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Earnings trajectory intact; new projects to be commissioned soon

Kirloskar Ferrous reported 2Q consol. EBITDA of INR1.9bn, higher than JMfe of INR1.7bn. The out-performance in EBITDA was on account of growth in overall volumes (+6% QoQ). Key takeaways from the call are –1) on casting front, current run-rate stands at 13,000 tons per month and 150k tons per annum; company expects to ramp up going forward and has guided for 200k tons in FY25 2) tractor and automotive industries displaying decent demand but lower than expectations 3) company plans to install 10-15MW of wind power plant – capable to provide for ~85% power requirement 4) delay in projects commissioning due to extended rains and difficulty in land acquisition; Iron ore mine/ Coal injection plant to be commissioned by the end of Nov’24 5) Company plans to commission 70MW of solar power plant by end of Nov’24 and expects to commission up to 100MW by end of FY25 to save further on power and fuel costs. KFIL continues to remain well paced on margin expansion path amidst new projects underway to reduce RM cost, coupled with margin accretive product profile. Maintain BUY

* Margins expand given growth in volumes and blended realisation: Consolidated revenues came in at INR16.6bn, up ~7% QoQ driven by higher volumes and higher realizations. EBITDA came in at ~INR1.9bn up ~4% QoQ implying a blended EBITDA/t of INR8.6k, a sequential decline of ~INR200/t. Adj. PAT stood at INR776mn, up 11% QoQ. With a capacity to produce up to ~28k MT of castings per annum, company has commenced trial run operations at Oliver Engineering and plans to begin commercial production shortly. This will add to the existing casting capacity of ~180k MT per annum and allow KFIL for geographical expansion in the North Indian market

* Cost optimization initiatives on track: KFIL has proactively structured changes to reduce its costs and boost margins. The company has planned capex to save cost through backward integration by installing Bell-less top for blast furnaces and introducing pulverised coal injection and oxygen plant. Company plans to install 10-15MW of wind power plant – capable to provide for ~85% power requirement. Company plans to commission 70MW of solar power plant by end of Nov’24 and expects to commission up to 100MW by end of FY25 to save further on power and fuel costs. Company remains hopeful of operationalizing Iron ore mine in Nov’24 with potential cost saving of INR500mn.

* Outlook optimistic: With the completion of KFIL’s merger with ISMT, company seems optimistic to benefit from increased scale, expanded reach and higher cross-selling opportunities. On casting front, current run-rate stands at 13,000 tons per month and company expects to ramp up going forward for the rest of FY25. Revival in sales from tractor and automotive industries is expected to drive sales growth going forward.

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SEBI Registration Number is INM000010361