Indian Metals & Ferro Alloys Ltd Q3 FY2024 Concall Summary

Key Takeaways

• Profit surged on price-cost spread: Realization rose ₹10,000/ton while cost fell ₹8,000/ton, delivering an ₹18,000/ton margin expansion that drove a tenfold profit increase.
• Cost tailwinds are largely captured: Variable power cost dropped to ₹4.30/unit and coke fell from ~₹47,000 to ~₹37,000/ton; management expects both to hold near current levels, limiting further cost-led upside.
• Output is maxed out until FY26: Production is running at 250,000–260,000 tonnes against 284,000 tonnes capacity, and material growth waits on the Kalinga Nagar furnaces targeting September 2025 completion.
• Realization faces a soft Q4: The benchmark price declined $0.09 and seasonal factors (Chinese New Year, Kutuzov holidays) point to slightly lower Q4 realizations, though management argues prices cannot fall much further without becoming unsustainable for producers.
• What to watch next quarter: Whether Q4 realizations stabilize near the implied floor, progress on the ₹221 crores Utkal-C payment from JSPL, and any update on the renewable power tie-up.

Profit Bridge: The Price-Cost Spread

• Realization jump: Average realization moved from ₹93,000/ton in Q3 FY23 to ₹1,03,000/ton in Q3 FY24, a ₹10,000/ton improvement driven by stronger benchmark ferrochrome prices.
• Cost compression: Cost per ton fell from ₹80,000 to ₹72,000 over the same period, with the biggest contributors being lower coke prices (down ~₹10,000/ton) and a 47-paise reduction in variable power cost to ₹4.30/unit.
• The math: A ₹10,000 price increase plus an ₹8,000 cost decrease yields an ₹18,000/ton spread expansion; multiplied across ~60,000–65,000 tonnes sold explains the quarter's profit surge.
• Q3 to Q2 cost uptick: Cost per ton rose from ₹70,500 in Q2 to ₹72,000 in Q3, and management expects Q4 cost to stay at similar levels, signaling the bulk of cost tailwinds are now reflected in the P&L.
• Depreciation method change flatters earnings: Switching from WDV to SLM after a consultant study of plant life and industry norms dropped depreciation from ~₹26–27 crores to ~₹14–15 crores QoQ, a non-cash boost management says better aligns with peers.

Prem Khandelwal: "We had appointed a consultant to study the plant life and other things. And we have studied industry norms also. Most of the companies in our industry are following SLM method. We were only following WDV. So, we did a study and then came to the conclusion that SLM is more suitable to us compared to WDV."

Realization & Demand Outlook

• Q4 price softening expected: Benchmark ferrochrome prices declined $0.09, and management acknowledged Q4 realizations will be "a little lower" than Q3's ₹1,03,000/ton, compounded by low transaction activity during Chinese New Year and Kutuzov holidays in February.
• A floor exists, but it is not a forecast: Management argued prices "will not go further down because of the cost" and that further declines "will not be sustainable" for producers already operating on thin margins, though they stopped short of calling Q4 the bottom.
• Stainless steel demand provides a base: ISSF expects ~3.6–4% stainless steel growth in CY24, with global production set to exceed 6 crore tons; management noted that if the Russia-Ukraine war ends, growth could be "exponentially higher."
• China is a disciplined low-margin producer: Chinese stainless steel producers are maintaining output (~6.5 lakh tons/month ferrochrome, ~0.3 crore tons/month stainless steel) while working on low margins, balancing price rather than cutting production, partly because 50% of their output depends on weak export markets.
• Domestic market is opportunistic, not strategic: Management has no significant domestic market plan but will sell domestically if Indian demand grows, noting realizations are aligned to world prices anyway and per capita stainless steel consumption below 2.5 kg means small changes can drive large requirements.

Deepak Mohanty: "I think it will remain in the -- it will not go further down because of the cost. So only because of currency devaluation and all, they are able to work it out, but further going below will not be sustainable."

Cost Structure & Input Trends

• Coke: the big swing factor, now stabilizing: Coke prices collapsed from ~₹47,000/ton to ~₹37,000/ton YoY; current Colombian coke cost is ~$320/ton, expected to stay in the $350–$360 range for the next six months due to coking coal price increases and long lead times from Colombia.
• Power cost savings are structural: Variable power cost fell from ₹4.77/unit in Q3 FY23 to ₹4.30/unit in Q3 FY24, saving ~47 paise; spot auction coal prices dropped from ₹6,000–₹6,200 to ~₹4,000, and if the trend holds, variable cost stays in the same line.
• Captive integration is the moat: Material cost runs at 54–55% of total cost, well below industry norms, because captive chrome ore mining and captive power generation insulate IMFA from open-market input pricing.
• Cost stability is the Q4 message: Management expects both ferrochrome cost and EBITDA cost to remain at Q3 levels in Q4, with no new cost tailwinds or headwinds flagged.

Capacity & Growth Projects

• Current operations are peaked: Against nameplate capacity of 284,000 tonnes, production runs at 250,000–260,000 tonnes due to maintenance and other constraints; Q2 touched 104% utilization, leaving no meaningful volume upside from existing assets.
• Kalinga Nagar furnaces are the growth catalyst: Two new furnaces will add 1 lakh tonnes of ferrochrome capacity, with revenue contribution expected in FY26; the blast furnace is targeted for September 2025 completion, subject to land procurement not slipping.
• Mining output is scaling ahead of smelting: Ore production will cross 6 lakh tons in FY24 for the first time, with FY25 targeted at 7.3 lakh tons; excess ore will be stocked or used alternatively, as management reiterated a firm policy against selling ore in the open market.
• Capex envelope is large and long-dated: ₹600 crores for furnace capex and ₹1,000 crores for mining capex, both spread over seven years; a renewable power hybrid project (solar + wind, round-the-clock) is under discussion with developers, requiring ~₹100 crores of investment.
• FY25 is a holding-pattern year: Management expects output to stay stagnant at 250,000–260,000 tonnes and prices to remain "more or less same like this year" until new capacities come on stream in September 2025.

Prem Khandelwal: "No, but as a policy, we are not selling ore."

Utkal-C Compensation: The Contingent Asset

• The order was cut, and IMFA is fighting back: The provisional order of ₹416 crores was reduced to ₹352 crores by the arbitrator, a ₹64 crores disallowance IMFA is contesting in the coal tribunal; if successful, the total rises to ₹433 crores.
• What is already in hand: ₹20 crores statutory portion has been received; another ₹18 crores for mining infrastructure is not yet finalized, taking the maximum expected to ~₹390 crores under the current order.
• The counterparty is also appealing: JSPL has gone to the tribunal seeking further reduction in the compensation amount, adding a layer of uncertainty to both the final quantum and the timeline for the ₹221 crores balance payment.
• Tribunal timeline is statutory but not certain: The tribunal is supposed to dispose of the case within 90 days statutorily, but management declined to give any timeline for actual receipt of funds from JSPL.

Prem Khandelwal: "INR416 was the provisional order, which we had declared through the stock exchanges also... That has been reduced to INR352 crores by NA."

Guidance & Commitments

Key Metrics