Kirl. Ferrous

Kirloskar Ferrous Industries faced a challenging Q3 FY25, with markets generally subdued, particularly for pig iron, which experienced significant margin pressure. Despite this, the company maintained strong production, with liquid pig iron at approximately 150,000 tons and tube production increasing by 23% YoY to 52,465 tons. However, steel production saw a 12% QoQ decline to 48,800 tons. Cumulative 9-month sales for pig iron were up almost 26%, and casting sales reached 1 lakh metric ton, a 10% increase from the previous year.

The company made significant progress on strategic projects aimed at cost reduction and operational efficiency. Phase I and II of the solar power plant, totaling 69 MW, were commissioned at a cost of INR 370 crores, with an expected annual saving of INR 1 crore per MW. Operations at Bharat Mines have commenced, increasing the consumption of captive iron ore. Additionally, the oxygen enrichment plant is contributing to savings of approximately INR 600 per ton of hot metal, and efforts are underway to further optimize its utilization.

The casting segment's profitability was impacted in Q3 FY25 due to higher costs associated with underutilization at the Solapur plant. However, management is optimistic about future growth, targeting 140,000 tons for FY25 and 170,000-175,000 tons for FY26, including contributions from the Oliver acquisition. The company plans to ramp up Solapur's capacity by 20,000 tons in 2-3 quarters, aiming for 60,000 tons, and has a long-term vision to reach 270,000 MT/annum in casting within three years through debottlenecking and machining investments.

The tubes business, despite a slight 3% decline in Q3 volume sales, is expected to perform much better in Q3 and Q4 compared to the first half of the fiscal year, which was affected by market conditions and ERP implementation. The Baramati manufacturing capacity has been enhanced to 12,500 metric tons per month from 10,000. For FY26, the company projects total tube volumes of 200,000 MT, with 150,000 tons from Baramati and 40,000-45,000 tons from Ahmednagar. Plans for higher diameter tubes are also being considered for the next couple of years.

Pig iron and steel margins faced severe pressure due to increased input costs and historically low prices, exacerbated by an industry-wide oversupply. While management does not foresee an immediate major increase in pig iron prices, they anticipate cost benefits from reduced coking coal prices (with a 3-month inventory lag) and increased consumption of captive iron ore. The company's pig iron EBITDA has compressed to 5-7% currently, down from a peak of 29% during the Ukraine war, reflecting the challenging market conditions.

Kirloskar Ferrous has outlined a significant capex plan of INR 500-600 crores for the next fiscal year (FY26). A substantial portion, INR 200 crores, is allocated for renewable energy expansion, targeting an additional 70-80 MW equivalent capacity. The company is also investing in capacity utilization, cost reduction, and technology upgrades across its segments, including machining and large castings. The Oliver acquisition is set to merge with KFIL in the next financial year, contributing to the company's growth strategy.