Indian Metals & Ferro Alloys' MD Subhrakant Panda speaks about the company's new greenfield smelting capacity in Odisha to cater to rising demand for stainless steel. #BQLive
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00:00 Hello and welcome to BQ prime. I'm your host, Vikas Shrivastava.
00:05 Indian Metals and Ferroalloys is India's largest producer of ferrochrome. Ferrochrome, which
00:12 mostly goes into the stainless steel industry, basically to provide anti-corrosive strength
00:18 to the stainless steel. The company also has integrated mines, which is a chromite mine
00:24 and it is a ore which goes towards the production of ferrochrome. Today we have with us Mr.
00:29 Subrakanth Panda. He is the managing director of Indian Metals and Ferroalloys. He will
00:34 take us through the company's expansion plans, the financials, as well as the way ahead.
00:40 Welcome to BQ prime, Mr. Panda. Thank you, Vikas.
00:43 Yeah, so basically I wanted to understand what is the reason why you being the largest
00:49 player in the country, there are so few players in the country, especially when the demand
00:54 is so high in the automotive grade stainless steel as well as other stainless steel. When
00:58 we look at globally, most of these sectors are using now stainless steel. Why is it that
01:03 India hasn't picked up that well and why there are so few players in this segment?
01:09 So Vikas, as far as ferrochrome is concerned, it's a very capital intensive industry in
01:15 the sense that to be globally competitive, you not only have to invest in the actual
01:21 smelters, but ideally also backward integrate into power and the major raw material, which
01:27 is chrome ore, as you just mentioned. So A, it is capital intensive and B, as far as chrome
01:34 ore mines are concerned, nowadays they are allotted through the auction process. And
01:39 actually there isn't that much chrome ore in the country if I look at it from that point
01:43 of view, because Odisha has 98% of India's chrome ore deposits. And those are the mines
01:50 in Sukinda, the only ones today which are operational in the country. At one point in
01:55 time, there used to be many smaller players, but their ability to survive is impeded by
02:03 the fact that this is a cyclical industry. And furthermore, as you said, if you're not
02:07 backward integrated, then you can't really manage in this industry. That is how gradually
02:14 there has been consolidation. And we account for about 20 to 25% of the output. And there
02:19 are, of course, a few other players.
02:21 Right. So we have 20% of the total production of the ore that happens or the ferrochrome
02:28 that happens in the country. So how the other 80% is met? Is it basically through imports
02:33 or are there other smaller players who are meeting up this 80% of the requirement?
02:37 Well, actually, there is very little import of ferrochrome. It's only some speciality
02:41 grades which are not produced in India, because again, the ferrochrome which is produced is
02:46 dependent upon the ore which is available. So certain speciality grades like ultra low
02:51 phosphorus etc, which cannot be produced with Indian ore is what is imported. But other
02:56 than that, there are several other producers who make ferrochrome in the country. But over
03:04 the years, what has happened is that the smaller players have sort of fallen by the wayside.
03:09 And I think the final straw on the camel's back was really COVID. Because at that point
03:15 in time, and in fact, leading up to COVID actually, not so much COVID, but leading up
03:18 to COVID, because there was a lot of cyclicality or low prices arising out of the US-China
03:27 trade crackers at that point in time. So the balance sheets were quite stretched of a few
03:35 of the producers. And during the COVID period, until at a later stage, when really the stimulus
03:41 measures kicked in and helped the infrastructure and thereby commodity industry, anybody who
03:46 was who had a stretched balance sheet was not really able to survive. So a lot of consolidation
03:51 has really happened in the COVID period. And that's where we stand today.
03:55 Okay, so you spoke about consolidation. Is there a plan where you're looking at acquiring
04:00 some of these players which had, like I know, not a good time in this period, if you're
04:05 looking at any kind of mergers and acquisitions?
04:08 So we are always open to all opportunities that come our way. But at the end of the day,
04:14 it has to make sense, both in terms of a strategic fit, as well as the valuations. So for the
04:20 moment, what we are actually doing is focusing on greenfield expansion. So as you know, we
04:25 are currently producing about 240 to 250,000 tons of ferrochrome per annum. And that is
04:33 backed up by 0.6 million tons or 6 lakh tons of chrome ore raising. So we have already
04:38 embarked upon increasing our mining output in two stages. In the first stage from 0.6
04:45 million tons to about 0.85, 0.9 million tons, and to consume that ore, because we clearly
04:52 follow the principle of value addition, which is, I think, beneficial for the country as
04:57 well as for us, because there is much more sense in doing so. So to consume that extra
05:04 3 lakh tons of ore, we are adding 100,000 tons of smelting capacity in Kalinga Nagar
05:11 in Jodhpur district of Orissa. And in a second phase, we will further increase the ore output
05:16 from 0.85 or 0.9 million tons to about 1.2 million tons. And we will be adding another
05:22 100,000 tons of smelting capacity, but that's phase two. So at the moment, phase one is
05:28 going from 0.6 million tons to 0.9 million tons of ore, and from 250,000 tons of ferrochrome
05:34 to 350,000 tons of ferrochrome. And the other interesting thing that we're doing also, is
05:40 that we are on the verge of tying up hybrid renewable power for our expansion project,
05:45 because that will help our decarbonisation plans.
05:49 So what is the kind of timeline that you're looking at, one on the first phase and then
05:53 the second phase that you spoke of?
05:55 So as far as the first phase is concerned, the mining activities are already underway,
06:00 and we will look to time the increase in ore output to when we are able to consume that
06:05 captively. As far as the furnace expansion is concerned, the land allocation is in place,
06:12 and we have in fact successfully concluded the public hearing. We are awaiting the environment
06:18 clearance and as soon as that comes through, which will probably be in the next month to
06:23 two months at the most. So perhaps by the end of November or early December is when
06:27 we look to start construction of the furnaces. And we will commission the first furnace around
06:37 June of 2025, with the second one following shortly thereafter. And as I said, the ore
06:42 output, the increase in ore raising will be timed to when the furnaces come online.
06:49 So there'll be, in terms of capacity of these furnaces, in terms of MVA, would be how much?
06:54 So we're looking at 236 MVA furnaces, which are capable of producing about 50,000 tonnes
07:00 of ferrochrome each.
07:03 So in terms of timeline, you said roughly around FY26 is when you're looking at?
07:09 Yes. And what's the kind of investments that will go into this?
07:13 So let me categorize the investments into two folds. First, as far as the furnaces itself
07:19 are concerned, we will be spending around 550 crores or thereabouts, including land
07:26 acquisition costs, which have already been paid and all of that. As far as the ore expansion
07:33 is concerned, that is a much larger amount we are looking to spend around 1000 crores
07:38 or so. And that will be spread out over six to seven years. Because do keep in mind that,
07:44 you know, unlike furnaces, which are modular, that you can put up one furnace after the
07:49 other, as far as mining is concerned, especially since we are going underground, and by the
07:54 way, we operate the only underground chromite mine in the country. So when you're adding,
08:01 increasing your ore raising capacity back to underground, you have to design the shaft
08:06 and decline, etc, all of that for the ultimate capacity. So we are really investing to ultimately
08:11 get to 1.2 million tons, although we will be getting there in two stages. So to summarize,
08:17 around 550 crores for the two furnaces, which we have already, some of it has been incurred
08:24 in the last fiscal, some of it we are in the process of incurring now, and this will be
08:29 spread out really over two years or so. And the 1000 odd crores that we're looking to
08:34 spend for our increasing our ore raising capacity, that will be over six to seven years.
08:40 Six to seven years. So by 2030 is what you're looking at?
08:43 2030, maybe 2031, something like that.
08:46 And in terms of your total reserves, you have around 21 million tons of reserve that's publicly
08:51 known figure. So how much of that has already been extracted? And what's the kind of potential
08:57 we still have?
08:59 So we started out raising about 1.5 lakh tons of ore per annum and we have gradually stepped
09:06 that up to about 6 lakh tons of ore. So while reserves are depleted in terms of the raising
09:12 every year, but equally, we also have a very clear-cut exploration policy, which is we
09:21 constantly are doing exploration to prove reserves at deeper levels. And that is where
09:29 we are quite confident of our ability to meet our higher ore requirements. As I said, ultimately
09:36 going up to 1.2 million tons per annum. In fact, we will look if we can go further beyond
09:41 that. And our two major mining leases, which are Sukinda and Mahagiri are there till 2049
09:50 and 2055, respectively. So we are very confident that we have enough reserves to meet our expanded
09:58 ore requirements through the term of the lease.
10:01 Right. One, you spoke about and you also said that 95% of your total produce is getting
10:08 exported. So what could be the reason for that? Because we still have demand within
10:12 the country also, and it's expected to further grow. So what is the reason that we are looking
10:17 only at exports? If it has anything to do with margins that we get, pricing or what
10:22 could be the reason for that?
10:24 So it's nothing to do with pricing really, because this is a commodity which is so high
10:28 sold internationally, duty levels in India are down to about 5%. So there is no significant
10:35 difference as far as the realization domestically or internationally is concerned. It's a minuscule
10:41 difference. But traditionally, the Indian ferrochrome industry has exported around 40
10:46 to 50% of its output. If I talk industry wide, for the simple reason that, you know, stainless
10:52 steel was very slow in picking up production in India. And there is a reason for that,
10:58 which is, you know, stainless steel is a very niche product. To just give you an idea, carbon
11:02 steel production globally is close to about 2 billion tons, but stainless steel globally
11:07 is about 60 million tons. So it's a very niche product. And more importantly, if you look
11:13 at it from the point of view of initial acquisition cost, stainless steel is more expensive, and
11:18 therefore it is used for very specific applications. But you know, as an economy grows and matures,
11:26 when you start thinking of it in terms of lifecycle costing, which is not just what
11:30 you're paying upfront to buy that stainless steel, but the fact that it lasts much longer,
11:37 it is easily recyclable, it is low maintenance, and of course, corrosion, resistance, etc.
11:45 So if you bring in the concept of lifecycle costing, as opposed to initial acquisition
11:50 cost, then as an economy grows and matures, and people are not looking at how cheaply
11:55 can I build something, but how long lasting will it be? That's where the trend begins
12:00 to move towards stainless steel. So, Indian stainless steel production has now crossed
12:06 the 3 million ton mark. And with that, I would presume that going ahead, we will be certainly
12:14 supplying more domestically than we have until now. In fact, the expansion project that we're
12:20 putting up is in Kalinga Nagar in Jajkot district, which is really India's stainless steel
12:24 production hub. And therefore, we are ideally suited to cater to domestic demand going ahead
12:30 from this expansion project. If I were to hazard a guess, I would say in the next three
12:36 to five years, we will be probably around 30 to 40% domestic supplies. That's my forecast,
12:44 but let's see how it plays out.
12:45 Right. And who are your major buyers as of now, since you are exporting around 95%, who
12:51 are our customers that you are exporting to? And if you are looking at other geographies
12:56 also?
12:57 So our exports are primarily to the Far East, which is understandable both from a logistics
13:02 point of view, as well as the fact that Far East is again, where the bulk of stainless
13:08 steel is produced worldwide. So, our largest consumer is POSCO in South Korea, where we
13:16 also have a very successful joint venture with them to produce ferrochrome and supply
13:21 to their Pohang works. But that apart, we have long term contracts with large buyers
13:27 in Japan, in Taiwan, we do supply occasionally to Indonesia and some quantities to China
13:34 as well.
13:35 Okay. One application as we got to know stainless steel, stainless steel mostly one that goes
13:41 towards the household utensils that we commonly associate with. But in Europe and other places,
13:48 we have also seen automotive grade stainless steel being used now, even in aviation sector
13:53 and other construction areas also. So, are you looking at tie up with other players also
13:59 where the requirement or sectoral specific requirements would increase going ahead?
14:04 So, you know, broadly, actually, when you talk about stainless steel being used in utensils
14:10 in India, that's a very low tech, low grade application. But really, the use of stainless
14:17 steel is in I mean, anywhere you need corrosion resistance. So, in coastal cities in you know,
14:25 public infrastructure today, for example, in Mumbai, a lot of stainless steel is being
14:29 used because being on the coast, otherwise, if you use carbon steel, it could corrode
14:34 and that would require high maintenance. But that apart, there are certain specialty applications
14:40 in space and defense in marine oil and gas, etc.
14:46 Now, from our point of view, really, again, you have to look at that and Ferrochrome as
14:52 more as a commodity. Of course, there are certain specifications, whether it is phosphorus,
14:57 whether it is other elements that have to be controlled. So, yes, what we are looking
15:02 to do is replicate our long term relationships. So, you know, our sales model is that we very
15:11 rarely look at spot sales in terms of, you know, small tonnages, etc. We prefer longer
15:17 term contracts, whether one year or three years or longer, where of course, the Ferrochrome
15:23 is priced every quarter, because that is generally the principle in Ferrochrome industry that
15:31 the pricing happens every quarter, exception is China where they have monthly pricing.
15:35 But our approach has always been that we prefer stability over short term gains. And therefore,
15:43 whether it is the joint venture with POSCO, or whether it is our other long term contracts,
15:47 they have an assured supply, we have an assured offtake, and we rely on our long term relationships
15:54 to price every quarter in a manner which works out for both sides. And I'm glad to say that
16:01 we have been very successful in taking these relationships and, you know, in many cases,
16:06 we have dealt with customers for two decades or three decades. And I think that speaks
16:10 volumes of our commitment, as well as the customer's commitment to keep this going.
16:15 Right. A couple of more questions, one on your financials, and also a little bit on
16:20 your debt side, you said that till now you've been debt free. But for your expansion, as
16:25 you mentioned around 1500 crore rupees, would you be looking at leveraging yourself a little
16:30 bit going ahead?
16:32 So you know, we have focused very strongly on having a balance sheet which can sustain
16:41 our growth plans. And that is what worked in our favor during the COVID period, where
16:47 our debt levels were already low to begin with, we were, if I recall correctly, around
16:51 0.35 debt equity at that point in time. But I mean, obviously, through the COVID period,
16:58 given the stimulus measures that India and other countries undertook, primarily in terms
17:03 of infrastructure development, that worked out very well for the commodity industry.
17:09 And we had record profitability in FY 22. And based on that, we have been able to completely
17:16 pare down our debt. So we are, we don't have any long term debt on the books. And that
17:22 is something that is very handy at a time when interest rate cycles around the world
17:26 are increasing. And that has helped us with our margins, protecting our margins as well.
17:33 That apart, we are also expecting a substantial inflow into the company, because we had a
17:38 coal block allotted to us, which was cancelled in 2014. You know, when the whole en masse
17:43 cancellation of coal blocks happened on the orders of the Honorable Supreme Court. So
17:47 that has finally been allotted to a new company. And we are expecting in the next couple of
17:55 months to get our investment back, which will be upwards of 400 crores. So that will add
18:01 substantial strength to our balance sheet. So to specifically answer your question, even
18:07 though we have about 1500 crores of CapEx lined up, first and foremost, it is spread
18:13 out over seven years. Second, we have substantial cash on the books to meet this expansion CapEx.
18:23 And thirdly, of course, on a running basis, we will be generating surpluses as well. Having
18:27 said that, even though we don't technically need to take debt on the books, but for strategic
18:33 financial reasons, we might choose to take a little bit of debt, counterbalanced with
18:38 enough, you know, reserves or investments to ensure that we are absolutely on solid
18:45 grounds. If there is anything that I have learned in my three decades in the business,
18:49 that to be successful in a commodity business, which is very cyclical, and you know, there
18:53 is nothing you can do about the cyclicality. Right. But what is very clear is that you
18:58 have to have the scale, which we do and we are expanding further, you have to be backward
19:02 integrated so as to have costs under control. So the cyclicality means that your margins
19:08 may compress and expand, but you are never really under threat, so to say. And thirdly,
19:16 of course, is to keep debt under control. And that is where, you know, what was once
19:21 one is to one debt equity would have been considered very, very good, in fact, but we
19:27 are extremely clear that we don't want to have too much debt on our books. And in my
19:33 mind, it is the debt to EBITDA, which is more relevant than debt to equity, because I mean,
19:38 EBITDA can fluctuate a little bit based on which cycle of the market that we are in.
19:44 And also your quarter one compared to last year, you know, year on year, slightly dipped.
19:50 So what could be the reason? Is it that you had a very good quarter in the previous year?
19:54 So that is partly the reason. You know, the point I'd like to explain here is how the
20:00 commodity industry, how Ferrochrome in particular works. See, what happens is that there is
20:05 a time lag between the pricing of the finished product and the raw materials. So what basically
20:10 happens is you have super margins at a time when Ferrochrome prices have run up, but raw
20:17 material prices have not caught up. And conversely, when you have Ferrochrome prices correcting,
20:23 but the raw material prices take time to correct, that's when the margins start getting compressed.
20:28 Now, we have one advantage, which is a very strong one, which is that Crowmore is under
20:33 our control. So that is not subject to fluctuation. So that is a significant advantage. But if
20:39 I were to give you an example of the last quarter results as compared to the corresponding
20:45 quarter, you know, we are at that point in time, we were consuming metallurgical coke,
20:51 which is the other major input. So it's Crowmore, electricity and metallurgical coke. So two
20:57 things. First of all, metallurgical coke at that point in time was being consumed, which
21:03 had been bought at a price of about $430 odd. In the ongoing quarter, we are consuming metallurgical
21:10 coke, which was bought at about $360 odd. And by the end of the year, we will be consuming
21:16 metallurgical coke, which was bought at about $320 or so. So you can see the steep correction
21:22 in in met coke prices. So that is one explanation. And of course, as you know, thermal coal prices
21:28 had also significantly gone up last year. But this year, there has been a lot of focus
21:33 by the government to ensure that coal output meets requirements. And therefore, thermal
21:39 coal prices are under control. And our power generation costs have therefore come up substantially.
21:46 So in the second half of the year, we again expect to have good margins. So on average,
21:52 I would, you know, I would work with about 25% EBITDA margins for the company that can
21:57 go up a little bit in an up cycle and correct to about 18% to 20% in these sorts of scenarios.
22:07 Okay, one last question on overall, how do you see the outlook for the industry, for
22:12 your industry, especially?
22:14 So you know, that's a general question, which I would answer generally as well as specifically.
22:21 I'm very sanguine about ferrochrome, because globally, I think there is a good demand for
22:29 ferrochrome on account of stainless steel production being good. At this point in time,
22:35 there are some concerns about, you know, China having slowed down and therefore, stainless
22:40 steel output was off a little bit. But China is looking at corrective measures, they're
22:45 looking at some measures to support the economy, which is why you have seen, you know, there
22:50 being a little bit more positivity. But what I'm really more excited about is where India
22:56 stands now. Because very clearly, I think India is the next engine of global growth,
23:02 thanks to conducive policies, you know, ease of doing business measures, which the government
23:08 has undertaken and all of that. And more importantly, the immense expenditure in infrastructure,
23:16 which is taking place at this point in time, part of that is certainly going to be consuming
23:21 stainless steel. And that is where we see a very, very bright future for stainless steel
23:26 in India and converse and therefore, for ferrochrome. But if I were to answer about the outlook,
23:34 I think it also depends how you are positioned in the industry. Because for a fully integrated
23:39 producer like ourselves, and that too with zero debt on the books, I think the outlook
23:43 is very different to someone who either does not have access to captive ore, or has, you
23:50 know, large debt on the books. So I think, you know, generally, I'm very, very bullish
23:57 and positive about ferrochrome and especially where we stand, where IMFA stands. But I think
24:04 to each his own in terms of how they have approached their business plans for the sector.
24:13 Just a complementary question. South Africa is believed to be the largest producer of
24:18 ore, right? So would you be also in some time in future, be looking at some of the mines
24:23 acquisition of mines in South Africa?
24:26 So South Africa has 80% of the world's chrome ore reserves. At one point in time, they were
24:33 the largest producer of ferrochrome in the world. But they have now been upstaged by
24:38 China. And South Africa has had lots of issues, both in terms of, you know, their general
24:46 operating environment, as well as the fact that electricity in particular has been a
24:52 cause of concern. And, you know, for most of the last year, they've had stage four,
25:00 stage five load shedding, as they call it, which is obviously caused a lot of concern
25:09 and raised their operating costs. So while we are always open to acquisition opportunities,
25:16 but South Africa is not a geography that we are actively looking at this point in time.
25:22 Thank you very much, Mr. Panda. It was our pleasure talking to you.
25:26 [MUSIC]
25:33 [END]