Indian Metals & Ferro Alloys: Rise in chrome prices make it an attractive play

Jitendra Kumar Gupta Moneycontrol Research

Investors’ biggest fear came true in Indian Metals & Ferro Alloys (IMFA), which reported a 97 percent drop in net profits to Rs 4.9 crore in March quarter as against Rs 174 crore in the same quarter last year. The company suffered a huge blow, led by correction in chrome prices, which has a history of excessive volatility. Despite a 14 percent year-on-year increase in volumes, the company took a 25 percent YoY hit in sales because of realisation falling to Rs 69,000 a tonne in Q4 FY18 as against Rs 105,000 per tonne in the corresponding quarter last year.

While chrome prices have marginally recovered since the last quarter, they are certainly not at a level to report hefty profits. On top of that, the company has guided for marginally lower volumes for Q1 and FY19. In Q1 FY19, it is expecting volumes to be around 49,000 tonne as against 52,000 tonne YoY.

The flip side of the story is that realisations often fluctuate on a quarterly basis. For FY18, realisations came in at Rs 74,000 a tonne as against Rs 72,600 a tonne in FY17. While the company may not report hefty margins, a quarter erosion in earnings does not warrant excessive worry. It is a key player in the chrome industry with integrated facilities operating at relatively low cost.