Indian Metals & Ferro Alloys Ltd Q4 FY2024 Concall Summary

Key Takeaways

• One-off write-offs obscure a solid quarter: ₹221 crores in UCL-related write-offs and a ₹110 crore mining segment loss mask what was otherwise a strong operational performance, with Q1 FY25 realizations guided ₹3,000–₹4,000/ton higher.
• Coke costs are falling, and the trajectory is clear: Q4 coke cost was ~₹15,500/ton, down sharply from ~₹22,000–₹23,000/ton a year ago, with management guiding Q2 in line and Q3 lower still.
• The Kalinganagar smelter expansion is now moving: IDCO has begun the R&R compensation disbursement process, boundary wall construction starts post-elections in mid-June, and environmental clearance for the 1 lakh ton enhancement is expected within a month.
• MARAF benchmark discontinuation is an unresolved pricing risk: The South African benchmark that anchored negotiations disappears from June, and management has no specific mitigation plan yet, calling it a "bombshell."
• What to watch next quarter: Whether the guided ₹3,000–₹4,000/ton realization increase materializes, the pace of Kalinganagar boundary wall construction post-elections, and any clarity on how ferrochrome pricing negotiations adapt without the MARAF benchmark.

UCL Write-Offs & One-Time Impacts

• Coal block compensation fell short: The Nominative Authority quantified compensation at ₹353 crores for the coal block cancelled in 2014, against a ₹243 crore principal plus investment and interest. IMFA recognized ~₹220 crores of interest as other income, but wrote off the remaining ₹221 crores as other expenses because the compensation did not cover the full claim.
• Goodwill also written off: An additional ₹21 crores in goodwill in UCL was written off in the consolidated accounts, adding to the quarter's exceptional charges.
• Other expenses carried one-off maintenance costs: Consolidated other expenses of ₹162 crores included ₹12 crores in boiler and furnace repairs and ₹10 crores in other one-off overheads, alongside the UCL write-offs.
• Mining segment loss is structural, not alarming: The ₹110 crore loss on ₹139 crores revenue reflects all mining costs being booked in the segment while revenue only captures external sales, with captive consumption transfer-priced. The Q4 spike was due to quarter-to-quarter variation in mining and dispatch plans, plus routine UCL expenses.
• UCL to become a 100% subsidiary then merge: IMFA is buying the remaining 21% stake in UCL from promoter companies at ₹1 per share, after which it will launch a merger scheme to fold UCL into IMFA.

Khandelwal: "We are buying the 21% remaining stake at INR1 to make it 100% subsidiary and then we'll launch the merger scheme."

Realizations & Cost Structure

• Q1 realization guided sharply higher: Management expects a ₹3,000–₹4,000 per ton increase from Q4's ~₹1,02,000, implying ~₹1,05,000–₹1,06,000, driven by the benchmark price increase from \$1.44 to \$1.52.
• Coke costs have further to fall: Q4 coke cost was ~₹15,500/ton versus ~₹22,000–₹23,000/ton in the prior year. Booked shipments for June show further decline, with Q2 expected in line with current levels and Q3 set to go lower.
• Power costs are stable: Q4 variable power cost was ₹4.37 and fixed ₹1.30. Q1 variable cost is expected at ~₹4.20, with fixed cost at par.
• Q1 EBITDA cost guided flat: Management expects Q1 EBITDA cost in the same range as Q4, around ₹82,000–₹83,000 per ton, implying the realization gain should flow through to margins.
• Employee costs rose on higher profits: Employee benefit costs increased due to normal increments and higher commission linked to higher profitability, a recurring linkage rather than a one-off.

Mohanty: "In Q2? No, it is remaining more or less in line. That's what in Q2. Q3, it will go down."

Kalinganagar Expansion & Capex

• Project is now moving past the land stage: IDCO has started the disbursement process for R&R compensation to the district administration. Distressed families will receive compensation after elections conclude in mid-June, and boundary wall construction will begin immediately thereafter.
• Environmental clearance for 1 lakh ton enhancement is imminent: The EC has been recommended for grant and is expected within a month's time, clearing the way for the smelter expansion.
• Smelter capex is back-end loaded: The ₹1,500 crore total capex will be spread over 6 to 7 years, with the smelter portion concentrated over an 18-month period. Management is hopeful of funding it entirely through internal accruals.
• New capacity operational in FY27: Net capacity from the smelter expansion is expected to be operational in FY27, with no concrete plans yet for expansion beyond the 1 lakh ton mark.
• No merchant chrome ore sales planned: Although 50% of enhanced chrome ore can be sold as a merchant miner, management's policy is to retain it for captive furnace consumption, which is why they are adding furnace capacity.
• Year-wise capex breakup not provided: Management declined to give a year-wise breakdown of the ₹1,500 crore outflow, calling it difficult to specify.

Khandelwal: "No, 50% of that we can sell, but as a policy we don't do that because that's why we are adding more furnace capacity."

Chrome Ore & Mining

• Mahagiri enhancement is operational: Environmental clearance to expand Mahagiri from 3 lakh tons to 6 lakh tons has been obtained, the Consent to Operate is in hand, and production began last quarter. This offsets the Sukinda open-cast restriction at 3 lakh tons.
• SMC also cleared for 6 lakh tons: Environmental clearance for SMC has been obtained, enhancing capacity from 3 lakh tons to 6 lakh tons.
• Sukinda underground is a long-dated option: The Sukinda underground operation will take 6 to 7 years to develop, with open-cast stock at Sukinda being reserved for that future transition.
• Company is running at minimum stock: Inventory levels are at a minimum, with sales last year exceeding stock levels, leaving little buffer against any supply disruption.

Ethanol Project

• A diversification play with near-term milestones: IMFA has applied for single-window clearance from the Government of Odisha and environmental clearance from the MOEF. A hearing was held on 14th May, some concerns were replied to, and the EC is expected within the next month. Land already belongs to IMFA.
• Commissioning timeline is 12–14 months from execution start: Once the 150 KLD capacity is achieved, the project is expected to generate ~₹200–₹220 crores in turnover at the outset, depending on market prices, with double-digit margins.
• Project is maize-based, not rice bran: When asked about specific consumption of rice bran per kiloliter, management clarified the project is maize-based and deferred the exact figure.

Mohapatra: "This is generally around 12 to 14 months."

Market Environment & Pricing Risk

• Global stainless steel demand is growing modestly: SMR presented a paper expecting around 4% growth for the sector, while ISSF indicated a 3.6% increase in stainless steel consumption. Worldwide production is expected to reach 5.95 crore tons in 2024, up from 5.8 crore tons.
• Europe is weak but still growing: Despite negative sentiment driven by inflation, debt, and interest rates, particularly in Germany, European consumption is expected to grow around 3% to 3.5%.
• China is operating on thin margins: Chinese producers are running at very low margins but with higher efficiency and higher operational ratios, trying to maintain low margins in both ferrochrome and stainless steel. Some destocking has brought stability to stainless steel.
• Chinese port inventory is on the lower side: Chrome ore inventory at Chinese ports is below the usual ~0.35 crore tons, with some delay in shipments and registry issues contributing to the tightness.
• MARAF benchmark discontinuation is a "bombshell": South Africa's MARAF will stop announcing the benchmark price from June, removing what management described as a good base to start negotiations. Other indices like CRU and Fast Markets exist, but the company will now have to negotiate individually with customers, with no specific impact assessment or mitigation plan yet articulated.

Mohanty: "Well, it's a big impact, just that bombshell has come on 20th of this month. So, people are working out, have to work out with people, because that was a good base to start negotiations with, but which will not be there."

Guidance & Commitments

Key Metrics