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

Ladies and gentlemen, good day, and welcome to Indian Metals and Ferro Alloys Limited Q1 FY '27 Earnings Conference Call hosted by Adfactors PR. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vaibhav Gupta from Adfactors PR. Thank you, and over to you, Mr. Gupta.

Thank you, Rajiv. Good evening, everyone, and thank you for joining us on Indian Metal and Ferro Alloys Limited Earnings Conference Call for the first quarter ended 30th June 2026. Today we have with us Mr. Subhrakant Panda, Managing Director; Mr. Saunak Gupta, Chief Financial Officer; Mr. Bijayananda Mohapatra, Whole-Time Director and Chief Operating Officer; Mr. Sureshbabu Chigurupalli, Head of Ferro Alloys Business unit. We will begin the call with the opening remarks by MD, Mr. Subhrakant Panda, who will provide an overview of the company's business performance, the operational developments and the outlook of the business. This will be followed by the question-and-answer session. Before we begin, I would like to remind everyone that certain statements made or discussed on today's call may be forward-looking in nature and should be viewed in the conjunction of the risks and the uncertainties that the company faces. A detailed explanation of this risk is included in the earnings presentation that has already been shared on the stock exchanges. The company does not undertake any obligation to publicly update these forward-looking statements. With that, I would now like to hand over the call to Mr. Subhrakant Panda. Over to you, sir.

Thank you, Vaibhav. At the outset, let me welcome all of you who have taken time out from your busy schedules to attend this investor con call to discuss IMFA's Q1 FY '27 results. As I'm sure you will agree, this is a real breakthrough quarter where in terms of both revenues as well as profitability, it's the highest ever. And that's a reflection of not just firm prices but also tonnage from our KNR-2 acquisition coming into play. I will not get into the details of output and all of that because that's shared as part of the presentation, which we have uploaded to the stock exchanges. But suffice it to say that as against average output of about 65,000 tonnes in a quarter, in Q1, we have touched 80,000 tonnes. As you know that going ahead, we are also looking to commission the KNR-1 greenfield project, where the first furnace we have already initiated the process of heating the refractory lining, so we expect first tapping around the third week of this month. What we are looking at from the core business, which is ferro alloys, is that there is substantially more tonnage waiting to come online. So that will help us going ahead, deliver record performance. So just to put that in perspective that, as I mentioned in Q1 FY '27, we are looking at about 80,000 tonnes. But when all furnaces are up and running, which we expect by in fourth quarter when everything is stabilized that we will be looking at about 120-odd-thousand tonnes. So there is a full 50% increase in tonnage, which is coming. One point here I would like to point out that in all our interactions, we had, while we never -- we generally don't give any guidance with regard to tonnage, but given that there is so much happening in terms of greenfield, in terms of the acquisition, et cetera, so we had given some indications. As far as FY '27 is concerned, we had indicated 400,000 tonnes, but we going to tone it down a little bit because while we were able to switch on all furnaces at KNR-2 in the month of March and, in fact, got a little bit of production, but some of the transformers we are -- we feel should not be loaded beyond a certain point. So we are taking it a little safe, if I can put it that way. We have already ordered 2 sets of transformers plus a spare. So sometimes in Q2 or Q3, we will be looking to replace the 2 sets of transformers where we have a little bit of concern. And secondly, as far as the gas cleaning plant is concerned, again, some work needs to be done on that. And therefore, we are restricting load a little bit to ensure that we comply with emission norms. So when all of that is sorted out, I think we will be able to push the load higher as we had indicated. But as I said, just to be transparent and clear, we're toning down the guidance a little bit for FY '27. So I think there will be a lot of questions. So let's go into the Q&A mode, and I'll do my best along with my team to respond to your queries. Thank you.

[Operator Instructions] The first question comes from the line of Joe Shah with Seven Seas.

A bit busy day because after AGM, we are starting with the con call. Anyways, Mr. Panda, I understand we expect to sell [indiscernible] ferrochrome to India and I understand that ferrochrome demand in India is a bit weak, mainly because of stainless steel flats are imported from China and stainless steel producers are happy converting them into finished products. So benefit of ferrochrome, even though is going to China and not to India. So right now in steel product, there should be restrictions on imports of stainless steel -- especially stainless steel flats. So they will have to import stainless steel flats to India using Indian ferrochrome. This is one suggestion. I need your comments.

I would not like to comment on that because there are multiple issues in terms of demand-supply and other issues. So it would not be prudent of me to comment. But yes, in general, I have always held a view that whether it comes to stainless steel or any other commodity or any other product that it's -- Indian industry is confident and wants a level playing field. So if there is unfair competition, then that is something that should be looked into. But I would just like to limit my comments to that much.

Now ferrochrome production of Samancor and Glencore from South Africa will start and expectation is that they will produce 4.5 million tonnes of ferrochrome per year. So now what will be its impact on short-term ferrochrome prices as well as on chrome ore prices? I understand from our MD's comment that in the past that in long term, it will balance out because Chinese ferrochrome production will shift to South Africa. But what will be the impact on short-term impact on ferrochrome prices?

Thank you for your question. So as we have discussed in the past, my view is that the special tariff, which has been announced by Eskom for South African producers or other 2 producers, that -- I mean, certainly makes South African ferrochrome more competitive. I think the jury is still out as to how competitive they become with this power tariff. But having said that, generally, our expectation is that we would expect to see in terms of chrome units, that means if they -- if the South African producers consume more chrome ore themselves, then it would logically should lead to less chrome ore being available for Chinese. Now again, something which is evident is that if South African production increases, and I don't think the number of 4.5 million is right because at the moment, only Glencore has switched on, I believe, Line 1, and Suresh might have the numbers, but I think it's something like 700,000, 800,000 tonnes expectation, including others. But whatever the number is that clearly, if ferrochrome production in South Africa goes up and China doesn't compensate in terms of lesser output, then you will see some sort of glut. And that is going to impact everybody, including the South African producers themselves because they have made it repeatedly clear that $0.62 is not something which is very, very attractive, but something that they need to get to stay in the game. Having said that, we are confident about our competitiveness and our resilience. And we believe that with different sectors also starting to ask for special tariffs like manganese, et cetera, that we may see some short-term turmoil; even that I'm not so sure. But clearly, I think it should balance each other out. And that is where also the point I made at the beginning that even if we see some price correction, please keep in mind that we have another 50% volume coming in. So that will certainly provide a boost to our numbers in subsequent quarters. So we are quite -- by the grace of God, we are quite confident.

Next question comes from the line of [ Pratyusha Chamaria with Trinetra Asset Managers ].

So my question was that you have already answered it halfway. So given the current ferrochrome pricing environment, where does our company believe it sits on the global cost curve? Like have there been any recent operational initiatives that have strengthened your competitive position related to the South African and Kazakh producers?

So it's very difficult to accurately pinpoint where we stand. But suffice it to say that we are fairly competitive and resilient, as I mentioned a little while ago. And therefore, what we believe is that we are -- we will be able to hold our own whatever may be the circumstances. And I'm not -- and I'm -- the situation is not as gloomy as one might think. As I said, very clearly, we expect that increase in ferrochrome production in South Africa should lead to a reduction in chrome ore because if that doesn't happen, then this whole exercise of giving a special tariff to encourage restarts will again get all -- it will not work out well. So that is one. So we are fairly competitive on a global scale, if I can put it. I can ask Suresh to sort of talk a little bit about some of the initiatives that we have done in terms of digital and other Kaizen initiatives, et cetera, that we are taking. So Suresh, in a couple of minutes, if you can just give a little update on what you have been -- some of the initiatives you have been spearheading to enhance our competitiveness.

Thank you for that. So we have initiated digital projects in one of our locations, and we are already deploying in other locations also. So this is basically to led the -- operate at international level and cost optimization model. And we are also reshaping the Kaizen's theory, like, at different locations to optimize the cost. So we will be very competent as far as the throughput is concerned.

[indiscernible] and also China is likely [indiscernible] global ferrochrome demand and based on your [indiscernible], are we seeing any demand in the stainless steel production, how should inventory look like or how does that shape your outlook for the second half of the FY '27?

So I don't think I have the numbers for FY '27. But yes, stainless steel production has grown. I mean it may not be very aggressive growth, but about 2.5% to 3% growth is there globally if you look at it. And secondly, I think from a point of view of what is supporting prices at the moment, it is actually cost pressures because of availability of ore and pricing of ore, which is supporting ferrochrome prices. And of course, as you well know that because we have a captive chrome ore mines, we are, by and large, insulated from that situation.

Next question comes from the line of Parthiv Jhonsa with Anand Rathi.

Congratulations on a great set of numbers on the record quarter. It was a fantastic result, sir. Sir, I just wanted to quickly check on a couple of things. I'm sorry, actually, I missed your opening remark. I just wanted to get your understanding on this entire South Africa now considering that the volumes have actually started picking up from Merafe, though they are down compared to last year, but they are still much higher than Q1. So what is your understanding on that? Because eventually, they would be selling it to China at the end of the day.

Yes. So a couple of things on that, Bart. As we have discussed on the call -- I have discussed on the call several times in the past 2 quarters that unquestionably with $0.62 tariff being available to Glencore and Samancor that they have switched on their more efficient furnaces and that is what you're seeing an increase in output. And as you correctly said, it is less than -- it is more than what it was in Q1 of the calendar year, but less than the corresponding quarter. So again, we believe that this needs to be looked at in terms of chrome units. That is if ferrochrome increases, then logically chrome ore should -- supply should reduce. And that will impact ferrochrome production in China. Having said that, if that were not to happen for whatever reason, keep in mind that South African miners and integrated producers have the possibility of selling just the ore. So it doesn't make sense logically speaking, to convert it into ferrochrome and drive down prices and make less money themselves and for everybody else. But where is that balancing point or that tipping point? And is it possible to fine-tune it to that -- with that efficiency? It's I think we'll have to wait and watch. But the other point I made in my opening remarks is that as against 65,000 tonnes production on average in Q1 FY '27, we have a volume of 80,000 tonnes. And by the end of the financial year, that is, so the fourth quarter, which is January to March 2027, we will be looking at a full 50% higher volume at roughly about 120,000, 125,000 tonnes per month. Parthiv, I don't know if you caught my other comment about we are slightly toning down the production guidance at KNR -- overall because we were indicating about 200,000 tonnes for FY '27. But while we have been able to start the 4 furnaces at KNR-2, but a couple of furnaces, I think we are not loading the transformers fully because these are units which have not operated for a long time. And therefore, we are -- we have ordered 2 full sets of transformers and a spare. And over the course of Q2 and Q3, we will be replacing the slightly doubtful transformers with the new ones and also some work on GCP needs to be done. So these are the unexpected surprises that one has when it comes to an acquisition, especially one which had not been running. But this is par for the course. And again, from a results perspective, volume -- I mean, even with these volumes, we will -- we are expecting fairly attractive numbers in Q2 and going ahead.

Okay. That's actually quite helpful. So basically, when you say [ 1 20 ] run rate, you mean to say volumes for '27 will be about [ 3 60, 3 80 ] kind of range instead of 4...

[ 3 80 ] is what we are expecting for the year. If you remember, we had said 400,000 tonnes. That's where we were hoping that we can -- based on what we had seen during all the checkups that we had done while taking over the unit that we will be able to load it a little more. Broadly, again, Suresh, I think, can confirm, but about 6 to 7 megawatts is lesser loading is happening. We also didn't have -- they also didn't have adequate power availability. So that has come through another -- Suresh, how much? 15 MBA.

15 MBA is, load.

So all of that will impact tonnage a little bit. But as I said, prices at the moment are more than making up. And even [ 3 80 ] plus will still be a significant boost in terms of tonnage.

Next question comes from the line of Manan Vandur with Walfort PMS.

Congratulations on the number. Sir, I just had one question around your realizations, EBITDA realization. So a few quarters back, you had said that our EBITDA...

Mr. Vandur, there's a lot of disturbance from the background.

Can you hear me now?

Yes, please go head.

Okay. Sorry for that. Sir, just the question was that earlier 2, 3 quarters back, once about the EBITDA profit, you had stated that our average EBITDA would be around INR 20,000. But then you said that because of the plants being closer to the different ports, it's going to help us and raise it to around INR 22,000 something. So just needed an understanding that are we still on par with that or is it going to be higher about INR 25,000, not just because the realizations are better right now, just in general over a long period.

So a couple of questions. We actually don't give EBITDA guidance in terms of specific numbers, what we expect per tonne. But certainly, what I had indicated is that both KNR-1 and KNR-2 are more competitive than Therubali in terms of cost of production. And therefore, once KNR-1 and KNR-2 all stabilize and we get to that 500,000 tonnes production in a smooth manner, then we will see our margins improve by about INR 1,500 to INR 2,000. So that is what I had said. Now at the moment, on a per tonne basis, if you look at for Q1, obviously, the number is a lot higher because what we are seeing is our selling price being just shy of INR 120,000, blended selling price. So that is significantly higher. And secondly, the point I had made is that just being a little conservative in making this statement that whatever you see a correction or don't see a correction, we have a lot of volume coming on line, which will boost the overall performance. So that's the specific statement.

Next question comes from the line of Parthiv Jhonsa with Anand Rathi.

Yes. Sir, I just wanted to quickly take the previous question forward. Considering the EBITDA per tonne has actually substantially improved, I agree pricing had to play a lot of role in it. But has the benefits of that KNR-1 and 2 started -- some benefits started coming in, the added or enhanced EBITDA per tonne?

Not that much. And the reason I would say that is when you are ramping up load, that's where for some time, you are consuming power without any output and all of that. So a lot of inefficiencies are there in the initial period. So some probably is -- some benefit is there. It's very difficult to quantify it because, as I said, there are -- I mean, for example, we have the renewable energy contract that we have signed up with JSW Energy. Now we have had that corridor since June, and we are expecting the power to flow in August. So I mean, it's maybe INR 1 crore or so a month, but those little inefficiencies are there. But then it's next to impossible to absolutely synchronize it, fine-tune it to that extent. So that is where I'm saying that we will see the benefit of Kalinganagar in its fullest form probably from Q4 of this year, assuming that we are able to smoothly operate the 4 furnaces at a higher load at KNR-2 as well as the 2 furnaces at KNR-1.

Got it, sir. And sir, my last question is pertaining to the inventory. Just wanted to get -- inventory and the other expenses. Just wanted to get a sense of what is the closing stock on books as on date? And the other expenses were relatively lower Q-o-Q. So what has led to that dip in lower other expenses?

Saunak, would you be able to answer that, please?

Yes. So on the second question, I will answer it first on the other expenses. So as you know, in quarter 4, we had said that since the falloff, USD had gone up from Q3 to Q4 range from INR 89.9 to INR 94.65, so in our exports that we hedge for MTM, that is a mark-to-market impact of INR 32 crores has come in our financials as a negative for that. But for quarter 1 end, more or less the currencies has remained similar. So those INR 32 crores impact is not there. In fact, we had got some ForEx gain during this quarter. So that's where the maximum amount of benefit has come on the other expenses besides whatever is the cost efficiency initiatives we have taken, specifically on the predictable maintenance and shutdown. So there also, we have got some cost benefit. So these 2 adds up to the lower other expenses. And on the inventory side, ferrochrome is under control as per whatever is the inventory plan. On the chrome ore, we have stock -- primarily we have stocked up to meet whatever is our additional capacity for next 1 year. So approximately our ferrochrome stock of total 6 lakh tonnes -- chrome ore stock of 6 lakh tonnes is there with us.

And Parthiv, I'd like to add one more point that in the context of systematically increasing our ferrochrome output, we'll also have to build up a little bit of ferrochrome stock because that's about 17,000, 18,000 tonnes, which works well when we have only 2 locations. But now that we have a third location and higher tonnages -- so this is where over the next 1 or 2 quarters, we will be sort of making sure that everything sort of settles down in a manner which is efficient. So that is why I'm repeatedly saying that Q4 onwards is when we expect to see smooth operations with inventory having reached the -- ferrochrome inventory having reached the level that we wanted to reach for a given a higher output. So all those things will settle down by fourth quarter.

Next question comes from the line of Harsh Vasa with SBICAP Securities.

Congratulations, sir, and your team on fantastic results. Sir, one of my questions already answered, but it was just pertaining to selling price. As you all know that the realization per tonne was around INR 119,000 this quarter. So is this trend continuing for 2Q as well like currently?

So Harsh, we don't generally give a guidance beyond a quarter or so because it's difficult. But having said that, Q2, we are seeing more or less results at the same level, a little bit of correction. But again, volumes will make up for a minor correction in price that we are seeing. Beyond that, let's see how it plays out. Broadly speaking, I'm quite confident that the cost structure is such that -- and it's not a question of Chinese buyers are just sitting -- South Africans will come and they will -- the tonnages will simply shoot up because I think the disruption which was there in South Africa means that there is -- they are very clear that companies like us, which have really worked with them to sort of have a stable relationship, we will continue to sort of get, I can't call it preferential treatment, but certainly some degree of understanding that it's not a -- it's a good idea to keep our supplies in the mix.

Next question comes from the line of Aashav Patel with Molecule Ventures.

Congratulations on a blockbuster set of numbers, sir. This quarterly result actually puts us in a different league altogether. This is the first time we are seeing the full benefit of the integrated business model, which we boast about. So my question is, sir, regarding the Q2 volume guidance. So I agree that we cannot envisage a year out. But at least for Q2, can we expect -- now that the KNR-2 has been operating at optimum utilization, at least the 2 ongoing furnaces, can we expect Q2 to have at least upwards of 90,000 metric tons sort of volume?

Look, I don't want to get into the specifics of numbers. In terms of production, we will certainly go up further beyond where we are at the moment. But as I mentioned, we are also looking to build up a little bit of stock because, I mean, if I just give you some a theoretical, 7,000, 1800 tones ferrochrome stock is okay when you're producing 265. When But you're producing 400 or 450, it's not adequate. So those little balancing is -- will happen. And Aashav, I will reiterate a point which I have always made, which is that I advise investors not to look at IMFA from a quarterly -- quarter-on-quarter basis or what we will achieve this quarter or next quarter. But I mean, certainly, we are answerable. We should have a general trajectory, upward trajectory. But whether it is 84 or 86 or 82 is not that relevant as how quickly are we able to get to 500,000 tonnes and maintain that. So that's been our approach rather than a short-term play of what exactly we will get during this quarter. Saunak, I don't know if you have anything to add?

Yes, I think what you said is correct. So that's more or less we will be for the quarter 2, what we see is the average price realization will more or less remain the same. On the volume-wise, there will be some incremental volume. But since we are building up the ferrochrome stock, so more or less, it will be on a similar range.

[indiscernible] broadly.

Sure, sure. So just to zoom it out and see on a yearly stance. So I understand that this time around, what we have delivered is absolutely robust 30% operating margin, 35,000 metric ton EBITDA. This is the cyclical pick which we used to do. And this we are able to do when the industry cycle is at median level. So this, in fact, reflects our benefit of captive ore. So can we just at least assume that even if there is a bit of reduction in expected volumes by 5%, can we expect at least the quarterly EBITDA, which we posted on Q1, can we analyze that given the volume uptick which we are seeing ahead of us?

So in the interest of transparency, because we had talked about 400,000 tonnes for FY '27 at various forums, I wanted to put that out there. While we -- as I said, we don't give a guidance per se, but it's -- if you have stated a number, it is better for us to clarify why we are not achieving that number. But that apart, I think annualizing this EBITDA, again, calls for us to look at what the numbers and the margins will be 2 or 3 quarters hence, which I don't want to do. I am quietly confident, but what those numbers are, will it be slightly up, slightly down, is not something I would like to get into. Because again, I would reiterate that I think it's better to look at the general trajectory or the general sort of strength of IMFA rather than look at specifics in a quarter.

Next question comes from the line of [ D.V. Agarwal ] with [indiscernible] Family Office.

I had one question regarding the expansion of FACOR. So they've announced that they'll be increasing their capacity from 145,000 tonnes to 5 lakh tonnes by FY '28. And at the same time, IMFA has guided to increase the domestic sales to 40% of the total volumes. So in light of these capacity additions, how do you assess the domestic ferrochrome market over the next 2 to 3 years? Do you expect any extra supply to create an oversupply situation or expect pressure on domestic pricing and margins?

So we are not -- I obviously wouldn't want to comment on FACOR's plans and their time lines. That is for them to clarify to the markets and to investors. But broadly, what we believe is that Indian ferrochrome demand is growing because stainless steel is growing. There has been some cutbacks. So while we have added and FACOR is talking about adding, but there have been some cutbacks also. So I don't see any difficulties in that regard. In any case, like I have always said that, I mean, whether we sell domestically or we sell -- I mean, we export, there is not that much of a price difference because, I mean, the duty protection is hardly 2%, 3% or something of that sort. So we always retain the ability to sell more outside if you want to. but our -- I mean, export more. But our approach has been we are the largest producer. I think it is incumbent upon us to ensure that the domestic ferrochrome demand is adequately met. And by no means do we feel that we are the only ones to do it. So I mean, others moving ahead with their plans is more than welcome.

Next question comes from the line of Vinit Thakur with Plus91 AMC.

Congratulations on a great set of numbers. Sir, I joined late, my question is repetitive. But could you just explain to me the increment in the margins, what has led to it and what would be sustainable margins going forward as well?

So very clearly, prices have moved up substantially. So that is what has added. But in terms of the overall number, our volume is also on the way up. So as against the standard of about 65,000 tonnes, we have produced and sold about roughly 80,000 tonnes. So it's a combination of volume as well as prices moving up. And like I said, we have more volume coming online in the next 1 to 2 quarters. So we are quite confident about the numbers that we will churn out.

So post the new plant, I think the Kalinganagar plant, what would be our capacity going forward?

So as I said, our capacity will be about a little more than 0.5 million tonnes. We are expecting in FY '27 about 380,000 tonnes, which is a slight reduction from what we had indicated earlier. And we are still maintaining 475,000 to 500,000 tonnes for FY '28.