Indian Metals & Ferro Alloys Ltd Q2 FY2025 Concall Summary

Key Takeaways

• Margin resilience on display: Management expects to maintain current margins for the next two quarters, underpinned by a cost position so low that 70-80% of global capacity would shut down before IMFA becomes unprofitable.
• A ~40% capacity expansion is now underway: Boundary work and major equipment orders for the 1 lakh ton furnace have begun, targeting a Q2 FY26 commissioning, with a second identical expansion to follow in FY28/FY29.
• Ethanol is a material new vector: A 120 KLD maize-based ethanol plant, pioneering for its region, is under construction and expected to generate revenue by Q4 FY26, directly addressing a ₹6,000/ton logistical disadvantage at the Therubali site.
• Capital allocation is locked on growth: With nearly ₹2,000 crores earmarked for capex over the next 6-7 years across furnaces, mining, ethanol, and renewable power, management explicitly ruled out further windfall disbursements beyond ordinary dividends.
• What to watch next quarter: The pace of equipment payments as major orders begin in Q1/Q2 2025, any quantification of the Supreme Court mining levy risk, and whether global stainless steel demand stabilizes as China's PMI suggests.

Cost Structure & Competitive Moat

• Extreme cost curve advantage: IMFA's integrated model, self-sufficient in chrome ore and power, places it so low on the global cost curve that it would remain profitable even at price levels that would force 70-80% of worldwide capacity to shut down.
• Chrome ore production dip is a non-event: Chrome ore output fell ~50% YoY due to an extended monsoon, a difference of roughly 1 lakh tons, but sufficient inventory means no impact on ferro chrome production or consumption ratios, which remain stable at 2.3-2.4 tons of ore per ton of alloy.
• Logistical disadvantage turned into opportunity: Ferro chrome production at Therubali carries a ₹6,000 per ton logistical penalty, making expansion there uneconomic; the site's ample land, railway siding, and location in an agricultural belt instead make it ideal for a maize-based ethanol plant where IMFA is the first mover.

Khandelwal: "You see, we are at such a level in as far as cost curve is concerned that if prices come down at certain unsustainable level, then most of the facilities would be shut down worldwide. So, almost 70%-80% capacity will shut down, but even at that level, we would be making some money. That is the advantage we have."

Expansion Projects: Ferro Chrome & Mining

• Furnace construction has begun: Boundary work for the new 1 lakh ton furnace started in October 2024 and is expected to finish by December 2024; major equipment packages including the power plant and electrode systems have been ordered or are under letter of award.
• Phased capacity roadmap: The first 1 lakh ton expansion is scheduled for Q2 FY26, effectively contributing to FY27 volumes; a second 1 lakh ton expansion is planned to start in FY28 or FY29, lifting total capacity by roughly 40% from the current 2,84,000 tons.
• Mining expansion is a long-dated call option: Work on the Sukinda underground mine has begun, with the first phase targeting 6 lakh tons per annum by FY31 and an ultimate target of 0.12 crore tons from both mines combined; proven reserves are sufficient for the 20-25 year lease period at upwards of 2.1 crore tons.
• Captive renewable power secured: A ₹120 crore investment in a captive hybrid solar-plus-wind plant will supply the new furnace, keeping the integrated cost advantage intact; a separate 9 MW power plant utilizing furnace off-gas is also being set up at Kalinganagar.

Ethanol Diversification

• A new leg to the business: The 120 KLD ethanol-from-maize plant at Therubali is expected to be operational by end of December 2025, with first revenue in the January-March quarter of FY26; the company plans to expand capacity in phases based on initial plant performance, with a second 120 KLD phase potentially adding another ~₹300 crores of investment.
• Pioneering position in the region: No other ethanol player is present in the area, giving IMFA a first-mover advantage in sourcing maize and rice feedstock from the surrounding agricultural belt.

Khandelwal: "No, that area, I think nobody else is there. So, that is why we have started. We have pioneered there."

Capital Allocation & Balance Sheet

• Growth capex takes priority over distributions: Management was explicit that nearly ₹2,000 crores will be spent over the next 6-7 years across the furnace, mining, ethanol, and renewable power projects; apart from ordinary dividends, no further windfall disbursements are anticipated.
• Near-term capex phasing: Approximately ₹600 crores is expected this fiscal on an order-release basis, with the next two years' spend still being finalized; equipment payments for the new furnace will begin in Q1 2025 and accelerate materially in Q2 2025.
• Credit profile remains strong: ICRA reaffirmed its AA-/stable long-term and A1+ short-term ratings, citing robust financial performance, sustained profitability, strong cash flows, and solid debt coverage indicators that are projected to remain strong in the near term.
• Inorganic options acknowledged but not imminent: Management is open to acquiring smelting capacity but noted that nothing lucratively available exists at the moment.

Market Outlook & Risks

• Near-term margin visibility, then opaque: Management expressed confidence in maintaining current margins for the next two quarters but stressed that predicting beyond that is very difficult in this business, with any FY26 improvement dependent on price increases, foreign exchange movements, and some cost reduction.
• Global demand signals are mixed: Stainless steel demand is under pressure from the economic slowdown, but China's October PMI showed its first expansion in six months and real estate prices are stabilizing, which is encouraging for ferro chrome; rising power costs in South Africa may also push China toward alternative suppliers, potentially benefiting Indian producers.
• Mining levy risk is dormant but unresolved: The Orissa High Court struck down the Act allowing states to collect royalty, and the state government has appealed to the Supreme Court; IMFA carries no contingent liability on its books, and management noted that Tata Steel, which had previously quantified such a liability, withdrew that note this quarter.

Khandelwal: "No, I don't think he has indicated that because in our business predicting more than 2 quarters is very difficult. So, what he has mentioned in the interview that next 2 quarters looks like that we are going to maintain these kind of margins. Beyond that, it is very difficult to predict anything, so we need to see where the market is at that point of time and the demand and supply situation will determine the price."

Guidance & Commitments

Key Metrics