Tata Metaliks had a stellar Q3 show in pig iron business: MD

Sandeep Kumar, MD, Tata Metaliks, says there have been issues with funds in government projects, which have started impacting EPC contractors and, thus, ductile iron pipe players like his company. Excerpts from an interview with ET Now.

Your pig iron segment has once again being very weak, and segmental growth has fallen by a solid 25 per cent. Walk us through what exactly hurt your performance in third quarter?
I thought it is the reverse. The pig iron performance has been stellar, and the overall increase in profitability has almost doubled compared with last quarter. We are at about Rs 55 crore in terms of profit before tax, compared with say Rs 23 crore in quarter two and this has been led primarily by the pig iron business. It has been due to much more efficient operation, improved fuel rate, improved coal injections, no shutdowns and sales volumes. So all and all, it is the pig iron business which led the show and the growth in the ductile iron pipe segment has been a little lower than last quarter. But on the whole, the performance has been very good.

Let us talk about the DI pipe segment, and that has been seeing a strong couple of quarters. You have managed to churn out a profit with the segmental results. What really has been the driver of that, and what has hurt revenues there?

Yes, actually profitability of the ductile iron business has always been very robust. If you look at the Ebitda margin, it has increased to 20 per cent for the ductile iron pipe business. Even for the pig iron business, it has moved up to almost 10-11 per cent from say 2 per cent last quarter. But specifically about the ductile iron business, dispatches and deliveries have been reasonable. I would not say it has been exceptional or something. They have been slightly muted, because there are issues of funds, as you know, in government projects, which have started impacting EPC contractors and, thus, ductile iron pipe players like Tata Metaliks. We should have done better than this. This will be a little bit of a hangover on fourth quarter as well.

Looking at your margin performance, and that has really held out well, what would you say has aided your margin performance? Can you hope to achieve the same numbers or better your margin trajectory in fourth quarter?
The performance has been primarily led by a turnaround in the pig iron business. We have been having problems with our blast furnaces in last two quarters. This quarter has been very smooth: availabilities have improved or yields have improved and fuel rates have come down significantly. Furnaces have performed very well and that has been backed by the sales team. Despite a continuous slide in prices in Quarter Three, we were able to sell 86,000 tonnes of pig iron, which was better than what we have done before. In fact December sales was a record in last two years. So primarily it is the pig iron business which has turned around. It is almost a Rs 36 crore swing in Ebitda. The DI pipe business continues to be smooth and stable, except that we would have wanted it to do much more.

What were your realisations from pig iron and DI for the quarter versus what we saw last year? How do you see volume growth shaping up in these segments?
The net realisations have come down by almost Rs 1,000 per tonne in both pig iron as well as the ductile iron pipe businesses. The reduction in the raw material prices was a little more like Rs 1200 to Rs 1500 per tonne. The slide was expected, as when raw material prices come down, prices of finished goods also get impacted. The prices have turned around for pig iron, steel prices have also moved up. So right now there is a surge in sentiment in the pig iron business. But it is difficult to say how long it will last. Some restocking may be going on. Fundamentally, it is a little difficult to say at this stage if demand has improved or not, but as far as the ductile iron pipes are concerned, demand is definitely there. It is the liquidity which has created a bit of slowdown in terms of deliveries, but on the whole we expect similar, if not better, performance in Quarter Four.