Indian Metals and Ferro Alloys Limited (533047) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the earnings conference call of Indian Metals and Ferro Alloys Limited, arranged by Veritas Reputation. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Aryan Rana from Veritas Reputation. Thank you, and over to you, sir.

Thanks, Lizan. Good evening, everyone. We warmly welcome and express our gratitude to each one of you for being a part of today's earnings conference call for Indian Metal and Ferro Alloys Limited. I'm Aryan Rana, your host for this session, and it brings me great joy to guide you through the proceedings as we analyze the financial results for the quarter concluding on December 31, 2023. We're delighted to announce that IMFA's market valuation has witnessed an impressive surge of nearly 103% in the past 10 months, crossing the INR 3,000 crore market capitalization milestone. IMFA's currently market valuation currently stands at approximately INR 3,548 crores. This achievement, despite external challenges, solidifies IMFA's position as India's foremost fully integrated manufacturer of superior ferrochrome in the metal and mining industry. While the detailed financial results are available on our company website and the stock exchanges, it's essential to note that our discussion may include forward-looking statements contingent upon known and unforeseen risks and uncertainties and various factors. So for a comprehensive overview of our Q3 financial performance and address any queries you may have, we are honored to have esteemed members of our management team present today. I welcome Mr. Prem Khandelwal, our CFO and Company Secretary; Mr. Bijayananda Mohapatra, our Chief Operating Officer; Mr. Deepak Mohanty, overseeing the Ferro Alloys Business Unit; Mr. Binoy Agarwalla, Heading the Power Unit Business; and Mr. Sandeep Narade, in charge of the Mining Business Unit. Without further delay, I now hand over the call to Mr. Prem Khandelwal, our CFO and Company Secretary, to guide us through the financial highlights. Over to you, sir. Thank you.

Thank you, Aryan. Good evening, ladies and gentlemen. I welcome you all to the Q3 FY '24 earnings call of the company. Third quarter years have been excellent, as you might have seen, especially if you compare it from the corresponding quarter of previous year. Sales has -- although sales has gone up by 10% from INR 614 crores to INR 675 crores, the profit has gone up by tenfold from INR 10 crores to INR 108 crores. The primary reason for this increase is the higher realization and lower cost. The sales realization has gone up from INR 93,000 to INR 1,03,000 in the corresponding quarter, and the costs have gone down from INR 80,000 to INR 72,000. Rest, all the figures are in public domain already through our press release. So I'll not delve into those, and we can start the Q&A session now. Thank you.

[Operator Instructions] The first question is from the line of Kaushal Kedia from Wallfort.

Sir, on the CapEx, I just want to understand, the CapEx is on track. And how do we -- how are we going to go about the CapEx on the chrome ore mining front and the furnace front? Can you just explain in a little detail, please?

Yes, CapEx front, we are well on the time, but the possession of land is getting a little delayed. So we are trying to overcome that. But if it is not -- if we are not getting the possession within time, then it might get delayed a little bit. But that is not going to -- I mean, that is not going to suffer the project too much. We'll try to contain that delay. And as far as amount is concerned, the furnace, we are going to spend around INR 600 crores. And on mining, we are going to spend around INR 1,000 crores. But this CapEx is going to be spent over a period of 7 years.

Sir, so the furnace capacity will go up by 33%, right?

Yes, it will go by 1 lakh tonne. So from 2,84,000, the capacity will go up to 3,84,000.

Okay. Sir, and the mining capacity, the commentary by Mr. Panda in the press release, he has said that this year, we will cross 6 lakh tonnes for the first time. So the mining capacity, we are increasing gradually. Is it so?

Yes. Yes.

So the blast furnace, if everything goes -- sorry.

Yes, please go ahead.

So the blast furnace, if everything is on track, I believe the blast furnace will come on track by FY -- September '26, correct?

No, no, it's September '25, not '26.

Okay. By September '25, okay. If you -- I mean, the land procurement is on track?

Yes.

Okay. And so -- but the mining capacity, that will go up gradually. So we should see more than 6 lakh tonnes in FY '24. And by FY '25, that means by March FY '25, how much should we see on the mining front?

Sandeep, would you answer that?

So in FY '25, we are targeting 7.3 lakh tonnes of ore.

March -- this is March '25?

FY '25. FY '24, we'll be crossing 6 lakh tonnes, close to 6.7 lakhs. And in FY '25, that will be 7.3 lakhs.

So sir, the excess chrome ores, we are hoping to sell it in the open market then?

No, no, no. We have no plans to sell in the open market. The excess ore, either we'll stock it or we will look for some alternative to use that ore. But no plan to sell ore in the market.

Why, sir? But why? Because in the domestic market, we can command a good price also, right?

No, but as in my policy, we are not selling ore.

The next question is from the line of [ Zaroon Sethi ] from Samar Wealth Managers.

Sir, I want to know what are the key drivers behind revenue growth? And what is the future outlook on demand side?

Deepak?

Can you come again, once again? I could not -- a little bit of echoing happened while you're speaking. Can you repeat your question?

Yes, sir, of course. Sir, I want to know what are the key drivers behind revenue growth? And what is the future outlook on demand side?

No, demand outside, let me tell you, as per ISSF, which is the International Stainless Steel Forum, so they are expecting around 4% -- 3.6% growth in stainless steel and [ conversion ]. Okay. So in that manner, what it was expected for basically calendar year '23, it was around 60 million, but actually, it will be slightly less. But in calendar year '24, it is going to exceed 60 million tonnes, so which will drive the requirement and all. And as such, we have been the integrated producer and long-term kind of our agreement with many people. So we have also opportunity, whenever this production comes into line, we have the opportunity to increase in those areas as well as new areas. We are also looking at different kinds of products and all, so to cater to other markets also. So I don't think as far as -- because demand and the thing is issue is there, so we do not have any challenges really to enhance our involvement in the global front with the big players where we have long-term relationships. Considering our consistency in quality and delivery, everything, we have enough opportunity to cope up to the additional quantity. Hope I have explained that.

And Zaroon, as far as the revenue growth is concerned, we are already in the expansion mode, and we are putting up 2 furnaces in Kalinganagar. So that will increase the capacity by 1 lakh tonne. In FY '26, we'll see the revenue growth also.

And sir, secondly, do you have any significant plan for domestic markets?

Domestic market, as of now -- yes, yes, Deepak, please.

It is not at the moment. But as it grows, we will be also catering to the domestic market as per the requirement.

The next question is from the line of Dhviti from Molecule Ventures.

Congratulations on good set of numbers, sir. My first question is on, if you could give a breakup of cost of production per tonne for Q3 FY '24 and our EBITDA cost based on the RM prices?

Our ferrochrome cost for Q3 FY '24 is INR 72,000, and EBITDA cost for FY -- Q3 FY '24 is it's INR 79,000. Yes.

Okay. And how do we see that shaping up for Q4 FY '24?

It is more or less likely to remain the same.

Okay. And sir, how -- what about the power cost for current quarter and the Y-o-Y, so if you could give a breakup of that?

Binoy?

Sorry. Sorry, I couldn't get you. You are comparing with Q3 FY '24 versus Q4 FY '24?

Q3 FY '23 and Q3 FY '24.

The power cost, Q3 FY '23, it was -- variable cost was INR 4.77. And Q3 FY '24, the variable cost has come INR 4.30. There is a saving of around INR 0.47.

Okay. Okay. And sir, considering the rise in realizations of ferrochrome in the past few months, how do we see our Q4 realization? Will it be similar to what we did in Q3? Or how is that panning out?

Look, Q4 realization will be a little lower...

Lower, yes.

Like lower because the price -- the benchmark has come down by $0.09. So I think there will be some reduction in our price also.

I would like to add a few things also. In addition to the note that you know that Chinese New Year and other places like [ Kutuzov ] holidays and other things, particularly month of February, the non-transaction, normally people don't conclude anything; they do it prior. So it will be remaining in that level. So it will be slightly lower with the decrease in long term, this benchmark price.

Okay. Okay, sir. And what will be our cost for coal and coke inventory? And there has been some spike in the coke prices, so when will that be coming in the cost?

Deepak, coke cost?

Yes. Coke cost, actually, it has come down. We are using it somewhere in $320, around in that range at the moment. And the prices are going up slowly because the coking coal prices have also gone up. But our booking is always forward because we get it from Colombia, and it's a long lead time required for that consignment term. So our thing will be more or less in the range of the present market scenario, which is around $350 to $360. So not much change will be there in coke, particularly coke front. It has come down drastically, in fact, from the earlier quarters, which we looked at others. In last year, corresponding quarter, it was quite high.

If you could give a number for that, sir, last year?

Corresponding year, if you look at the coke, coke price was something like INR 47,000 or something. Let me just -- one minute. It was around INR 47,000 around, which has come down by around INR 10,000 now, like INR 37,000. Yes.

The next question is from the line of Saket Kapoor from Kapoor Company.

Sir, firstly, when we look at the numbers on a Q-on-Q basis, our depreciation has gone down from INR 26 crores to INR 15 crores. So what explains this, sir?

We have changed the method, Saket, this time from WDV to SLM. That's why it has gone down from INR 27 crores to INR 14 crores.

Okay. And now, sir, Q-on-Q, this will be the number going ahead?

Yes. So now, it is SLM, so more or less, this is going to be the number going forward.

Why we have adopted this straight-line method? What was the reason?

We had appointed a consultant to study the plant life and other things. And we have [ studied ] industry norms also, most of the companies in our industry are following SLM method. We were only following WDV. So we did a study and then came to conclusion that SLM is more suitable to us compared to WDV. So that's when we decided to change the method.

And Prem sir, also for the other expenses Q-on-Q, we see a reduction of INR 7 crores on a base of INR 118 crores. So any one-off items or what has led to this reduction of INR 7 crores?

Saket, INR 7 crores is nothing, it's almost only 7%.

7% is there, sir?

Yes. So it's normal, I think, some item might have reduced.

Okay. Sir, can you give me the cost per tonne for the second quarter? INR 72,000, you gave for FY -- for Q3. What would be the cost for the previous quarter, sir?

It was INR 70,500.

Come again, sir?

INR 70,500.

Okay. So the cost has gone up Q-on-Q.

Yes.

Okay. And the realization for Q2 and Q3?

Realization for Q2 was like INR 1,01,000. Q3, I've already told, [ INR 123,000 ].

INR 123,000, okay. And for the next quarter also, these metrics are going to remain. But selling price, we are not aware how it will shape up. But for the cost, it is going to...

Selling price will come down a little bit, but cost will remain the same.

Cost is going to remain same, sir. Sir, today, in one of the interviews, the MD did spoke about our ore output to go up, and you were earlier discussing. So what are we contemplating in terms of the excess ore that we are going to mine? Other than stocking it, what other activities are we envisaging? Any type of job work?

Nothing has been frozen at the moment, Saket. So it's not proper for us to delve into that right now. We are just exploring the alternatives to use that ore.

Okay, sir. Sir, lastly, sir, on the coal prices, we have seen in international markets, coal prices suddenly correcting by 8% to 10%. I'm not aware of the grade. So how are the current coal prices -- spot prices trending? And what kind of further advantage can we expect in terms of the coal prices and then also the trend for the metallurgical coke, if you could give some color on the same?

Binoy, regarding coal, would you answer that?

The coal price, as of now, it is in decreasing trend. Earlier, we used to buy spot the auction at INR 6,000, INR 6,200 in FY '22 -- '23. But now it has come down to INR 4,000. It is slowly, gradually coming down. If it remains like this, then our variable cost will remain also like in the same line.

Okay. Then for the coke part, sir, coke we're importing, metallurgical coke?

So as told -- as I told, considering the Colombian coke, particularly which we use, so it will be in the range of $350 to $360 over a period of next 6 months usage of our -- per our usage. Thereafter, nobody can say how it will turn out, the coking coal and coke scenario and other things. So for the moment, you may consider for next 6 months, it will be in that range, $350 to $360 per tonne of coke.

And lastly, sir, on the compensation part, Prem sir, INR 390 crores is what's the figure that has been crystallized from the authority that would be due to the company?

Yes.

And sir, there is -- again, the other party has gone to the arbitration to seek what relief, sir? What are they contemplating or contesting now?

Initially, they went to Court Tribunal for a stay of order, final order, which was turned down by the Tribunal. And now they are into the Tribunal to -- for the reduction in the compensation amount. We are also into Tribunal for whatever reduction the NA has done, INR 64 crore reduction. We have also filed a case in Tribunal for reinstating that amount because there is no logic for reduction of amount.

Okay. So there has been a INR 64 crores -- no, no, I'm just seeking the clarification only ma'am, no further question. There has been a reduction of INR 64 crores on the sum nominated by -- sums finalized by the nominated court. That is INR 390 crores minus INR 64 crores, that is what they are they are seeking to...

INR 416 crores minus INR 352 crores, they have done. So the provisional order was INR 416 crores, but our [ aim is INR 52 crores ]. So the INR 64 crore reduction, whatever they have done, we have challenged that also in Court Tribunal.

Okay. But then, what is the reference of INR 390 crores here, sir, when you are mentioning INR 416 crores?

Mr. Kapoor, may request that you return to the question queue, sir? There are participants waiting for their turn.

Done. Yes, ma'am, I'll join again.

[Operator Instructions] The next question is from the line of Kaushal Kedia from Wallfort.

Sir, I just want to understand that demand is not an issue. I think when we had met you earlier also, you were pretty confident that demand is not going to be an issue even after capacity expansion. So we could sell at the prevailing rates. So if we want to model in our financial models for, say, 3 years down the line, is it safe to assume that given the prevailing realizations, EBITDA will go up by more than 33% going forward after expansion?

No, no, no. See, in our industry, it's very difficult to predict anything beyond 1 quarter.

Okay. No, fair enough. But I'm not saying -- I'm not talking about the rates, I'm talking about more on the volume sales. So after we've done the CapEx, the demand is not going to be an issue?

Yes. Yes, that's true.

Because I think -- and as a policy, you're saying, so we don't want to sell ferrochrome in the domestic market.

Chrome only, I said, not ferrochrome.

Okay, sir. Because I think the way the stainless steel demand is increasing, I think we'll have a big market in India for ferrochrome.

Yes, of course, if the market has gone up in India, yes, that's a -- I think Deepak Mohanty also said the same thing that if market goes up in India, we'll sell in the Indian market. Why do we export it then?

And I think the realizations will be slightly better also in the Indian market. Is my understanding correct?

No. Realization will be always in light with the world market price because there will be leads that lag at certain points in time or certain points where some glitches like, at the moment the, chrome ore prices have gone up, for which the prices have gone up. But that is not a sustainable thing. And nobody in this world, any country, they deal with their own prices. It's more or less aligned to the world price. So it should be more or less in line.

And we are confident of finishing the CapEx in September '25?

Yes. As of now, we are trying to do that. But if the possession gets delayed, then it might get delayed a little bit more.

By about how many months, say, 2, 4 months?

Difficult to predict at the moment. It depends on when we get the possession of land, yes.

The next question is from the line of Rakesh Roy from Omkara Capital.

My first question is your realization part. As you say, in Q4, realization will come down. But if we see overall picture for CY '24, so just you mentioned the stainless steel business will grow nearby 3.6% on international level. So do you see any more realization will grow same like 3.6% or more than 3.6% in CY '24?

No. Actually, 3.6% growth is also quite a bit, considering a lot of issues at the moment going on. The Russia-Ukraine war has not stopped. And if it stops, it will not be 3.6%, it will be exponentially going up. And the rates we issue is also decreasing the trade and everything. So a lot of stability needs to come in the world, then only you can think of any higher. That 3.6% growth is a very good growth rate if it is really achieved.

And then how much growth you are looking for that you are seeing for the Indian domestic stainless steel business for, if you say, CY '24 and '25?

No prediction so far by anybody because, as you know, the consumption -- per capita consumption is still below 2.5. Any minor sales can lead to a very great requirement level. So nobody can say, but things are pressing. So hopefully, it will go up and then we'll be catering to domestic also.

Okay. Okay, sir. And sir, any comments on the China economy and from your point of view on China, sir?

Chinese economy, you must have heard, they are facing certain crises with real estate side, and you know Evergrande has been directed for liquidation. So that is a good news and bad news also because that will ultimately make the things stable, which was unstable because they were trying to manage and manage. But particularly, as I have told in the previous con call also, that Chinese stainless steel producers are behaving good. They don't want to bring down stainless steel production, not the ferrochrome production, but they are working on low margin. So that is why even now, the production -- ferrochrome production, if you look at, they are producing 650,000 per month, and they are producing at least 3 million tonnes of stainless steel every month. So it is a good thing they are managing and keeping the things in tandem. So I hope things will be better. And they are having also -- government is having concern -- started certain concern because their population has come down by 0.15% to 0.08 million in 2023. So if the population goes down continuously over the years going ahead, their workforce will be going down, which is a concern they are working on. Otherwise, things are more or less stable.

Right, sir. So one last question, sir. Last question, this one is same on realization [indiscernible] I'm just asking for Q4 -- can we see Q4 is a bottom-out for realization, sir? Or have we seen -- or near term more downside of realization, ferrochrome?

I think it will remain in the -- it will not go further down because of the cost base. So only because of currency devaluation and all, they are able to work it out, but further going below will not be sustainable. As I told, both ferrochrome and stainless steel, people are operating at a very low margin. They are [ breached if things will topple ].

The next question is from the line of Nihar Shah from Crown Capital.

I'm fairly new to the company, so I have 2, 3 questions. Like what is the opportunity we are exploring going ahead with the company?

Nihar, your voice is not clear.

No, no, not clear.

Hello? Am I audible now?