Indian Metals and Ferro Alloys Limited (IMFA.NS) Earnings Call Transcript & Summary

Any percentage which you can...

No, actually, it depends upon the type of mining we'll be doing. And there are many things that we are not sure of right now. So that's why I cannot say the exact number.

So Dhviti, just to add, the whole expansion plan for the mines will continue to about 4 to 5 years, okay? So at this point, predicting the overall final cost for raising will be a bit of a challenge. So that's what Sandeep was mentioning.

[Operator Instructions] The next question comes from the line of Jainam Madrecha from KC Capital.

So my question was on the line of like last 4, 5 years, we have seen the EBITDA per tonne going up like massively from the previous historical averages. So is it just because of the realization growth or we had some operating leverage as well? And on top of that, if it was an operating leverage thing, on what line items are we getting the operating leverage?

So basically, if we see for the last 1 year, our cost of -- EBITDA cost has remained in the range of around INR 77,500 only, plus/minus INR 500. Primarily, over the years, as you know, the input cost to a larger extent, the met coke cost has to a larger extent reduced. But at the same time, some of the other operational cost and all has also, to some extent, gone up. But we continue to maintain a lot of cost efficiencies, specifically if you see our power cost. Power cost, we have done a lot of operating efficiencies, including our various operation costs related to the ferrochrome production. There also, we have spent a lot of initiatives to improve our operating efficiencies. So it is a mixture of our input cost to some extent coming down, driven by the cost optimization efficiencies that we have done. But at the same time, even for the imports, the met coke imports, there is exposure to the ForEx fluctuation. And you would have seen that for a few years from around INR 78 level, currencies have gone up to INR 83, INR 87 levels. So that also has, to some extent, impact on the overall cost. So there are multiple factors, but more or less, we keep a very close monitor of our cost -- alternative cost opportunities as well as the operating efficiencies to keep the overall cost of EBITDA to around INR 77,500.

Okay. And if like, let's say, in future, met coke prices go up, are we going to go back to like earlier EBITDA per tonne levels or we would be maintaining this level?

It's very difficult to say because I said it's a factor of many other costs, not just the met coke cost, coal cost and all. So overall, the impact can be only measured after we see what is the trend coming on in all the input cost. So it's very difficult to predict for the future. But currently, we are seeing a stability in the cost structure. So you have seen over the last 2 quarters and this quarter also, we have maintained our cost around INR 77,500, between INR 77,000 to INR 77,800, INR 77,900. So that we are expecting currently also the cost to remain in this level. But with the current geopolitical volatility, which is very difficult to predict anything for the future.

Understood. And just another question on the industry perspective, like how are we seeing the Chinese ferrochrome producers? Are there any new capacities coming up or they have just like cut down the production levels? We know the production levels are down, but are there any plans in future for new capacities? And also, how is the stainless steel supply demand over there? Because that would be the end part that would be driving the pricing over there. So what's the scenario over there?

So I'll just give it to Venkatesh to give his insights on that.

Yes. Thank you. Going into China, basically, we are not hearing any more big new capacities in ferrochrome coming up. As far as our knowledge goes, nothing is going to come up in recent time. Going back to the stainless steel industry, in fact, all industries, like Mr. Saunak said, there is a geopolitical uncertainties. There are so many talks of tariffs, which is keeping the entire industry on tenterhooks. So currently, the demand also for stainless steel is weak. And traditionally, if you look at this quarter, which is a monsoon month, both in China and in India, where the demand comes down a little bit. And also in Europe, there's a summer vacation. So from the tariff situation, looking at the economies of various countries on tenterhooks, so the demand or the downstream demand of stainless steel is quite challenging at this moment.

Okay, understood. But how is the supply-demand currently like? Are we seeing too much oversupply in China market?

I'll just put it in another way to answer your question. Many of us have read that there has been a lot of cutbacks in production in South Africa. I'm talking of ferrochrome production. We see a little bit of reduction of ferrochrome production even in India. When we see these cutbacks, and like I said, the lower downstream demand for stainless steel, this has kind of countered each other. Otherwise, if the demand was good and there were cutbacks, obviously, the prices would have jumped. So this cutback in demand and the weakness in downstream demand has kind of balanced the industry as of now.

Understood. And just on last part, like ex-China, there are no new capacities coming in. And like is it the case that China would be taking in all the ferrochrome for captive use only or they would be exporting their ferrochromes as well?

As far as China government policy goes, they are -- they restrict the exports. There is an export tax on ferrochrome. So their idea is to be kind of self-sufficient or have ferrochrome capacity, but the purpose of the government is to discourage exports. So there is a 40% export duty on ferrochrome in China. So there is no question of any ferrochrome being exported out of China.

The next question comes from the line of Joe Shah from Seven Seas.

Venkatesh, I think my question will be able to answer in a better way. Now for the first time in the history of South Africa, Glencore and Samancor, they asked South African government to levy $100 per tonne export tax on chrome ore export. This has happened for the first time. It will help South African government to raise revenue, very important, significantly $3 billion, $4 billion, which is very important for them. Now this, it will lead to the higher cost of per tonne for China by, say, INR 20,000 per tonne of ferrochrome. And then all the prices of ferrochrome everywhere will go up and it would be a very good windfall for India. So now what is your take about this export tax in South Africa, this $100 suggested by the Glencore and Samancor? Although this Minerals Council, they have a habit of opposing this and South African government is not listening to those Minerals Council things. Those people, they just want to make money from export of ore without doing any value-added thing. So now I want your valued views, please.

Yes. Thank you very much for asking the question. I think so this was also addressed by our MD during the AGM. It is the same view as we had heard of this imposition or planned imposition of export duty around 5 years back, I think it was just before COVID. And somehow it fizzled out. On a plain basis, yes, if there is an export tax, cost will go up and all that, what you said is true. But let us wait and see actually what the numbers translate. As you know and you have rightly said, there is a lot of dependency on South African ore in China. Most of the ore comes in from South Africa. So let's wait and see. It will be too early to speculate right now what is going to be that impact because we are not just talking of South African government, the Chinese also have a lot of investments in South Africa. You must have heard about that. So we don't know exactly what kind of pressures would come on a governmental level also. So let's wait for the concrete announcement and then I think let's take it forward.

Venkatesh, my point is for the first time, not even during COVID time also this Glencore and Samancor came out with this proposal. This is first time these 2 companies, giant companies in South Africa, they have come out with this proposal to put the export tax. So they are very -- as you know, they are heavyweight in South Africa. And government is -- South African government, as we know in the past also, they have passed a resolution to impose a tax on the ferrochrome, this export. Now this is first time the major chrome ore companies have come up with this suggestion to impose tax. So then it makes a big difference between situation in the past and situation at present. So my take is now it is -- South Africa is inclined more towards the imposing of tax. And then that would change all dynamics of ferrochrome prices in India and internationally. Okay. We'll have to wait for that, but it should not take more than 6 months' time. This is my take about this.

Okay. I agree to the change in dynamics, but let us wait for the announcement.

Sure. Yes, yes, definitely, definitely. Now Sandeep, I have some questions for you. Sandeep Narade. Now number one, I'm confused this quarter Q1 FY '26, this chrome ore raising has gone down by 50% to about 1,03,000 tonnes. If we compare it with Q1 of FY '25 monsoon, monsoon same area, in FY '25, it was 2,02,000 tonnes and Q4 FY '25 it was 2,20,000 tonnes. So this time monsoon has arrived 3 weeks early, but it cannot deduct into 50% deduction in the chromo ore raising. So what is the main reason for this drastic...

That is what I'm saying. Actually, in Q4 of last year, we have produced more than our budget. And we built the stock like more than 4 months stock in the plants and more than 2 months stock in the mines. And generally -- and in the last year, if you see, the monsoon was quite late. It was not on 15th of June, it was later. And this year, monsoon started in almost third -- by the end of third week in May itself. So that was the major reason. So what we are producing and dispatching to the plants is as per the requirement of the plants and as per our storage capacity in the plants. So we are having that capacity right now. And I said that we'll ramp up the production in Q3 and Q4. From open plants, we are capable enough to ramp up the production.

Sure, sure. Now one more question. Now we have been discussing about the critical minerals, exploration of critical minerals. So I want to understand it in more detail. Now the Sukinda valley, our mining area is said to have a lot of critical minerals as per the geological survey. So now in case IMFA wants to export this critical minerals in our own mining area, do we have to take permission of Odisha government or we can export on our own?

So in Sukinda valley, there is nothing like presence of critical minerals. There may be some previous studies like for nickel and that number is quite -- very, very low in percentage, which is not mineable also. And if you go -- if there is presence of the critical minerals in our own lease, even then we'll have to take the permission. Exploration, we can do without taking the permission. But after that means mining and all those things, we'll have to take the permission because our lease is for mining of chromite ore.

[Operator Instructions] The next question comes from the line of Naman Bhansali from Nine Rivers Capital.

I have one question. Sir, in the annual report, you have mentioned that incremental 40% of the capacity that is coming up would be targeted towards the domestic player consumption. So could you help us understand the dynamics of the stainless steel market in India in terms of the current demand supply situation? And how much the stainless steel market is growing at in terms of the demand requirement? I'm asking this given that our business mix is currently almost 90% exports and that can shift towards 70% to 75% exports as this incremental 40% is used for domestic consumption. So how should we think about the impact on realization or the EBITDA margins going forward?

I think, Venkatesh, you will take this?

Yes, I'll take it. I'll try to address your question. Stainless steel in India is growing at a healthy rate of around 6% on a CAGR growth. What we are going -- what we are witnessing is there is a slight reduction in ferrochrome production in India. And there is a good domestic requirement. So our focus going ahead with the expansion is to focus on the domestic market and cater to the domestic market. Of course, exports will continue. Your second question was pertaining to -- I think so the realization.

Yes, yes.

Yes, that was the realization. See, whether you look at domestic or export, there is a slight lead or a lag, but finally, both settled down at similar price levels.

The next question comes from the line of Akhil B. from an Individual Investor.

Sir, I have a few questions. First one was you mentioned that 5% to 6% of our sales is in the value-added product category. So is there scope to increase this percentage? And what is the difference in realization compared to the regular rate and consequent impact on EBITDA margin? These are higher-margin products.

We could not hear you properly. There was some disturbances. I request, if you can repeat your question once more?

Sir, I was saying in a previous answer, you mentioned that 5% to 6% of the total sales can be considered as value-added products. So I wanted to know, can this number increase as a percentage of our sales? What is the kind of premium on realization we get for such products, assuming these are higher-margin products compared to a regular grade?

Okay. I can take...

I'll take this.

Do you want to take this? Anyone, Venkatesh can also.

Okay. So when you look at what we call the niche grade, as Mr. Suresh Babu explained, the market itself is limited and there are already entrenched players. So going up above 5% would be kind of difficult at this stage. We're still exploring if we can go up. This product has various categories. So the premium could range all the way from INR 4,000 a tonne till about INR 20,000 a tonne.

Okay. And sir, second thing was you mentioned that in the last 5 years, we have made a lot of progress on cost efficiency, process efficiency. So I would like to know where you think we are in this journey? Whether there are more gains that are possible to be had on the cost side on the internal side? I'm not talking about met coke price and coal price, et cetera, which are outside your control. But within the company, efficiency-wise, do you have certain targets to further improve or do you think that we are pretty efficient right now and no more gains are possible on this?

So you are talking of the cost efficiency. Again, we could not get your question. Just if you can...

Yes. You had mentioned that our EBITDA per tonne has been going up also because we have done some cost efficiency internally in our company. So I wanted to know whether there is more scope or more efficiency in our internal operations for further gains in EBITDA?

Yes, there are more scope. We are just evaluating it out internally. And that's a continuous process for us. So all the areas related to the conversion process from chrome ore to ferrochrome, the whole chain, we're evaluating now on individual basis. Last year -- last financial year, we implemented the ERP Oracle Fusion also in your system. So that's a very high-end ERP system where we can also get a lot of visibility. And that also through digital operation efficiency improvement, further improvement initiatives are being taken to see whatever scope we have from the cost optimization and improving the operational efficiency. So that's a continuous process, which I said in the beginning of the initial statement. And that is also helping us in driving a lot of actions we are now focusing on to keep ourselves more cost efficient when overall in the market the price actually drops, it actually -- we will see that our margins have been better off compared to our peers. So that's the advantage we are having.

So from your position, sir, can you see 1 to 2 percentage points possibility through efficiency gains in the coming years or is it -- if you can quantify what kind of potential you see in these activities?

So in this, yes, we can -- so we are trying to identify currently how much we can improve upon. And that's the main reason if you see that overall we have maintained our cost quite efficient within that INR 77,500. But as I said, we do not actually make too much estimation beyond 1 or 2 quarters. So it will be very difficult to say that how much will be improving 1 year or 2 years down the line. But definitely, we are focused on that way and that is actually -- a lot of initiatives have been taken and we are expecting a lot of positives from that. Currently, it will be very difficult to say whether it will be 1% or 2% or more or less. But definitely, a continuous mechanism has been put in to ensure that we make concerted effort to improve our operating efficiency and find out alternative, I would say, opportunities in our input cost to keep our cost down.

And sir, one last question. We are shifting from open cast completely to underground mining in Sukinda. So what was the trigger to do this because it's going to cost more than it did in open cast? So was there some regulatory reason that we had to shift or what was the reason to completely phase out open cast and get into underground?

No, no, that's to increase the capacity, but I'll ask Sandeep to answer.

Yes, yes, I will. So basically, we do the open cast mining when it is possible to do it technically. It depends upon the depth of the ore body. It depends upon the ore from which depth we can get. So that is the basic reason. So we have done the open cast mining till now in Band 1 and then we started backfilling. Now in Band 2, we are doing the open cast mining. That will be possible for next 4 years, 4 to 5 years. After that, we have to go for underground only, otherwise there will be no ore available for our plants. So that is the basic reason. So it's a totally technical mining point of view we have to go for underground.

The next question comes from the line of Manan Vandur from Wallfort PMS.

So the first question, what is the cost of chrome ore and coke per tonne in this quarter?

So we had already mentioned that the chrome ore cost is approximately around INR 8,400-odd for the quarter.

And the coke cost, sir?

Coke, anyway we had mentioned that in our total INR 77,000 cost, the coke is approximately coming out to approximately INR 14,500-odd.

Okay. INR 14,500. So sir, from Q1 till July, are we saying that chrome cost has increased or it has decreased since that time?

So overall market cost has gone down. Overall, in our EBITDA cost has -- to some extent it has decreased.

Okay. So currently the coke cost will be you are saying less than INR 14,500?

When, in future?

Yes, like current prices have missed.

So more or less, the prices, whatever it is we have got the benefit of it. So [indiscernible] at least for this quarter, we expect the prices. But again, there is a lot of ForEx volatility is there beyond what -- how the landed cost in the quarter 2 is. But currently the met coke will remain in the similar function.

Okay. And sir, last question is that in total INR 21 crores of other income. In that, is the INR 11 crores of Utkal C also included?

Pardon. I could not get you.

Out of the total INR 21 crores of other income, is the INR 7 crores of Utkal C also included?

Yes, yes. So the surplus which we -- or the compensation which we got from Utkal Coal that is also there in this. Currently, we are having about INR 915 crores of total amount of surplus including internal accruals. So the return of the investment that adds up to that amount, which is approximately INR 21 crores.

The next question comes from the line of Joe Shah from Seven Seas.

Yes. Bijayananda, I think whatever is happening with Tata Steel is very important for us. Number one, they surrendered a very important Sukinda mine and they got the notice of INR 1,902 crores from Odisha government to pay the penalty for the raising of less ore. So now they are continuing with the [indiscernible] and Mohanty mines, where also they have to pay 95% premium. So they also -- Tata Steel is entirely becoming unviable. And I understand that their ferrochrome production has gone down from 50,000 tonnes per month to just 15,000 tonnes, and that also they are thinking of getting out of ferrochrome business. So that will give us a very good opportunity in 2 ways. Number one, we'll get some asset buying opportunity. Our management have been saying that we look forward to the inorganic growth. And number two -- yes, so inorganic growth opportunity we'll get. And number two, the Indian domestic market, when it is improving, it has started improving and becoming bigger, IMFA will be probably the only supplier in India. So maybe we'll be getting more of a price premium in the Indian market. That also we'll be able to see. So I would like to know your views on this, Bijayananda.

Yes. So one thing that Sukinda mine Tata is surrendering, that is the only one thing that they cannot go for further open cast mining. So they have to go for underground. That's why they're surrendering. So we cannot go for that one. The second one, they are coming out for this one, I don't know. But for the time being, we know if any opportunity comes, we'll see that we will report.

But they have reduced the ferrochrome production from 50,000 tonnes to just 15,000 tonnes, 35,000 tonnes per month they have reduced. So that is giving us good trend, to IMFA.

Yes. Whatever our capacity is there, we are the inferring the maximum. And we are adding the Kalinganagar, but Kalinganagar will take time. That also -- that's why Suresh Babu and Venkatesh told that we are focusing for Indian market.

The last question for the day comes from the line of Vinit Thakur from Plus91.

Sir, could you throw some light on the strategic rationale behind IMFA's acquisition of Metallix Aviation? And how do you see it complementing your existing business operations?

So on the Metallix Aviation, which is a 100% subsidiary, which we have opened up, it is basically IMFA has certain helicopters, which is primarily used for its own business purposes to go to the mines or the Therubali plant and all. So to make the balance sheet, the core assets are to be kept in the IMFA. The ones which are not directly linked to the IMFA business, we are just restructuring it and moving it to the separate company. So that is the overall rationale behind that for the company. We are waiting for the DGCA. We have made the application to DGCA. It takes about 6 months to 1 year to get the final approval to move that asset.

The next question comes from the line of Vinayak Kariwal from Xponent Tribe.

Sir, I wanted to understand we have a stainless steel capacity in the domestic market of 7.5 million to 8 million tonnes and let's say if 60% to 70% of that is utilized, so 5 million tonnes of stainless steel is being produced in the country every year. So I just wanted to understand, do we have enough ferrochrome capacity in the country so that we could fulfill the stainless steel production demand? And how much of this capacity is actually being used in the domestic market versus being exported?

I think, Venkatesh, you will take this call?

Yes, sure. You are right in terms of the capacity -- stainless steel capacity in India about 7 million tonnes and the actual production is around 4 million tonnes. The requirement of ferrochrome would also depend on the scrap usage by these stainless steel mills. So when you really look at -- I'll just address it in a different manner. When you look at India's ferrochrome production, like Mr. Suresh Babu had mentioned a little earlier at around -- hovering at around 1.3 million tonnes. And roughly about half of the ferrochrome is consumed domestically and half is exported. So in case the stainless steel capacity utilization improves, there is a strong demand for stainless steel. Obviously, then what you see is the exports coming down and more and more gets consumed -- ferrochrome gets consumed domestically. So we -- to address it in another manner is we have the capacity to meet the requirement of the domestic stainless steel manufacturer.

So that is what my question is, because looking at the dynamics, I think we have a lot of ferrochrome being imported in the country for fulfilling our stainless steel production. So our capacity which is 19% being exported. So in that dynamic, I guess we are -- we have a lot bigger opportunity on the domestic side if we see going further because also one of the participants mentioned lots of ferrochrome capacities are being closed out in the country and we being the largest producer of chrome ore and also one of the largest in ferrochrome. So like how do you see the domestic and export share going forward like 2, 3 years down the line?

Yes. To address, there was one, the first point which you made that ferrochrome getting imported into the country, there's very limited ferrochrome which gets imported into our country. There could be certain grades of ferrochrome which may come in depending on the requirement for that manufacturing that grade of stainless steel, there could be some imports coming in, but there is no big imports which come in. And the second -- to address the second question, you have already addressed it, saying that once the expansion comes up, our focus will be more on the domestic market. So I think that addresses your question.

Sir, could you give a share of revenue if you have in mind, where could the dynamics go from there?

It is a very evolving and dynamic market. So once let the expansion come in, let's do the domestic and then we can really work out on the share of export versus domestic. But for sure, the direction is going to be more domestic, less of export as far as the expansion comes. So overall, when we look at a ratio of 90-10, that's going to change drastically.

Sure. And sir, one last question on the prices of chrome ore. So I was tracking and there was -- the last quarter, the chrome ore prices which we mentioned was INR 7,500. And this month, we are mentioning it as INR 8,400. So how does this fluctuation comes in in the chrome ore price because that is a captive thing which we have?

So actually, on the chrome ore price compared to the last quarter and this quarter, as we said, due to the monsoon and early coming of the monsoon, the production was lower, but there were some semi-variable costs also in that, which is usually loaded to the overall cost. So that's why the average cost for the quarter has slightly increased. But one should always look into the total annualized value of the chrome ore prices to get an overall sense of how the price is.

Sure. So you're saying that they are range bound normally and they don't fluctuate much because of any other factor which we don't know?

No, chrome ore actually would be primarily driven by -- the average will be on the production cost and whatever is our decline cost which we have, all those expenses take into account. But more or less, it remains in line with our -- what is the total spend we have done and what is the average production we have got from the quarter. So if the production is slightly lower, then obviously, the average cost tends to be slightly higher. If the production is higher, like in quarter 4, the production was quite high, so the cost was slightly lower. But more or less, it is in the range of INR 8,000 to INR 9,000 in last 1 year, if you have noticed.

The next question comes from the line of Gautam Rajesh from Everflow Partners.

Sir, one follow-up question. Tata is shutting down their [indiscernible] mentioned because they won't go underground and all that. So what gives us the surety that when we are spending much money on going underground with our mines the cost won't completely go up, that all our cost advantage goes up because a huge company like Tata, which would have scale and CapEx of a greater extent is also shutting down. What is the idea behind that?

Sandeep, you will take that?

Yes. So what happens, we have to plan early for going underground, like we are having one underground mine, Mahagiri mine. So we started quite earlier. Now we are heading for 6 lakh tonnes in next 1 or 2 years. Same is with our Sukinda mine. It now we are running open cast and simultaneously we are going for underground. So more than 1 year we have started for this underground project and we are doing all our development, ventilation shafts. So this is how we have to do. When you are talking about Tata, they are planning for underground since last 20 years, but they have done nothing. And in between, there was their lease was also over and then again auction was done. There are so many reasons for them.

Understood. And sir, also that I just want to clarify, we do not -- India as a country do not import any ferrochrome, right?

We import minimal, I said. If there are certain grades, special grades of stainless steel if somebody requires and India has a particular standard grade of ferrochrome being manufactured, then there is some imports, not like regular reports, what I mean to say.

As there are no further questions from the participants, I would now like to hand the conference over to Mr. Abhishek Sawant from Veritas Reputation.

Before Abhishek, I just -- it's Saunak, I want to thank all of you who have congratulated our results. And I also want to thank all of you for your very insightful questions and participating today. So thanks for it. And over to Abhishek.

Thank you, Saunak. Thank you to everyone who joined us today and participated in the discussion. We appreciate your questions and continued interest in IMFA. As vivid, we remain committed to transparent communication and delivering long-term value to all our stakeholders. In closing, on behalf of the Board of Directors and management, we thank you all for your participation in this call today. IMFA remains focused on operational excellence, financial prudence and long-term value creation. Should you have any further questions, please feel free to reach out to us. Look forward to engaging with you again in our future updates. Have a good evening and stay safe.

Thank you. On behalf of Indian Metals and Ferro Alloys and Veritas Reputation, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.