KIRLOSKAR FERROUS: Important points of Annual report

COMPANY PERFORMANCE OF KIRLOSKAR FERROUS

• Kirloskar Ferrous completed the acquisition of movable and immovable assets relating to the pig iron plant of VSL Steels Limited with a capacity of 1,50,000 MT per annum located in Karnataka in December 2020.  
• Manufacturing operations of the plant commenced on 8^th February 2021 after renovations. 
• Complete utilization of Coke Oven plant, which was commissioned in March 2020. 
• Installation of conveyors from coke oven plants to mini blast furnaces to reduce handling loss.  
• The 20MW power plant, which works on waste heat recovery from coke oven plant, was commissioned in June 2020 and achieved 100 percent capacity utilisation by September 2020.  
• Received a go ahead from the Government of India to start mining operations. 
• Extraction of around 98,600 MT of iron ore till 31 March 2021. 

OPERATIONAL IMPROVEMENTS 

• Due to less supply of iron ore in the domestic/global iron and steel industry there was a substantial increase in the prices. 
• Higher margins were gained due to higher selling price of pig iron. 
• Sourcing of coking coal from Australia at economical prices. 
• Continuous improvement in the quality of casting at both units of Koppal and Solapur, by reducing rejection rates. 
• Addition of machining capacity and ramped up the machining capabilities to meet customer demand. 

FINANCE COSTS 

• Optimization of interest rates by availing facility at competitive rates. 
• Negotiated the rate of interest on each put and call options in respect of term loans availed thereby reducing the cost of finance. 
• Hedged import transactions of input materials by taking forward covers to minimize the impact of fluctuations in the forex currencies. 

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RECENT PROJECTS COMMENCED OR PLANNED 

• In June 2020, the 20 MW power plant was commissioned. 
• Capacity expansion and up-gradation on technology / infrastructure in foundry and machine shop both at Koppal and Solapur units, to meet the increasing demand for castings from the customers. 
• At Solapur plant, a new moulding line setup is initiated with a planned capacity of 40,000 MT per annum. 
• Expanding machining capacity to add more value. 
• Installation of Bell-less Top equipment for both the Mini Blast Furnaces (MBF) and up-gradation of MBF II and Pulvarised Coal Injection. All these projects are expected to be completed in the financial year 2022-2023. 

ENERGY CONSERVATION MEASURES TAKEN BY KIRLOSKAR FERROUS 

• Setup of 20 MW power plant with the use of waste gas from coke oven plant.  
• Perform, Achieve, Trade (PAT) Cycle 3 monitoring and verification done and report submitted to the Bureau of Energy Efficiency.  
• 12 tonne furnaces replaced with new 8 tonne melting furnace at Koppal Plant to reduce melting losses and power consumption.  
• Installation of variable frequency drives for shot blast machine, blast wheel machine at foundry and cooler blower motors at Sinter plant to reduce power consumption.  
• Replacement of old pumps and motors with energy efficient pumps and motors at both Koppal and Solapur Plants.  
• Solar and wind power is purchased through the open access available at Koppal plant. 
• Reduction in power import from grid by doing proper redistribution of loads and thereby utilising the 20 MW Power and Turbo Generator power at Koppal plant.  
• Replacement of conventional Lights with LED light fittings at Koppal and Solapur Plants. 

RESEARCH AND DEVELOPMENT AREAS FOCUSED BY KIRLSOKAR FERROUS  

• Joint design and development activities of BS VI compliant engine components along with OEMs.  
• Joint design and development of Transmission part with reduced weight.  
• Use of Simulation software MAGMA and AD Stefan, CAE/ CAM, Laser scanning and 3D modelling technologies for efficient and effective casting development.  
• Use of robotic facilities for improved productivity and quality of castings.  
• 3D printing of cores for development of prototype castings without tooling with less development cycle times.  
• Exploring possibilities for Indigenisation of 3D printing Raw materials.  
• Study on extending tool life.  
• Study of the 3D Printing process of core for mass production.  
• Research on Foam casting process which has lost its foothold in the manufacturing industry. 

FUTURE PLANS RELATED TO R&D 

• New Transmission parts with reduced weight.  
• Plastic printing technology for making quick changes in fixtures and tools used for development.  
• Lost Foam Casting Process study and adaptation.  
• For mass production including 3D printing core making processes.  
• Value engineering solutions to Original Equipment Manufacturers.  
• For increasing efficiency improvements in the processes. 

GROWTH OF EXPENDITURE ON R&D 

Particulars	2020-21	2019-20
Capital	0.42	Nil
Recurring	3.27	3.15
Total R&D expenditure	3.69	3.15

FINANCIAL HIGHLIGHTS 

FINANCIAL KEY METRICS	VALUE
MARKET CAPITALIZATION	₹ 3,063 Cr
STOCK P/E	7.55
INDUSTRY P/E	8.94
ROE	34.8 %
ROCE	30.4 %
DEBT TO EQUITY RATIO	0.85

• The market capitalization of Kirloskar ferrous is ₹ 3,063 Cr which is a small cap company and has good competition in its respective sector. 
• In steel sector, Kirloskar ferrous stands 1^st in this segment. 
• Currently the stock P/E is 7.55 which is slightly lesser than the industry P/E of 8.94.  
• The return on equity is 34.8 % which is quite favorable as it directly indicates that the investors are getting more than bank FD returns on their equity in this stock. 
• The return on capital employed is 30.4% and shows a superb operating income is generated for every rupee of capital invested. 
• Kirloskar ferrous currently has 0.85 which is higher and has drastically increased in the FY 2021-22. 

INDUSTRY OVERVIEW AND OUTLOOK 

STEEL INDUSTRY 

• 2% of GDP of India is contributed by the Steel Sector. 
• 10 to 12% of demand in India is driven by the automotive industry. 
• India’s finished steel consumption grew at a CAGR rate of 5.2 percent between the financial years 2015-2016 to 2019-2020 to reach 100 Million Tonnes. 
• For the period from April 2020 to December 2020, the cumulative production of crude steel in India was 71.94 Million Tonnes and that of finished steel was 64.45 Million Tonnes. 
• Most of the companies in the industry are undertaking modernization and expansion of plants to be more cost efficient and to reduce reliance on import. 

AUTOMOBILE INDUSTRY 

• 7% of the GDP of India comes from the automotive manufacturing industry by producing commercial vehicles, passenger vehicles, two and three wheelers. 
• India became the fourth largest auto market in 2019 replacing Germany with about 3.99 Million units sold in the passenger and commercial vehicles categories. 
• The Government of India expects automobile sector to attract US $ 8 to 10 Billion in local and foreign investments by 2023. 
• Around 17 lakh medium and heavy commercial vehicles are present which are older than 15 years as per Ministry of Road Transport and Highways. 
• Hence, the vehicle scrappage policy will likely help to boost the sales of the heavy and medium commercial vehicles. 
• Vision and mission of Indian government is pretty much clear to make India an automotive manufacturing hub. For which different initiatives such as ‘Make in India’ and ‘Automotive Mission Plan 2026’ are commenced. 

TRACTOR INDUSTRY 

• 1/3^rd of the tractor production globally is done by India. 
• Agriculture witnessed strong growth due to a healthy season of Rabi sowing. 

IRON ORE 

• Iron ore reserves is abundance in India and stands 5^th in the list. 
• In domestic market, there is a scarcity of iron ore due to lower domestic production and higher exports which has led to increase in iron ore and steel prices. 
• NMDC plans to invest US $ 1 Billion on infrastructure in next three years to increase the iron production. 

COAL AND COKE 

• Coal is the primary raw material source for global steel production through blast furnace. 
• 80% of coking coal is imported by the steel industry in India. 
• Grade and quality are the major parameters for the variation in the coal prices. 

RISKS AND CONCERNS 

• Demand for auto and tractors have a direct impact on the performance of the Kirloskar ferrous and any adverse market condition for these sectors will result into reduced capacity utilization and profitability.  
• Production and ultimately the profits would be hampered due to the variation in the prices of raw materials such as coke, coal, iron ore and steel scrap. 
• Further, depreciation of Indian Rupee vis-á-vis US dollar can lead to an increase in prices of coal and coke, resulting in increased input costs, thereby putting pressure on profitability.