Kirloskar Ferrous Industries Ltd Q1 FY27 Earnings Call Summary

Event Participants

Executives

2 R. S. Srivatsan, R. V. Gumaste

Analysts

8 Anurag Patil, Dhruvesh Kanakia, Manish Goyal, Nirmam Mehta, Pratik Kothari, Sahil Sanghvi, Saket Kapoor, Vipul Modi

Financials & KPIs

Geographic & Segment Commentary

• Castings: Sales up 18% YoY with production up 19%; demand strong across tractors, autos, earthmoving and stationary engines. Rajpura foundry sold out — Phase 1 expansion from 25,000 to 40,000–50,000 MT taking shape; Solapur two-part foundry (15,000 MT) commissioning by October. Fully machined, assembly-ready components (e.g., six-cylinder heads with child parts) already being supplied, driving higher value-add.
• Pig Iron: Production up 5% YoY at 1,65,120 MT; external sales lower due to internal consumption. Realizations improving — export of ~30,000 MT yielding better than domestic prices; international price uptick and reduced coke dumping into India supporting domestic floor. Hiriyur blast furnace upgrade to 3,60,000 MT capacity with pulverized coal injection planned to cut coke consumption.
• Steel: External alloy steel sales targeted at 1,00,000–1,10,000 MT in FY27 (vs 84,000 MT in FY26, >20% growth). Jejuri rolling capacity being enhanced from 15,000 to 25,000 MT/month (300,000 MT annual, 240,000 MT saleable). Koppal steel plant (feeding blooms to Baramati) ready for execution, commissioning in ~2 years.
• Tubes: Volume down 14% YoY on weak oil & gas exports and absence of high-realization export orders; ONGC/Oil India order of 23,000 MT expected to complete within next two quarters. Strategic investments: premium couplings at Baramati, expander mill for up to 18-inch tubes (addressing additional 40% of market), target capacity of 3,50,000–4,00,000 MT.

Company-Specific & Strategic Commentary

• Green Power (Solar + Wind): 35 MW solar plant in commissioning stage; 12 windmills (~55 MW equivalent) expected by Q2 FY27. Management expects combined benefit of ~₹70–80 cr annually despite regulatory headwinds — green power usage window cut from 17 to 8 hours and ban on power trading (previously ₹10 cr/yr benefit). Exploring megawatt-level battery storage to sustain green power journey.
• Forward Integration / Machining: Expanding machine shops at Koppal, Solapur, and Rajpura; supplying fully machined, assembly-ready components (e.g., six-cylinder heads with child parts). 3D printing proto facility producing near-serial parts (e.g., 50 cylinder blocks) and feeding new component development. Two-part foundry (1,250 MT/month, up to 3-ton castings) commissioning by October, opening new sectors beyond automotive.
• Capacity Roadmap: Total realizable castings capacity of 2,70,000 MT across six foundries within 2 years; pig iron to 9,00,000–10,00,000 MT liquid metal; tubes to 3,50,000 MT in 3–4 years. ₹3,000–3,500 cr CapEx planned over next 4 years to reach ~₹14,000 cr revenue aspiration (300,000 MT castings + 400,000 MT tubes).
• Cost Mitigation: Waste heat recovery makes Koppal self-sufficient in power; working on alternative fuels and pass-through of cost increases to customers (castings/steel in progress, tubes market-dependent).

Guidance & Outlook

Risks & Constraints

Q&A Highlights

• Other Expenses & Power & Fuel Cost Increase

  • Question: What drove the ~₹100 cr YoY, ~₹50 cr QoQ jump in other expenses? (Nirmam Mehta, Unique PMS)
  • Answer: ~₹58 cr of the ₹100 cr is power & fuel — ~₹28–29 cr from rate increases and ~₹28 cr from volume (Rajpura ramping, Jejuri running full month vs shutdown last year). Regulatory changes (green power window cut from 17 to 8 hours, power trading banned) add further pressure. Cost pass-through near-term for castings; steel under discussion; tubes purely market-driven. (R. V. Gumaste)

• Forest Development Fee Contingent Liability

  • Question: What is the ₹350 cr contingent liability disclosed? (Nirmam Mehta, Unique PMS)
  • Answer: Karnataka government levied an 8% forest development fee in 2016; company won at High Court, government appealed to Supreme Court — matter sub judice, no timeline. (R. S. Srivatsan)

• Forward Integration & Product Diversification

  • Question: Are you moving beyond castings to sub-assemblies, exotic steel, 3D printing, no-bake foundry? What is max casting size? (Vipul Modi, Individual Investor)
  • Answer: Supplying fully machined, assembly-ready components (six-cylinder heads with child parts) from machine shops at all three locations; order book trending north on pricing. 3D printing proto facility feeding serial production (50 cylinder blocks via proto route). Two-part/no-bake foundry (1,250 MT/month, up to 3-ton castings) commissioning by October, opening new sectors. (R. V. Gumaste)

• EBITDA Margin Trajectory

  • Question: How should EBITDA margins shape up given one-off factors, castings machining ramp, and pig iron support? (Saket Kapoor, Kapoor and Company)
  • Answer: Steel and tube at 14–17% EBITDA; pig iron dragged overall in last four years — now seeing price reversal (pig iron up, steel price hikes announced, international prices firm, 30,000 MT exports at better realization). Castings demand strong across sectors; expect realization improvement and 15% ±1% EBITDA on castings; tube remains wait-and-watch due to Chinese dumping. (R. V. Gumaste)

• Volume Guidance for Remaining Nine Months

  • Question: What volumes are expected for pig iron, castings, steel, and tubes in FY27? (Dhruvesh Kanakia, Antique Stockbroking)
  • Answer: Pig iron close to 7,00,000 MT; castings ~1,88,000 MT (>15% growth vs 1,62,000); steel external sales 1,00,000–1,10,000 MT (>20% growth vs 84,000); tubes at least 10% volume growth. Overall ≥15% volume growth, with price support giving decent top-line growth in Q2–Q4. (R. V. Gumaste)

• Medium-Term Revenue Target & Capacity Roadmap

  • Question: By when can we reach ₹14,000 cr revenue? What about the seventh foundry and Phase 1/Phase 2 of the two-part foundry? (Manish Goyal, Thinqwise Wealth Managers)
  • Answer: Solapur two-part foundry combined 15,000 MT (no further phase); total realizable castings capacity 2,70,000 MT in 2.5 years, 3,00,000 MT in 3–4 years with seventh foundry. Pig iron at 9,00,000–10,00,000 MT liquid metal (0.5 million MT external sales); tubes to 3,50,000 MT in 3–4 years post-expander mill; steel external sales 2,40,000 MT. One customer seeks full two-part foundry capacity — already planning additional large castings foundry. (R. V. Gumaste)

• Coke Cost Outlook

  • Question: Is the current coke cost fully priced in, or will it increase next quarter? (Sahil Sanghvi, Monarch Networth Capital)
  • Answer: Three-month coal stock; June–August will see higher costs than April–May. Coal prices have slightly corrected; blending options may mitigate the peak. (R. V. Gumaste)

• CapEx Program

  • Question: Will CapEx be ₹600–700 cr per annum or higher? (Sahil Sanghvi, Monarch Networth Capital)
  • Answer: FY27 CapEx in ₹600–700 cr range; will rise as large projects trigger (Hiriyur ₹130–140 cr in 9 months; steel and expander mill ~20–22 month programs). ₹3,000–3,500 cr total over next 4 years. Green power spend slowing due to regulatory constraints (unless battery storage scales; starting with 50–70 MW). (R. V. Gumaste)

• Tube Market Dynamics & Strategy

  • Question: What is the demand scenario and limitation to growing high-margin tube products? (Sahil Sanghvi, Monarch Networth Capital)
  • Answer: Oil & gas activity subdued, exports affected; auto/tractor/ bearing markets strong but low-yield for tubes. Internal measures: higher processing capacity for oil & gas tubes to exploit 3–4 month project windows, in-house premium couplings, portfolio expansion from 10 inches to 18 inches (expander mill, 2 years) to address additional 40% of market. Expect orders to flow as high fuel prices and Middle East reconstruction trigger demand. (R. V. Gumaste)

• Power Cost Savings & Regulatory Impact

  • Question: Net-net, will annual power costs still rise given higher gas prices and regulation change? (Anurag Patil, Quest Investment Managers)
  • Answer: Solar + wind combined expected to yield ₹70–80 cr annual benefit (solar ₹35 cr, wind ~₹30 cr). Seasonal effects: wind peak in June–September, solar low in same months; commissioning in September misses peak season but still delivers 30–40%. Koppal fully covered by waste heat recovery; Maharashtra needs alternative fuels and battery storage to achieve 5–6% power cost at company level. (R. V. Gumaste)

Key Takeaway

Kirloskar Ferrous Industries delivered a mixed Q1 FY27: castings volumes surged 19% on robust tractor/auto/earthmoving demand, while tubes fell 14% on weak oil & gas exports, and pig iron external sales dipped 3% on higher internal consumption. EBITDA came in at 12–13%, compressed by ₹58 cr of power & fuel cost inflation (LPG cost doubling in Solapur, coke price surge) and regulatory headwinds (green power window cut from 17 to 8 hours, power trading ban). Management guided to ≥15% volume growth for FY27 with castings at ~1,88,000 MT and steel external sales up >20%, supported by an emerging pig iron price recovery — international pig iron firming, 30,000 MT of exports at better realizations, and reduced coke dumping. Strategic execution continues through a ₹3,000–3,500 cr four-year CapEx plan: Rajpura and Solapur foundry expansions taking castings capacity to 2,70,000 MT, Hiriyur pig iron upgrade to 3,60,000 MT, Jejuri rolling to 25,000 MT/month, and the Koppal steel plant plus Baramati expander mill for 18-inch tubes. The company targets ₹14,000 cr revenue in 3–4 years. Key watch points: successful price pass-through of cost increases in Q2–Q3, tube market recovery from ONGC/Oil India order execution, and mitigation of elevated power & fuel costs through battery storage and alternative fuels.

Transcript incomplete - detailed financial statements (P&L, balance sheet) not available for summary; only management commentary and Q&A covered.