IFGL Refractories Limited (IFGLEXPOR) Q3 FY23 Earnings Concall Transcript

IFGL Refractories Limited (NSE:IFGLEXPOR) Q3 FY23 Earnings Concall dated Feb. 07, 2023.

Corporate Participants:

Kamal Sarda — Director and Chief Executive Officer

Analysts:

Sahil Sanghvi — Monarch Networth Capital Limited — Analyst

Prachi Sharma — Ace Capital Pvt Ltd — Analyst

Sanjay Nandi — Ratnabali Investment Pvt Ltd — Analyst

Anuj Shah — Shrinath Securities — Analyst

Riya Verma — NR Securities — Analyst

Keshav Garg — Counter Cyclical Investments Pvt Ltd — Analyst

Snehal Jain — SK Securities — Analyst

Kanika Kothari — Kothari Securities — Analyst

Karan Mehra — Mehta Investment — Analyst

Saket Kapoor — Kapoor & Company — Analyst

Devendra Pandey — DP Financial Advisory Services — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Q3 FY ’23 Earnings Conference Call of IFGL Refractories Limited Hosted by Monarch Networth Capital. [Operator Instructions]

I now hand the conference over to Mr. Sahil Sanghvi from Monarch Networth Capital. Thank you, and over to you, sir.

Sahil Sanghvi — Monarch Networth Capital Limited — Analyst

Yeah. Thank you, Rutuja. Good afternoon to all. On behalf of Monarch Networth Capital, we welcome you all to the IFGL Refractories 3Q FY ’23 earnings call. We are delighted to host the management, and from their side we have Director and CEO, Mr. Kamal Sarda; and also along with him is SGA, the investor relations advisory team.

So without any much time, I will hand over the call to Kamal Sir for the opening remarks. Thank you. And over to you, Kamal Sir.

Kamal Sarda — Director and Chief Executive Officer

Yeah. Thank you, Sahil and thank you, Vatsal [Phonetic]. So I will — what I’ll do is our Managing Director, Mr. James McIntosh, could not join. He’s somewhere travelling, so his phone cannot be connected. So I’m reading out what he had to say and then rest of the questions I will be taking up.

So the speech of Mr. James McIntosh, what I’m trying to read is, good afternoon, ladies and gentlemen. Thank you for joining us on IFGL Refractories Limited Q3 and nine months FY ’23 earning conference call. I hope you and everyone around you is in good health. Along with me on the call we have Mr. Kamal Sarda, Director and CEO; Mr. Amit Agarwal, CFO; and SGA, our Investor Relations Advisors.

We have already uploaded the results and presentation of the stock exchanges and I hope everybody had a chance to go through. As we all know, this sluggish global economic environment continues where the inflation risk materialized along with other major headwinds, namely the Russian-Ukrainian war, China’s lockdown. Although the Chinese lockdown seems to have come to an end, the Russia-Ukraine war continues the inflationary pressures ignited by the post-lockdown supply and demand imbalances.

In particular, in Europe, where dependence on Russian gas supply is high, economic activities as well as confidence are heavily affected by the energy crisis, especially throughout the winter months. In the USA, the Fed’s aggressive interest rate hikes and strong U.S. dollar are continuing to stress the capital inflows in the emerging economies, increasing the financial stress of the indebted countries and consumers. Rising interest rates and high inflation will affect investment and consumer spending. This, as we predicted last quarter, has affected the output of steel and steel-intensive sectors such as construction, machinery, and consumer durables globally.

A shining light in the global steel industry is India, which as you all know, is the second largest steel producing nation, but more importantly, where our company is the fastest growing. Last year, the steel industry in India grew about 6% at a time when most of the steel countries were slowing down. And this year, even more impressively, we’ll grow by 7%, which is among the top 10 steel producing countries it will be — India will be the only major country to record growth. Obviously, our focus on Indian market and investing in India is in the right strategy as we are confident of our country’s continuing strengthening.

Update on our major projects in the company. Our new R&D and technology center in Odisha is on track to be operational in the first half of 2023-’24. This technology center will enable us to develop better products and to increase our understanding of material use in each application. With a goal of strengthening the company as worldwide supplier of specialized refractories and provider of services to the producers of iron and steel. Phase 2 of our newest plant in Visakhapatnam is now complete, and we have started receiving orders for the new products for our company, allowing us to enter new markets in the RH degasser snorkels, large precast shapes, combined with our Computational Fluid Dynamics capabilities.

As we have said in the past, many of our new products will be new to India and will improve our customer processes in our ladle and tundish contracts. Projects at our overseas subsidiaries are also going well. In the U.S., we have completed the relocation and modernization of our clay graphite manufacturing plant for the foundry products in Michigan and have completed the initial customer trial phase successfully, and we’ll now look to build the business.

In the U.K., largely automated manufacturing system for our activated gel casting project is almost ready to go with the robots already installed and being programmed, allowing us to manufacture larger, more complex, and high-value products than before.

In Germany, our new plant expansion has commenced with the foundation of the new hall being laid and the project completion date middle of new year. Our new modernized website is nearing completion to go along with our recently introduced corporate identity and is aimed at improving our interface with customers, prospective employees, suppliers, and all other stakeholders.

With this, let me now hand over the call to Mr. Kamal Sarda. So I’m already there. So I’ll take over on the financials. Let me just give you a short brief on the capex first. As mentioned earlier, the expected project cost was INR166 crores. However, it has been amended to INR177 crores, majorly due to new outlay of building, a new lab in Kandla, and changes in structural plan and design. We have tied up a term loan of INR120 crores for this and rest will be financed by internal accruals. So far, we have spent and/or committed over 50% of this and are very hopeful that we’ll be able to complete all the planned projects within FY ’24.

With this enhanced capacities and new product capabilities, we expect to improve the scale of our business, which will lead to our scale benefits and operating leverage playing out in the long term of the company. We foresee a huge demand of refractory due to the very big allocation of capex and infra by the Indian Government to the extent of INR10,00,000 crores in the budget 2023, which will boost demand for steel and consequently of refractories. And these efforts are going to be higher and higher by the Government of India in the years to come.

Let me give you a brief on financial highlights for Q3 FY ’23. On standalone, the total income marginally decreased by 6% year on year to about INR184 crores. EBITDA stood at 29.INR6 crores, down by 16%. EBITDA margins were about 16.1% for the quarter. PAT was down by 30% year on year to about INR12.3 crores.

[Indecipherable] consol, total consolidated income in quarter three marginally increased to about INR318 crores. EBITDA for quarter three was down by 7% to INR36.7 crores. Consolidated EBITDA margins were 11.5%. PAT was down by 16% to INR15.8 crores. As regards liquidity position, we remain to be net debt free with a strong balance sheet. Cash and cash equivalents stood at about INR230 crores as on 31st December 2022.

I would be happy to take any questions, queries on the business. I now hand over to the operator.

Questions and Answers:

Operator

[Operator Instructions] The first question is from the line of Prachi Sharma from Ace Capital. Please go ahead.

Prachi Sharma — Ace Capital Pvt Ltd — Analyst

Hi, sir. Good afternoon. Sir, I just have two questions on my end. Firstly, post our capital expansion, what will be the capacity for all the three plants? Secondly, what will be the potential revenue from the planned capex?

Kamal Sarda — Director and Chief Executive Officer

Your voice was cracking, but I have understood what you want to say. The product capacities are in various — the expansion are in various products. The product capacity will be difficult in such a short time. We normally take our sales to capex ratio to work 3 to 3.5 times. So whatever be our capex, you can easily say 3 times will be your revenue potential.

Operator

Does that answer your question, Ms. Prachi?

Prachi Sharma — Ace Capital Pvt Ltd — Analyst

Yeah. Thank you, sir. Thank you.

Operator

Thank you. The next question is from the line of Sanjay Nandi from Ratnabali Investment Private Limited. Please go ahead.

Sanjay Nandi — Ratnabali Investment Pvt Ltd — Analyst

Thank you, sir. Thank you for the opportunity. Sir, couple of questions from my side. Sir, what has been the volume growth in this particular quarter?

Kamal Sarda — Director and Chief Executive Officer

See this quarter has seen a slight flattish on volumes. In fact, maybe a slightly drop. I don’t have those figures, but there has been a slight drop in volumes, and I can only say that our Kandla plant was not operating to the 100% levels. So it was operating at about 65%, 70% levels. There has been a volume growth primarily on account of the demand slowdowns in Europe, our business in CIS countries, our business in other West Asian countries put together.

Sanjay Nandi — Ratnabali Investment Pvt Ltd — Analyst

Okay. Sir, on Indian operations, we could find a drop of roughly INR20 crores odd — INR20 crores to INR30 crores odd in the top line, like India from last quarter of September quarter. So is it because of that volume drop, or is it because of the drop in realization as well?

Kamal Sarda — Director and Chief Executive Officer

Yeah. So on the standalone you’re talking, no?

Sanjay Nandi — Ratnabali Investment Pvt Ltd — Analyst

Yeah, yeah, exactly from INR211 crores odd in September ’20 to the sales drop to INR180 crores odd in December ’22 quarter, is it because of volume drop or there are…?

Kamal Sarda — Director and Chief Executive Officer

Sorry?

Sanjay Nandi — Ratnabali Investment Pvt Ltd — Analyst

Is it because of volume drop? Because if we go by the EBIT margin, so there the margins remains flat. It’s on higher side only compared to last quarter. So what has led to the reason of that, sir?

Kamal Sarda — Director and Chief Executive Officer

So there is the — primarily, as I said, a bit of a margin drop also, and it could be a product mix of basket of domestic to export sales could be a reason for this overall realization part. But as I mentioned that the volume growth drop has been due to our poor sales, I would say, rather no sales in the CIS countries, lower sales in the Europe market, and all those put together. So export market has taken a bigger hit. Our domestic market has been very, very good.

Sanjay Nandi — Ratnabali Investment Pvt Ltd — Analyst

So in Europe market we could see like some spike in the sales. Last quarter we registered a sales of INR56 crores odd, whereas in this quarter we registered sales of INR61 crores odd. But the EBIT margin has been battered. We used to maintain a 4% EBIT margin, which is like minus 2% in this quarter.

Kamal Sarda — Director and Chief Executive Officer

I don’t know what triggers are you talking of, Mr. Nandi.

Sanjay Nandi — Ratnabali Investment Pvt Ltd — Analyst

I’m talking about that, sir, the country-wise breakup which you give, the EBIT margin and the sales on a consol basis.

Kamal Sarda — Director and Chief Executive Officer

Okay.

Sanjay Nandi — Ratnabali Investment Pvt Ltd — Analyst

On the consuming sales you have given, sir, INR56 crores odd of sales in the month of — in the September quarter, whereas in this quarter we have…

Kamal Sarda — Director and Chief Executive Officer

That is primarily our sale from the individual operations. That means that is the sale which our U.K. operation has done and the German operation has done in those countries. Those may have marginally improved there for some reason or the other. But our sales from India to those countries have been lower.

Sanjay Nandi — Ratnabali Investment Pvt Ltd — Analyst

Okay. And why the EBIT margin has dropped significantly, sir? Is it because of the cost pressure or certain change in the sales mix?

Kamal Sarda — Director and Chief Executive Officer

Compared to which period you are talking?

Sanjay Nandi — Ratnabali Investment Pvt Ltd — Analyst

Compared to last — we used to maintain an EBIT margin in the Europe of roughly 4% odd, whereas in this quarter we have dragged a loss of 2% odd in European regions.

Kamal Sarda — Director and Chief Executive Officer

So primary reason is our German operation. Normally the quarter three of our financial year and quarter four for their calendar year is always lower in sales. German operation has always seen a historical — December month is 15 days sales are gone usually. So December month, this quarter three will always remain lower in Europe.

Sanjay Nandi — Ratnabali Investment Pvt Ltd — Analyst

Got it, sir. And in India also we could find some spike in the EBIT margin. Is it because of the drop in certain costs or — in raw material cost or something like that, sir? Like in last quarter we were having a 9% kind of margin whereas this time it’s 11%.

Kamal Sarda — Director and Chief Executive Officer

Yeah, so primarily there have been some softening of costs also. And so overall, raw material costs are also getting softened, and the ocean freight, which is one of the most significant cost structure, which is also getting softened a bit, not significant, but marginally, yes.

Sanjay Nandi — Ratnabali Investment Pvt Ltd — Analyst

Can you please quantify…?

Kamal Sarda — Director and Chief Executive Officer

And, of course, the product mix also can make a big difference.

Sanjay Nandi — Ratnabali Investment Pvt Ltd — Analyst

Sir, can you please quantify…?

Operator

Sorry to interrupt you, Mr. Nandi. May we request you to please rejoin the queue. We have participants waiting for their turn.

Sanjay Nandi — Ratnabali Investment Pvt Ltd — Analyst

Sure, sure.

Operator

Thank you.

Sanjay Nandi — Ratnabali Investment Pvt Ltd — Analyst

Sure, ma’am. I’ll jump back in the queue. Thank you.

Operator

The next question is from the line of Anuj Shah [Phonetic] from Shrinath Securities [Phonetic]. Please go ahead.

Anuj Shah — Shrinath Securities — Analyst

Hello. Thank you. Sir, can you tell us the export and domestic revenue? Can you give us a breakup for Q3 and nine months FY ’23?

Kamal Sarda — Director and Chief Executive Officer

I don’t have readily. I think maybe we can — I’ll request Vatsal to coordinate with you. Okay?

Anuj Shah — Shrinath Securities — Analyst

Hi, sorry, can you hear me?

Kamal Sarda — Director and Chief Executive Officer

Yes, yes, yes.

Anuj Shah — Shrinath Securities — Analyst

Yeah. Okay, fine, sir. Can you please share some insight on the refractories demand from the Indian markets, how have they been in the last few years?

Kamal Sarda — Director and Chief Executive Officer

The market, the Indian steel I think I read in my speech, part of it is written by Mr. James McIntosh, is that Indian market — Indian steel market is growing 6% to 7% CAGR now. Indian refractory industry looks to be very exciting, very good. And also now with this in the budget they increased allocation on the infrastructure spending. That will also help the core sector like steel, and, of course, in return our industry will benefit. So we feel that Indian market looks to be very, very good.

Anuj Shah — Shrinath Securities — Analyst

Okay. All right, sir. Thank you.

Kamal Sarda — Director and Chief Executive Officer

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Riya Verma [Phonetic] from NR Securities [Phonetic]. Please go ahead.

Riya Verma — NR Securities — Analyst

Hi, sir. Thank you for the opportunity. Am I audible?

Kamal Sarda — Director and Chief Executive Officer

Yes. Can you speak a bit loud please?

Riya Verma — NR Securities — Analyst

Yeah, sure. So I just had one question. Do you foresee further EBITDA margin compression in the view of rising inflation going ahead?

Kamal Sarda — Director and Chief Executive Officer

As of now, I think our feeling is that Europe’s major problems are over because they have now been able to wither away the peak of winter. The situation is expected to improve from here.

Riya Verma — NR Securities — Analyst

Okay. Thank you, sir. That answers my question.

Kamal Sarda — Director and Chief Executive Officer

Yes, yes. Thank you.

Operator

Thank you. The next question is from the line of Keshav Garg from Counter Cyclical PMS. Please go ahead.

Keshav Garg — Counter Cyclical Investments Pvt Ltd — Analyst

Sir, I wanted to understand that what kind of price cut have you taken on your products on a blended average basis?

Kamal Sarda — Director and Chief Executive Officer

There has been no significant price cuts in the last quarter.

Keshav Garg — Counter Cyclical Investments Pvt Ltd — Analyst

Okay.

Kamal Sarda — Director and Chief Executive Officer

We’ve been able to maintain our prices because the prices — the costs are now going down. So possibly in the coming quarters maybe we will be able to pass on a bit. But still we have old inventories and old things, so maybe in this quarter there has been no price changes.

Keshav Garg — Counter Cyclical Investments Pvt Ltd — Analyst

Sir, so in that case, how come our operating margins have not improved since quarter on quarter all the input prices must have gone down since crude itself is down and freight rates, etc., everything is down quarter on quarter and Y-on-Y, but still there is no improvement in the operating margins.

Kamal Sarda — Director and Chief Executive Officer

If you go through our quarterly results on a standalone basis, if you look at the last quarter, previous quarter of September end, we had an EBITDA margin of about 14%, and now it is about 16%, so there has been an improvement in this quarter.

Keshav Garg — Counter Cyclical Investments Pvt Ltd — Analyst

Right, right. Sir, also on the consolidated basis if we see the Americas business has done really well for the this quarter as well as for the nine-month period. So is this a sustainable number that we are looking at around INR3.7 crores PBIT on a quarterly basis?

Kamal Sarda — Director and Chief Executive Officer

Yes, yes, please.

Keshav Garg — Counter Cyclical Investments Pvt Ltd — Analyst

And sir, European business, in your judgment, when is it expected to break even?

Kamal Sarda — Director and Chief Executive Officer

Ni, it is already been positive side. There’s no negative as such.

Keshav Garg — Counter Cyclical Investments Pvt Ltd — Analyst

No. If you see the consolidated segment results, there is a loss of INR1 crores in this quarter.

Kamal Sarda — Director and Chief Executive Officer

It is possibly for one particular quarter. As I mentioned in my — so you have to go through the entire speech. I mentioned in my previous answer that December quarter for Hoffmann Ceramic is always a lower side.

Keshav Garg — Counter Cyclical Investments Pvt Ltd — Analyst

Right. So basically, it’s a one-off and going forward we are expecting this division to break even.

Kamal Sarda — Director and Chief Executive Officer

Yes, please. Not breakeven, it will be a profit, please.

Keshav Garg — Counter Cyclical Investments Pvt Ltd — Analyst

Right, sir. Sir, but if we see — and sir, when do you foresee us coming back to around 15% operating margin on consolidated basis?

Kamal Sarda — Director and Chief Executive Officer

I’ve never maintained that it will be 15%. I said it will be above 13% would be the ideal.

Keshav Garg — Counter Cyclical Investments Pvt Ltd — Analyst

Okay. So 13% consolidated operating margin till when do you expect that?

Kamal Sarda — Director and Chief Executive Officer

Let’s see, let’s see. I’ll not be able to give you a guidance on that. But that’s our effort.

Keshav Garg — Counter Cyclical Investments Pvt Ltd — Analyst

Okay, sir. Sir, thank you very much and best of luck.

Kamal Sarda — Director and Chief Executive Officer

Yeah, thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Snehal Jain [Phonetic] from SK Securities [Phonetic]. Please go ahead. Snehal Jain [Phonetic], please go ahead with your question. Your line is unmuted.

Snehal Jain — SK Securities — Analyst

Yes. Thank you for the opportunity. I just wanted to know what is the working capital cycle for our company versus the industry average.

Kamal Sarda — Director and Chief Executive Officer

I think we are more or less comparable to the industry average. I think if I’m not wrong, our net working capital will be about 120 days or so, but we should be somewhere around — I don’t have that ready figure right in front of me, but it should be somewhere around that.

Snehal Jain — SK Securities — Analyst

Got it, sir. Thank you.

Operator

Thank you. The next question is from the line of Kanika Kothari [Phonetic] from Kothari Securities [Phonetic]. Please go ahead.

Kanika Kothari — Kothari Securities — Analyst

Yeah, hi. Good afternoon, sir. Can you give an outlook on each of our international subsidiaries as to how is the demand shaping there?

Kamal Sarda — Director and Chief Executive Officer

Primarily, I will keep the industry. Industry what we serve is steel industry. So the industry is same. As I mentioned, Europe has been affected by overall poor demand, their internal consumption has been lower because of high inflation, and also they’re trying to conserve the gas supplies. It looks like they are flattening in their downslide which they had faced. So we hope there will be some improvement in the near future in maybe next one or two quarters. India, as I said, is always good [Phonetic]. America is getting better and better now. In our results, you can find that Americans results in the quarter three have been very good. Quarter four also we expect that operations to do well. So industry scenario in America is getting better. Europe may take one or two quarters more till they get to a better position. These are the two our major operating areas.

Kanika Kothari — Kothari Securities — Analyst

Okay. Thank you. And there’s one more thing that I wanted to ask. So despite the sharp fall in other expenses in Q3 FY ’23, our EBITDA margins have seen more than 150 bps dip. So can you explain the reason?

Kamal Sarda — Director and Chief Executive Officer

So one of the — so my EBITDA margins on a standalone basis if you look at, on a standalone results, have improved from 14% to 16% compared to the previous quarter, okay? The primary reason for lower other expenses is on account of ocean freight. Compared to last quarter — September quarter, it is coming down. So that is one of the major reasons of lower cost.

Kanika Kothari — Kothari Securities — Analyst

Okay, thank you.

Kamal Sarda — Director and Chief Executive Officer

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Karan Mehra [Phonetic] from Mehta Investments [Phonetic]. Please go ahead.

Karan Mehra — Mehta Investment — Analyst

Hello, sir. Thank you for the opportunity. I just had two questions. After the recent rate hikes by the Fed, we have seen devaluation of rupee against the U.S. dollar. So will this have any impact on the company’s exports? And in case it has, can you please elaborate the impact please?

Kamal Sarda — Director and Chief Executive Officer

So for our export, depreciating rupee is always better. Our realizations are higher. So we always like — but having said that, we also have a lot of imports in dollars. So depreciating rupee affects our input costs in terms of dollars. We buy lot of raw material in dollars, the ocean freights are paid in dollars, there are some other expenses which are paid in dollars. So depreciating rupee has its benefit in terms of exports, has its negative impact in terms of input cost. So there is a balancing, but yes, depreciating rupee has always been historically, for IFGL, has always helped. We are a net exporter, net foreign exchange earner.

Karan Mehra — Mehta Investment — Analyst

Okay, thanks. So, sir, is there any possibility that we can see promoters buying Krosaki’s 15% or 15.5% stake going ahead?

Kamal Sarda — Director and Chief Executive Officer

Sorry, can you come again, please?

Karan Mehra — Mehta Investment — Analyst

So is there any possibility of promoters buying Krosaki’s 15% or 15.5% stake?

Kamal Sarda — Director and Chief Executive Officer

So this question I cannot answer. The promoter has to answer. But yeah, there are — they are promoters, both of them, Krosaki has been classified as promoter, so any kind of transfer is possible, but I’m not the right person to answer a public forum, honestly.

Karan Mehra — Mehta Investment — Analyst

Sure, sure. Sir, I will join back the queue. Thank you for your answer.

Kamal Sarda — Director and Chief Executive Officer

Yeah, thank you.

Operator

Thank you. The next question is from the line of Sahil Sanghvi from Monarch Networth. Please go ahead.

Sahil Sanghvi — Monarch Networth Capital Limited — Analyst

Yeah. Hi, sir. So my first question is regarding the utilization level, sir. So in Vizag the Phase 1 that we’ve commissioned, what would be the utilization levels right now?

Kamal Sarda — Director and Chief Executive Officer

It is just commissioned, Sahil, this month only.

Sahil Sanghvi — Monarch Networth Capital Limited — Analyst

Sir, the Phase 1 I’m asking.

Kamal Sarda — Director and Chief Executive Officer

Okay. Phase 1 we have gone to about 25% levels.

Sahil Sanghvi — Monarch Networth Capital Limited — Analyst

Okay. And the average utilizations across the plants, what would that be?

Kamal Sarda — Director and Chief Executive Officer

We target utilization of about 40% to 50% in the next financial year.

Sahil Sanghvi — Monarch Networth Capital Limited — Analyst

Okay, okay. Secondly, sir, capex spend this year, how much have you spent and how much do you expect to do this year and next year, please?

Kamal Sarda — Director and Chief Executive Officer

Sahil, as I mentioned in my in my speech that we are talking of INR177 crores. And out of that, almost 50% has already been spent or committed, and the rest of it will get completed by FY ’24. By March ’24, I think we’ll be able to spend most of our — complete most of our project. Maybe one or two projects may get delayed, but I think major part of it maybe around 85%, 90% would get completed within March ’24.

Sahil Sanghvi — Monarch Networth Capital Limited — Analyst

Okay. Got it, sir. And what will be the net debt on net cash as of December, sir?

Kamal Sarda — Director and Chief Executive Officer

INR230 crores of cash.

Sahil Sanghvi — Monarch Networth Capital Limited — Analyst

Okay.

Kamal Sarda — Director and Chief Executive Officer

So net cash would be about INR117 crores odd.

Sahil Sanghvi — Monarch Networth Capital Limited — Analyst

Okay, okay. Got it. Thank you, sir.

Kamal Sarda — Director and Chief Executive Officer

Yeah. Thanks, Sahil.

Operator

Thank you. [Operator Instructions] The next question is from the line of Saket Kapoor from Kapoor & Company. Please go ahead.

Saket Kapoor — Kapoor & Company — Analyst

Namaskar, Sarda ji.

Kamal Sarda — Director and Chief Executive Officer

Namaskar.

Saket Kapoor — Kapoor & Company — Analyst

Sir, firstly, I could not hear you clearly in your opening remarks, so pardon me if I go for a repetition, but what I can make sense of your comments are that for the Indian operations we are having a better environment compared to other geographies, and going ahead on the expanded capacity, next year we are expecting 40% utilization levels, including the…

Kamal Sarda — Director and Chief Executive Officer

So what Sahil was asking me about the Phase 1 expansion of our Vizag plant, which is not part of the capex plan which we are talking of right now. That had already been completed. The cost of that capex was around INR32 crores odd. So that got commissioned by September ’21 because we had a 25% utilization levels we have gone up to. And this is what I said in FY ’24, we expect that that should go to 40% to 50% utilization level.

Saket Kapoor — Kapoor & Company — Analyst

But if we take the tonnage-wise understanding, not to go by the utilization levels, if we take the nine months tonnage for Indian operations currently and taking into account the expanded capacity at Vizag, what kind of tonnage can we look for that ahead?

Kamal Sarda — Director and Chief Executive Officer

Mr. Kapoor, honestly, a lot of our products we sell it by piece. So we don’t say that all our products — we cannot really quantify into one particular unit. There are lot of products we sell by pieces. We don’t have, honestly — so that’s the reason why it is very difficult to give a particular quantitative figure on our entire Indian operation or even global operations. It is very difficult. Because we sell them by piece. We don’t weigh them.

Saket Kapoor — Kapoor & Company — Analyst

Right, sir. So put it another way, sir, what kind of volume growth can we expect since the Indian operations we are getting a better understanding — market is much better because of the growth in the Indian steelmakers’ outlook. So going ahead, what kind of volume growth can we expect from the Indian operations?

Kamal Sarda — Director and Chief Executive Officer

I can only say that we will beat the average growth rate of either competition or the user industry. That’s our target to go higher growth than those benchmark figures.

Saket Kapoor — Kapoor & Company — Analyst

Okay. And what is that trajectory, sir?

Kamal Sarda — Director and Chief Executive Officer

Sorry?

Saket Kapoor — Kapoor & Company — Analyst

What is that trajectory number which we’ve beat?

Kamal Sarda — Director and Chief Executive Officer

Steel growth numbers I cannot tell you. Steel growth is expected about 6% to 7%. I’m expecting the refractory industry will also go to about say 7% to 10%. And our target is to grow higher than that.

Saket Kapoor — Kapoor & Company — Analyst

Sir, on the R&D lab, the capex which we were envisaging, if you could give us some understanding, where are we in terms of that, and I think so last before call also you did spoke that what kind of goals we would be achieving it over a longer term if you could throw some light on the same, the amount of capex we are doing for the R&D, R&D lab.

Kamal Sarda — Director and Chief Executive Officer

So the capex is about INR20 crores, and we are expecting it to be completed in the first half of FY ’24. The objective is to enhance our capabilities and product performances, introduce some new products which are hitherto [Phonetic], we cannot do our development because of our poor availability of those resources. So that’s our primary objective to improve our product capacities and product capabilities, the performance capabilities, use alternate raw material, use some material which we have not yet used. Those are the things which we will be able to do and give better products to the customers.

Saket Kapoor — Kapoor & Company — Analyst

And sir, any payback understanding we have worked with, the amount which we are investing or how can we improve our margins on the basis of the amount…?

Kamal Sarda — Director and Chief Executive Officer

See, R&D lab we have not thought of whether that is going to give us any payback. What we have only thought of is that’s going to give us a better product.

Saket Kapoor — Kapoor & Company — Analyst

Okay. And last point…

Kamal Sarda — Director and Chief Executive Officer

Payback we’re not honestly — R&D lab we have not touched on the payback as yet.

Saket Kapoor — Kapoor & Company — Analyst

Sir, in terms of these differentiated margins, when we look at the refractory operations for India and when we look for the outside India, whether it’s Europe or Americas, there is a stark difference in the margin profile. So can you please explain what’s the reason why is the business in…

Kamal Sarda — Director and Chief Executive Officer

Normally, Mr. Kapoor, if you look at the global company scenario also, we are a large company, the scenario is very similar. If you look at our interest rates are about 8%, 9% and global interest if you talk about the interest rates in Europe, it’s around 2%, 3%. So their overall margin level, they will be happy at about 10%. We will not be happy at about 14%, 15%. So that’s the difference. Overall, the global margins are lower. And historically for us, some of these products are matured products, so the margins are lower.

Second, presently, because the market is down, so the overall net margins are lower. But then, yes, globally general scenario is if you can go and look at the other refractory industry globally and compare, the margins are percentage terms lower than any other Indian percentages.

Saket Kapoor — Kapoor & Company — Analyst

And sir, if I heard you correctly, you did mention to the fact that from the current margin profile on a consolidated basis, we have our target set for a 13% blended margin on a consolidated basis. Currently, we did for this quarter end around closer to 7%. So my understanding is correct there what you said?

Kamal Sarda — Director and Chief Executive Officer

Current quarter, Mr. Kapoor, is our EBITDA margin is around 12%, and I’m talking of 13%. So we are not very far from there.

Saket Kapoor — Kapoor & Company — Analyst

EBITDA margin of 12% for consolidated you are saying?

Kamal Sarda — Director and Chief Executive Officer

Yes, yes.

Saket Kapoor — Kapoor & Company — Analyst

Okay, sir. If I may add one more point — just ask you one more point. Sir, when we know that the market — the foreign markets are mature and the margin profile is lower, so what are the key incentives of we continuing our thrust and doing business in the other geographies and not garnering further share for the domestic operations?

Kamal Sarda — Director and Chief Executive Officer

Mr. Kapoor, can we say that let’s sit down because this is a big question, why we are continuing there, and that’s a business area where we supply. From India, we almost export 50% of our production here, so that’s a big market for us. We cannot ignore those markets. Those markets have given us huge benefits in the past and those markets require good quality refractories. So I think that’s our — we are not a part of our global company that we are a Indian counter part of the global company. We are an Indian multinational where we have our footprints all across the globe.

Saket Kapoor — Kapoor & Company — Analyst

Correct, sir. But when we look at the…

Operator

[Indecipherable].

Saket Kapoor — Kapoor & Company — Analyst

Yeah, ma’am, I’ll come in the queue. Yeah, yeah, thank you for the extended opportunity.

Operator

Thank you. [Operator Instructions] The next question is from the line of Devendra Pandey from DP Financial Advisory Services. Please go ahead.

Devendra Pandey — DP Financial Advisory Services — Analyst

Thank you, sir, for this opportunity. So I have two questions, both of them are on Europe. So first one is considering the economic crisis in Europe, do we plan to rework on our export and domestic strategy?

Kamal Sarda — Director and Chief Executive Officer

No, no special work is to be done. Europe is going to go back to normal, I think that’s our feeling, maybe in one or two quarters. And domestic strategy, yes, definitely. As I mentioned earlier, the entire capex plan is based primarily on the Indian growth story.

Devendra Pandey — DP Financial Advisory Services — Analyst

And sir, as you mentioned…

Kamal Sarda — Director and Chief Executive Officer

[Speech Overlap] Indian industry will be higher than the global.

Devendra Pandey — DP Financial Advisory Services — Analyst

Got it, sir. And sir, as you mentioned in your opening remarks that there has been an energy crisis in Europe due to heavy dependence on Russia gas supply. How is our current business spanning out, especially in Europe?

Kamal Sarda — Director and Chief Executive Officer

I think they have come out of the crisis. There have been no major crisis which we have seen. They may have had some emergency plans. The industries are running as normal. Of course, overall, the demand is lower, the inflation is very high. On energy, I don’t think — I think the crisis period is over, looks to be.

Devendra Pandey — DP Financial Advisory Services — Analyst

Got it. Got it, sir. That’s all from my side. Thank you.

Kamal Sarda — Director and Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Keshav Garg from Counter Cyclical PMS. Please go ahead.

Keshav Garg — Counter Cyclical Investments Pvt Ltd — Analyst

Sir, I want to understand whether in the current quarter, fourth quarter are we hearing demands for price cut from our customers? And if so, then what in your judgement is the average price cut that we will be forced to take?

Kamal Sarda — Director and Chief Executive Officer

We have not had any discussion on price cuts so far, so this is something which I don’t know honestly. But we have not had any price cuts in quarter three, as I mentioned earlier.

Keshav Garg — Counter Cyclical Investments Pvt Ltd — Analyst

Yeah, yeah, that I understood. But I’m saying should we expect price cut going forward?

Kamal Sarda — Director and Chief Executive Officer

I don’t know. We’ll have to wait and see.

Keshav Garg — Counter Cyclical Investments Pvt Ltd — Analyst

Okay. No, because last quarter you mentioned that customers are demanding price cuts.

Kamal Sarda — Director and Chief Executive Officer

Yeah. Customers are demanding from quarter three. As I mentioned, quarter three we have not had any major price cuts. So we’ll wait for quarter four and see what the customers want.

Keshav Garg — Counter Cyclical Investments Pvt Ltd — Analyst

Right. Sir, also, since you mentioned that we should be expecting only 13% consolidated operating margin on steady-state basis. But I was going through the earlier call. So last quarter you mentioned that our consolidated margin should be between 14% to 17%. Quarter before you said consolidated margin should be higher than 15%. So why is there such a drastic reduction in our steady-state margin expectation?

Kamal Sarda — Director and Chief Executive Officer

No, I think maybe there is some kind of a misunderstanding. I’m talking of Indian operations and a global operation, so maybe there is a — Indian operation, the margin will be somewhere between 13% and 17%. Global margin will be somewhere around 13%.

Keshav Garg — Counter Cyclical Investments Pvt Ltd — Analyst

Okay, sir. Thanks for the clarification. And lastly, sir, if you see, we are the only refractory company in India which is trading at below net worth, and our net worth is around INR950 crores whereas our market cap is less than INR900 crores. Sir, and since now we have a Japanese partner erstwhile with 15% stake, so it makes a lot of sense for the company to buy back its shareholding at these current depressed prices, so that many purposes can be solved from the share buyback. So kindly consider that and kindly take that proposal to the promoters.

Kamal Sarda — Director and Chief Executive Officer

I will do that.

Keshav Garg — Counter Cyclical Investments Pvt Ltd — Analyst

Thank you very much.

Kamal Sarda — Director and Chief Executive Officer

I will pass on this message to the promoters.

Keshav Garg — Counter Cyclical Investments Pvt Ltd — Analyst

Thank you.

Kamal Sarda — Director and Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Sahil Sanghvi from Monarch Networth. Please go ahead.

Sahil Sanghvi — Monarch Networth Capital Limited — Analyst

Yeah. Thank you for the opportunity again. So, sir, I’m asking about the trends which you’re witnessing right now as compared to 3Q FY ’23 levels. Are you seeing further reduction for the correction in RM cost right now as compared to 3Q level?

Kamal Sarda — Director and Chief Executive Officer

Looks like the reduction as of now will get flattened because everywhere the costs have gone up. So I don’t see a major reduction. Maybe 2%, 3%, 5% could be there, but otherwise, I think whatever reduction has happened now, I think we are looking at almost like [Indecipherable].

Sahil Sanghvi — Monarch Networth Capital Limited — Analyst

Okay. And similar in the case on the freight side, or is the picture different over there?

Kamal Sarda — Director and Chief Executive Officer

Freight side also. Freight side has actually steeply fallen in these last three months. Suddenly for — I don’t know what is the reason for the fall, but it has suddenly fallen very steep. So I think I was talking to some shipping company. They also claim that they also felt that it has bottomed out. I’m not seeing anything going up right now, but further drop has stopped.

Sahil Sanghvi — Monarch Networth Capital Limited — Analyst

Right, sir.

Kamal Sarda — Director and Chief Executive Officer

The last seven, eight days I don’t see any drops.

Sahil Sanghvi — Monarch Networth Capital Limited — Analyst

Right, sir. And second question would be, do we have any kind of exposure to Turkey or Syria?

Kamal Sarda — Director and Chief Executive Officer

No Syria, but we have exposures to Turkey.

Sahil Sanghvi — Monarch Networth Capital Limited — Analyst

Yeah. Because now the earthquake has ruined a lot of things. So is there a risk of losing volumes from there? Is it a substantial volume? What percentage of…?

Kamal Sarda — Director and Chief Executive Officer

Turkey has always been a good market to us. We’ll have to assess it. It is not in the area where our customers are. But in any case, any such natural calamity this calls for a huge reconstruction. So I’m not saying that is good or bad, but then that’s the usual phenomena with any kind of such large natural calamity will talk of entire thing to be reconstructed, but since it is very new, we have to really assess that situation, but my first impression is that feeling — that information is that it has not affected any of our customers.

Sahil Sanghvi — Monarch Networth Capital Limited — Analyst

Okay. And roughly, sir, how much would be — as a percent of revenue, how much is the exposure to Turkey and Syria? Syria is not there, but Turkey how much is it?

Kamal Sarda — Director and Chief Executive Officer

Syria is bot there. I think Turkey will be less than 4% or 3% or something like that.

Sahil Sanghvi — Monarch Networth Capital Limited — Analyst

Got it, sir. Got it.

Kamal Sarda — Director and Chief Executive Officer

Probably less than that also.

Sahil Sanghvi — Monarch Networth Capital Limited — Analyst

Got it, sir. Fine. Thank you, sir. Thank you.

Kamal Sarda — Director and Chief Executive Officer

Yeah. Thanks, Sahil.

Operator

Thank you. The next question is from the line of Saket Kapoor from Kapoor & Company. Please go ahead.

Saket Kapoor — Kapoor & Company — Analyst

Yes. Thank you, sir, for the extra opportunity. Sir, when we when we look at the consolidated numbers, the revenue increased from the standalone is to the tune of around INR135 crores and the employee cost change is around INR35 crores. So just to understand the cost part of it that on a revenue increase of INR134 crores, the employee cost goes up by INR35 crores. So is it the lower utilization levels in the other geographies that are not commensurating with the employee cost or what should be the rationalized cost as a percentage of sales?

Kamal Sarda — Director and Chief Executive Officer

I don’t know which figures, Mr. Kapoor, you are talking of. I’m not able to correlate that. Why don’t we do one thing. Your queries, we can sit down with you and the SGA team. You can crash [Phonetic] your queries whatever you have, but I’m not able to see any of your figures what you are saying.

Saket Kapoor — Kapoor & Company — Analyst

Okay, sir. It was just a major number. INR318 crores revenue on December quarter on considered basis, standalone is INR181 crores. So when I just subtract the number, the revenue increase is INR134 crores. And similarly on the employee benefit also. I can get it offline, sir. No issues with that. Sir, if we take…

Kamal Sarda — Director and Chief Executive Officer

I will check and then maybe I will get back to you on that.

Saket Kapoor — Kapoor & Company — Analyst

Okay, sir. And sir…

Kamal Sarda — Director and Chief Executive Officer

I got your point now, but I will have to check. We have not checked because most of the employees are 95% are fixed in nature. They are not variable in nature. So whatever there be a reduction in turnover, the employee cost will not reduce proportionately.

Saket Kapoor — Kapoor & Company — Analyst

Sir, in other geographies of Europe and Americas, what have been the utilization levels? And going ahead, what is the trend indicating to you, whether we can expect an improvement in the same for two, because America you categorically mentioned I think so that we are seeing good traction.

Kamal Sarda — Director and Chief Executive Officer

EI Ceramics is operating at a good level, about 90% plus. The other geographies are Monocon U.S. and Monocon U.K. operations would be somewhere around 50%, 60% today. Hofmann is at a good level, barring the December month, as I mentioned that December because of Christmas holidays, their last two weeks offtakes are almost lower, but otherwise Hofmann has also been operating at a very good level. We are overall operating at a good level.

Saket Kapoor — Kapoor & Company — Analyst

So these are the normal cost structures. We are not going to expect any change in this then?

Kamal Sarda — Director and Chief Executive Officer

No, no…

Saket Kapoor — Kapoor & Company — Analyst

If we are operating at the normal levels, then these are the — cost structure will remain the same.

Kamal Sarda — Director and Chief Executive Officer

Yes. But employee cost we cannot take employee cost as a cost structure. Employees are generally a fixed type of a cost.

Saket Kapoor — Kapoor & Company — Analyst

Right, sir. My understanding was if they are operating at the optimum level, the employee cost — there is no significant increase we can expect in the revenue going ahead.

Kamal Sarda — Director and Chief Executive Officer

Yes, you’re right. You’re right.

Saket Kapoor — Kapoor & Company — Analyst

Okay, sir. Sir, when you were mentioning about this export aspect, if you could explain to us the export that happens from the country. So that revenue is booked — the export happens to the subsidiary to — the foreign subsidy, and then it is sold to the end client or it is directly…

Kamal Sarda — Director and Chief Executive Officer

We sell direct. Most of our sale is direct to the customer.

Saket Kapoor — Kapoor & Company — Analyst

Okay, so how does it impact whether we maintain our operations at Europe and Americas to the export we are doing from Indian operations? I just wanted to understand what you were trying to say.

Kamal Sarda — Director and Chief Executive Officer

I didn’t get your query. Please can you come again?

Saket Kapoor — Kapoor & Company — Analyst

Yeah, I’ll repeat again, sir. You mentioned that we have a lot of export that happens from the Indian subsidiary. And it is important for us to maintain the unique companies of Europe and Americas, since a lot of export happened from domestic. So just wanted to understand the correlation.

Kamal Sarda — Director and Chief Executive Officer

They help in those geographies.

Saket Kapoor — Kapoor & Company — Analyst

Come again, sir.

Kamal Sarda — Director and Chief Executive Officer

They help in those geographies. Like in U.K., our U.K. sales team helps. In Europe we have some sales team which helps. In U.S., we have the sales team which helps selling IFGL products also. Plus, our market presence is like that that those geographies have those products — a bundle of products we can sell.

Saket Kapoor — Kapoor & Company — Analyst

Right, sir. And what percentage of sales from India are marked for export?

Kamal Sarda — Director and Chief Executive Officer

Sorry?

Saket Kapoor — Kapoor & Company — Analyst

What percentage of sales from the Indian operations are marked for export?

Kamal Sarda — Director and Chief Executive Officer

There’s nothing called marking. As I clarified, the products in the overseas companies are not same what we make in India, except EI Ceramics. So the products are complementary to each other mostly. Their products are different than what we make in India or they make different products, we make different products than them.

Saket Kapoor — Kapoor & Company — Analyst

No, so when you mention it…

Kamal Sarda — Director and Chief Executive Officer

There’s nothing called earmarking. It is just the market share what we are able to take. There’s no marking as such.

Saket Kapoor — Kapoor & Company — Analyst

Okay. But sir, what’s the export number then? For the nine months from Indian operations, how much have the revenue being happened as a part of export? It would be about 50%. 50%. And sir, earlier you mentioned that…

Operator

Sorry to interrupt you, Mr. Saket Kapoor…

Kamal Sarda — Director and Chief Executive Officer

Why don’t you — you have I think few questions still unanswered.

Saket Kapoor — Kapoor & Company — Analyst

Yes, sir.

Kamal Sarda — Director and Chief Executive Officer

Why don’t you talk to me separately, please?

Saket Kapoor — Kapoor & Company — Analyst

I will do that, sir. Thank you.

Kamal Sarda — Director and Chief Executive Officer

Yeah, yeah, please call me. You can contact Vatsal in SGA and then we will clarify all your points.

Saket Kapoor — Kapoor & Company — Analyst

I’ll come down, sir. I’m from Kolkata itself.

Kamal Sarda — Director and Chief Executive Officer

Then that will be great. I’ll clarify all your points.

Saket Kapoor — Kapoor & Company — Analyst

I’ll come down. Thank you.

Kamal Sarda — Director and Chief Executive Officer

Yeah, we can sit down and spend a lot of time.

Saket Kapoor — Kapoor & Company — Analyst

Thank you for the opportunity.

Kamal Sarda — Director and Chief Executive Officer

Thank you.

Operator

Thank you. Ladies and gentlemen, due to time constraints, that was the last question for today. I would now like to hand the conference over to the management for closing comments.

Kamal Sarda — Director and Chief Executive Officer

Thank you, everyone. I think it was a wonderful Q&A session, and I hope I’ve been able to answer most of your queries. In case there are still some points left, I would say that you may contact our SGA, our investor relations advisors, and we look forward to your active participation in the next call. Thank you, everyone, and stay safe. Bye.

Operator

[Operator Closing Remarks]