Kirloskar Ferrous Industries Ltd. share price target

Cost savings & production ramp up to drive earnings

Kirloskar Ferrous Industries Ltd. (KFIL's) announced acquisition of controlling stake (51%) in Indian Seamless Metal tubes (ISMT) at consideration of Rs4.77bn through purchase of ISMT's preferential shares, is an attempt at forward integrating the existing pig iron assets with few other synergies. While we believe in KFIL's plans to turnaround ISMT assets, it will come at additional cost. Completely merging the ISMT business will further need debt or equity dilution. Therefore, we believe that KFIL could have derived a better deal to lighten up medium term liabilities. We lower our TP to Rs310 (previously Rs360) and retain...

Kirloskar Ferrous Industries (KFIL) has expressed interest for the seamless tube and alloy steel manufacturing assets of Indian Seamless metal tubes ltd (ISMT) with a non-binding offer of Rs6.7bn (~80% haircut to ISMT's outstanding loans). While this is an attempt at forward integrating the existing pig iron assets through the EAF plant of ISMT and leveraging the common customer profile in the automobile industry, we believe that improving the asset quality of ISMT plants will require substantial capital and time. We await clarity on structure of deal, synergies and...

We maintain our TP (Rs360) and BUY rating for Kirloskar Ferrous Industries Ltd. (KFIL). We have marginally increased our earnings for FY22/FY23 to account for higher realisations and higher cost savings from captive mines. Although performance in 2QFY22 was clouded by coking coal and coke cost pressure which will continue for 2-3 quarters, we believe continuous volume rampup in both divisions led by robust demand, capacity expansion and completion of massive cost saving projects in the next 1 year will act as...

INDIA l Institutional Research l Metals l 4th October 2021 Kirloskar Ferrous Industries Ltd. l BUY l TP: 360 Plant Visit The Unsung Champion We raise our TP to Rs360 (previously Rs305) and upgrade the rating to BUY for Kirloskar Ferrous Industries Ltd. (KFIL). The upgrade stems from a better understanding of KFIL's leadership position in the casting business (mainly from our plant visit), which is very much comparable to an auto ancillary business and therefore deserves higher valuations than a commodity producer. We also learned...

We raise our TP to Rs305 (previously 290) and maintain ACCUMULATE rating on Kirloskar Ferrous Industries Ltd. (KFIL). We remain positive on KFIL's long term goal of growth and large cost savings (backward integration) but a very steep rally in recent past limits our upside in short term. A large project pipeline which includes commissioning of iron ore mine, phase 2 of coke oven & WHRP and PCI will result in combined savings of Rs3bn over next 3 years, offsetting fall in pig iron (PI) spreads. Further, strong volume growth will keep the balance sheet lean (despite heavy capital expenditure) and return ratios above 20%;...

We raise our TP to Rs290 and move to ACCUMULATE rating on Kirloskar Ferrous Industries Ltd. (KFIL). We expect earnings to stay robust in FY22E due to full ramp up of VSL steel plant, strong pig iron spreads and further hikes in casting realisation. A large project pipeline which includes commissioning of iron ore mine, phase 2 of coke oven & WHRP and PCI will result in savings of Rs3bn over next 3 years, offsetting fall in pig iron spreads, if any. Strong earnings will keep the balance sheet lean (deleveraging to start from FY23E) despite...

We maintain our TP of Rs190 and re-iterate BUY rating on Kirloskar Ferrous Industries Ltd. (KFIL). With commissioning of VSL steel pig iron plant (by end of Feb'21), up-gradation of MBF2 & PCI and phase II of coke oven-power plant, we expect strong growth in revenues and sustainable cost savings over FY20-23E which will keep earnings elevated even in a steel down-cycle scenario. A combination of robust pig iron spreads, strong castings demand and structural cost saving initiatives led to record quarterly profit in 3QFY21. We...

We initiate on Kirloskar Ferrous Industries Ltd (KFIL), a proxy play on the booming tractor and steel industry, with a TP of Rs190 (~36% upside) and BUY. After drastic improvement in the castings business with reduction in rejections, addition of ten new customers and increase in high-margin machined casting sales, KFIL's casting business is all set to witness enormous growth in profitability supported by favourable demand drivers for tractorled castings. Cost-saving projects like pulverised coal injection (PCI), coke oven, captive iron ore and power will structurally elevate its margin profile,...

KLD mine loss a blessing in disguise; maintain Buy Kirloskar Ferrous (KFIL) lost M/s Kanhaiyalal Duhderia (KLD mine) in the re-auction to MSPL which won the mine at 111% offer price. Earlier KFIL had won the mine at 110% offer price but the auction was revoked and mine was put for re-auction by the auction authorities due to some technical issues in bidding. KFIL was not expected to realise any material savings due to the high offer price paid by it in the auctions and we had infact estimated negative contribution in our calculations (refer our 10 Sep note Issues of ore, no more). We see the losing of KLD mine as a...

Kirloskar Ferrous (KFIL) won two key iron ore mining assets in the Karnataka auctions which is a long term positive event for the company given the 100% captive integration for pig iron business with good quality ore, close proximity of mines to KFIL plant, cost savings v/s open market purchase and improved efficiency due to better value in use. We remain positive on KFIL's prospects as it features i) increasing share of high-margin casting business which has spare capacity, ii) cost efficiencies from upcoming low-payback projects albeit slightly delayed, iii) an enviable track record of converting cash profits to cash flows...

Kirloskar Ferrous (KFIL) delivered another subdued performance in Q1 due to continued pressure in gross margins and increased other expenses (due to nonrecurring items) negating strong volume growth. We remain positive on KFIL's prospects as it features i) increasing share of high-margin casting business which has spare capacity, ii) cost efficiencies from upcoming low-payback projects albeit slightly delayed, iii) an enviable track record of converting cash profits to cash flows (5Y/10Y AOCF/CP ratio of 1x/0.9x) and iv) strong balance sheet with low D/E of 0.1x. We expect strong earnings growth during FY18-20E driven by castings volume CAGR of 20%. Valuations remain undemanding with attractive cash flow yield of 14.5% &...

Kirloskar Ferrous Industries (KFIL) incorporated in 1991 is engaged in business of manufacturing pig iron and ferrous casting used in automobile and tractor industries. KFIL was promoted by Kirloskar Oil Engines Limited (KOEL) and Shivaji Works Limited (SWL) and in 2007, SWL was acquired by KOEL. Company caters to the requirement of high quality pig iron, Intricate thin walled grey iron castings to the Tractor, Auto, Engine and other related segments. Company has two...