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Focus on renewable power, ISMT turnaround key monitorable

Kirloskar Ferrous reported consol. EBITDA of INR2.3bn, lower than JMfe of INR2.8bn. The under-performance in EBITDA was primarily on account of weak set of numbers posted by subsidiary ISMT. Key takeaways from the call are –1) On casting front company expects flat YoY volume i.e. ~130kt for FY24 and remains optimistic about FY25. 2) Company has sucessfully upgraded all its BF’s with current capacity at 165,000 tons of hot metal 3) Demand from auto and infra segment remained strong where as demand from tractor remained muted 4) PCI to start by Feb’24 end and Oxygen enrichment by July’24. 5) Company is expected to comission 70MW solar power plant by March’24 (out of total 210MW solar power plant to be executed in 3 phases) with benefits to accrue from Apr’24. Further company plans to install 10-15MW of wind power plant – capable to provide for ~85% power requirement for ISMT 6) Company remains hopeful of operationalizing Iron ore mine by FY24 end with potential cost saving of INR500mn. KFIL continues to remain well paced on margin expansion path amidst new projects underway to reduce RM cost, coupled with margin accretive product profile at ISMT. Stock currently trades at ~7x EV/EBITDA on FY26E. Maintain BUY.

Higher volumes aided top line performance: Kirloskar Ferrous standalone revenue increased 10% QoQ to INR9.7bn primarily on account of higher volumes (up 23.8% QoQ at 164.9kt). Volumes were largely driven by industrial and auto segment whereas tractors continues to remain subdued. EBITDA came in at ~INR1.3bn down 4.4% QoQ implying a blended EBITDA/t of INR7.7k, a sequential decrease of ~INR2.3k/t mainly on account of lower realisation (at ~INR58.7k/t, down ~INR7.4k/t QoQ). PAT stood at INR517mn down 9% QoQ.

Muted performance on ISMT front dragging overall performance: ISMT reported 14.2% QoQ decrease in revenues to INR6.4bn. EBITDA came at INR1bn down 14% QoQ driven by topline de-growth. Consequently, Adj. PAT came in at INR620mn down 6% QoQ. On consolidated basis company reported revenue of INR15.5bn flat QoQ. EBITDA came in at INR2.3bn down 8% QoQ. PAT came in at INR763mn.

Triggers in place for cost optimizing: Company is expected to commission pulverized coal injection plant by 4QFY24. Further Oxygen enrichment is expected to be commercialized by July’24. Company continues to remain on track for its various projects for capacity enhancement (refer exhibit 6) providing comfort for long term growth amidst increased operational efficiencies post ISMT merger and Oliver engineering limited acquisition.

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SEBI Registration Number is INM000010361lol