High coke, iron ore prices hitting margins: Tata Metaliks

Tata Metaliks has announced its first quarter results. The company's Q1 net profit was at Rs 20.2 crore versus Rs 15 crore.

Harsh K Jha, ED and MD, Tata Metaliks said Tata Metaliks said that there is a pressure on the margins because of various substantial increases in the price of input material particularly coke or coal, which is imported.

Excerpts from CNBC-TV18’s exclusive interview with Harsh K Jha:

Q: Is it sustainability fine at this point given the fact that your margins have come off by about almost a percent and a half?

A: There is certainly a pressure on the margin because of various substantial increases in the price of input material particularly coke or coal which is imported and as also the spot prices of iron ore within the country which are operating at a very high level. So there would be a certain degree of strain on the financials, going forward for all pig iron manufacturers of the country.

Q: Iron ore and coal prices have increased almost about 65%-70% respectively. How much of a pressure going forward do you entail seeing on your margins in view of these high prices?

A: We are slightly insulated from the very high price of coke just now because we have in-house conversion capabilities to use coal and convert it into coke. However, going forward I find most pig iron manufacturers including Tata Metaliks will be under pressure and we need to really think of innovative ways of maintain these types of margin in the days to come.

In fact many of the pig iron manufacturers have either curtailed production or closed down production because of very high input material cost and it does not make sense at this moment to produce pig iron and sell at the prevailing domestic market price.

International prices are much higher than domestic price levels at this moment.

Q: What is the call then on margins at this point in time and how are you looking at hedging yourself in terms of the kind of places or sources from where you get your imports right now for iron ore?

A: Iron ore is not imported; it is available domestically. So for our Kharagpur operation, which is located in the eastern part of the country, we are able to source 100% of our requirement from Tata Steel. To that extent we have assurance of supply and a steady price level.

We however do have a difficult situation at our western coast based plant in Maharashtra where we do not have a long and a stable linkage of iron ore, which creates a bit of a difficulty in west coast operations.

Q: Where would you see margins?

A: We are trying to work on with National Mineral Development Corporation Ltd (NMDC) to work out stable iron ore linkage from them. We are also pursuing government of Maharashtra to allot us iron ore mines. Going forward if these two things happen, we should be fairly okay so far results in subsequent quarters are concerned.

Q: What sort of fund requirements do you have? Are you looking at raising additional funds and what are the plans? Also what sort of revenue addition are you looking at from that particular front?

A: It would be slightly premature to talk about the numbers just now. We think casting is a logical extension of the pig iron business. We would like to put a plant, which would be the most modern plant in the country and we would have a substantial volume of production. But we are still working on the configuration of the plant and that only will tell us as to what would be the investment like and thereafter decide how to raise that sort of money but we can manage.