Ferro Alloys Sector Report 2May08

8/14/2019 Ferro Alloys Sector Report 2May08

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Friday 2, May 2008

METALS S E C T O RSECTOR REPORT

FFFFFerro alloyserro alloyserro alloyserro alloyserro alloys

AMBIT CAPITAL

Analyst

Salil UtagiTel.: +91-22-3043 [email protected]

Bikash BhalotiaTel.: +91-22-3043 [email protected]

Beneficiary of steel boomBeneficiary of steel boomBeneficiary of steel boomBeneficiary of steel boomBeneficiary of steel boomFerro alloys, which are a key input in steel manufacturing, have been a huge beneficiary of ongoing

steel cycle. While the prices of steel have increased in the range of 20-60% in last year, prices of

domestic ferro alloys, which are used as de-oxidant and as a catalyst for imparting alloying properties

to special steel, have risen in excess of 100% during the same period. As a result, many ferro alloys

producers, who were under BIFR since 2002 steel meltdown, have again come in the black and have

decent balance sheet size to undertake further capacity expansion.

Investment Rationale

$492bn of infrastructure spending to drive steel demand: As a result of planned investment

of $492bn in infrastructure activities in 11th five-year plan, domestic consumption of steel is

expected to increase at a CAGR of 10.2% until FY12E to reach 70mn tons. Subsequently, we expect

domestic demand for ferro alloys to increase to 2.75mn tons by FY12E from 1.3mn tonne in FY06

at a CAGR of 13.3%.

China factor - Export to remain a major growth driver: Indian export of ferro alloys mainly to

China & Japan, grew steadily from 18.4% of production in FY02 to 27.6% of production in FY06. We

expect exports to sustain at ~25% of production to reach size of 0.9mn tons by FY12E.

Global supply uncertainty to keep prices afloat: Although prices of ferro alloys have risen in

excess of 100% in past one year, they are expected to remain buoyant because of growing supply

uncertainty. Major factors contributing to the uncertainty are insufficient capacity augmentation,

power shortage in S Africa, port congestion in Australia, and rising raw material prices.

Captive raw materials and power - Secured input at low cost: Captive supply of raw material

and power are the key success factors especially for a power intensive industry in a rising raw

material price scenario. With abundance of raw material (Cr ore, Mn ore and coal), and enabling

policy environment (New mining policy, captive plant), Indian companies are steadily stabilizing

their business model by focusing on strengthening of their captive resources.

Riddance from BIFR - Freedom for capacity expansion: Major ferro alloy producers, who had

entered BIFR in last steel downturn, have come out of it on the back of improved financial performancein recent past. This would enable them to undertake capacity expansion projects with ease.

Impact of import duty cut on domestic industry: The govt has scrapped import duty on ferro

alloys on an immediate basis on 29th Apr 08. We don't see any major impact on domestic ferro

alloy industry (imports are just 5% of total consumption)as demand-supply gap is favorably tilted

towards the suppliers. Also, looking at supply constraints faced by the global ferro alloys industry, we

don't expect imports to start in a major way.

We are positive on the prospects of the industry and believe that merchant players like Rohit Ferro,

Maharashtra Elektrsmelt, Nava Bharat Ventures, Ferro Alloys Corp, and Indian Metals and Ferro

Alloys with raw material and power supply linkages would benefit from the buoyant environment.

We dont have a rating on any of these companies.


2/25

SECTOR REPORT 2 MAY 2008 2

Ambit Capital Pvt Ltd. Ferro Alloys

Ferro alloys - Derived demand driving price

Steel industry in the country is one of the biggest beneficiaries of ever-increasing focus on infrastructure,

which has been identified as a key thrust area to sustain economic growth at 8-9%. This, in turn, has

increased demand for steel inputs, raw material and related products, which have resulted in

doubling of prices in past one year. Ferro alloy is one such industry, which have witnessed a hike of

70-150%, having benefited from robust domestic and export demand. We expect the robust appetite

for ferro alloys to continue owing to continued buoyancy in steel demand both at home and away.

Application of ferro alloys

Ferro alloys are a key input in steel manufacturing, used for imparting alloying properties and as de-

oxidant.

Application of ferro alloys

Source: Industry

Ferro alloys - Capacity in India

India is one of the 10 largest producers of the ferro alloys in the world. Most of the facilities are

located close to the mines in Orissa, Andhra Pradesh,Chhattisgarh and Goa. Ferro-Manganese

dominates the overall supply situation in the country with ~61% share while FeCr and FeSi contribute

the rest. Noble ferro alloys have marginal presence with 1% share of the total.

Break-up of ferro alloys production capacity in India - 2007

Source: Indian ferro alloys producers' association

Alloy Property Products Application

Cr Alloy Corrosion resistance,Passivity

Stainless steel, Alloy steel, Toolsteel, High performance steels

Architecture, Automotive, Cutlery, Medical

equipment, Watches, Mechanical tools anddies

Mn Alloy De-sulphuring, de-

oxidizing, Corrosion

resistance, Durability

Cryogenic steel, 200-series

stainless steel, Carbon steel,

Mild steel Construction, Automotive, Pipes

Ferro Silicon De-Oxidizing, Improves

oxidation at high temp,

Graphitizer, Magnetism,

Hardenability

Carbon Steel, Stainless steel,

Heat resisting stainless steel,

Electrical steel

Construction, Automotive, Lamination core for

transformers, rotors

Mn Alloys

60.2%

Cr Alloys

32.5%

Fe-Si

6.1%

Noble Alloys

1.2%


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China, 36.4%

Japan, 8.9%

USA, 7.3%Russia, 5.4%

India, 3.9%

Others, 38.0%

Buoyancy in steel industry driven by China

China factor - Key growth driver of steel demand: World crude steel consumption increased

at a CAGR of 7.8% during CY02-CY07 to reach 1.18bn tpa in CY07. China's consumption boom

was a key driver, with China's share rising from 23% in CY02 to 34% in CY07.

Steel consumption pattern by countries - 2007

Source: International Iron and steel institute

With continued demand from China, world steel production grew from 1.14bntpa in CY05 to

1.34bntpa in CY07 at a CAGR of 8.5%. China has emerged as the largest player. With a production

of 490mntpa in CY07, China is 4x larger than the second biggest producer, Japan.

Global production of steel by countries, 2007

Source: International Iron and steel institute

Domestic demand of steel to be driven by increasing infrastructure focus: Steel industry in

India, growing at a CAGR of 10.5% from FY02 to FY06, has been a major beneficiary of huge

spending in infrastructure related activities viz. road, port, construction, power, etc. During the same

period, special and alloy steel has grown at a much faster rate of 23.2%, on account of low base and

increased awareness and uses of alloy steel in industrial applications and construction. In spite of

this, per capita consumption of stainless steel in India at 1.1kg is low compared to 5.3kg in China

and 15-20kg in developed countries, which provides scope for the growth to sustain.

C&S America3%

Middle East

3%

Africa

2%

China

34%

Rest Asia

22% EU-27

16%

Other Europe

3%C.I.S.4%

NAFTA

13%


4/25



Moreover, with $492bn of investment outlined in 11th five-year plan for infrastructure projects -

roads, ports, railways, power, urban infrastructure, buoyancy in steel demand is expected to continue.

11th five-year plan committee expects the steel demand to grow by 10.2% from 39.2mntpa in

FY06 to 70.3mntpa by FY12E. On account of low base and increased usage, alloy steel is expected

to grow at a higher rate of 12% and reach 4.0mntpa by FY12E from 2.3mntpa in FY06.

Indian ferro alloys industry - Benefiting fromboth domestic and export demand

India, being home to one of the largest reserves of Mn ore and Cr ore, is a key player in global ferro

alloy industry with 5-7% share. The industry has benefited from increased demand from steel

production, both at home and globally. While, domestic consumption of ferro alloys grew at a CAGR

of 15.6% during FY02-FY06, to reach 1.3mntpa, because of Chinese appetite, export grew at a

CAGR of 31.4% during the same period. Consequently, share of export in production increased from

18.4% in FY02 to 27.6% in FY06.

Robust production and export growth

Source: Working committee on steel

0

400

800

1,200

1,600

2,000

FY02 FY03 FY04 FY05 FY06

0

100

200

300

400

500

Total Fe Alloys (Prod) Exports


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Estimated domestic demand for ferro alloys in FY12E

Source: Ambit Capital Research

According to our analysis, domestic consumption of ferro alloys is expected to increase to 2.75mn

ton by FY12E, from 1.3mn ton in FY06, at a CAGR of 13.3%. Manganese ore is expected to form

major chunk of the demand with a share of 1.4mn tons.

Ferro alloys exports, which steadily grew from 18.4% of production in FY02 to 27.6% of production

in FY06, is expected to remain a key growth driver for domestic production. Assuming exports to

remain at FY06 levels of 25% of total production (even though growth in exports is much higher)

exports are expected to reach 0.9mn ton in FY12E at a CAGR of 12.1%.

Cumulatively, demand for ferro alloys is expected to reach 3.6mn ton by FY12E.

Analysis of ferro alloys demand: Extending theestimates to FY12E

We are analyzing demand for the ferro alloys based on the derived demand from the domestic steel

consumption. Moreover, we have assumed a certain percentage of exports of total domestic production

to arrive at the total required installed capacity by the end of FY12E. Based on the industry thumb

rules, we have arrived at different demand estimates for each type of the ferro alloys.

Crude steel production 70mn ton

Special & Alloy Steel 4.0mn ton

SS 2.0mn ton

Mn Alloys 1.4mn ton

Mn Alloy

20kg/Ton

Misc 0.5mn ton

Misc

5-10kg/Ton

Cr Alloys 0.6mn ton

Cr Alloys300kg/Ton

Other Alloys 0.05mn ton

Other Alloys20-50kg/Ton

Other alloy steel 2.0mn ton

Misc 0.2mn ton

Misc100kg/Ton

Total Alloy requirement for domestic cons

Mn Alloys 1.4mn Ton

Cr Alloys 0.6mn Ton

Other Alloys 0.75mn Ton

Total 2.75mn Ton



SS 2.0mn ton

Mn Alloys 1.4mn ton

Mn Alloy

20kg/Ton

Misc 0.5mn ton

Misc

5-10kg/Ton

Cr Alloys 0.6mn ton

Cr Alloys300kg/Ton




Misc 0.2mn ton

Misc100kg/Ton



SS 2.0mn ton

Mn Alloys 1.4mn ton

Mn Alloy

20kg/Ton

Misc 0.5mn ton

Misc

5-10kg/Ton

Cr Alloys 0.6mn ton

Cr Alloys300kg/Ton




Misc 0.2mn ton

Misc100kg/Ton

Total Alloyrequirement for domestic cons

Mn Alloys 1.4mn Ton

Cr Alloys 0.6mn Ton

Other Alloys 0.75mn Ton

Total 2.75mn Ton

Cumulatively, demand for ferro al-

loys is expected to reach 3.6mn ton

by FY12E


6/25



Global supply scenario

Cr Alloys - Production skewed in favor of South Africa, China

South Africa, home to world's 60-70% of Cr ore reserve, is also the largest producer of Fe Cr.

Moreover, two of the largest ferro chrome producing companies belongs to South Africa.

Sinosteel-

Potential acq

10%

China

13%

Kazchrome

16%Kermas

13%

Xstrata

24%

Others

19%

Sinosteel

5%

Fe Cr producer countries

Source: Heinz Pariser, estainlesssteel

Largest Fe Cr producing companies

Source: Chromenet/XSA, estainlesssteel

Russia

5%

Finland

4%

India

10%

Sweden

2%Zim

4%Brazil

3% S Africa

45%

Kazakhstan

13% China

14%

Thus, South Africa has virtual monopoly over pricing of FeCr.

Mn Alloys - Largest producer and consumer remains China

To meet growing demand from steel manufacturers, mainly China, global production of Mn alloyshas increased from 9.1mntpa in 2004 to 13.1mntpa in 2007 at a CAGR of 9.5%. China remains

the largest producer, with share in global production of Mn alloys increasing from ~30% in 2004 to

45% in 2007. Other important producer countries are South Africa, Australia, Brazil because of

abundance of raw material i.e. Mn ore.

Global ferro alloy supply constrained by a slew of factors

While during steel downturn, ferro alloy industry was facing the problem of excess supply and idle

capacity, the wheel has turned in favor of demand exceeding supply in recent buoyancy. This situation

is expected to continue for another 2-3 yrs in the least because of a mix of factors:

Insufficient capacity built-up - Because of cyclical and capital intensive nature of the business,

capacity addition in ferro alloys is generally at a lag to demand. Although, major producers

have announced significant capacity expansion, it would take 2-3yrs for commissioning, until

which time demand would continue to exceed supply.

South Africa power shortage - Because of continuing demand from both household and industry

and lack of proportionate addition of power capacity, South Africa, which is the largest producer

of FeCr, is facing power shortage. Energy intensive industries like ferro alloys have been the

most affected, thereby reducing world's supply of Fe Cr.

Port congestion in Australia - Australia has one of the largest reserves of Mn ore and coal in the

world. However, because of problem of port congestion in the country, export of these mineral

resources to producer countries have been hampered.

South Africa has virtual monopoly

over pricing of FeCr.

China remains the largest producer,

with share in global production of Mn

alloys increasing from ~30% in 2004

to 45% in 2007


7/25



India scenario - Supply blemished by idlecapacity

The installed capacity in India for ferro alloys, which find application primarily as de-oxidant and

alloying agent in finished steel, is ~3.25mntpa. The industry is highly fragmented with >150

players, with average capacity of 20,000tpa. Many small capacity units have turned uneconomical

due to high power tariffs, financial crunch and lack of bargaining power with the global raw materialsuppliers. Idle ferro alloy capacity in India actually is to the tune of 15% of the total.

Marred with small uneconomical units and idle capacity

Product Installed capacity Operational capacity % Opern

# Units Cap Avg Cap # Units Cap Avg Cap('000 MT) (MT) ('000 MT) (MT)

Mn Alloys 64 1,957 30,578 55 1,671 30,387 85.4

Cr Alloys 26 1,055 40,577 22 927 42,156 87.9

Fe-Si 29 197 6,806 20 145 7,253 73.5

Noble Alloys 37 40 1,081 37 35 946 87.5

Total 156 3,249 20,829 134 2,779 20,737 85.5

Source: Indian ferro alloys producers' association

High power tariffs and scarcity of raw materials is further impacting the capacity utilization of overall

industry. On the industry level, capacity utilization is to the tune of only ~60% (FY06).

Major producers of ferro alloys

Bulk alloys, constituting of Mn alloys and Cr alloys, require larger capacity (50,000tpa and above) to

benefit from economics of scale. To correct the situation, we could see significant consolidation in

the industry, thereby reducing the number of players.

Major producers of ferro alloys

Mn Alloys Cr Alloys Ferro Silicon

Company Capacity Company Capacity Company Capacity

Maharashtra E lektrosmelt 200,000 Jindal S tainless 190,000 Balasore A lloys 37,500

Nava Bharat Ventures 125,000 Tata Steel 140,000 IMFA 32,750

Nagpur Power 77,750 IMFA* 140,000 Visvesvaraya Iron 21,000

Hira Ferro Alloys 75,000 FACOR Group 137,500 Century plyboards 10,620

Shyam Ferro Alloys 70,000 Rohit Ferro 165,000 VBC Ferro Alloys 10,000

Sarda Energy 66,000 Nava Bharat Ven. 75,000

Monnet Ispat 58,400 Shah Alloys steel 61,890

Tata steel 50,000 Jai Balaji 51,000

VBC Ferro alloys 49,000 VISA steel 50,000

Source: Capitaline,, Industry, *Indian Metals & Ferro Alloys

To meet an estimated demand of 3.6mn tons of ferro alloys by FY12E, India needs to add further

2.5mn tonnes of capacity over the next 4 years. Though many domestic and international players

have shown interest in the potential and have announced large capacity additions, majority of this is

expected to commission FY10E onwards. until then the gap between demand-supply would continue.

The situation definitely favors established large players (we have discussed some in the last section

of the report) as these companies have gained financial strength over the last 3-4 years to reach a

position to add new capacity and built on their strength in raw material sourcing.

Idle ferro alloy capacity in India ac-

tually is to the tune of 15% of the

total.

On the industry level, capacity utili-

zation is to the tune of only ~60%

(FY06)

To meet an estimated demand of

3.6mn tons of ferro alloys by FY12E,

India needs to add further 2.5mn

tonnes of capacity over the next 4

years.


8/25



0

500

1,000

1,500

2,000

2,500

3,000

Oct-05 Apr-06 Oct-06 Apr-07 Oct-07 Apr-08

0

20,000

40,000

60,000

80,000

100,000

FeSi 75% Pittsburgh FeCr China 68% FeSi 75% FOB China

75% FeMn FOB HK FeV 70-80% (RHS)

Indian Cr alloys prices (Rs/MT)

Source: Cris Infac

Indian FeMn prices (Rs/MT)

Source: Cris Infac

0

20,000

40,000

60,000

80,000

100,000

120,000

Apr-97 Apr-99 Apr-01 Apr-03 Apr-05 Apr-07

Ex-factory Landed cost

0

20,000

40,000

60,000

80,000

100,000



Buoyancy in ferro alloy prices globally

As a result of robust demand amidst factors affecting supply, prices for all categories of ferro alloys

have reached unprecedented levels.

Rising ferro alloys prices globally ($/MT)

Source: Bloomberg

Domestic prices have also risen in tandem with international prices across different types of ferro

alloys.


9/25



0

20,000

40,000

60,000

80,000

100,000

120,000



Indian SiMn prices (Rs/MT)

Source: Cris Infac

Indian FeSi prices (Rs/MT)

Source: Cris Infac

15,000

30,000

45,000

60,000

75,000



Similarly, prices of silicon alloys viz silico manganese and ferro silicon has risen by more than 100%

in past one year.

We expect the prices to remain buoyant on the back of robust demand environment and

factors resulting in supply constraints. However, policy environment is dynamic in this

sector and needs to be watched out carefully.


10/25

SECTOR REPORT 2 MAY 2008 1 0


Source: Capitaline

1) Power - A competitive disadvantage in India

The cost of power available to ferro alloys producers in India is 3-4 times higher compared to power

available to producers in other parts of the world. Because of the energy intensive nature of the

industry (3,000-4,000 units of power is required per MT of ferro alloys), ferro alloys production is

costlier by Rs6,000-8,000/MT in India on account of higher power tariff.

Reasons for higher power tariff in India could be attributed to:

1) Slow on generation: Power generation capacity has not kept pace with increase in demand

for power. Peak power shortage was more than 10% during FY08.

2) Higher proportion of inefficient plants: India's installed capacity is dominated by state

electricity boards (almost 50%) which are marred with inefficiencies due to overuse and improper

maintenance. These plants bring down overall plant availability PLF and of the country much

lower than its actual potential.

3) Substantially high T&D loss: India is facing the issue of high transmission & distribution

losses; both on technical and commercial basis. Unplanned growth in distribution networks,

improper maintenance and actual theft of power are some of the factors for higher T&D losses.

4) Shortage of equipment players: Except for BHEL, India doesn't have any indigenous

manufacturer of same scale to match up the demand. BHEL is running the order book of

Rs850bn executable over next 3 years, which means its capacity is actually full for next 3 years.

The situation has led to the severe delays in some of the projects in the country.

Moreover, lack of uninterrupted power supply is another problem that Indian companies

are facing. Given these issues, captive power plant/co-generation with sponge iron is a

key success factor for Indian producers, a route which many of the companies are

adopting.

0.0

1.0

2.0

3.0

In

dia

Brazil

U

SA

SAF

Ve

nez

Norway

Canada

0.0

10.0

20.0

30.0

40.0

Power Cost (INR/unit)T&D Loss (%)

Comparison of T&D losses

Source: Tata Steel

High on power; Raw material also importantconcern

Power and raw materials are the most important cost component of ferro alloys industry, with raw

material accounting for 42% and power for 28% of the total cost.

Breakup of ferro alloys manufacturing cost (%)

0

10

20

30

40

50

COGS Power Cost Emp Cost Other Mfg Exp Selling & Adm

Exp

Misc Exp


11/25



2) Rising raw material prices - A globalphenomenon

Rapid growth in developing nations such as China and India has resulted in a huge demand-supply

mismatch for natural resources; thereby exerting an upward price pressure. The situation is also

fuelled by speculation by the traders who are betting on emerging markets growth further aided by

the depreciating dollar.

World over, natural resources have witnessed significant surge in prices in past one year. Manganese

ore and chrome ore, which are the key raw materials for bulk ferro alloys, have also witnessed

similar jump because of rising demand from ferro alloys industry. Manganese and chrome are found

concentrated in only few regions of the world namely South Africa, Zimbabwe, China, Australia,

Brazil and India. This situation leaves the scope for bargaining power with the hands of these few

countries.

Rising crude oil prices (USD/bbl)

Source: Bloomberg

Steel prices also on a rise (Rs/MT)

Source: CRIS Infac

60

70

80

90

100

110

120

Apr-07 Jul-07 Oct-07 Jan-08 Apr-08

100

150

200

250

300

350

Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08

50

100

150

200

250

Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08

China iron ore spot price (USD/MT)

Source: Bloomberg

Coke shanghai price (USD/MT)

Source: Bloomberg

20,000

25,000

30,000

35,000

40,000

45,000

50,000

Mar-05 Sep-05 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08

HR Coil CR Coil


12/25



Supply-demand situation for Mn and Cr ores

Mn and Cr ore constitute almost 40% of cost of manufacturing of ferro alloys. India has natural

advantage in this regard, as India is well-endowed with both of these mineral resources. Indis is 3rd

and 6th largest globally in Cr ore and Mn ore respectively.

Highly skewed ore concentrationHowever, these ores are not evenly distributed, with eastern states like Orissa, West Bengal, Jharkhand

and Chhattisgarh being home to a large share of reserve.

India - A geological profile of mineral ores

Source: US Geological survey


13/25



17%

6%

6%

Others, 13% China, 22%

SAF, 19%

Ghana, 4%

Gabon, 13%

Manganese ore

Owing to a confluence of factors, prices of Mn ore and Mn alloys have reached unprecedented levels

in recent past.

A few important factors adding to price hike are:

7% growth in global steel production mainly driven by China.

Mn ore industry has witnessed considerable consolidation in past one year, most of which

resulted in limiting supply to China, the largest producer as well as consumer of Mn ore

Logistics constraints - Port congestion in Australia

Increasing Mn ore prices also found support from hike in Mn Alloy prices

Mn ore in India - Large reserve, low quality, low production

India has an estimated reserve of 176mn tonne of Mn ore, an approx 6% of global reserve. However,

annual production is marginal, which prevents India from playing a bigger role in global Mn ore

trade.

2007 top 7 Mn ore producers (in Mn Content)

Source: IMnI Annual Review 2007

Mn ore 48-50% FOB Europe (US$/mtu*)

Source: Bloomberg *mtu: metric ton unit (metal bulletin)

75% Fe-Mn FOB Hong Kong (US$/MT)

Source: Bloomberg

0

500

1,000

1,500

2,000

2,500

3,000

Oct-05 Apr-06 Oct-06 Apr-07 Oct-07 Apr-08

0

2

4

6

8

10

12

14

Jun-06 Oct-06 Feb-07 Jun-07 Oct-07 Feb-08


14/25


15/25



Chromium ore

South Africa, with 70% of world's chrome ore reserve and 50% of ferro-chrome production, effectively

control the global supply of chrome ore and ferro-chrome and is a key driver of their prices.

South Africa - A Cr ore giant

Source: Industry

Supply constraint - Power crisis in South Africa

No major power generation capacity has been commissioned in South Africa in past 7-8 years and

on the other side, demand from both industry and households has been on a rise because of the

economic growth. To control the tight power situation, government has restricted electricity supply to

power intensive industries like ferro-alloy. Because of reduced supply from largest producer in theface of increasing demand from steel companies worldwide, Cr ore prices have also shoot up along

with that of ferro-chrome. The prices of Cr ore in India have risen from Rs5,000-Rs6,000/MT to

Rs14,000-Rs15,000/MT in past one year.

Cr ore in India - Attracting huge investment

Though, with an estimated 100mn tonne of Cr ore reserve, India has only 1% of global Cr ore

reserve, India is still 5th largest because of high level of concentration of ore in countries like South

Africa and Zimbabwe. Almost 99% of the Cr ore reserves of India are found in 2 districts of Orissa;

Balasore and Jajpur. Consequently, India gets advantage over other countries in proximity to China.

Because of this, many global mining and ferro-alloy companies have shown interest in setting

operation in India. Moreover, because of power shortage situation in South Africa, largest global

supplier of chrome ore and ferro-chrome, more and more consumers of ferro-alloys are looking up

to India in order to diversify their sourcing base.

SAF

71%

Finland

1%

Kazakh

7%

Zimb

19%

India

1%Other

1%


16/25



Rising input cost - Impacting the production cost

Ferro alloys, apart from being highly energy intensive, are also high on raw material consumption.

Raw material requirement per MT of bulk ferro alloys (Cr/Mn)


We have analyzed the economics of producing one MT of ferro chrome assuming latest average

price of FeCr for the month of April. Unitary costing for other ferro alloys can be done in the similar

way.

Economics of FeCr/MT

#unit/MT of FeCr Price/unit Per MT of FeCr

Sales 1.0 85,000 85,000

Raw material 46,600

Cr ore 2.3 14,000 32,200

Coke 0.6 24,000 14,400

Power 4,000 3.2 12,800

Other mfg cost 1.0 5,000 5,000

Total cost 64,400

EBITDA 20,600

EBITDA Mgn (%) 24.2

Source: Ambit capital research

Ferro alloy units without the captive resources are making 20-25% EBITDA margins in the current

scenario, which with captive resources can go upto 40%.

We have done a sensitivity analysis on %age change in production cost of ferro-chrome with change

in Cr ore and coke prices. We have found that the production cost is very sensitive to change in prices

of Cr ore, changing by 3.6% with Rs1,000 change in Cr ore price.

Sensitivity of Fe-Cr prod cost to changes in Cr ore and coke price

Cr ore price (Briquette)Prod cost of Fe-Cr 12,000 13,000 14,000 15,000 16,000

22,000 58,600 60,900 63,200 65,500 67,800

23,000 59,200 61,500 63,800 66,100 68,400

24,000 59,800 62,100 64,400 66,700 69,000

25,000 60,400 62,700 65,000 67,300 69,600

26,000 61,000 63,300 65,600 67,900 70,200


Cr/Mn ore

Molasses (Binder)

Briquettes 2.3MT

Conversion cost Rs1,000/MT of ore

Coke (Flux) 0.6MT

SubmergedEAF

Power

3,500-4,000unit/MT

Ferro Alloy

Cokeprice

Ferro alloy units without the captive

resources are making 20-25%

EBITDA margins in the current sce-

nario, which with captive resources

can go upto 40%.


17/25



What we learn from history?

While there is reason to cheer for ferro alloys industry with ferro alloys realization reaching never-

before levels, it must not be forgotten that fortune of ferro alloys industry is intrinsically linked to that

of the steel industry. Growing steel demand results in higher demand for ferro alloys as there is no

substitute of ferro alloys for imparting requisite alloying properties to steel.

However, in steel downturn, ferro alloys is also negatively impacted as 90% of ferro alloys is

consumed by steel industry. This is what happened when steel industry underwent a downturn during

FY96 to FY02. In 1996, steel prices went downhill triggered by falling domestic growth rate &

excess steel capacity and aggravated by global situation in the wake of ASEAN crisis. As industry

downturn lasted for six years till mid-2002, steel production dropped and balance sheet of producers,

particularly the then newcomers, became red. Many a companies defaulted on their loan repayment

and filed for bankruptcy.

Ferro alloys industry was also negatively impacted in the downturn, as due to reduced steel production,

demand for ferro alloys fell, resulting in excess capacity. All the erstwhile major ferro alloys producers,

Facor group, Maharashtra Elekrosmelt entered into BIFR and have recovered only recently after six

years of upswing in steel demand.

Ferro alloys industry - Turning around

As a result of downturn, by 2003, net worth of quite a few ferro alloys manufacturers was wiped out

and the companies were deep in red. Many of them filed for BIFR, including erstwhile major producers

Ferro alloys corporation, and Maharashtra Elektrosmelt. However, following a good show since

then, the industry has managed to turn around and recover the losses.

Hence, the lesson we can learn from the history is that although ferro alloys are going through an

extremely buoyant phase, the fortune of the industry is dependent on that of the steel industry. So, in

the eventuality of outlook for steel demand turning negative, ferro alloys would be accordingly

impacted.

Improved profitability helping in

Source: Capitaline

Recovering lost net worth

Source: Capitaline

-6,000

-4,000

-2,000

0

2,000

4,000

6,000

2003 2004 2005 2006 2007

(40.0)

(30.0)

(20.0)

(10.0)

0.0

10.0

20.0

Net Profit NPM (%)

0

5,000

10,000

15,000

20,000

25,000

2003 2004 2005 2006 2007

(40,000)

(30,000)

(20,000)

(10,000)

0

10,000

20,000

Capital Employed Net Worth (RHS)


18/25



Inflation above 7%: Sending cat among pigeons

For the past few months, inflation has consistently been creeping above 7% mark, creating concern

among government corners as inflation is a highly politically sensitive number. Steel and allied

products, being one of the vastly consumed products (with 6.5% weightage in the WPI basket) was

sure to be one of the products to come under scrutinizing lenses of the policymakers and other

organizations. There were demands from various political parties, builder associations and even

from the Ministry of Steel to set up a steel regulator in the country. This regulator would be assigned

powers to control the prices in the domestic market, which would have meant robbing domestic

manufacturers from the open & free market policy environment. Demands were also raised for

curbing exports of steel so as to increase the supply in the domestic market.

In turn, steel industry led by the Indian Steel Manufacturers' Association had put forth reasons behind

the price rise in every forum available; from newspapers to meetings with the governments. Shortage

led price increases in iron ore, ferro alloys and met coke, underdeveloped infrastructure and

insufficient fiscal support from the government for the steel industry were the major concerns raised

by the steel producers.

After long deliberations, the finance ministry has announced slew of measures to curb price increases

and to increase supply of steel in the country:

1) Reduce the basic customs duty on pig iron and mild steel products from 5% to Nil.

2) Fully exempt TMT bars and structurals from CVD which is currently 14%.

3) Proposal to reduce basic customs duty on three critical inputs for manufacture of steel, i.e.

metallurgical coke, ferro alloys and zinc from 5% to Nil. In the budget 2008-09, FM had

increased export duty on ferro alloys from Rs2000/ton to Rs3000/ton.

4) FM has imposed export duty on steel items at the following three different rates:

-15% on specified primary forms and semi-finished products, and hot rolled coils/sheet.

- 10% on specified rolled products including cold-rolled coils/sheets and pipes and tubes.

- 5% on galvanized steel in coil/sheet form.

We believe these measures will definitely help in easing out pressure on supply side for the short

time. But we think demand-supply situation would widen in next 2-3 years as the visibility of actual

supply coming up is far less than visibility of growth in demand.

We expect buoyancy in steel and ferro alloys products to continue or remain firm unless

of course government puts price restrictions.

Import duty on ferro alloys has been

reduced to Nil. While the export duty

on chrome ore was earlier increased

to Rs3,000/ton from Rs2,000/ton.

We expect buoyancy in steel and

ferro alloys products to continue or

remain firm unless of course govern-

ment puts price restrictions.


19/25



Prom,

44

Public,

32

FIIs

11% Corp/

FIs, 13

Nava Bharat Ventures

Nava Bharat Ventures (NBV) is a diversified company with business interest in the areas of ferro

alloys, power, sugar and infrastructure. With installed capacity of 200,000tpa of ferro alloys including

Silico manganese, Cr alloys and Mn alloys, NBV is one of the largest producers in the country. Ferro

alloys segment contributes more than 50% to the revenue of NBV.

Captive power plant, but raw materials externally purchased

The company has production facilities in the states of Orissa and Andhra Pradesh with 100% captive

power support. However, NBV doesn't have captive mine to secure supply of raw material, another

crucial input in ferro alloys manufacturing. Currently, the company procures 80% of its Cr ore

requirement from Orissa mining corporation (OMC) and remaining ore is imported. Similarly, NBV

procures 60% of its Mn ore requirement from MOIL, 15% from other domestic miners and remaining

25% is through import.

Power to energize the future

Sensing the growing energy need of the country and increase demand-supply gap, NBV has stepped

up its focus on power generation for merchant sale. The company has 144MW coal-fired power

plant and 9MW of WHRB. Around 60MW out of this is used for merchant sale. Moreover, another

84MW, 64MW in Orissa and 20MW in AP, is under construction and expected to be operational in

H1FY09. To further change the scale of power generation activity, NBV is setting up 1040MW power

plant in Orissa in two phases through a SPV, in which company has 50% stake. The company has

completed financial closure for phase-I requiring Rs42bn, in DER of 3:1, for 520MW. Moreover,

NBV has been allotted coal mine in Orissa for the power plant in a consortium with five other

companies. NBV's share in the mine amounts to 110mn tonne.

Other businesses - Infrastructure another thrust area

Apart from ferro alloys and power, NBV is also present in sugar and infrastructure. The company has

3,500tcd (tonnes crushed per day) integrated sugar plant in AP. The company also has lands in

Secunderabad and Hyderabad which it plans to develop into SEZ in a JV with Manthri developers.

Future outlook

From primarily a ferro alloys producer, NBV is increasing its focus on power generation for merchant

sale. Yet, with one of the largest ferro alloys capacity in the country, 100% captive power and secure

linkages for majority of raw material, we expect NBV to benefit from the buoyancy in ferro alloys

demand.

Company's recent financials - Q3FY08 vs Q3FY07 and 9M

In Rs mn Q3FY08 Q3FY07 YoY (%) Q2FY08 QoQ (%) 9MFY08 9MFY07 YoY (%)

Total Income 2,568 1,421 80.7 1,551 65.6 5,893 4,029 46.3

EBITDA 1,062 460.1 130.7 687.5 54.4 2,479 1,278 94.0

EBITDA Mgn(%) 41.3 32.4 44.3 42.1 31.7

Depreciation 75.9 56.1 35.3 49.0 54.9 183.2 155.4 17.9

Interest 45.4 42.3 7.3 38.5 17.9 130.6 126.0 3.7

Tax 187.3 (2.8) NA 78.3 139.2 311.0 28.6 987.4

Net Profit 752.9 364.5 106.6 521.7 44.3 1,854.3 967.6 91.6

NPM (%) 29.3 25.7 33.6 31.5 24.0

EPS 9.7 4.7 106.6 6.7 44.3 23.8 12.4 91.6

Source: Company

Price Rs253

Market Capitalisation

Rs20,274mn (US$501mn)

52 wk range H/L (Rs) 352/106

Shares o/s Daily vol

(mn) (mn shares)

77.87 0.13

Reuters Bloomberg

MAHE.BO MHES IN

Performance (%)

1M 3M 12M YTD

Absolute 19.0 8.6 133.7 (9.1)

Rel to Sens 7.6 10.7 87.3 6.5

Source: Capitaline

Not RatedNot RatedNot RatedNot RatedNot Rated

Source: Capitaline

Source: Capitaline

Shareholding pattern (%)

Price performance

Financials (Rs bn)

In Rs mn FY06 FY07 9MFY08

Total Income 4,733 5,937 5,893

EBITDA 964 1,850 2,479

EBITDA Mgn (%) 20.4 31.2 42.1

Net Profit 580 1,405 1,854

NPM (%) 12.3 23.7 31.5

Dil EPS Ann (Rs) 7.4 18.0 31.7

RoE (%) 14.2 38.7

D/E (x) 0.7 1.0

P/E Ann (x) 31.3 12.9 7.4

EV/EBITDA Ann (x) 22.3 11.6 6.5

Source: Company

12,000

16,000

20,000

Apr-07 Oct-07 Apr-08

0

750

Sensex NBVL (RHS)


20/25



Rohit Ferro Tech

Rohit Ferro (RFT) is one of the few merchant ferro alloys producers in the country. The company has

production facilities in Bishnupur, WB (4*9MVA - 55,000tpa) and Jajpur, Orissa (4*16.5MVA -

110,000tpa), which is recently commissioned. Moreover, RFT has plans to add another 9MVA

furnace in Bishnupur plant and 2*16.5MVA in Jajpur plant.

Raw material - Proximity to largest Cr ore mine

The company currently does not have captive sources for supply of raw materials. However, because

of proximity to Sukinda mines in Orissa, which has 97% reserves of Indian Cr ore, the company is

relatively insulated from the supply risk. Moreover, RFT has applied for mining lease, which, if

allotted, would not only mitigate raw material supply risk, but also result in substantial cost saving.

Power - Long term agreement with SEBs

The company has entered into long term agreements with WBSEB and NESCO of Orissa for supply

of electricity at subsidized rates. Moreover, RFT has plans to set up 110MW captive power plant tomeet energy requirement of Jajpur plant. The capital cost estimated for the power plant is Rs4.5bn,

which is yet to be tied up. The plant is expected to be operational by FY10E.

Shift in production from Cr alloys to Mn alloys in WB

Recently, RFT has shifted two furnaces in Bishnupur for production of Mn alloys from Cr alloys. This

is expected to accrue benefit to the company in three ways viz 1) Diversification of product portfolio,

2) Security in raw material supply, as Mn ore is more readily available in WB, and 3) Reduced energy

consumption and higher production as Mn alloys require ~3,200 units/MT compared to 4,000

units/MT for Cr alloys and hence higher tonnage of production for a given rating of furnace (9MVA).

Future outlook

We believe that commissioning of additional capacity would help RFT in capitalizing on gap in

demand and supply of ferro alloys in the country. Presence in Cr rich state of Orissa is a big

advantage for the company in this regard. Captive mines and power, if materialized, would be

further boost to the company's business model. Moreover,



Total Income 1,445 442.5 226.6 1,178 22.7 3,640 1,240 193

EBITDA 319.8 72.4 341.7 191.3 67.2 668.0 189.5 252.5

EBITDA Mgn (%) 22.1 16.4 16.2 18.4 15.3

Depreciation 1.9 0.5 262.3 1.4 39.1 4.7 1.3 247.8

Interest 6.8 1.4 396.4 4.8 41.4 15.8 3.8 320.2

Tax 3.2 0.4 637.2 0.8 281.9 4.7 0.7 537.0

Net Profit 200.9 49.1 309.2 121.1 65.9 416.9 131.2 217.8

NPM (%) 13.9 11.1 10.3 11.5 10.6

EPS 5.8 1.4 309.2 3.5 65.9 12.1 3.8 217.8

Source: Company

Price Rs110


Rs3,777mn (US$93mn)

52 wk range H/L (Rs) 127/29


(mn) (mn shares)

34.46 5.31

Reuters Bloomberg

ROHT.BO ROFT IN

Performance (%)

1M 3M 12M YTD

Absolute 63.1 17.0 240.9 3.6

Rel to Sens 47.4 19.3 173.2 21.4

Source: Capitaline


Source: Capitaline

Source: Capitaline


Price performance

Financials (Rs bn)

In Rs mn FY06 FY07 9MFY08

Total Income 1,469 2,036 3,640

EBITDA 168 314 668

EBITDA Mgn (%) 11.5 15.4 18.4

Net Profit 110 192 417

NPM (%) 7.5 9.4 11.5

Dil EPS Ann (Rs) 3.2 5.6 16.1

RoE (%) 27.7 21.8

D/E (x) 1.4 1.4

P/E Ann (x) 31.9 18.3 6.3

EV/EBITDA Ann (x)30.8 16.5 5.8

Source: Company

-

7,000

14,000

21,000

28,000

Apr-07 Oct-07

0

50

100

150

Sensex ROFT (RHS)

Prom,

61

FIIs, 0

Corp/

FIs, 17


21/25



Prom

75

Public

16

Corp/

FIs

8

Ferro Alloys Corporation (FACOR Group)

Facor group is one of the oldest and largest ferro alloys producer in the country. The group has three

companies, Ferro alloys corporation, Facor alloys, Facor steel, as a result of trifurcation in FY01

following bankruptcy. The total installed capacity of the group is 140,000tpa of ferro alloys (65,000tpa

of Cr alloys in Ferro alloys corporation, and 75,000tpa of Mn alloys in Facor alloys), and 50,000tpa

of alloy steel plant in Facor steel).

Ferro alloys corp - Moving towards complete backwardintegration

The flagship company of the group, Ferro alloys corporation has limited backward integration in the

form of captive Cr ore mines with reserves of 6mn tonnes and Cr ore processing facility of 300,000tpa.

However, 50% of the processing facility is dedicated to conversion of Cr ore from Tata Steel into

processed ore, as company is able to extract only 200,000tpa of Cr ore from its mines due to

technical reasons.

To move towards complete backward integration, the company is planning to set up a 45MW by Sep'09. Capital requirement of Rs2.0bn for the project is to be funded by way of DER of 4:1, out of which

debt to the tune of Rs1.0bn has been tied up with rural electrification.

Ferro alloys corporation has mega expansion plans to set up an integrated stainless steel plant of

capacity 0.5mntpa along with 250MW of coal-based power plant. However, capital requirement of

Rs25.0bn for the project, which the company want to fund by the way of Rs17.0bn of debt and

Rs8.0bn of equity, is to be tied up.


In Rs mn Q4FY08 Q4FY07 YoY (%) Q3FY08 QoQ (%) FY08 FY07 YoY (%)

Total Income 945.5 486.1 94.5 1,551.0 (39.0) 3,153 1,974 59.8

EBITDA 239.9 56.9 321.6 687.5 (65.1) 935.0 381.9 144.8

EBITDA Mgn (%) 25.4 11.7 44.3 29.7 19.4

Depreciation 23.6 21.7 8.8 49.0 (51.8) 92.3 86.5 6.7

Interest 6.0 6.9 -13.0 38.5 (84.4) 48.9 43.9 11.4

Tax 62.0 17.9 246.4 78.3 (20.8) 226.3 93.9 141.0

Net Profit 148.3 10.4 1,326 521.7 (71.6) 567.5 157.6 260.1

NPM (%) 15.7 2.1 33.6 18.0 8.0

EPS 0.8 0.1 1,326.0 2.8 (71.6) 3.1 0.8 260.1

Source: Company

Price Rs32


Rs5,936mn (US$147mn)



(mn) (mn shares)

185.8 0.89

Reuters Bloomberg

FROA.BO FAC IN

Performance (%)

1M 3M 12M YTD

Absolute 53.6 11.7 268.9 (25.4)

Rel to Sensex 38.7 13.8 195.4 (12.6)

Source: Capitaline


Source: Capitaline

Source: Capitaline


Price performance

Financials (Rs bn)

In Rs mn FY06 FY07 FY08

Total Income 1,517 1,974 3,153

EBITDA 275 382 935

EBITDA Mgn (%) 18.1 19.4 29.7


NPM (%) 7.6 8.0 18.0

Dil EPS Ann (Rs) 0.6 0.8 3.1

RoE (%) 20.4 21.2

D/E (x) 0.7 0.6

P/E Ann (x) 46.9 34.2 9.5

EV/EBITDA Ann (x) 20.8 14.9 6.1

Source: Company

12,000

16,000

20,000


0

20

40

60

Sensex FAC (RHS)


22/25



Prom

51

Public

35

Corp/

FIs

14

Facor Alloys (FACOR Group)

Facor Alloys has an installed Cr alloys capacity of 75,000tpa at Shreeram Nagar, AP. The company

does not have Cr ore linkage and depends on Ferro Alloys Corporation for processed ore or takes

conversion work from the likes of Tata steel.

Another group company, Facor Steel is the steel manufacturing company with an installed capacity

of 50,000tpa of alloy steel at Nagpur, Maharashtra. Apart from producing own steel from SS scrap,

the company also takes conversion work from MNCs. To achieve raw material security, Facor steel

has entered into long term agreements with SS scrap suppliers based out of Canada. Moreover, to

move a step closer to end customers (automotive mfrs), Facor Steel has taken a forward integration

program wherein the company is setting up a forging unit at a capex of Rs350mn, which is expected

by Dec '08.

Future outlook for Facor group

Ferro Alloys Corporation has recently come out of the grip of BIFR, which would enable the company

in undertaking capacity expansion plans. With the commissioning of 45MW of power plant, thecompany would be completely backward integrated. This will help the company in reducing input

cost and at the same time securing uninterrupted power supply. Action on Rs25.0bn capex plan to

set up an integrated stainless steel plant would provide further upside potential.


In Rs mn Q4FY08 Q4FY07 YoY (%) Q3FY08 QoQ (%) FY08 FY07 YoY (%)

Total Income 690.3 521.0 32.5 1,551 (55.5) 2,363 1,662 42.2

EBITDA 287.0 80.3 257.4 687.5 (58.3) 757.7 181.2 318.2

EBITDA Mgn (%) 41.6 15.4 44.3 32.1 10.9

Depreciation 3.5 9.0 (61.1) 49.0 (92.9) 16.1 33.3 (51.7)

Interest 2.7 6.0 (55.0) 38.5 (93.0) 14.7 23.9 (38.5)Tax 21.2 0.4 5,200 78.3 (72.9) 19.2 (5.4) NA

Net Profit 259.6 64.9 300.0 521.7 (50.2) 707.7 129.4 446.9

NPM (%) 37.6 12.5 33.6 30.0 7.8

EPS 1.3 0.3 300.0 2.7 (50.2) 3.6 0.7 446.9

Source: Company

Price Rs15


Rs2,949mn (US$73mn)



(mn) (mn shares)

196.07 1.19

Reuters Bloomberg

FALY.BO FACA IN

Performance (%)

1M 3M 12M YTD

Absolute 96.6 23.3 667.3 (8.0)

Rel to Sens 77.3 25.4 513.6 7.6

Source: Capitaline


Source: Capitaline

Source: Capitaline


Price performance

Financials (Rs bn)

In Rs mn FY06 FY07 FY08

Total Income 1,272 1,662 2,363

EBITDA 138 181 758

EBITDA Mgn (%) 10.9 10.9 32.1


NPM (%) 6.3 7.8 30.0

Dil EPS Ann (Rs) 0.4 0.7 3.6

RoE (%) 0.3 10.0

D/E (x) 0.0 0.0

P/E Ann (x) 35.5 21.8 4.0

EV/EBITDA Ann (x) 26.0 19.8 4.7

Source: Company

12,000

16,000

20,000


0

6

12

18

Sensex FACA (RHS)


23/25



Maharashtra Elektrosmelt

Maharashtra Elektrosmelt (MEL), a subsidiary of Steel Authority of India (SAIL) is the largest

manufacturer of Mn alloys in the country with 30% share of domestic market. The company has

production facility at Chandrapur, Maharashtra with an installed capacity of 200,000tpa. With SAIL

as the single largest customer of the company, the production of MEL is scheduled as per ferro alloys

requirement of SAIL. Moreover, the company has undertaken a capacity expansion of 33MVA

(~55,000tpa) to meet increasing demand for ferro alloys from SAIL.

MEL has waste gas based power generation capacity of 4.2MW, which though not enough to meet the

company's power requirement, helps in reducing power and fuel cost.

Turnaround story

Having started incurring losses from operation in 1980s, MEL eroded its net worth subsequently and

had negative net worth till FY04. However, since then the company has benefited from robust steel

demand and recovered to losses to turn net worth positive.

Future outlook

Given growing demand from SAIL, parent company, MEL is expected to benefit from commissioning

of additional 55,000tpa of ferro alloys plant.



Total Income 757.8 580.9 30.5 563.3 34.5 2,000.2 1,772.8 12.8

EBITDA 173.2 85.2 103.3 57.6 200.7 372.4 279.2 33.4

EBITDA Mgn (%) 22.9 14.7 10.2 18.6 15.7

Depreciation 4.7 4.2 11.9 2.7 74.1 11.9 12.5 (4.8)Interest 0.2 0.4 (50.0) 0.4 (50.0) 0.8 0.9 (11.1)

Tax 52.5 30.2 73.8 9.8 435.7 110.1 90.9 21.1

Net Profit 115.8 50.4 129.8 44.7 159.1 249.6 174.9 42.7

NPM (%) 15.3 8.7 7.9 12.5 9.9

EPS 4.8 2.1 129.8 1.9 159.1 10.4 7.3 42.7

Source: Company

Price Rs520


Rs12,744mn (US$315mn)

52 wk range H/L (Rs) 1,971/143


(mn) (mn shares)

24 0.00

Reuters Bloomberg

MAHE.BO MHES IN

Performance (%)

1M 3M 12M YTD

Absolute 19.0 (21.3) 254.4 (26.4)

Rel to Sens 7.5 (19.8) 184.0 (13.7)

Source: Capitaline


Source: Capitaline

Source: Capitaline


Price performance

Financials (Rs bn)

In Rs mn FY06 FY079MFY08

Total Income 1,982 2,352 2,000

EBITDA 343 301 372

EBITDA Mgn (%) 17.3 12.8 18.6


NPM (%) 10.6 7.9 12.5

Dil EPS Ann (Rs) 8.7 7.7 13.8

RoE (%) 46.4 30.2

D/E (x) 0.1 0.0

P/E Ann (x) 55.2 62.5 34.9

EV/EBITDA Ann (x) 32.0 36.4 22.1

Source: Company

12,000

16,000

20,000


0

750

1500

2250

Sensex MHES (RHS)

Prom,

99

Public,

1

Corp/

FIs, 0


24/25



Indian Metals and Ferro Alloys

Based in mineral rich state of Orissa, IMFA is one of India's largest ferro alloys manufacturers. A

privately held company, IMFA has installed capacity of around 200,000tpa across product category

of Fe Si, Cr alloys, and Fe Si Mn. Moreover, the company is fully integrated with own Cr ore and

quartz mines and captive power plant.

IMFA has three Cr ore mines in Orissa, with an estimated reserve of 21mn tonnes. The company

also operates quartz mines, which is a key input for manufacturing of Silico manganese.

Moreover, the company has 108MW of coal-based power plant, which meets the entire power

requirement for energy intensive ferro alloys business and supplies the remaining to the grid. For

power plant and future expansion, IMFA has set up a SPV (Utkal coal) to develop allotted captive coal

blocks in Talcher, Orissa with reserve of 130mn tonnes.



Total Income 1,989 1,340 48.4 1,551 28.2 4,942 3,828 29.1

EBITDA 768.9 361.4 112.8 687.5 11.8 1,780 893.6 99.2

EBITDA Mgn (%) 38.7 27.0 44.3 36.0 23.3

Depreciation 99.6 82.8 20.3 49.0 103.3 298.8 357.0 (16.3)

Interest 78.6 109.1 (28.0) 38.5 104.2 288.0 361.5 (20.3)

Tax 299.1 69.5 NA 78.3 282.0 663.3 104.2 536.6

Net Profit 314.0 100.0 214.0 521.7 -39.8 552.1 70.9 678.7

NPM (%) 15.8 7.5 33.6 11.2 1.9

Source: Cris Infac

Not ListedNot ListedNot ListedNot ListedNot Listed

Financials (Rs bn)

In Rs mn FY06 FY079MFY08

Total Income 4,429 5,713 4,942

EBITDA 966 1,405 1,780

EBITDA Mgn (%) 21.8 24.6 36.0Net Profit 186 200 552

NPM (%) 4.2 3.5 11.2

Source: Company


25/25


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Ferro Alloys Sector Report 2May08

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