Detailed Narrative
Q1 FY27 Production and Sales Performance
Kirloskar Ferrous Industries reported mixed operational performance for Q1 FY27. Pig iron production increased by 5% year-on-year to 165,120 metric tons, while castings production saw a robust 19% growth to 43,800 tons. However, tube production declined by 8% to 51,968 metric tons. In terms of sales, castings sales grew by 18% to 41,345 metric tons, but pig iron external sales decreased by 3% to 128,737 metric tons, and tube sales dropped by 14% to 41,512 tons, primarily due to the absence of high-realizing export orders.
Cost and Margin Dynamics
The company's Q1 FY27 EBITDA margin stood at 12-13%. Other expenses saw a significant year-on-year increase of INR 100 crores, with INR 58 crores attributed to power and fuel costs. Management noted that INR 28-29 crores of this increase was due to rate hikes and the remainder due to higher quantity consumption. While cost increases have been passed on for castings, discussions are ongoing for alloy steels, and the tube market needs to pick up for similar pass-throughs. The company expects overall EBITDA to improve in coming quarters, supported by pig iron recovery.
Capacity Expansion and Project Updates
Kirloskar Ferrous is actively pursuing several capacity expansion projects. The 2-part foundry in Solapur, with a capacity of 15,000 metric tons per annum, is progressing. Rajpura's foundry capacity is being expanded in two phases, aiming for 70,000 metric tons per annum. The Hiriyur pig iron plant is being upgraded to 360,000 metric tons, incorporating efficiencies like pulverized coal injection. Additionally, the Jejuri rolling capacity is being enhanced to 25,000 metric tons per month, targeting 3 lakh metric tons annually, with 0.25 million tons for external alloy steel sales.
Green Energy Initiatives and Regulatory Headwinds
The company is commissioning a 35-megawatt solar plant and 12 windmills (2.1 megawatts each), expected to be operational by September 2026. These projects are projected to yield INR 70-80 crores in power cost savings from the 70MW solar and INR 30 crores from the 35MW solar. However, recent regulatory changes have impacted green power benefits, with power trading no longer allowed (previously providing INR 10 crores annual benefit) and green power usage restricted to 8 hours daily, down from 17 hours.
Long-Term Growth Vision and Product Diversification
Management outlined an ambitious long-term vision, targeting INR 14,000 crores in revenue in the medium term. This includes achieving 3 lakh tons of casting products, 3 lakh tons of casting sales, and 4 lakh tons of tube sales. The total realizable installed capacity is projected to reach 270,000 metric tons within the current fiscal year plus two more years, and 3 lakh metric tons for castings within 3-4 years. The company also aims for 0.5 million tons of pig iron sales and 240,000 metric tons of external steel sales in the long term.
Capital Expenditure Outlook
For the current fiscal year, the company anticipates a capital expenditure of INR 600-700 crores. Looking further ahead, a substantial capex of INR 3,000-3,500 crores is planned over the next four years to fund ongoing and new projects. These investments are directed towards expanding capacity across castings, steel, and tubes, as well as integrating value-added processes like machining and premium product manufacturing.
Contingent Liability Update
The company disclosed a contingent liability of INR 350 crores related to forest development fees. This pertains to an 8% fee levied by the Government of Karnataka in 2016. The matter is currently sub judice, with the case pending in the Supreme Court after the High Court ruled in the company's favor. The company is providing for this as a contingent liability.