Fund — Analyst

Sure, sir. Thank you very much.

Operator

Thank you. Our next question comes from the line of Deepesh Agarwal from UTI AMC. Please go ahead.

Deepesh Agarwal — UTI — Analyst

Yeah, good afternoon, gentlemen, and congrats for good numbers. My first question is, in one of the comments you mentioned that Abrasives is likely to see a strong growth in FY24. Can you throw some more light about the price they’re confident [Phonetic]?

Sridharan Rangarajan — Director – Finance & Strategy

Obviously growth in 2024.

N. Ananthaseshan — Managing Director

Obviously growth in 2024. See — and we’re looking at a combination of the end-user markets, so the — one of the growth in end-user markets that we had risk or whether it’s in the autoie, autocom [Phonetic], the agro costs the same and also the infrastructure retail segments. So, that’s something which we are looking at.

And I believe that infrastructure housing saying and growth in India, especially in the Tier 2, Tier 3 cities, we addressing the retail part of the business. And we also see the growth in SME sector in the Industrial clusters, largely driven by the exports-led growth for — in general engineering. And in the precision in — both in the auto, when I say auto I’m talking about IC and non-IC, and in the mobility which I call out the gear groundings and steel, aerospace, etc., both in the domestic and in the international business segments. So, I would broadly club everything together and would expect a growth of about 10% overall.

Deepesh Agarwal — UTI — Analyst

Understood. The second question is when would we expect to go into commercial production phase of some of the key materials we are working on like high quality silicon carbide, synthetic graphite, [Technical Issues]?

Denesh Kumar — Senior Manager, Strategic Planning

I think it could take some more time because there are multiple qualification processes plus our capability to meet certain standards that the industry would want. These are currently being on at this time. So that’s what we are currently — there is a progress and I think as and when we mature to go to the next step, definitely we will be more than glad to share with you.

P. Padmanabhan — Chief Financial Officer

And some of the future capex is obviously in the same…

Deepesh Agarwal — UTI — Analyst

Okay. And last a book keeping question, if I see the standalone financial, in the fourth quarter there seems to be a sequentially significant decline in employee costs and other expenses from your usual run rate. What [Indecipherable]?

P. Padmanabhan — Chief Financial Officer

It is mainly arising out of the actuarial assumptions because the interest rates are going up. Therefore, the shift between the P&L and the OCI will always be there. That is why it is giving a drop.

Deepesh Agarwal — UTI — Analyst

And for other expenses?

P. Padmanabhan — Chief Financial Officer

Other cost, see, in the earlier quarters there repairs and maintenance, so the maintenance were not there in the later part. That is why the reduction is same.

Deepesh Agarwal — UTI — Analyst

So, this is a sustainable number or…

P. Padmanabhan — Chief Financial Officer

You should always look at the full year and be aided from that. There could be some small changes in the [Speech Overlap], yeah.

Deepesh Agarwal — UTI — Analyst

Understood. Thank you.

P. Padmanabhan — Chief Financial Officer

Thank you.

Operator

Thank you. Our next question comes from the line of Saif Gujar from ICICI Prudential AMC. Please go ahead.

Saif Gujar — ICICI Prudential — Analyst

Thanks for the opportunity. So, my question is regarding the retail sector…

Sridharan Rangarajan — Director – Finance & Strategy

Sir, you are not audible. Could you be louder please?

Saif Gujar — ICICI Prudential — Analyst

Am I audible now, sir?

Sridharan Rangarajan — Director – Finance & Strategy

Yeah, much better.

Saif Gujar — ICICI Prudential — Analyst

Yeah, so my question is regarding the retail segment. So, you talked about retail segment and imports which have been inflexing an impact on pricing. So, what proportion of our appraisal sale would be retail, if you can break it down, retail segment for us?

Sridharan Rangarajan — Director – Finance & Strategy

Broadly, I would say, currently about 30%, 35% is what we do.

Saif Gujar — ICICI Prudential — Analyst

Okay, and you talked about imports which are on a rise. So how much — if you can quantify what impact it has done to our pricing. And so, if we are talking about flat growth year-on year as well as o QoQ, would that mean that it is only attributable to volume growth and we have taken some price cuts or something?

Sridharan Rangarajan — Director – Finance & Strategy

So, the imports of — on the retail side has always been there. So, the question is, at what prices are they coming in and how they get distributed etc. So what we have been focusing in is not on the entire breadth of the retail portfolio but in segments where we don’t have what I would call — we have a strength, which is basically in terms of making much more safer products and those products obviously are little more expensive than what is available in the market.

The focus now is to see how do we improve our processes to ensure that we stay with our quality and safety part of the products, but make it more productive and thus more competitive going forward. As I said earlier, it is not just the product, we also are looking at a retail organization which would increase our reach and presence for these segments.

Saif Gujar — ICICI Prudential — Analyst

Okay. And so, the imports have now stabilized or the market share — we can gain market share from them now?

Sridharan Rangarajan — Director – Finance & Strategy

That’s what we aim to.

Saif Gujar — ICICI Prudential — Analyst

Okay, but no influx as such, right, it remains stable now, at least?

Sridharan Rangarajan — Director – Finance & Strategy

Yes.

Saif Gujar — ICICI Prudential — Analyst

Thanks.

Operator

Thank you. Our next question comes from the line of Alok Ranjan from IIFL AMC. Please go ahead.

Alok Ranjan — IIFL — Analyst

Sir, thank you for this opportunity. Sir, just one question. How should we read opening of China in conjunction with the lower PMI which has been reported there in terms of global supply and aggressiveness in the market, or is the China Plus One very strong to mitigate that?

What we are seeing in other sectors, not in the cap goods, but the other sectors, a lot of dumping, especially in the commodity, has started to happen from China. So, could you give some sense, like whether their production or capacity have come back to normal in China, particularly the domestic demand in China is lower, whether they are coming into the global markets and coming at lower questions on how we are getting impacted by that?

Sridharan Rangarajan — Director – Finance & Strategy

See, the China Plus One strategy gained strength or gained currency just after the COVID. I think it continues to be there because especially in global markets, customers are looking at reliable and stable source of supply and they want to have robust supply chains. And we are seeing that happen in our industry.

So, compared to — I mean, all of us know that China is still the largest manufacturer of minerals in the world and abrasives in the world but despite that we are seeing many customers wanting to source from us. And that’s also one of the reasons why we are positive about the MB business.

Cost in China is also going up. It is not that they will continue to be a very low-cost layer. Employee cost, labor cost, energy cost are going up and it have to be seen how competitive they can be in the long run. The company in the gap I would say is coming down significantly.

Alok Ranjan — IIFL — Analyst

Sir, just to — just a question associated to that. Can we rate competitiveness of India versus like an Akamai versus the China manufactured product, if the difference is like 5% to 7% China Plus One as works but if it obviously till higher than 10% customers, the season making can be very different.

So, can we say that since our cost of production may be somewhere in the range of around, let’s say, 5% to 7%, maybe higher than China and that’s why we can be competitive and China Plus One works. But if it will be higher than 10% or something, then obviously the preference can be different?

Sridharan Rangarajan — Director – Finance & Strategy

Yeah, I would — If you look at the entry barriers, 5%, 6% depending on — 7%, depending on product groups and some we don’t have. Broadly, I think we have kind of narrowed the gap and our cost of production compared to that of China should be in the range of about 10%, 12%.

What also helps also helps in our favor is that many other Western customers want to source from companies who are compliant, compliant to know their energy, I mean their environmental standards, not only the quality standards. So now, that has become also a major driving for companies to choose their partners in the value chain. So, there is a small premium that you’re willing to pay. And if we have stable quality, supplies and quality, we definitely have an opportunity here. Got it, sir, perfect. Thank you, sir, that’s all from me. Thank you.

Operator

Thank you. Our next question comes from the line of Harshit Patel from Equirus Securities. Please go ahead.

Harshit Patel — Equirus Securities — Analyst

Sir, thank you very much for the opportunity. My first mission is on the standalone Electrominerals business. We used to do annual d sales of close to INR400 crores in the pre-COVID period. Now, we have launched FY23 at almost INR700 crores. So, that’s a growth of almost 70% vis-a-vis free-COVID era. So, how much of this 70% would have come from better pricing versus volumes in your opinion?

N. Ananthaseshan — Managing Director

Harshit, we — as I was mentioning earlier, we have a lot of significant work in terms of, one, modernization of our factories, when I say modernization consequent to the process changes that we’ve made to bring about a new product which is a synthetic alumina. Now, that has been able to — we have been able — we are able to produce more volume from the same assets and also much lower energy costs, so which has made it very competitive.

In addition to that, we have modernized our furnaces to make them continuous furnaces, which means that the downtimes are much lower and productivity is much higher, yields are much better. And supporting that is the investments have made in all the grain processing facilities, which is able to handle the volumes and also the flexible nature of the product mix.

So, it’s a combination of all this, which has given us possibly a capacity increase from about 35,000 tons to 70,000 tons. So, that is definitely reflecting in the numbers that we see here.

Harshit Patel — Equirus Securities — Analyst

Understood. Sir, just a follow-up to that, you previously mentioned that overall standalone EMD margins for FY23 should be read as 15.5% vis-a-vis 14% reported. I believe there has to be some one-off in the fourth-quarter margin because margins were very low at only around 9%. So, could you explain…

Sridharan Rangarajan — Director – Finance & Strategy

No, we said that.

N. Ananthaseshan — Managing Director

We mentioned that.

Harshit Patel — Equirus Securities — Analyst

Sir, what was the one-off over there? I mean what exactly happened in the fourth quarter?

Sridharan Rangarajan — Director – Finance & Strategy

Yeah, we have taken some look at some of the inventories relating to the Electro minerals and that’s what we have done that.

Harshit Patel — Equirus Securities — Analyst

Okay, understood, sure. Sir, my second question is on our capex. While we have done almost INR300 crores of capex at the consolidated level, the standalone capex including land prices stood at around INR150 crores, INR160 crores. So, that means we have incurred almost INR140 crores at subsidiary level. So, could you explain where we have invested the money? Is this mainly pertaining to Russia or something else as well what we have — what we would have done?

Sridharan Rangarajan — Director – Finance & Strategy

It includes Russia, Sterling Abrasives and a few other subsidiaries put together.

Harshit Patel — Equirus Securities — Analyst

Okay. Anything that we would have done in the [Indecipherable], I mean any money we would have put to probably [Speech Overlap]…

Sridharan Rangarajan — Director – Finance & Strategy

Normal capex.

Harshit Patel — Equirus Securities — Analyst

Okay, sure sir, understood. That will be from my side. Thank you very much for answering my questions.

Sridharan Rangarajan — Director – Finance & Strategy

Thank you.

Operator

Thank you. Our next question comes from the line of Mihir from Carnelian Capital. Please go ahead.

Mihir Manohar — Carnelian Asset Management — Analyst

Yeah, hi sir, thanks for giving the opportunity and congratulations on a good set of numbers. Sir, largely wanted to understand the Ceramics part of the business I mean, we have seen margins improving Ceramics, particularly this financial year, for both our parent business as well as the consolidated level also from the 21% to 22% — we have reported 21% to 25% margins. But with — now the — I mean the business is going to be slightly muted, next year the growth had — coming down.

So, I just wanted to understand what to understand, what led to the improvement in margins this financial year? Are there any process improvements or are there any specific structural changes or largely volume-related, so how should we see the margins over there?

And the second question was on the clinical carbide. I mean the application that we are looking for, high-purity silicon carbide, so when should one expect commercialization of — on this front? And would this be material for us at the starting initial years or it won’t be that case? So, just wanted to get an understanding around that.

Sridharan Rangarajan — Director – Finance & Strategy

Okay, on the Ceramics, we do have for — what I would call, as I said earlier, the Ceramics part of it and technical — technical ceramics and also the thermal ceramics part. And as I said, the project orders for the terminal part, which is into glass ceramics, carbon black, chemical process industries, all of them had a pretty robust demand and these are designed made to order, made to design and hence has a better margin. than a commodity refractory.

Same is the case for the tech and — tech ceramics where we supply to the renewable — I mean new energy businesses like solid oxide fuel cells, some part of mobility business and also the value-added portion, which is the line ceramics, which goes out again as designed for customers, specifically in markets like in Australia and in America.

So, a combination of going up the value chain, addressing opportunities in design and installation and at the same, the markets with better capacities or better volumes of Ceramics from India has contributed to all this.

On the outlook front, I think broadly these are the directions, which we should sustain. And while there will be a little bit of an — ups and downs, but this is a growing segment.

Mihir Manohar — Carnelian Asset Management — Analyst

Sure, just come to your silica carbide side and that question…

Denesh Kumar — Senior Manager, Strategic Planning

Silicon carbide, we are in the process of qualification, as Mr. Sridhar said, and while we are making smaller investments in terms of the — what I would call up, balancing of — balancing processes, it would take about a few quarters to get into a commercial scale.

Mihir Manohar — Carnelian Asset Management — Analyst

Sure. On could we see this is a material portion for us in the initial part of the year for that one specifically.

Sridharan Rangarajan — Director – Finance & Strategy

Sorry, you should — you are not audible at all. We find it difficult to listen to you.

Mihir Manohar — Carnelian Asset Management — Analyst

Am I audible now?

Sridharan Rangarajan — Director – Finance & Strategy

Yeah.

Mihir Manohar — Carnelian Asset Management — Analyst

Yes, sure. So, I just wanted to understand that the initial part of the year, I mean, should we see this business as material or that’s not been the case?

N. Ananthaseshan — Managing Director

You’re talking about this high-purity silicon carbide?

Mihir Manohar — Carnelian Asset Management — Analyst

Yeah, yes.

N. Ananthaseshan — Managing Director

Yes, so we are not considering that in the sales at all now.

Mihir Manohar — Carnelian Asset Management — Analyst

That’s it from my side. Thank you very much.

Operator

Thank you. Our next question comes from the line of Bhavin Vithlani from SBI Mutual Fund. Please go ahead.

Bhavin Vithlani — SBI Mutual Fund — Analyst

Sir, thank you for the follow-up. Could you — I mean, this is a follow-up to the earlier question. If you could help us on the progress during the year on your initiatives on high-purity silicon carbide and high-purity graphite and graphene, which will be going towards the battery operations? Where are we in that journey? What’s the progress during the year? That’s one.

And second is on the sort of SOFC part, we understand the next version of the SOFC has a significant higher percentage of Ceramics, so we historically have been highlighting about not arithmetic but geometric growth. So, what part of that business is driving our 20% CAGR guidance on two Ceramics front? These are the two questions.

N. Ananthaseshan — Managing Director

So I think, see, HPSIC, as we said that we have established the product, it meets the standard. We are going to various testing process, as I said that it’s a very lengthy process and we are very much on it and we would share more details as we really get into a commercial-scale, which is what we communicated. The progress has been good to satisfactory. We would be more than glad to share as and when the commercially get into that.

As far as the solid oxide fuel cells where you said that the next range of products, definitely they are very much working with our customer and the progress there also is where interesting and it is also — gives lot of hope that we will — as and when that program gets complete also we should get a good share of business. And again I think we will be more than glad to share as and when we have more firm details coming out of that program.

Mihir Manohar — Carnelian Asset Management — Analyst

Sure. And the progress on the high-purity graphite and graphene liquidity to fight and graphene that we’re working on for the battery operations.

N. Ananthaseshan — Managing Director

Yeah, so as far as graphene is concerned, I think it’s definitely good progress. Product is established. We are trying to work on multiple fronts, and I think — so graphene is a product where it’s not going to be sold in scale but I think it’s going to be sold in niche applications. So, we have to work in multiple areas, which is what we are doing.

I think two broad themes is that how graphene can improve our products, that is theme one which is basically better productivity, better performance in all our products that we currently manufacture. The second theme is using graphene for various other applications, which is like battery, tire manufacturing, cement, various applications that we can use that, which is what we are going through at this point in time. It’s a very, very lengthy time-consuming process, but the progress has been good. As far as the high-purity graphite is concerned, it’s still on a very test level basis at this point. We will take more time to get to the next step.

Bhavin Vithlani — SBI Mutual Fund — Analyst

Sure, just a follow-up on the high-purity SIC. Recently Bosch announced that for the semicon investments in the US they are opting for high-purity SIC rather than the other products. So, are we — I mean, would our application also be considered and are we working with them?

N. Ananthaseshan — Managing Director

What Bosch did is that they went ahead and acquired SIC fab which manufactured using silicon carbide the chips that goes into various applications rather than silicon-based wafers, which I think we all know that SIC-based wafer has got an edge over silicon-based wafers in certain applications for specific reasons and I think this is very much acknowledged worldwide and that’s why not only Bosch, many people are getting into this. Infineon has made a significant investment. Similarly, many companies have made substantial investment in these areas.

So where we come is that in that value chain, obviously we will be suppliers to these manufacturers and that is how we will link into the value chain program that creates a chip-based out of silicon carbide.

Bhavin Vithlani — SBI Mutual Fund — Analyst

Appreciate your answers. Thank you so much.

Operator

Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. I now hand the conference over to Bhoomika Nair from DAM Capital Advisors Limited. Please go ahead.

Bhoomika Nair — Analyst

[Technical Issues], management, for giving us the important to host the call. Wishing you all the very best, sir, and thank you to all the participants.

Sridharan Rangarajan — Director – Finance & Strategy

Thank you all so much for logging in, and looking-forward to seeing you again in the next quarter.

N. Ananthaseshan — Managing Director

Thank you.

G. Chandramouli — Advisor, Investor Relations

Well, thank you.

Operator

[Operator Closing Remarks]