Kirloskar Ferrous Merges With ISMT

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00:00That's not what's happening in metals though. Metals is in focus and we're speaking today with

00:03RV Gumaste, Managing Director at Kirloskar Ferrous Industries. Mr. Gumaste, sir, very

00:10good morning to you, Mr. Gumaste. Thank you so much for speaking with us. And let's just start

00:17with the, I think, big story or the big move for you this year, which is merging your companies

00:23into a single entity in 2024. That's with Indian Seamless Metal Tubes, IMST. Tell us the kind of

00:29synergies that that creates. Yeah, we acquired Indian Seamless Metal Tubes or ISMT Limited

00:37in March 22. And immediately after acquisition, we had already announced that we would like to

00:45merge this entity into Kirloskar Ferrous Industries Limited. It makes sense because

00:50it's a forward integration for our bidder and business. We look forward more and more integration

00:56coming forward with the setting up of the steel plant in Kopal plant to supply the steel blooms to

01:04Baramati plant. I think from many angles, we are going green power in ISMT that can go for the

01:12steel making. We are looking at complete integration and bringing the value chain,

01:19starting with iron ore mining, going up to the seamless tubes. I think it makes good sense to

01:26merge these entities. And then at the earliest opportunity, we went ahead and merged.

01:32We had confidence on turning around this company and we could turn around the ISMT to profit in

01:40first quarter. And we had no doubts that it's a valuable asset to

01:47run it as an integrated entity within Kirloskar Ferrous Industries.

01:53Tell us about, you talked about the green energy in ISMT helping. Tell us about the

01:58solar project, which allows power cost reductions. What is that pegged at for the combined entity?

02:06See, we are looking towards the opportunities on solar and wind, complete green energy,

02:12not only from the cost angle, cost is very important. And today, solar and wind have

02:20become competitive. But we have huge commitment to going green, reducing carbon emission,

02:27and to take the steel to green steel manufacturer. I think from both aspects,

02:35I think it makes a huge chance to expand our green energy footprint. We have gone ahead with

02:42the 70 megawatt first and half of it is commissioned. The balance 35 megawatt will

02:48get commissioned in October, November. And by the year end, we will go to 100 megawatt. I think we

02:55have already contracted to complete 100 megawatts before the end of this financial year. Going

03:02forward, we would like to expand to whatever level we are allowed to use the green power,

03:10especially the solar. I think today's regulations permit us to go up to 74% of our requirement.

03:17And we are committed to moving in that direction. We have already started investments into wind

03:23power as well, because these are complimentary. You know, the monsoon months, we generate more

03:30wind power and less solar power. We would like to bring that blend so that we increase our share of

03:39green energy in the total energy consumption in steelmaking.

03:44What is the kind of impact that we will see on margins as these green energy initiatives

03:52help reduce costs and by when?

03:55I think it's quite dynamic when we are looking at the opportunities to cut cost.

04:01Customers are also looking at how our cost can come down and they can get the benefit.

04:07I think it's going to be a very, very substantial impact. Currently, we are at

04:15power and fuel cost of 15-16% and we intend to take this power and fuel cost

04:23down to 6-7% over the next 2-3 years.

04:29You know, I just want to understand your production targets right now, Mr. Kumar

04:34and you know, if you are seeing any impact in what we've seen in commodity prices.

04:39Overall, we've seen commodity prices zoom because of what we've seen in China in the last couple of

04:45days, the cycle might improve and increase. What is the kind of impact you see for you?

04:52Now, the first part I will cover first, you know, the commodity cycles you have seen last 2-3 years,

04:58there's no bottom at all and it just kept going down. Even though the input raw materials did

05:04not go down that much but the metals prices went down and we were keen on to see where it stops and

05:11we get some support. I think last maybe one week or so, we see some support coming for the steel

05:20scrap as well as for the metals and pig iron and steel and I would see end of the monsoon should

05:28improve the construction activity across India and some demand for the iron and steel should revive.

05:37I think that support is very essential because really the metal prices have gone down especially

05:44the iron and steel. So, what is the kind of price bump up that you expect? Right now, I am able to

05:52see on the pig iron and steel about 2000 rupees per ton support coming. How much will sustain,

06:00whether it will further go up, we have to wait and watch. No impact on demand as a result of that?

06:06The demand rather, you know, whenever there is a price increase, it's a clear indication of

06:13demand improvement. So, I expect that with the price improvement, the demand improvement will

06:21also happen and we should be able to sell all our products and run all the three furnaces full blast.

06:29Let me come to the targets, guidance and targets that you have set out for FY25, Mr. Kumaste. So,

06:36your production capacity target for pig iron, for example, is at 1.5 lakh metric ton,

06:40volumes of 54,000 to 55,000 metric ton per month. Are you on track to achieve this for

06:46this financial year? We got some setback in the quarter one, but quarter two, quarter three, I see

06:54alignment in the volumes. We are running all the blast furnaces and we are able to sell. But this

07:021,50,000 sales now includes the sale to ISMT Steel Plant, Jejuri. So, our external sales of

07:12pig iron today is of the order of 43,000 metric ton per month because after the merger,

07:20the ISMT sale is internal transfer. Okay. And in terms of guidance for casting and tube,

07:28are those also on track? I think there has been a smart improvement, especially for us

07:36in the casting business. The demand has improved. Though, you know, auto industry and tractors

07:42are subdued. But so far, we have been able to hold on to the volumes, improved volumes in quarter two.

07:50And we are looking forward that with the festive season, some support should come and quarter

07:56three and four should become better. And except the quarter one volume, what went low,

08:02other should get normalized and we should go closer to the targets.

08:06Are you seeing a pickup in quarter two volumes in the auto space?

08:12Yeah, definitely. Definitely much better than quarter one. And there have been very big

08:19challenges on sustaining those levels. But as you know, we are into very special castings and

08:27not general products. And we are finding slightly better volume stability than

08:33actual market condition. Okay, thank you so much for speaking with us.

08:37R. V. Gomaste, the Managing Director at Kirloskar Ferris.

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