Indian Metals & Ferro Alloys Ltd Q1 FY2024 Concall Summary

Key Takeaways

• Earnings rebounded on volume, not price: EBITDA rose to ₹183 cr from ₹143 cr QoQ, driven entirely by higher production and sales volumes, while realizations softened and are expected to decline further in Q2.
• Cost relief is coming, but with a lag: High-cost coke inventory is still flowing through the P&L; a ₹2,000–₹3,000 per tonne EBITDA cost reduction is expected once lower-priced coke hits consumption, but that takes roughly two quarters.
• China holds the demand lever: Management was explicit that without a Chinese demand revival, ferrochrome prices and sentiment cannot move up, and the timeline for that recovery remains uncertain despite government stimulus steps.
• Integration is the moat: At current realizations and rising chrome ore prices, non-integrated producers globally are making single-digit margins, a dynamic management argues makes IMFA’s fully integrated model a structural advantage that ensures profitability even at the cycle bottom.
• What to watch next quarter: Whether Q2 EBITDA softens as guided, the pace at which lower coke costs actually flow into the P&L, and any signal from China that demand is turning.

Volume & Realization Dynamics

• Production jump was opportunistic: Q1 production of 66,261 tonnes exceeded sales of 64,695 tonnes because the Sukinda open cast mine ran extra days before the monsoon arrived 8–10 days late; that surplus ore will be consumed during the rainy season when mining stops.
• Realization heading lower: The current market is subdued, with realization already below \$1 and expected to fall another 5–6 cents in Q2 compared to Q1.
• Export-heavy, contract-anchored book: 65% of sales are contracted or long-term supplies, with the remaining 35% sold on spot across Europe, China and other markets; domestic share is only about 10% and cannot increase until additional capacity comes online in 2025.
• Inventory normalization at Posco: Stock that had built up at the Pohang warehouse during Posco’s force majeure has been brought back to normal levels; IMFA must maintain one month’s stock there per contract terms.
• FACOR halt is immaterial: FACOR stopped production from July 15, but management sees no impact on IMFA because FACOR produces very little and sells domestically, while IMFA is export-focused.

Mohanty: "Unless China revives, sentiments cannot go up and prices moving up will be difficult."

Cost Structure & Margin Levers

• Coke cost is the swing factor: Current EBITDA cost of ₹81,044 per tonne reflects coke inventory purchased at roughly \$475; as that high-cost stock is consumed and replaced with coke bought at \$316, cost can decline by ₹2,000–₹3,000 per tonne, potentially settling around ₹75,000 but not below.
• The two-quarter lag is structural: Coke sourced from Colombia takes 45–50 days just for shipping, plus discharge, inland movement and actual usage timing, meaning a purchase made now hits the P&L roughly two quarters later. Management sees no way to shorten this because domestic sources cannot supply ultra-low-cost coke.
• Power cost improved, with a small Q2 headwind: Variable power cost fell to ₹4.00 per unit from ₹4.26 QoQ on lower coal costs, but Q2 may see a 15 paise increase due to planned maintenance.
• Shipping costs normalized: Freight rates have come down to a stable, range-bound level after earlier spikes.
• Full-year cost reduction, not quarterly: Management clarified that the ₹5,000 per tonne coke cost reduction analysts referenced is a full-year prediction, not a Q2 or Q3-specific number.

Mohanty: "That way if you look at, it becomes 2 quarters. That is why I told, at the moment, our coke cost is high and it will go down in Q3 and Q4."

Competitive Position & Industry Structure

• Non-integrated producers are at the wall: With chrome ore prices rising (OMC auction up ₹2,000–₹3,000) and ferrochrome realizations falling, non-integrated producers globally are operating at single-digit margins, a level management calls unsustainable.
• Integration as permanent advantage: IMFA’s fully integrated model, from chrome ore mining through to ferrochrome production, means the company generates profit even at the cycle bottom, a claim management used to justify the expansion commitment.
• Domestic market offers no escape: Despite India’s infrastructure push, the stainless steel sector is not expanding domestically, so there are no major tailwinds from local demand to offset export weakness.

Mohanty: "The present price is not sustainable for a non-integrated producer."

Expansion & Capital Allocation

• Kalinganagar on track for April 2025: The first furnace at the new Kalinganagar facility is targeting an April 2025 start, with the second furnace following 2–3 months after the first stabilizes.
• Power strategy is hybrid: The new capacity will run on 60% hybrid renewable power and 40% from the existing thermal plant at Choudwar; no new thermal plant is planned because of the government’s renewable energy obligation.
• Fully funded from internal accruals: The entire expansion, spread over 6–7 years, will be funded from internal cash flow with no debt; management expressed confidence that cash generation will meet the requirement.
• Sales model stays flexible: The new capacity will largely follow the existing 65% contracted / 35% spot model, but the company sees an opportunity to increase long-term contracted quantities with international steel mills.
• Underground mining is the next horizon: After roughly 5 years (toward 2028–29), IMFA plans to move to underground mining to reach 10.5 lakh tonnes of ore capacity, at which point it will consider adding furnaces beyond the initial 1 lakh tonne Kalinganagar capacity.

Khandelwal: "If we have to expand, then we have to put up furnaces also because we are expanding our chrome ore facility. We are expecting more ore from the underground mines. That's why we are putting up more furnaces also. And the biggest strength in our company is that we are fully integrated. So, at any point of time, we are going to make money. Even at the bottom of the curve, we are going to make money. So, why should we not expand?"

Utkal C & Other Balance Sheet Items

• Interest meter has stopped: Interest on the Utkal C compensation amount stopped accruing from October last year, when the vesting order was issued.
• Recovery expected, no write-off: Management expects to recover more or less the full amount invested, with no write-off; any disallowance portion will be compensated by the interest already earned. The nominated authority has given a valuation report to IDCO, but management does not yet have the number.
• Jindal Stainless is not a customer: Jindal Stainless is not currently buying any material from IMFA; they have their own ferrochrome production and are doing tolling through Tata and other producers.

Khandelwal: "We understand that whatever we have invested, we are going to get back the money. There may not be any write-off."

Guidance & Commitments

Key Metrics