Target: ₹455

CMP: ₹213.3

Kirloskar Ferrous Industries Ltd (KFIL), incorporated in 1991, is one of the leading domestic manufacturers of foundry-grade pig iron (market share of 40-42 per cent) and ferrous castings (20-22 per cent). The company supplies its products to the automotive (PVs, CVs and tractors) and capital goods (engines and industrial machinery) segments.

The improving demand scenario in the capital goods industry, an increase in infrastructure activities and development of industrial corridors are expected to kick off a new growth cycle. In addition, enhanced capacity utilisation, cost-optimisation initiatives and forward integration through the Indian Seamless Metal Tubes (ISMT) acquisition are key triggers for immediate pick-up in performance.

The stalled backward integration into iron-ore mining, sans forest clearances, is expected to clear up by FY23 and is an added trigger to improving profitability post FY24.

Over the period of FY21-24, we are expecting KFIL's revenue to grow at a CAGR of 25.6 per cent to ₹4,037 crore. The decline in commodity prices by FY24 and lower per-tonne realisation for the company could affect profits. As a result, EBITDA is expected to grow at a CAGR of 14.1 per cent to ₹686 crore, which would result in the EBITDA/ton of ₹9,142 in FY24.

We initiate coverage with a Buy for a price target of ₹455 over the next 18 months.