Kirloskar Ferrous Industries Limited

Key Quantitative Figures & Operational Highlights

Production Volumes (YoY):

  • Pig Iron: 1,65,120 metric tons (up 5% from 1,57,112 tons)
  • Castings: 43,800 tons (up 19% from 36,929 tons)
  • Tubes: 51,968 metric tons (down 8% from 56,558 tons)

Sales Quantities (YoY):

  • Pig Iron (External): 1,28,737 metric tons (down 3% from 1,32,392 tons)
  • Castings: 41,345 metric tons (up 18% from 34,941 tons)
  • Tubes: 41,512 tons (down 14% from 48,461 tons)

Financial Impact:

  • Other expenses increased by INR 100 crores year-on-year, with a sequential increase of INR 50 crores.
  • Power and fuel costs alone increased by INR 58 crores. Of this, approximately INR 28-29 crores was due to rate increases, and a similar amount was due to increased consumption quantity.
  • The company lost an estimated INR 10 crores per annum benefit from power trading due to regulatory changes.

Projects and Capacity Expansion

Management confirmed all project plans are on track with a detailed 4-year capital expenditure plan of INR 3,000 to INR 3,500 crores. Key projects include:

  • Solar/Wind Power: A 35-megawatt solar plant and 12 windmills (2.1 MW each) are in the commissioning stage, expected by June-September.
  • Solapur Foundry: A new 2-part foundry with a capacity of 15,000 metric tons per annum for large castings (max size 3 tons). Commissioning expected by October.
  • Rajpura Foundry Expansion: A two-phase expansion. Phase 1: Capacity increase from 25,000 to 40,000-50,000 tpa (already achieved ~2,200 tons/month). Phase 2: Further expansion to 70,000 tpa (6,000 tons/month) within the next 8 months.
  • Hiriyur Pig Iron Plant Upgrade: Upgrade to produce 360,000 tons of pig iron with improved efficiency (pulverized coal injection, bell-less top).
  • Jejuri Rolling Mill: Capacity enhancement from 15,000 to 25,000 metric tons per month (annual capacity: 3 lakh tons, with 240,000 tons for external sales).
  • Baramati Premium Couplings: Project to be ordered in the coming weeks.
  • Large Future Projects (at early stages): A steel plant at Koppal, an expander mill for large seamless tubes at Baramati, and a beneficiation/pellet plant with iron ore mine operationalization at Koppal.

The goal of these projects is to double capacity in castings and steel sales, aiming for tube production of 350,000-400,000 tpa and a total casting capacity of 270,000 tpa.

Market Conditions & Cost Pressures

  • Geopolitical Impact: The company cited geopolitical conditions disturbing steel tube exports and inflating power and fuel costs (e.g., LPG cost in Solapur has doubled).
  • Pricing Power: The company has been able to pass on cost increases to casting customers. Pass-through for alloy steel products is under discussion and expected. Passing on costs in the tube segment is challenging due to market dynamics and dumping from China.
  • Commodity Prices: A break in the falling trend of commodity prices (e.g., pig iron, steel) was noted, with some price increases announced. International pig iron prices have picked up, providing support for domestic prices.
  • Tube Market: Demand is subdued, particularly for high-margin oil & gas tubes, due to a lack of related activity. The company is executing a 23,000-ton order from ONGC and Oil India, expected to be completed in the next two quarters.

Volume Guidance for Remainder of FY27

Management provided volume expectations for the remaining nine months of FY27:

  • Pig Iron: Target of close to 7 lakh metric tons for the full year.
  • Castings: Targeting 17-20% growth (approx. 1,88,000 tons).
  • Steel (External Sales): Targeting at least 1-1.1 lakh tons (over 20% growth from 84,000 tons last year).
  • Tubes: Targeting at least 10% volumetric growth.
  • Overall: Expecting at least 15% volumetric growth across all products.

Contingent Liability

A contingent liability of approximately INR 350 crores relates to a Forest Development Fee levied by the Government of Karnataka in 2016. The matter was initially decided in the company's favor by the High Court. The government has appealed to the Supreme Court, where the matter is currently sub judice (reserved for order).

Other Key Discussions

  • Coking Coal Cost: The company carries a 3-month coal stock. Higher-cost coal from June-August purchases will impact costs in the coming quarter, with a potential for mitigation afterward.
  • Strategy & Value Addition: The company is focusing on forward integration by expanding machining shops to supply fully machined components, exploring high-value castings (e.g., compacted graphite), and using 3D printing for prototyping.
  • EBITDA Margin Outlook: Q1 EBITDA margin was 12-13%. Management is optimistic about improvement driven by stabilizing pig iron prices, strong casting demand enabling price corrections, and the execution of cost-saving projects, despite headwinds in the tube segment.
  • Regulatory Impact on Green Power: A regulatory change now restricts the use of green power to 8 hours per day instead of 17 hours, reducing the efficiency and benefit of solar/wind investments. The company is exploring battery storage systems to mitigate this.