Notes from the Transcript of Management Commentary on Annual Audited Financial Results
Margins
- Cyclical business: Product and raw material prices fluctuate based on demand.
- Target margin: Aim for $70-90/ton profit regardless of pricing cycle.
- Normalized earnings: This margin range generates $60-80 million/quarter.
- Post-Covid (2021-2022): Strong demand led to higher than usual margins due to rising product prices.
- Normalized margins: Sustained earnings above $70-90/ton may not be typical.
2023 review
- H1 2023: Significant market downturn due to:
- Resurgence of Chinese exports
- Chinese economic slowdown
- Q2 2023: Gradual price retreat with mid-year stabilization
- Summer 2023: Further price decline driven by:
- Reduced raw material costs
- Increased Chinese exports again
- Current situation: Market prices have plunged:
- Previous highs: $900 – $1400/ton
- Current lows: $400 – $700/ton
- Price decline: Descent has been prolonged and erratic, unlike the market’s gradual ascent.
- Impact: Downturn has hindered ability to restore customary margins.
Outlook
- Positive outlook: Potential for reaching market bottom in Q1 and returning to conventional earnings in H1.
- Challenge: Working through overpriced inventories to achieve this goal.
- Target metric: View business in terms of unit margin rather than percentage margin.
- Whether product is priced at $300 or $1000 per ton, focus is on maintaining normal per ton margin.
- High-value inventory progress: Made significant progress in using up high-value stock from previous year.
- Inventory depletion: Likely to deplete remaining stock by Q1 end.
- Profitability outlook: Positioned for profitability across most products by Q2.
- Challenge: Restore traditional managed margins during Q2.
External challenges
- Supply increase: Imminent capacity additions (10-15%) may disrupt supply-demand balance.
- Long-term outlook: Gradual absorption expected due to:
- Aluminium capacity expansions in India and the Middle East.
- Aligned expansion of CPC and CTP with new customers.
- Expectation: More balanced market in the long term.
CAQM relief and impact
(Commission for Air Quality Management)
- CAQM relief for Calciners: Petroleum coke import restrictions relaxed.
- Increased import limit: Overall limit for Calciners raised from 1.40 to 1.90 million tons per annum.
- Benefits all Calciners in India.
- CAQM increased CPC import limit for Aluminium Smelters:
- From 0.5 million tons to 0.8 million tons (from FY 2025-26 onwards).
- Aligns with India’s increased primary aluminium production.
- Benefit:
- Vertical Shaft Calciner in SEZ can import both RPC and CPC for internal use.
- This helps increase CPC plant capacity utilization.
- Capacity utilization improvement plan:
- Discussions with customers for increased supplies.
- Discussions with suppliers for sourcing more raw materials.
- Logistical planning for higher volume movement.
- Expected outcome:
- Gradual improvement in capacity utilization over the next few quarters.
- Lower per-ton fixed costs due to increased capacity utilization.
- Current CPC plant utilization: 55-60%.
- SEZ plant kiln status:
- 4 out of 6 kilns operating at low capacity.
- 2 remaining kilns have not started due to raw material shortage.
- Action plan:
- Start operations at the remaining 2 kilns in 3-4 months.
- Make logistical arrangements for increased production volume.
Reason for poor performance vis-a-vis competition
- High inventory strategy: High inventory of raw materials in India to:
- Safeguard against supply disruptions and facility shutdowns.
- Ensure uninterrupted operations and meet customer quality requirements.
- Drawback:
- Increased costs due to falling raw material prices impacting high inventory value.
- Operational challenges related to managing large inventory volumes.
- Moving forward, committed to enhancing operational efficiency
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