Kirloskar Ferrous Industries Ltd (KFIL) has been navigating a challenging landscape in Q2FY24, grappling with subdued pig iron ore prices and a slowdown in tractor volumes. Let us overview KFIL’s recent performance, key strategic moves, and prospects.
Q2FY24 Performance Overview
The company’s Q2FY24 performance is expected to be influenced by subdued pig iron ore prices and a decline in tractor volumes, resulting in flat growth in the castings business. The pig iron prices have remained low due to excess domestic supply and elevated coking coal prices.
Recent Acquisition
KFIL’s recent acquisition of Oliver Engineering, a Punjab-based business specializing in ferrous castings and machining with a capacity of 28,000 metric tonnes per annum, is a noteworthy development. The non-operational plant is anticipated to be operational within six months of acquisition, targeting customers in North India. The acquisition cost was approximately Rs 112 crore, indicating the company’s strategic expansion.
Subsidiary Developments
The 51.25 per cent subsidiary of KFIL, Indian Seamless Metal Tubes (ISMT), plans to commission a 70-MW solar power plant by March 2024. This initiative is expected to result in significant cost savings of Rs 70 crore per annum. Additionally, ISMT invests Rs 100 crore in de-bottlenecking projects, aiming to increase sales revenue by June 2024.
Operational Challenges and Responses
The closure of one blast furnace in the September 2023 quarter led to a reduction in pig iron production. However, all three blast furnaces are operational, driving sales volumes in H2FY24. Despite challenges like higher coking coal and iron ore prices impacting pig iron margins, the management foresees sustained lower raw material prices in H2FY24. KFIL aims to mitigate these challenges through captive power plants and coke oven plants in the December 2023 quarter.
Capex Plans
KFIL has outlined a total capex of Rs 1,000-1,100 crore for FY24 and FY25. The company’s management expects marginal growth in pig iron and a 3-5 per cent volume growth in castings. The focus on captive power plants and strategic initiatives such as PCI expansion and coke consumption reduction through oxygen enrichment is anticipated to contribute to cost reduction by FY25.
Outlook
Despite the pressure on pig iron profitability in FY24, the blog post maintains a positive outlook on KFIL. The company’s robust market share in pig iron, effective integration of ISMT’s operations, and strategic expansions position it favourably against competitors. While FY24 expectations have been marginally adjusted, the blog suggests that investors with a high-risk appetite can consider accumulating KFIL stock for potential growth, especially in FY25.
Disclaimer: We do not endorse or encourage you to take trades or investment decisions based upon our posts/research, all of your trading and investment activities are your own and should be taken through consultation with reputed financial advisors. The analysis posted on this website has been created by involving multiple mediums which are present over the Internet.