Rhi Magnesita India Ltd (NSE: RHIM) Q2 2025 Earnings Call dated Nov. 08, 2024
Corporate Participants:
Parmod Sagar — Managing Director and Chief Executive Officer
Azim Syed — Chief Financial Officer
Analysts:
Jonas Bhutta — Analyst
Rajesh Majumdar — Analyst
Saket Kapoor — Analys
Sahil Rohit Sanghvi — Analyst
Mayank Bhandari — Analyst
Chetan Doshi — Analyst
Chintan Modi — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to the RHI Magnesita India Limited Q2 and H1 FY25 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode and there’ll be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Parmod Sagar, Managing Director and Chief Executive Officer from RHI Magnesita India. Thank you. And over to you, sir.
Parmod Sagar — Managing Director and Chief Executive Officer
Thank you very much. Ladies and gentlemen, good afternoon and thank you all for joining our earning call. We greatly value this opportunity to further strengthen our relationship with you all.
The Indian economy has shown satisfactory performance in the first half of the current fiscal year. However, we have seen many of the economic indicators suggesting a weaker environment. It is important to closely monitor the demand condition in the economy as this will be key driver for our customer ambitious growth and commissioning plans.
If we talk about market challenges and opportunities, the global steel industry has faced a decline in production due to reduced output in key markets. While India has seen growth driven by domestic consumption, increased import and lower export has made India a net steel importer. Steel customers have been facing a dynamic market, impacting incremental capacity commissioning affecting the overall demand for the factories. Meanwhile, the cement industry has seen slowdown. However, the outlook for the later half of the fiscal year remains positive with anticipated growth led by our customers’ planned commissioning of their projects and infrastructure initiatives.
I’m happy to share that the strategic initiatives that we have been undertaking are being — giving us fruits, building sustainable growth. We have a strong order book in the iron, pellet, DRI making business. In iron making, we have seen a good order momentum in blast furnace cast house. We have four contracts and added six new customers in Taphole Clay. In pellet and DRI, we have received orders from one of the largest pellet plant in India, and have increased our DRI market share on the backup of kiln orders and new — three new projects. We are also in advanced discussion for long-term association with OEMs for coke oven and blast furnace stoves. This should strengthen our order book in the coming quarters as well.
We are proud to announce that we are establishing our first center of excellence for iron making in Jamshedpur. This facility strategically positions to leverage growth in the rapidly expanding blast furnace segment. We will incorporate advanced automation and tailored solutions. We expect this to be fully commissioned by 2027 with about 10,000 metric tonne of expected capacity. By enhancing our capabilities, this center will position RHI Magnesita for sustained growth and long-term value creation in a dynamic industrial landscape. We view this as a major leap forward in process automation and operational efficiency.
Our strategic initiatives have allowed us to navigate dynamic markets. Coupled with our strong fundamentals and market leadership position, we have a solid foundation for sustainable profitable growth. We remain committed to aligning our capability with evolving market conditions to strengthen our market leadership position and create long-term value for our shareholders. With our full product portfolio and good geographical reach, I believe we are well-positioned to capitalize the anticipated demand scenario. As we move forward, we are optimistic about the opportunities ahead and significant role we will continue to play in supporting India’s manufacturing goals with a focus on sustainability and secular economy.
Thank you very much. And now I will hand over to Mr. Azim Syed, our CFO, to talk about some numbers and all.
Azim Syed — Chief Financial Officer
Thank you, Parmod Ji. Hello and thank you all for joining us. As we navigated a challenging market environment with India becoming a net importer of steel this year, we faced competition from lower-priced refractories entering the Indian market. These pressures and limited new commissioning have impacted revenue growth. We have seen a growth in shipments of 4.8% quarter-on-quarter. In Q2 FY25, RHI Magnesita India reported revenue from operations of INR867 crores, a 1.3% decline quarter-on-quarter. The EBITDA for the quarter was at INR122 crores with margins at 14.1%. Increasing raw material costs, especially for alumina-based materials and chromite sand, exerted pressure on margins.
In H1 FY25, revenue from operations reached INR1,746 crores, a decline of 8.8% compared to H1 FY24, the product mix and the customer environment leading to a lower realization rate, reflecting our current environment. The EBITDA for the first half year was at INR279 crores while EBITDA margin improved to 16%, up from 14.9% in the previous corresponding period. The margins have been resilient, in line with our medium-term expectation despite rapid increase in raw materials, particularly in the alumina-based materials, as mentioned before. Together, these factors contributed to a profit after tax of INR119 crores with our PAT margins reflected 6.8% in HY FY25, up by 0.6% from previous corresponding period. We are proud to inform that due to operational efficiencies in first half of the year, we managed to reduce our net debt-EBITDA ratio to 0.3x from 0.6x in the beginning of the year.
In terms of volumes, we produced 86.2 kilotons in Q2 FY25 compared to 77.8 kilotons in Q1 FY25, higher by 10.8%. Shipment volume was at 119.4 kilotons in Q2 FY25 vis-a-vis 113.9 kilotons in Q1 FY25. Notably, our Jamshedpur facility saw an increased production, driven by demand for certain products reflecting our strategic alignment to evolving market needs. Capacity utilization also improved to 67% in Q2 FY25 from 61% in Q1 FY25, highlighting our ongoing operational enhancement and efficiencies in the acquired plants and the shipment growth that we did.
Overall, RHI’s H1 FY25 performance reflects resilience in the face of market pressure and a strategic emphasis on operational efficiency. As we adapt to shifting dynamics, our cost management and production optimization will be vital for our growth in the coming periods. We remain committed to delivering value for our stakeholders and pursuing sustainable growth and better return ratio. Overall, as we adapt to shifting dynamics, our cost —
I will hand back to the operator for Q&A.
Questions and Answers:
Operator
Thank you, sir. We will now begin the question-and-answer session. [Operator Instructions] We have the first question from the line of Jonas Bhutta from Birla Mutual Fund. Please go ahead.
Jonas Bhutta
Hi, good afternoon, gentlemen, and at the outset wishing you guys a Happy Diwali. Couple of questions. Firstly, if you can help us better understand the volume mix, how much percent of our sales in the second quarter and the first half was driven by iron making, which apparently is slightly lower realization. So how much of that impacted our realizations and margins?
The second was, we were on this journey to reduce imports of key raw materials. Where in the cycle are we currently in that process? Because what I saw was the purchase of traded goods was materially higher, both on a Q-on-Q basis and on a year-on-year basis in second quarter this year. So that’s the first question. And then I’ll come back for the second once we are done with this.
Parmod Sagar
Thank you very much, Jonas, for your question, and Happy Diwali to you and your family as well. As you rightly said, yes, we are growing rapidly at a good pace in iron making, pellet, DRI business. And it is still a small business, if we talk totality — in totality, and it is about 6% growth. Okay? And there is also good volume in cement, which also has a lower realization. So this has impacted when we talk about realization, per ton realization, or revenue at large because the selling price is low in high alumina segment, for example. And what was the second question?
Jonas Bhutta
The imports, sir. Our strategic intent was that progressively reduce imports while, if I see the purchase of traded goods as a line item, that’s materially increased this quarter.
Parmod Sagar
This is one-time impact, I would say. There’s a change of incoterm and we have a lot of material in the pipeline, I would say, but it doesn’t have any long-term material impact. Yeah. You want to add anything?
Azim Syed
Yes. I think you summarized it well. So Jonas, this basically is, we had a change in the accounting interpretation of our incoterms, so which kind of have a one-time impact where we were able to recognize the volumes, which were goods in transit. So this is a one-timer. I wouldn’t — I don’t think it’s a long-term sustainable stuff. Our local for local percentage — production percentage remained constant.
Parmod Sagar
And in future, as I said earlier, we want to increase our local for local production and reduce our reliability on imports, but as we keep on saying, it will not be — and it cannot be 100% local for local. We are reducing. Maybe two years back, it was 40%, 45% import. Now it has come down to 30%, 35%, and coming days, it will further come down and our target is to take it to 80% roughly local for local production.
Azim Syed
And just to clarify my comment, just to be sure that incoterms is only on purchase and goods in transit and not on revenue. So there is no revenue impact there on the volumes.
Jonas Bhutta
So could you quantify that one-off impact that was there?
Azim Syed
Jonas, we don’t give that kind of a certain details, but we would probably say it’s close to about six-digit numbers you can say from a value perspective, but we don’t give this breakup as you know because one-timer kind of allows that this thing. But to answer a question on the local for impact, capacity utilization percentage, we still remain the same. As I mentioned in my remarks, we had an increase in capacity rather than a decrease in capacity utilization. So I think that will form a good baseline from your modeling perspective.
Jonas Bhutta
Okay, fair. The second point was to understand since you are calling out for a recovery in the second half, and given that the order book also you mentioned is more iron making and cement-heavy, what should we read through for that on the impact of that on margins? So while volumes may recover, how should we think about margins? Do we see margins in more or less the same band given the sales mix is going to be iron and cement heavy? That’s the first part of the question, and then I just have one more subpart.
Parmod Sagar
Okay. So Jonas, I’m saying this iron making and cement, but at the same time, as I said in my speech also, there are some commissioning happening. So two steel plants are going to commission their expansion, SMS 4 or XYZ and one plant in December is also going to commission where we have almost 70%, 75% share, right? So our growth depends upon also growth in steel industry, expansion of steel capacity. So it’s not only relying on iron making and cement, but in totality, steel will still be a major part of our growth story. So when I’m talking about this, so it will not have any adverse impact on our profitability at large. So whatever is my guidance to the market in my earlier statements also, I still maintain that we should be delivering around 15% margins on sustainable basis.
Jonas Bhutta
Understood. And the last bit on the margins was the volatility of late that we’ve seen in alumina prices. If you can help us understand how the pass-through mechanism works, particularly when you have almost 40%, 50% of your sales coming from TRM. In such a scenario, how does the pass-through mechanism typically work? And what is the lag at lead time that allows you to sort of pass on these prices? Is it same quarter or does that happen over like a three to four-quarter period?
Parmod Sagar
First of all, this is not 40%, 50%. If you talk about only steel, yes, but in totality, it is about 30%, right? So as you rightly said, yes, we have a long-term commitment and it will always have a lag. We will negotiate, it will take two, three months, but when that raw material prices goes down, it also take two, three months to reduce the prices. So it is zero net impact, I would say, but it will take time. And as we keep on saying from last few days, the market is really dynamic. Steel plants are under pressure. If you remember Mr. Narendran, CEO of Tata is saying, it is not justifiable to invest if the pricing will remain like this on long term, and we need to look at imports from China and how we can have that deterrent to stop that or reduce that impact. So you must understand if steel plants, cement plants are under pressure on pricing power, to getting price increase will not be a cakewalk. It will happen, but we need to really put our efforts and it will take time.
So I cannot comment whether it will happen in next four weeks’ time, six weeks’ time. It may take two, three months also, but it will have a long-term impact. We will also keep on having this pricing when the raw material prices come down. So it will be compensating that.
Jonas Bhutta
Sure. This is helpful. I have more questions, but I’ll join the queue. Thank you and all the best.
Parmod Sagar
Thank you so much, Jonas.
Operator
Thank you. We have the next question from the line of Rajesh Majumdar from B&K Securities. Please go ahead.
Rajesh Majumdar
Yeah. Good afternoon, Parmod, sir. Good afternoon, Azim. First of all, let me laud you on the commendable job that you’ve done on the cash flow side because I think that there’s been a substantial improvement in the cash flow from operations, debt as well as the net cash we have on the books.
Azim Syed
Thank you.
Rajesh Majumdar
So that is a positive for me. But having said that, I had a couple of questions on the volumes. If you look at the volumes of 2Q versus the volumes of 2Q last year, there’s a 7% decline on the shipments whereas steel production is up about 6% to 7%. So while the margin factors are different, the overall volume would seem to suggest that we are losing market share in the steel business, or is there something that I’m missing out? That’s the first question.
Parmod Sagar
Okay. Let’s answer your first question first. So first of all, the 6%, 7% is a fictitious number, which is roaming around in the market. It doesn’t have any substance, right? We have a calculation. If you check JSW’s even the announcement, it is 2.7% growth in steel in India, and we have our calculation, 2.9% growth, right? And out of this 2.9%, if 30% of my business is in TRM business where the volumes are static, more or less, they can have an incremental growth of 0.5%, 1% because they are working at a capacity level. So I don’t get that volume increase from those plants. So rest is, we are trying.
As I said, the commissioning which was supposed to happen from June, July, it is postponed to November, December. So that impacted us because our growth will come from steel growth. There are many cement plants also. Everybody is talking about bringing new capacity, but it will happen in future. It just doesn’t happen in last four or five months’ time.
And if you talk about last quarter, our volume has gone up by 5%. So we think we are on a right track. Yes, of course, when you are having a lot of pressure from neighboring country, China, on commodity business, particularly ladle business and they are dumping like anything, they are selling at $650, $700 CIF, so either I reduce my margin and compete in that commodity market. Then we will say, okay, the margin has come down. We are maintaining the margin at the cost of a little bit of volumes and we are working on that. In last call also I said, we are working on mitigating that risk or we can compete in that market also, bringing new technology or higher life of the ladles where we can have a per ton or per heat cost coming down and we can compete. And we are working on that and you will see in coming days we will get this business, which we intentionally did not go into price war to get those businesses, just to maintain a standard margin, sustainable margin, which we gave the guidance to the market.
Azim Syed
And on top of it, as you know, I’m sure it’s public news that Jayaswal Neco had a couple of months shutdown and we had one month shutdown of JSW Raigad and Tata Long Products. So this also contributes quite a bit of the volume decline as well.
Parmod Sagar
Yeah. And these four plants, we were having FLS contract.
Azim Syed
Yeah.
Parmod Sagar
If Neco is shut down for two months and our revenue is, say, roughly INR1 million per month, so 4 million plus 3,500 ton is gone only in one plant.
Rajesh Majumdar
Right, sir. And sir, my other question was how do we read into the standalone revenue and margin fall? Because I can understand that cement was impacted. So consolidated results were impacted, but JSW and Dalmia, you’re having a 10% kind of margin which is fine. Dalmia is recovering from very low utilization, but at the standalone level, we’ve seen a 4% kind of drop in margins and 10 — sorry, 5% drop in these revenues and a price realization drop as well. How do we read into this? Will there be a commensurate price hike this quarter to compensate for the RM increase or how? Yeah.
Azim Syed
So as I told you many times, we don’t look at individual legal units because we bought the — we bought this additional capacity product portfolios to serve our customers. We always look from a customer perspective. In fact, we don’t go to JSW and say that hey, this is ex-Dalmia plant, ex-Jamshedpur plant or ex this thing. So I just want you to look at the number holistically because what we do is quite a bit of production optimization so that we can manage our margins through better recipe optimization. And this also creates kind of a good competition amongst our plants to be cost competitive. That’s the first thing. Just a little bit of impact.
Second, I’m sure you’re aware that from a TRM percentage perspective, historically we were stronger in the standalone one. So we already explained that some of the TRM contracts, we kind of had a little bit of a headwind that kind of caused the revenue drop. And I wouldn’t read too much into realization rates because of our production optimization capacity, Rajesh. Hopefully that kind of gave you some bit of a background.
Parmod Sagar
And the margin, what you are talking about, 4% EBITDA gone down, it’s just not right. We have delivered 14.1% EBITDA. So we believe under the circumstances, with the headwind from raw material and downtrend in general, the product mix was also tilted towards cement where the realization is less, I think we have done a commendable job. We are really satisfied with our results, I would say.
Azim Syed
Yeah. I concur with you, Parmod Ji, because normally people always compare us with our peers. Now nobody is comparing, unfortunately, which is fair because it’s not a comparable business, but from a volume, from a sustainable growth and margin perspective, I think our numbers would speak louder.
Parmod Sagar
Yeah. Even if we talk about competition, which you people are referring to, they have this number. Now their number is much lower. If we also check our segment, and ours is still 18% in flow control. So we are on right track, I think, and a sustainable track, I would say.
Rajesh Majumdar
Right. So just to conclude this discussion, you are still giving a longer-term guidance of 15% to 16%, right? That is sustainable for the longer-run.
Parmod Sagar
Yeah. 15% is our guidance to the market.
Azim Syed
Yeah, 15%. Definitely. We are not changing our guidance.
Rajesh Majumdar
And would you give any revenue guidance as well, longer term?
Azim Syed
We never give revenue guidance, as you know, because if you start talking about that, we have such a large broad portfolio, project-based business and so on and so forth. We never give this thing.
Parmod Sagar
What Azim is saying is very valid, that you must understand, when we gave last year revenue guidance and raw material prices tanked, 20% less raw material prices, selling price goes down, and then our guidance was — gone haywire. So now the raw material prices are going up. So it is perceived that selling price will also go up. We will get price increases sooner or later. So revenue will go up for sure, but at this point of time, it is very difficult to quantify the numbers.
Azim Syed
What we can say is that what we have told before, we will grow with the market. If those percent — if those relative percentages are not correlating, then definitely you will have a cause for concern, but as you can see, we have continuously demonstrated that we are able to grow with the market.
Parmod Sagar
And Rajesh ji, you must keep it in mind, this is not only RHI Magnesita India. It is at large refractory industry. So if the price increases of raw material is happening, it is impacting everyone. So you can see, if I have a margin of 15% — 14%, 15%, the people who is having 10%, 12% margin, their margin will be in single-digits. So everybody will strive for price increase. So when the total industry will ask for price increase, it will happen sooner or later.
Rajesh Majumdar
Right, sir. And if I could sneak in just one last question, is there any inflation in magnesite prices right now and will that be beneficial for us?
Parmod Sagar
Definitely. We can see the indication the raw material — basic raw material, magnesia raw material prices are also going up, not in a pace like the high alumina but sooner or later, it will also go and it is good for the industry.
Rajesh Majumdar
Right. Okay. Thank you. I’ll join back in the queue.
Parmod Sagar
Thank you.
Azim Syed
Thank you.
Operator
Thank you. [Operator Instructions] We have the next question from the line of Saket Kapoor from Kapoor & Company. Please go ahead.
Saket Kapoor
Namaskar, sir, and thank you for the opportunity. Sir, firstly, on this alumina part of the story, if you could give us how our product mix be there that required higher of alumina requirements and going ahead, how will this content of alumina remain — or how much increased percentage is there since you have mentioned in your opening remark also higher percentage of alumina in the product mix?
Parmod Sagar
All flow control products, maybe 80%, 85% flow control products are based on a high alumina raw material, okay? And all cement bricks, alumina, high alumina cement bricks are based on alumina-based raw materials. So this is quite a big chunk and it will have a material impact on profitability if we were not able to pass on this to our customers, okay?
Saket Kapoor
Okay, sir. Sir, can you quantify out of the — because since it is difficult because of the product mix —
Parmod Sagar
Very difficult, very difficult. As of now, it is very difficult, but we can calculate the number and can get back to you in coming months.
Azim Syed
What I can say that you can look into London Metal Exchange, they have quite a bit of good commodity market information on alumina.
Parmod Sagar
No, no. He’s asking what is our percentage of high alumina products.
Azim Syed
Okay. No.
Parmod Sagar
So we can get back to you, but as of now, we don’t have that number.
Saket Kapoor
So you are articulating to the fact that the great — the higher cement capacity that are being contemplated, being planned by cement manufacturers will lead to higher content of bricks, higher requirement for bricks and having higher alumina content. So this story for the cement capacity going up will automatically lead to higher demand of this specialty type of brick and then the alumina. This is what the understanding is.
Parmod Sagar
Yeah. To some extent, you are right, but at the same time, cement plant to cement plant, it’s a variation. Some people are using basic bricks; some people are using high alumina bricks. So it is again a combination of both type of products, but to some extent, yes, if people will come up with a high alumina based cement plant, then definitely this demand will go up and more consumption of high alumina products.
Saket Kapoor
But sir, just to conclude it, there must be the benefit that cement manufacturers will get when they move or shift to higher alumina based brick.
Parmod Sagar
No, it is actually other way. People who want a longer life of their kiln, they go for basic refractory, magnesia-based refractory, not alumina-based refractory. For example, if a magnesia-based brick is selling at a price of, say, INR90,000 a ton, high alumina brick is at INR40,000 a ton. So there is a difference. So the life is also like that. So it depends upon their working capital, their projections, how much they want to spend on kiln upfront, right?
Azim Syed
Yeah.
Parmod Sagar
And volume, capacity of that kiln, big kilns normally is basic, smaller kiln is high alumina. So it depends with various combination.
Saket Kapoor
Okay. Sir, when you mentioned system flows, which — what are you referring to? Requirement into system flows.
Parmod Sagar
Flow control. Flow control is basically what our peers, Vesuvius et cetera are producing, IFGL is producing, isostatic-based products, slide gate refractories, purging refractories. Those are the products which we call functional products or flow control products.
Saket Kapoor
Okay. So our mix is lower in that? I missed your comment. What were you referring to, sir?
Parmod Sagar
No, no. I am saying we are also impacted by that because whether — anybody, whether Vesuvius, IFGL, we will produce if it is 60% of — or 80%, 85% is alumina-based products. And of that 85%, 60% is raw material. So it has a material impact on our costing, if we were not to pass on the margins to — price increases to our customer, it will have impact on our margins.
Saket Kapoor
Right, sir. And on the employee cost, sir, as a percentage of sale or on a fixed cost basis, what should this —
Parmod Sagar
It is still very well under control, I would say. If you — I don’t want to comment on anybody. If you check with my peers, our competition, we are at the lowest level. We are still in single digit.
Saket Kapoor
Thank you, sir, and looking forward and all the best to the team. Thank you.
Parmod Sagar
Thank you.
Operator
Thank you. We have the next question from the line of Sahil Rohit Sanghvi from Monarch Networth Capital. Please go ahead.
Sahil Rohit Sanghvi
Yeah. Good afternoon, sir, and thank you for the opportunity. Am I audible?
Azim Syed
Yes, you are.
Operator
We can hear you.
Sahil Rohit Sanghvi
Yes, yes, yes. Thank you for the opportunity, sir, and good work on maintaining the numbers despite such challenging base industry. So sir, my first question was, there were some volumes that were stopped from Dalmia Cement. Have we resumed that business now?
Parmod Sagar
Yes. We have resumed and this year we are getting orders from Dalmia as well.
Sahil Rohit Sanghvi
Okay, okay. Secondly, sir, just wanted to understand, there are a couple of these new capacities which are coming on board, which are our current customers, what kind of — which customers are we expecting to give us this incremental work, if you can name a few? And also if you can help us understand that over and above the base industry growth, say, steel growth, growing 6% or cement growing whatever, I mean, how much can we do over and above that due to these new capacities? How much can we grow over and above that?
Parmod Sagar
You take the name of all big four, whether it’s the JSW Group, Tata Group, ArcelorMittal, JSPL and SAIL, everybody is planning to expand, and there are some projects in the pipeline almost at final stage, which can commission, two, three plant, as I said in the beginning, will be commissioned in end of November, beginning of December, but some of the plants may commission in mid of ’25 or so. Same way cement, there is UltraTech, Adani, this Dalmia, everybody is adding capacity. So if it materialize, it is a substantial growth in the market, but keeping my fingers crossed whether it will happen or not because in last four months, nothing has happened, and over and above this monsoon season impacted if — it is — normally it is a seasonality. During monsoon, construction work goes down where consumption of steel and cement goes down. So this has its seasonality impact also, but overall I would say steel, cement will grow at a pace which you are saying 6%, 7% for sure.
If there’s no change in global geopolitical situation, some headwind, I don’t want to sound political, but with Mr. Trump on the top in US, if he puts some sanctions on China, more sanctions on Chinese refractory, then China will have overcapacity, more overcapacity, and then they will start dumping whatever they are dumping now more in India, which will have impact. So we have to see how the things are moving.
Sahil Rohit Sanghvi
Right, sir. And sir, on the export front also, any kind of improvement you are seeing? Any kind of recovery or it still appears very weak for next two, three quarters?
Parmod Sagar
No, it is really weak. Rather in last quarter also, it was a dip — small dip in our percentage, I would say. And I don’t see in next two, three quarters, it will have any material impact or substantial increase in our exports.
Sahil Rohit Sanghvi
Got it. Thank you, sir, and all the best, sir.
Parmod Sagar
Thank you. Thank you very much.
Operator
Thank you. We have the next question from the line of Mayank Bhandari from Asian Markets Securities. Please go ahead.
Mayank Bhandari
Thanks for the opportunity. Sir, in spite of the growth in the domestic market, I think it’s been almost two years that we have not been able to outgrow the steel production in the country, and we have always maintained that we will grow plus 1% or 2% in the steel production. Sir, I mean, what exactly is wrong in terms of the growth in the domestic market for us?
Parmod Sagar
You see, I already replied actually this question, but we perceive steel growth actually it is not happening that pace. JSW has given 2.7% steel growth in India in their communication. We believe it is less than 3%, right? So we have grown with it, and at the same time, as I commented earlier, we lost some business, commodity business because of too low pricing from Chinese traders. If we venture into that market, our margin will go down and we don’t want to erode our margin drastically. So that was a considered decision. At the same time, we took some corrective action how we can enter into that market without reducing our prices or eroding our margins. So I still maintain that statement, we want to grow 1% or 2% more than the industry. And we — again, next year, our budget, whatever discussion we are doing, we are going on that particular lines and we have some strategic initiatives which will support us to get those numbers and volumes.
Mayank Bhandari
Okay, okay. And on the flow control side, sir, we initially had some plans of exporting from India in couple of products. So how is that panning out?
Parmod Sagar
We were actually having very ambitious plan to increase our export in flow control. Unfortunately, because of this geopolitical situation, we still have a lot of resistance in Russia and Ukraine war, a lot is happening in Middle East, Iran, Iraq, Gaza patti with Israel and Palestine, Jordan. This is totally disturbed area, right? So export has actually static, I would say, and I can’t see any uptick in next two, three quarters unfortunately. This is not in our control, but we were having very ambitious plan. Whenever the situation will improve, definitely we will venture into it in a very aggressive way.
Mayank Bhandari
Okay, okay. And sir, lastly, we know that the parent company is a leader in magnesia base and they’ve also acquired a few companies overseas in the alumina base also. So despite being the leader in the raw material, I mean, you’re perfectly backward integrated company at global level. How do you foresee this margin dilemma? Because the margin keeps fluctuating in quarters also and overall. So what — I mean, would you be able to give some sense in terms of long-term margin expectation?
Parmod Sagar
First, we are very strong when it comes to backward integration in basic. Magnesia base mines we have in Brazil, in North America, and Europe, but we don’t have very big mines in high alumina. In spite of having too many acquisitions, we have not gone far as mines — high alumina mines, right? So historically, the raw material prices till three months back were lowest level. So our own even realization in our mines, raw material was at the lowest level. So now the prices of raw material are going up. So we are buying anything and everything of alumina base from the market. So we are getting impacted adversely because of this pricing and we have to pass it on to our customers. But I cannot give you long-term perspective. I believe it is a temporary impact on the profitability, but it is good for the industry if raw material pricing goes up.
Mayank Bhandari
Okay. So basically some of the business — some of the raw material that you are buying from the market, parent company does not have hold on that, that is high cost raw —
Parmod Sagar
Yeah. Absolutely.
Mayank Bhandari
Okay, okay. That’s it from my side.
Parmod Sagar
Thank you, Bhandari ji.
Operator
Thank you. [Operator Instructions] We have the next question from the line of Chetan Doshi, an individual investor. Please go ahead.
Chetan Doshi
Yeah. Good afternoon, gentlemen. In the current scenario, the performance and the cash flow, what you have generated, it’s really commendable. I have two questions. One, you have built up inventory in first quarter, so — and the percentage is quite high. It has gone up from 25% to 31%. So first question is, how much time you will require to liquidate this run up because the raw material also, you have bought in huge quantities? So the price advantage you will get in second quarter and how much percentage you expect the margins to go up in the second quarter because of building up of this inventory?
Parmod Sagar
First of all, this inventory, we were assuming at that point of time that this commissioning, which I keep on talking, three, four plants will be commissioned, which unfortunately did not materialize. So this built up and we believe that our third and fourth quarter will be better than first and second quarter. That also pushed us to increase the inventory, but at the same time, inventory is more of basic raw materials, which has not increased the prices. So high alumina prices has gone up, as I said, from last three months, and we are buying this at a higher price. So it will not give us a positive impact or incremental increase in our EBITDA percentage. As I said, on the contrary, we are under pressure and we have to pass on this to our customers. You want to add anything?
Azim Syed
No, no, no. I think you perfectly summarized it.
Chetan Doshi
Okay. And another, in the investors presentation, you have highlighted that LES, the lining evaluation scan. So you are the only player or you have competition in this?
Parmod Sagar
As of now, we are the only player leading this digitalization in cement industry.
Chetan Doshi
Congratulations. And second thing, you have mentioned that large cement player became a repeat customer in ’24. So can you name the customer who is this?
Azim Syed
We normally don’t name the customers because it’s not the right thing. We don’t call out individual customers. We kind of —
Chetan Doshi
But when you are the only player —
Parmod Sagar
But I can say all three, four big players are there.
Azim Syed
Yeah.
Chetan Doshi
And regarding these OEM projects, how much margin we expect from this division?
Parmod Sagar
Which division?
Azim Syed
OEM for the —
Parmod Sagar
OEM?
Azim Syed
Yeah.
Parmod Sagar
OEM, it’s not margin. When the new project comes, OEM play a very vital role. OEM recommend the end user, you should use RHI Magnesita or X or Y or Z company’s material. So if you have a good relationship with them, if you have a proven track record of your consistent quality, they will recommend you. And based on that, we have a very constructive discussion with a few of the OEMs like SMS, Danieli, Primetals. So they believe in us, they believe that we can give a consistent product. The commissioning of new project will be smooth and hinder any hiccups and all. So that — we are trying to build up that relationship based on our product performance, which will help us to get business at commissioning stage.
Chetan Doshi
Okay. And one last question. Based on the discussions during the con call, if all divisions start contributing and there is growth in cement, in steel, in the divisions where we are operating, then we can even expect 30% to 40% growth in top line and bottom line. Is that true?
Parmod Sagar
No, I don’t see. On the upper side, I would say, the steel growth which people are talking about is in a staggered manner. It will not happen in ’25, all — the production will not come up. So every year, it is a 6%, 7% growth which is they are projecting. Same way, cement is 9%, 10% growth if everything goes well. So I keep on saying and I still maintain my statement that we will be growing more than 8% in volume. Revenue, I cannot comment. It depends totally on raw material pricing, freight, et cetera, et cetera, even energy cost.
Chetan Doshi
Okay. Thank you so much, sir. Thank you very much.
Parmod Sagar
Thank you, sir.
Operator
Thank you. We have the next question from the line of Chintan Modi from Haitong Securities. Please go ahead.
Chintan Modi
Yeah. Hi, sir. Thank you for the opportunity. Sir, I was referring to your slide number 12 on the presentation where you have mentioned about the LES service that you provide to customers. I think that you must be provided — providing such kind of digital and technological services to your customers. So wanted to kind of understand like, the cost of these services are basically embedded into the cost of material that you supply or these are more cost borne by us to retain or kind of win new customers?
Parmod Sagar
It is mostly embedded in our contract. Like we did this — we are talking about PSU, but in JSW also. First robotic solution, we signed agreement with them. It is INR100 crore for next five years. So it is embedded. Actually, it is a — we have a breakup with JSW, okay, this is our product cost, this is our equipment cost, robotic cost, operational cost. So then there’s a total cost. So it is mostly embedded in our offerings. And customers also know. In some cases, we also provide free of cost, but again, we add this value on a five-year contract, seven-year contract, how much is the depreciated value every year. Based on that, we do this. Otherwise, our margin will go really to the south.
Chintan Modi
Right, right. So I understand this would be more from creating efficiency for yourself and the customer. So that efficiency, the gain that you get from the efficiency or the savings that you achieve, now that are basically partly retained by us or kind of fully passed on to the customer? How you kind of do this? Because customer would be — would be easy for him to kind of see through the costs incurred and everything because prior to this kind of arrangement, how they were doing it, now how they are doing it.
Parmod Sagar
Mostly it is a customer’s benefit. What we are getting is performance. Like we are mentioning here, 78-hour casting and we are getting per heat cost or per ton of steel cost. If they had our product, through this mechanism, through this automation, digitalization, the life goes up. We also get benefited because of a higher life. Because of a safety point of also, it is very important. People are safe and we are getting better life and eventually, we are getting better realization. But it is — upfront, if you will see, it is a customer benefit also.
Chintan Modi
Okay, okay. Thank you, sir. That’s it from my end. Thank you so much.
Parmod Sagar
Thank you, sir.
Operator
Thank you. [Operator Instructions] We have the next question from the line of Mr. Sahil Sanghvi from Monarch Networth Capital. Please go ahead.
Sahil Rohit Sanghvi
Yeah. Thank you for the opportunity again. My question is related to Dalmia — Dalmia-OCL. Sir, I wanted to understand that what all are those key pointers or key targets that we want to achieve to reach optimum level of margins, good profitability? And how do we see the ramp-up on the revenue at Dalmia-OCL? I mean, I understand, sir, the market is not supporting right now, but I mean, is there any other stone that we have left unturned to make the entity more efficient? And what would those be? If you can tell us what will be your next two-year plan to optimally make this unit work out.
Parmod Sagar
Sahil ji, thanks for your question. Firstly, as we’ve said in the beginning, now we stop segmentizing whether Dalmia plant or Hi-Tech plant or RHI Magnesita India plant. We talk consolidation base. But I can give you high-level number. When we acquired, it was 6.9% EBITDA with half of it was one-timer, right? So actually it was less than 4%. We reached to 11.4% without putting much CapEx, right? And our guidance to the market, our ambition was to take it to 12%, 13% in long term, which we still believe we can do that, right?
Capacity wise, we have increased quite a lot, improved. A long way to go still. It all depends upon market conditions, but we want to really grow in those businesses, which Dalmia brought along with RHI Magnesita. Now we have a total portfolio. So we will definitely be growing that business, but now some product we shift from there to there, X to Y, Y to Z plant. We have eight plants. So we are more working on optimizing our product portfolio, production footprint where it makes more sense to produce irrespective whether it’s Dalmia, Hi-Tech, ORL any plant.
Sahil Rohit Sanghvi
Right, sir. Sir, but there was a time post the acquisition where you had also guided that your target would be and your try would be to reach a 15% margin level at Dalmia also. Would that be a —
Parmod Sagar
That was not 15% margin. That was 15% growth.
Sahil Rohit Sanghvi
Okay.
Parmod Sagar
We were looking at 15% growth with a lot of export and everything, which died down very fast. So instead of 15%, we came down to 8%, 9%. But it was never a 15% margin. It is not feasible as — reiterate, it is not feasible with high alumina mixes, bricks and all those things. It is — in flow control, you can always imagine 16%, 17%, 18%, but 15% with brick and mixes business, it is almost impossible.
Sahil Rohit Sanghvi
So 13% is sounding realistic for you?
Parmod Sagar
Sahil ji, you are putting word in my mouth. I said —
Azim Syed
Yeah. Let me repeat again. Please look at our business on a consol level and challenges on the margin percentage there, let me also repeat that this consol level, it’s not more of a polemic topic that we are trying to make here. The reason is that we want to do the right thing for our customers and our shareholders. And we can do that if you look at our business on a consol level because we want to optimize our products and optimize our margins, which — wherein we can fend off any Chinese competition that’s coming at a, let’s say, a remarkable price. We are able to optimize our recipes and blends in a manner that we can — we are competitive. And this also create, as I mentioned earlier, competition amongst our plants to be even more competitive. If we go on a fixed network, I think we will create large volume plants, which will create even more cost absorption. So we like the flexibility, and this is one of the reasons why we acquired this broad product portfolio. So please don’t look at it individually. I hope it’s clear now. Happy to clarify in detail once again.
Sahil Rohit Sanghvi
No, this is helpful. Thank you. Thank you very much, Azim, sir, and thank you very much, Parmod. Yeah. Thank you.
Azim Syed
You’re welcome, Sahil.
Parmod Sagar
Thank you. Thank you, Sahil ji.
Operator
Thank you. We have the next question from the line of Rajesh Majumdar from B&K Securities. Please go ahead.
Rajesh Majumdar
Yeah. Thanks for the opportunity again, sir. Sir, I was just looking at the cash flows and the CapEx, and you seem to have been generating a lot of positive cash flows, but the CapEx is only INR62 crores. I think we were looking at a CapEx run rate of about INR200 crores per annum. So where were we in that space? And if we look at this kind of a conservative business model that you’re adopting now, you’ll be generating a lot of cash flows. So what do we do with the cash? We are going to expand, right? So we need to increase our CapEx capacities or modernize. How do we look at this?
Parmod Sagar
You know, by nature, we are a bit conservative when it comes to spending. So we will not keep on spending CapEx. If I give the guidance, okay, yeah, I am going to spend INR300 crore in next three years’ time, it is not mandatory. If it is real necessity, wherever, we will do that. So we are doing something like INR70 crores, INR80 crores every year from last two, three years. And this is the pace we assume next two, three years also. Okay?
But this is need-based where we can get a right payback, efficiency, reduction in rejection, improving productivity. So there are many parameters which will force us to decide any expense incurred in our plants. And cash flow, if you people will keep on supporting, we will have a happy cash flow in our bank. We’ll look for opportunity to spend that money.
Rajesh Majumdar
Right. Sir, an added question is that we will not be sacrificing any growth opportunities in terms of being so conservative on our cash. That’s what we…
Azim Syed
No, not at all. Definitely not. We were the — I mean, just to kind of reiterate, look at historically, we were the first to do acquisition. People are now putting greenfields. Second, we are not shying away from investing, for example, at the beginning, we invested a lot in the operational efficiencies. Now we are focusing on modernizing, making our plants safe. And as you can see, if our capacity utilization is overutilized, then definitely we should look for CapEx. Hence we are looking — I mean, we like to spend money where we think which can support our better returns ratio. We see this in the iron making business where there’s quite a bit of blast furnaces that are going to come online wherein we think that we can invest in iron making. That’s why we are very much excited about the investments, again, step-by-step investments that we are doing in our iron making excellence center. So that’s the way we think about it, Rajesh. So we are not going to step away. We have quite — we have a good risk appetite in terms of investments and so on and so forth. So you will not find us wanting there. And as you can see, we — our cash flow is good enough that we can do these kind of investments as well.
Rajesh Majumdar
Right, sir. Thank you.
Parmod Sagar
Thank you.
Operator
Thank you. That was the last question. I would now like to hand it over to Mr. Parmod Sagar for the closing comments.
Parmod Sagar
Thank you very much. Thanks a lot, dear friends. We value your comments, we value your feedback, and we always strive to give right value to our shareholders. We always take each and every comment in a positive way, healthy way, and we try to improve. I think in last two, three quarters, we improved a bit and further, we will keep on improving, very transparently with you as you are our partner and you are the people who are guiding us, and we value your relationship. Thank you very much for your time, for your comments, for your support. Looking forward to have much more intense interaction in coming months. Thank you.
Azim Syed
Thank you and have a nice weekend.
Operator
[Operator Closing Remarks]