Kirloskar Ferrous Industries Limited (500245) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Kirloskar Ferrous Industries Limited Q2 FY '24 Earnings Conference Call hosted by Antique Stock Broking. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Pallav Agarwal from Antique Stock Broking. Thank you, and over to you, sir.

Yes. Thank you, Sarva, and good afternoon, everyone. On behalf of Antique Stock Broking, I welcome you all to the second quarter earnings conference call of Kirloskar Ferrous. We are pleased to have with us the senior management team represented by Mr. Gumaste and Mr. Srivatsan, the Executive Director, Finance and CFO. So now I would like to hand over to Mr. Gumaste for his opening remarks. Over to you, sir.

Yes. Thank you, Pallav. And let me welcome all the analysts, investors on to quarter 2 call of Kirloskar Ferrous Industries Limited. I would like to start with a quick, small update on industry scenario and specific to Kirloskar Ferrous Industries. During the last quarter, quarter 2, we had one of the furnaces upgrade shutdown, blast furnace 1. We changed the bell top to bell-less top. And in addition to that, we also did the upgrade of the technology for the furnace. We have completed the -- all the shutdowns, and we have started the furnaces. And currently, we are running all the 3 furnaces. Due to this, if you -- as you see quarter 2, the pig iron available for sales was less and it was 1,01,644 metric tonne total quantity for sale. And now with all the 3 blast furnaces running, the quantity should go up. With respect to demand for pig iron, during the quarters we did we have the headwinds and especially because of increasing price of coking coal and also increasing price of iron ore, due to which the pig iron margins were under pressure. And even till date also, the pig iron margins are under pressure because there is no reduction in the coking coal and iron ore prices, whereas commodities, whether it is pig iron or steel scrap, the prices continue to come down. So there is a continued pressure on the pig iron margin. With respect to our other product, castings. Casting -- demand for casting continues, especially in 2 segments, the auto sector, which is mainly we are dependent on commercial auto, demand for casting is strong. And also demand for casting for infrastructure, earth-moving equipment is good. However, demand for castings from the tractor industry is sluggish, and it continues to be soft due to various reasons, one of them being poor monsoon over the last 4 months. As a result of this, the casting volumes which we had last year second quarter, we had gone to a level of 34,700 tonnes of sales in the quarter. For this month -- this quarter, we are at 31,491 tonnes, which is a gap of about 5%. Whereas with the pig iron drop overall compared to the earlier quarter is 1.5%. As commodity prices have come down, pig iron prices during this quarter compared to the last year second quarter, the pig iron prices have come down almost by 16.4% from INR 50,000 per tonne to INR 45,000 per tonne. This has also affected the top line of the company. So overall, if you look at we are flattish on volumes of pig iron and castings. And going forward, we have opportunity to cover, but it all depends on the market conditions. But casting, we are still hopeful that we should be able to achieve a growth of 4% to 5% in volumes going up to the year-end. Whereas the pig iron entirely depends on the market conditions. We have been awaiting the improved commodity prices in pig iron. However, it has not been encouraging so far. Whereas the quarter 2, we could manage well in spite of the many headwinds, and we could achieve a total sales of INR 880 crores and a PBT of INR 75.94 crores. EBITDA margin overall at the company level remains at 15%. And rather because of the price reduction and managing the margins, the -- it shows a small increment in the EBITDA margin compared to the earlier quarters. With respect to progress on ISMT. ISMT being a limited company, has announced its results. The turnaround and improvement in the business at ISMT continues good, and it is already contributing to the improved contribution into the consolidated results of the company. And there is good demand for the seamless tubes. And though we have pressure of power and fuel costs being very high, in spite of that, we have been able to manage the volume increase as well as the product price increase and thereby improving the margins, and ISMT has also moved to EBITDA levels of almost 16%. Overall, consolidated, we have moved to around 16% of EBITDA. And with respect to various projects, we have completed coke oven phase 2 and power plant phase 2 completely. It's up, operational and running. Blast furnace 1, which was taken for technology upgrade and bell-less top, this is up and running. We have continued the project for pulverized coal injection, and we should be ready with pulverized coal injection by the end of this financial year. In addition to that, we have also taken a large 70 megawatt solar power plant project under ISMT, and it's progressing with delay, and we expect it to get commissioned before the year-end. It should give a good cost reduction in terms of power cost in ISMT books. In addition to this, preparation for the steel plant in terms of progressing for environmental clearance. Also oxygen plant for pulverized coal injection have been ordered and they have been put into project progress. Oxygen plant has a long delivery period, and we expect that to get commissioned 1 year after commissioning of the pulverized coal injection. In addition to this, we have completed phase 1 of Line 2 in Solapur and it is up and running. We are in the process of capacity utilization improvement efforts, and we are have come to the level of 600 metric tonnes per month. And we expect that we will cross more than 1,000 tonnes by end of this month -- by end of this financial year. As all of you know, we have completed acquisition of an Oliver Engineering, and we have taken the charge. And currently, we are in the process of cleaning, clearing and upgrading the facility, and it should be shortly ready with the plan of start-up. We are ready to finalize the date of start, but we are in the process to complete the restoration work and start up the foundry. Should be able to come back with more information in the next quarterly call. But we have finished the process of acquisition and managed our -- we are currently building our team to -- executive team to start the foundry. These are a few of the highlights. And with this, I would like to close my opening remarks and request the moderator to start the question and answer. Thank you very much, once again. Look forward to answering some of your calls. Thank you.

[Operator Instructions] The first question is from the line of Digant Haria from GreenEdge Wealth.

Sir, my question is -- first question is on ISMT. Like when we had acquired -- we used to guide that INR 3,000 crores of revenue, and maybe 15%, 16% margins is what we are targeting in the first phase. So sir, looking at this quarter, we have already reached that revenue run rate and that margins as well. So I just wanted to check if there are any one-offs in the margins for this quarter? Or was it that there's good realization in the tube business that helped us reach there? And I'm assuming these margins are without any efficiency of the solar power plant because that's not yet started. So where can these margins really settle once the solar plant is operational? So that's my first question, sir. Hello? Am I audible? Hello? [Technical Difficulty]

I think Mr. Gumaste's line dropped. Will you connect again?

Sure. Definitely. Please wait while we connect the line for the management. Thank you, ladies and gentlemen. We have connected the management line once again. And Mr. Haria, could you please start with your question once again?

Sir, first question is on ISMT. Sir we're already reaching a revenue run rate of INR 3,000 crores annualized if we look at the current quarter, and also margins of 16%. And the 16% margin is without impact of solar plant, which result in some power saving. So can you just guide us a little bit on what to expect in terms of revenue and margins going forward once your solar plant is also commissioned?

Yes. First of all, what numbers you mentioned it is right, we are currently at INR 3,000 crores run rate. Actually, as soon as we have taken over the charge, we have already put in debottlenecking projects. We are overall investing about INR 100 crores for the debottlenecking project. It should get completed by June '24, if not by March '24. And we expect some debottlenecking should start giving us increased production and sales, which would improve the revenue ISMT books. Secondly, we are also putting our efforts to increase the sales of steel, which also should give us the increased revenue. These are difficult, challenging marketing breakthroughs and we are planning for that, and we expect that we will have the benefits of this investment and also debottleneckings, and we will have the increased volumes coming there. And with respect to power, we expect by end of March '24, we should complete and commission 70 megawatts power plant and solar power plant. And with that, we will get benefit of about INR 70 crores per annum, 70 megawatt power plant. And we are also working on ordering more solar power plant to mitigate power cost.

Right. All right, sir. Sir, just a follow-up on this. Last quarter, we were at production run rate of 12,000 tonnes per month for the tubes business. Where have we reached now? And in terms of marketing breakthroughs, if you can just give some color on have we become empaneled with a lot of these global EPC players or local EPC players like Engineers India and all of that?

Yes. I think empaneling and approvals from customers, they are quite in place. And currently, we are at a run rate of 10,500 from Baramati and 3,500 from Nagar. Put together, it will come to 14,000 metric tonnes per month. And our effort is to debottleneck and go higher than these numbers but there is a market requirement higher than this and we have to increase our outputs.

Right, sir. Right, sir. Sir, and my second question is on the castings business. Sir, we've seen that this tractor slowdown has been impacting us for the last quarter. I just wanted to know if there are any new programs which will be commissioned in the next 12 months from our 26 existing customers, which can help us increase volumes despite this tractor slowdown. Or it's not possible to expect that without the revival in the tractor industry?

Now 2 parts of answers to this question. The balance of tractor gives us -- tractor castings relatively simple and hence productivities of higher level are achievable faster. Second -- that's why it's always good to have some tractor load of a good percentage to drive these volumes. On the other side, overall, there is more demand from the customers from other sectors, and we are developing the parts, new parts for Solapur Line 2 as well as there is interest from the customers for buying the castings from Oliver Punjab foundry as well. And we definitely need revival in the tractor, but we have other castings and other customers joining us to take the volumes up.

The next question is from the line of Mr. Sahil Sanghvi from Monarch Networth Capital.

My first question is, sir, I would want to understand the reason for the rise in the depreciation number for ISMT and also the higher tax rate which has been shown for the last 2 years -- last 2 quarters at ISMT.

The first part of the question is increase in depreciation?

Yes, yes. We have moved to roughly INR 22 crores from a run rate of about INR 13 crores, INR 14 crores. So anything which has been commissioned over there? Or any kind of -- I mean the reason for this.

I don't have a very specific answer to this. I can check and come back. But we have started our CapEx cycle. The commissionings are no major constraints. So I need to get back to you. I don't have exact number. If at all if Mr. Srivatsan wants to add to this.

Sahil, Srivatsan here. The depreciation was consistent, I couldn't get -- able to get to your question properly.

Yes. We'll come back to you, that's on the depreciation part of it. What's the second part of the question?

The tax rates and tax rate is also looking pretty high, more than 30% easily, 39% actually.

Well, I think we are following the new method and our tax rates will be 25%. But if there are any adjustments, anything, effect of takeover and all that. But you can take it that going forward, it will be 25% new tax rate for all our units.

Got it, sir. And these debottlenecking projects that you are undertaking at ISMT, so what...

Can you be a bit closer to mic so that I can hear clearly?

Sorry. Is this better, sir?

Please go ahead. It is better.

Yes. The follow-up question on the ISMT part was that these debottlenecking projects that you're undertaking, what is the time line, sir, for this?

Yes, I did mention that the first phase of debottlenecking project, about INR 100 crores, what we have taken up, mainly into Baramati. And we expected to complete all these projects by June '24. And the effort here is to increase the output from 10,500 to 12,500 per month.

Got it, sir. Got it. And my next question is regarding the spread, sir, pig iron spreads. So for a very -- I think for at least 2 months, we have seen -- 2, 3 months, we have seen coking coal prices come down to $250 per ton. So we should have some inventory of that pricing of coking coal, right, which benefits we have not seen yet in the financials. So when would we see that coming in the numbers?

I can only say that if anyone buys today's coal, which is blend could be $300, it is impossible to make pig iron sell and make any margins. We are doing something and we are able to manage something because we still have the coking coal with average blend cost of about $250. And with that also, it's extremely challenging to have decent margins, in spite of having very efficient coke ovens. Right now, I would say that the commodity pricing, one is coking coal and iron ore, so iron ore prices have also gone up. But the pig iron prices has substantially gone down, which is really taking away the margin.

Sir, just to understand this better, sir, why are the pig iron prices not moving up? I mean what could be the reasons? And what kind of traction you see over there, direction-wise?

Two major reasons. The -- like the Ukraine war, there was a disruption of supplies to Europe and there was artificial increase in the prices. But after that now, the Europe demand for pig iron or any part of the world, it is very low and no export of pig iron have been from India. Everyone is just selling it in the domestic market. But more than 1 million, 1.5 million tonnes per year was getting exported. That has almost come to halt as of this point of time. And we had couple of starting-restarting, what, plants, and now we have another 2 plants which have got added, including NMDC 80,000 tonnes of pig iron per month. I think this has affected the balance in the industry. And some subdued demand for pig iron, especially tractor consumes lot of heavy castings. And though it has not come down very big way, but there would have been 5% growth. It would have resulted into 10% to 15% additional requirement of pig iron. But I think that is missing. I think basically, it is the supply -- demand/supply skewed at this point of time.

Right, sir. Right, sir. And my last question, sir, would be regarding the PCI and oxygen. Now like you have said, that the oxygen plant will come 1 year after the PCI gets commissioned. Would this affect the reduction in the coke rate that we were targeting, say, about 100, 110 kgs?

No, it won't affect that because we will be able to buy oxygen in there, but it will increase the cost of oxygen, not affect the rate of PCI. So we are working on alternative plans of sourcing of oxygen like different process with shorter period. I think we will start the PCI with low oxygen enrichment because the foundry grade takes low enrichment. As we move towards basic grade and steel grade, then we need more oxygen enrichment and more PCI. And it also takes a little bit time to go to full pulverized coal injection. I think we will be able to manage and mitigate with some impact of cost of oxygen.

Right, sir. And the casting sales volume trajectory from FY '25, would you still stick to that 15% kind of growth next year for casting? Or would that also be slightly lower?

No, my looking is, as I said, this year seems to be more flattish. We could achieve the 3% to 5% coke and casting, still we have opportunity to do that. But going forward next year, we have big opportunity to productionize most of the customer castings which are under development. And we can expect a better growth next year. I think we'll be able to forecast better as we complete at least 1 more quarter.

[Operator Instructions] The next question is from the line of Aashav Patel from Molecule Ventures PMS.

Sir, my first question is what could be the expected volumes for H2 in both pig iron segment and casting segments?

For which year?

For the second half, sir, second half of FY '24, current year.

Okay. Okay. See, second half of this year, we are ready with all the 3 blast furnaces and which can produce 1,65,000 tonnes of hot metal, pig iron would be 97 -- 96%, 97% of that and some internal consumption and sellable pig iron like that. We are ready with a full volume production so that the margins will allow us to sell till our -- that's the question mark. We have to watch and see how the market goes. There are questions marks. Coming to the casting, as we said, we will and we expect some pickup in the market after Diwali. And we are expecting that, currently, we are lagging behind by about 3% on volume compared to last year. But we expect to catch up maybe about 10% in the second half, so that overall, we may achieve a growth of 3%, 4%. That is our expectation in the casting business in the remaining 6 months of this year.

Sure. Okay. Got it, sir. And sir, so in second half and now going forward in short or medium term, are we expecting -- say, for next 1 year, are we expecting any stoppages, plant stoppages for pig iron segment?

We do not have any planned stoppages for -- at least to my understanding for a couple of years. But there will be small stoppages which is routine, but not major plant shutdowns. Refractory lining or technology upgrade. Nothing is planned for next 2, 3 years.

Got it. And sir, regarding the -- as you mentioned for the 70 megawatt solar, we are a bit -- we have a bit delayed the thing in next quarter. It would start in Q4 of FY '24, around March '24. Similarly, what would be the time line for phase 2 of ISMT solar?

We are examining the -- we need totally 210 megawatts of solar between ISMT and KFIL together. And that amounts to 70 -- three 70, 70, 70. And the most important thing is whether we do it or somebody else will be managing the land. That is the highest longest time taking wherever we go, land parcel and grid connectivity. And that's where the delays have happened. We are trying to work out if we are able to -- I think we'll complete phase 1, 70 megawatts by March. And whether we can do something quickly, another 70 megawatt if we start immediately. And whether we can commission then in the second quarter of next year is what we are examining.

Okay. And sir, regarding the ISMT...

See the idea is we can let 1 year trying to finish all 210.

Okay. Got it. Superb. Lovely. And sir, regarding the ISMT margin, this quarter we saw almost 16.4% of operating margin. And we were targeting margin range post solar savings. So even as a sustainable annual guidance, can we assume now 15% of EBITDA margin at ISMT could be a new base?

No. I think it's very important is we have to observe very carefully overall. One is the demand for the tubes. Other side is the commodity prices. See the lower prices of pig iron will hit -- hits us hard in [ iron ] KFIL it's advantage [ I don't think ]. So you have to study, see end-to-end and there are pluses and minuses.

Okay, got it. And sir, regarding casting -- sure, I'll come back.

Mr. Patel, may we request you to return to the queue. The next question is from the line of Pratik Kothari from Unique PMS.

Sir, my first question on ISMT. Now we have spoken in the past that our net worth has now changed to positive and we can participate in tender orders, be it oil and gas or others. So some further clarity or color on that.

Can you repeat the question? I couldn't get fully properly.

Sure. Sir, my question is now that the net worth of ISMT is positive, we can participate in tender orders in oil and gas and across segments. So some color there.

Yes, yes. Yes, yes. See -- thank you very much for clarifying the question. We have started participating in tenders. We are winning the orders. We have not only -- we are winning all types of tubes, we are also going into the premium coupling with the help of some partners. And that's very, very positive for us. But we need more tubes and hence, we need increased productivity coming from the plants. And that's why we are working on the debottlenecking. I think coming years, we will add to the oil and gas-related tube sales, which currently are good pricing and should help us to continue to improve the top line and the margins.

Correct. And sir, we are at about 14,000 run rate currently, and we have an installed base of 30,000. So to go from 14,000 to 30,000 what kind of incremental debottlenecking or investment that will require? I mean you mentioned about INR 100 crores for some 2,000 monthly. But to go up to 25,000, 30,000, what incrementally it could require?

Currently, we have done to go to 1.5 lakhs from Baramati and maybe 50,000 instead of 40,000 from Nagar. So which should take us to about 2 lakh tonnes. And those debottlenecking projects have been identified and we have started the work. I think it should happen in about coming -- within next 1 year kind of thing, we should be able to realize this much. But our understanding goes that these nameplate capacities like 3 lakh tonne and 3.5 lakh tonne, require much more deeper debottleneckings and some more projects. And we will -- towards end of this year, we will work out more detailing because that becomes our next phase of capacity utilization project. I will be able to answer better once we work out. But currently, we have worked out only up to how to go up to 2 lakh tonne and not really going up to 3 lakh tonne or 3.5 lakh tonne. So there are projects possible, and we will work on those in phase 2.

Correct. And sir, we have started on this cost reduction journey into -- in ISMT again in terms of procurement or in terms of operational efficiency. So I understand it's a continuous journey. But where are we in that journey? I mean I'm talking ex of solar, just other operational efficiencies, automation, et cetera, that we intended to do.

I think as we mentioned -- [ and I said ], well, it's all about power and fuel. So one big chunk, power and fuel as well. Because fuel is also a big component in this industry, that's one thing. That's a cost. And how to mitigate that cost, reduce the cost and add to the bottom line is 2 separate projects, power and fuel. In addition to that, as we improve the capacity utilization of the plants, both 2 plants, we also improve the yield, it will improve -- cut down the conversion cost. I think waste elimination and basic things we are already doing that. I expect that very shortly we are done with that. And -- but of course, it's always a continuous process. But I think as we increase the capacity utilization and productivity, we also improve the cost and improve the margin. So -- but that comes because of the unit consumption reduction, whether it is power, fuel as well as the yield improvement and -- but those are the projects which will also get identified, and we are already working. But I think importantly, would be our cost reduction on the manufacturing of pig steel, again it comes back to the top power and fuel, yield, number of units, output, drilling more quantity, all these are the activities in steel.

Right, sure. Correct. And my last question regarding sir -- I mean at a -- on a steady state, given the capacity that we have been casting in steel and tubes, what kind of captive consumption would we realize from the pig iron that we have, I mean, say maybe 2, 3 years both?

No, 2, 3 different ways to look. Currently, we are consuming maybe 30,000 tonnes per annum in casting, and we are consuming, with ISMT acquisition, maybe 70,000, 80,000 in steel in Jejuri. About 1 lakh tonne, but our production capability is about 7 lakh tonne. Within 1 lakh, we have a surplus of 6 lakh tonne of pig iron for sale. So this is one. And secondly, can we move to steel making in Hospet, one of the blast furnace will completely go for steel making. So that much volume will come down. We will come down from 55,000 to maybe 35,000 per month. And then it's our choice whether to increase the pig iron capacity and maintain 60,000 tonnes of pig iron sales per month or go for more value-added and allow pig iron to drop to 35,000. I think that decision needs to be taken at later stage, not right now.

The next question is from the line of Manish Goyal from Thinqwise Wealth Managers.

First of all, I would like to congratulate you, sir, for an excellent turnaround at ISMT within a matter of 2 years, sir. Very heartening to see that. Sir, just to clarify on the 70 megawatt sales one which will start by year-end, did you mention that the annual power cost saving would be INR 70 crores, 7-0?

Yes. Yes.

Okay. And when you mentioned we require 210 megawatts for entire KFIL consolidated, so at ISMT itself, out of that 210, would be how much, sir?

Minus 35. So...

Okay. So -- okay. So what you mentioned 70, 70 and 70, so 1/3, 1/3, 1/3.

Out of 210 minus 35 for KFIL. So it's 185 -- no, 175 megawatt is for ISMT.

Okay. Okay. So ideally, maybe 2 years down the line at least, should we expect that this around INR 170 crores, INR 180 crores of power cost savings at ISMT?

Yes, yes, yes, absolutely.

Okay. Okay. So probably that is what will probably achieve 18%, 20% EBITDA margin over a period of 2 years, sir, what you guided at the time of acquisition?

Yes, absolutely. I think without any doubt. I think that is -- the situations are dynamic, but our plans are in that direction.

Wonderful, sir. And sir, we have taken a shutdown in Q1 and Q2 at MBF-I and other plant as well. So what -- because we see that other expenses have gone up. One is definitely the power cost has gone up at a standalone level also. So -- but if we negate that, then still the other cost seems to be higher. So is the expenses related to shutdowns, which we have accounted in quarter 1 and quarter 2? Can you share those numbers, sir? How much would be towards that which may not repeat in Q3, Q4?

I don't have exactly, but I need to work out.

Sure, sir. And sir...

But I'm sure that there is -- into the manufacturing overheads, there is extra cost coming out of the shutdown.

Right, sir. Yes.

But it's not in the expenses, it is manufacturing cost.

Okay, okay, sure sir.

And for the variable cost. Yes.

And sir, a question related to Oliver, sir. So earlier you did mention that you have taken the refurbishment and upgradation plan. But if you can share some insights as to how much of your existing volumes, which you would be servicing from your plant in maybe Solapur and Hospet, which can be shifted to Oliver because you would probably have certain customers already being serviced from long-distance plant at South. So how much do you think -- and when do you think the best case the Oliver plant can start, sir?

See, our plan is that Oliver plant should start within 5, 6 months. And that's, one, because there are a number of items which are missing, which need to be replaced and some of them could be high delivery items. And so that's why I feel that 5, 6 months are required to start the plant. And the second part of it is the environmental clearance there is for 28,000 metric tonnes. We can say that 25,000, 30,000 tonnes, we can gradually increase in about 2 to 3 years' time. And maybe we can take it to half of that capacity very quickly. And we are trying to see that it adds to the volume and not of play within the volume. And it's part of advantage to large customers, and we look for more volumes. We would like to supply what we are supplying from the existing foundries, but additionally supply them from Oliver to supply more casting as many customers want more supplies from KFIL.

Okay, sir. And last question, sir, on our large casting foundry are basically -- which we had announced couple of quarters back, where we were looking at 1,000 tonnes per month capacity. Maybe if you can provide insights as to what is the status? When do you expect that? Because we see a lot of other players mentioning about very high demand for large-sized casting, especially from the off-highway vehicle markets. So if you can share this, sir.

Yes. First of all, we have finalized the technology, technology partners, and we are in the stage of finalizing the layout process flow. And we should be able to start the building construction in a couple of months. And then we need 1 year to start the foundry. So I'm still looking 14, 15 months for start of casting production from new 2-part foundry in Solapur. But till that time, in a small way we continue to produce 2-part castings, large castings for our customers from the existing [ B ] foundry. So we have 1 more year to go before we realize the reasonably well mechanized 2-part foundry to come.

The CapEx for that, sir?

INR 140 crores CapEx for that foundry for completion.

The next question is from the line of Bharat Sheth from Quest Investment Advisors.

Congratulations for good turnaround. Sir, first question is I'm having for KFIL. What is -- my large part of the question has been answered. For other income has gone down because I believe that last year, we had some incentive income in the first half. So -- and are we -- expect that -- and we were expected to get some kind of a incentive from Karnataka government on the new CapEx that we did. So if you can give some color how that will really play out in second half?

Yes, I think you are right. Some incentive income is expected to come, but there's still a lot of work going on, but we will get something for sure. Whether we get a bigger chunk, it's still not very clear. Right now, I'm able to say that some incentive or benefit will come in the second half. But I'm not sure very big substantial amount will come or not. We are trying for it. It has to fit into the schemes, yes, as and when it comes, I will update.

And second thing on -- with this commissioning of the 30 megawatt power plant with this coke oven, how much benefit do we expect in H2?

No, I think we have already started getting some benefit. Something is there even in quarter 2 results. But towards the -- I mean, as we have come to October now, the power generation from coke oven has increased in spite of the increased power requirements from foundry and pig iron and all the plants, we have now power surplus. And we have started selling the power to Karnataka grid to Karnataka government. And we are getting INR 4.80 per unit for the power. So it's a good realization as the grid is short of power and they are taking the entire surplus power from us to the grid. So we will get and realize some additional benefit here now.

And as you said, sir, for ISMT, this -- till this low, softer pig iron price will continue to get the benefit in the ISMT, in which we feel that even H2 also, there will be a -- with our commissioning of all the lines, we will have more surplus pig iron to sell. So ISMT, can we expect this kind of EBITDA margin to sustain? And what will be the saving once we start, I mean, this 70-megawatt power plant?

No, I think 70-megawatt power plant. I just mentioned to you that it gives us -- it cuts down our power cost by INR 70 crores. But there will be some addition to the interest and depreciation. But I think it has a payback period of 3.5 years.

Okay. And this kind of ISMT Q2 margin is -- we expect to sustain because in view of the softer pig iron price, correct?

Yes, absolutely, input commodity prices, not only in pig iron but steel scrap as well. And also, the good demand for tubes is definitely helping us in having the decent margins, yes.

Like what stage we are currently, I mean -- okay. Okay, sure.

Mr. Bharat I'm very sorry but can you please return to the question queue. The next question is from the line of [ Nikhil ] who is an individual investor.

I wanted to ask your outlook on the pig iron and casting industry.

Yes, I think I have -- over the last an hour or so, I think I have explained reasonably well. I think I'll be repeating basically. I think I have mentioned castings, pig iron, commodity, coal, coke, everything, I've covered, I think. Thank you.

Okay. And so sir, our further CapEx plan?

CapEx plan, see, one is whatever we have already declared. But we have also told that we will be going in for more solar power. So I think that's one area we will be investing. And you have already seen our invest. There will be some investment in Oliver foundry and our continued project like PCI and oxygen plant. I think these are the main CapEx drivers. And we had earlier said that last year and this year put together, we were looking for a CapEx of INR 1,000 crores plus our Oliver acquisition on top of it. So it can mean more than INR 1,100 crores in these 2 years.

The next question is from the line of [ Krutika Tewari ], who is an individual investor.

Sir, so my question is that, as you mentioned earlier, that the margins of pig iron has been under pressure. However, still we saw that quarter-on-quarter, the margins have increased from 14% to 15%. So what -- so definitely in that case, we have done some great work on the castings front. So what would be the tentative split between the 2, if you can throw some light on that?

Yes. I think a very good question. I think one is margin per tonne another is margin as a percentage. I agree margin as it -- in the margin per tonne has come down, but the pig iron prices have come down almost 16%. So that helps us in maintaining the percentage EBITDA, okay? So another thing is more CapEx and the increased depreciation. So that has a pressure on the PBT. And these projects, we were supposed to also achieve growth from the top line and growth on the bottom line and both have become flattish because of the 2 major shutdowns and subdued tractor demand, casting demand. And on the flip side is the ISMT side doing better than our expectation because of the softer commodity prices. Thank you.

Okay. Just one more add-on question on this. Sir, like for -- if we see Y-o-Y as well as quarter-on-quarter, so the performance in terms of NSR per tonne of castings has largely either remained same or better. But pig iron has drastically fallen. So what is your outlook on this, like why are the pig iron producers not able to fetch that benefit?

No, pig iron basically, I just mentioned that currently, supply -- demand/supply is a little bit skewed. There are no exports happening otherwise 100,000 per month or even more that was going out of India. Then the domestic sales were balanced. But currently, no exports happening, everyone trying to send in the domestic market, it's affecting the pig iron prices. And as it is, the demand overall -- the foundry demand is subdued. And with respect to pig iron realization versus casting realization, I would say that casting -- tractor castings are typically simple castings, rupees per kgs are lower than the auto [indiscernible] complicated castings. And hence, the product mix is favorable in terms of rupees per kg now with the reduced quantity from tractor. That's why you see drop in the average realization in casting is lower than the drop in the prices in pig iron. So it's because of product mix change, which happens with tractor going down.

Sure, sir. And just one -- to confirm one thing. You said that the coal blend cost for this quarter was $300. Am I right in this understanding?

No, no. That was the market price. Whereas our own price of coal was like $250. $230, $240, which has become now $250. So that was -- market was -- blend -- market blend was $300 whereas ours was lower. In spite of that, we had the headwind.

And sir, the same would continue for this quarter as well, quarter 3?

Don't know. See, unless the market continues -- see it depends on market whether it goes down or it goes up, depends all on the market. But right now market is down as it is everybody is busy to get into the festival mood, and let's see what happens after Diwali.

Thank you so much. We would take that as our last question for today. I would now like to hand the conference over to Mr. Gumaste for closing comments.

Yes. I would like to thank all the callers today. I think fairly pointed questions, very interesting questions. And hope I could answer and clarify most of the points. Thank you very much for joining the call and look forward to meet all of you after 1 quarter. Thank you. That's all for me. Thank you very much.

Thank you. On behalf of Antique Stock Broking, that concludes this conference. Thank you for having us, and you may now disconnect your lines.