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%.
Followed by the shutdowns mentioned earlier in the thread, ferrochrome realizations have now reached at the yearly high levels. Given that the RM costs have not increased in this timeframe, next few quarters should see significant better profitability.
If this gets imposed, South African ore prices will move upwards, which will further elevate the cost of RM for China- the largest manufacturer of FeCr as they import 80% of their RM- ore, from South Africa.
This in turn will increase the Ferro chrome prices for the industry due to this cost push.
IMFA gets benefitted as its FeCr prices are globally derived while its RM is procured captively- so leads to further margin increase.
IMFA completes acquisition of long awaited Tata furnace. Post this, their sales volume will be doubled to 0.5 Million MT over the next two years! Management targeting 4L MT volume next year itself- volume growth of ~50%. With the current spreads, the inorganic capacities payback is <2 years!
Company looks to be at a very interesting juncture. Back of the hand very rough calculations at 4 Lakh tons volume in FY27 and 4.75-4.8 Lakh tons volume in FY28 at an EBITDA per tonne range of 20k-22k brings out an EBITDA of 950-1050 Crores in FY28 if the Ferro Chrome prices stay stable. Any uptick in the global ferrochrome prices as the situations is turning out to be, can be a cherry on top.
A very interesting indication to the acquisition was them suddenly raising the inventory few quarters ago to record high and now they’ve clarified that the chrome ore requirements will also be captively catered. The Ethanol project wasn’t a very interesting part to me personally but overall things seem to be working out quite well with favorable demand supply scenarios globally.