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Indian Metals & Ferro Alloys Ltd (BOM:533047, Financial) reported a robust set of numbers for Q3 FY '26, with EBITDA and PAT numbers showing significant improvement due to better ferrochrome pricing.
The company has signed agreements to acquire Tata Steel Limited's ferrochrome plant, which will make it India's largest ferrochrome manufacturer and the sixth largest globally.
The ongoing expansion and acquisition plans, including the greenfield project at Kalinganagar, are on track, with the first furnace expected to be commissioned in June 2026.
The company is fully integrated, with captive mines and power generation, which enhances its resilience and competitiveness.
IMFA has a strong cash position and plans to fund the Tata acquisition entirely through internal accruals, maintaining a conservative approach to debt.
Negative Points
There is a slight increase in power generation costs due to rising coal prices, which could impact overall cost stability.
The company faces potential challenges from South African ferrochrome producers, who may increase production due to reduced power tariffs.
There is a delay in the commissioning of the ethanol project, which was initially targeted for February but is now expected in March 2026.
The company is exposed to volatility in metallurgical coke and thermal coal prices, which could affect input costs.
The integration of the Tata Steel plant may involve some initial start-up costs and alignment of systems, which could impact short-term margins.
Q & A Highlights
Q: Do you expect to see the benefits of increased global realizations in Q4, and how is the demand outlook?
A: Realizations have improved significantly from Q2 to Q3, with EBITDA margins above 23%. Prices dipped slightly but have rebounded. We expect these prices to hold in Q4, benefiting from them. Demand remains strong due to long-term contracts and increased stainless-steel production, despite South Africa's reduced output.
Q: How significant is the structural shift in the ferrochrome industry, and how does it benefit integrated players like IMFA?
A: The cost pressures on non-integrated producers are significant due to rising chrome ore prices. Our fully integrated model enhances resilience and competitiveness. We foresee a structural gap between demand and supply over the next 1-2 years, supporting prices.
Q: What is the impact of South Africa's tariff changes on ferrochrome production, and how does it affect IMFA?
A: South Africa's tariff reduction for two companies is seen as unsustainable. Even if production increases, it may reduce ore exports to China, balancing the market. We focus on our integrated model and efficiency rather than external factors.
Q: What are the CapEx plans for FY '26, '27, and '28, and how will they be funded?
A: CapEx for FY '27 is around INR600 crores, with INR400-500 crores in FY '28. The acquisition of Tata Steel's plant will be funded through internal accruals, and we have a sanctioned loan of INR470 crores, with minimal drawdown so far.
Q: What is the expected production volume for FY '27 and FY '28, and what are the breakeven utilization levels?
A: We expect production to reach approximately 400,000 tonnes in FY '27 and 475,000-500,000 tonnes in FY '28. We haven't specifically analyzed breakeven levels, but we are confident in our ability to produce and sell at these volumes.
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- [Editor:jyt]
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