Global FeCr supply cuts: South Africa accounts for ~20% of global FeCr production. Three players account for the majority of the supply: Samancor (1.5 MT), Glencore, and the Glencore-Merafe JV (1.5 MT). Over the last two months, Glencore has shut down all of its furnaces and ceased production of FeCr (earlier 8 lac MT and now 7 lac MT). This reduces ~10% of the global supply for FeCr! Such supply cuts mark the bottom of a commodity realisation as these capacities are relatively efficient because of captive chrome ore.
IMFA could be a direct beneficiary of an increase in FeCr realisation, as it is completely backwards integrated in Chrome ore and Electricity, the two most important costs for manufacturing FeCr. The ongoing greenfield capex of 1 Lac MT will provide 40% volume growth. Its balance-sheet has transformed from INR 700 Cr net debt to INR 800 Cr net cash over the last four years, which would help in funding the expansion from internal accruals. It currently trades at 10 year median EV/EBITDA valuations of ~5x and cashflow yield of 15%.
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