IFGL Refractories Ltd Q1 FY2024 Concall Summary

Key Takeaways

• Record Q1, margin leap: Standalone EBITDA jumped 63% YoY to ₹46.5 crores with a 760 bps margin expansion, while consolidated PAT more than doubled.
• Europe is the drag, US the bright spot: Sheffield Refractories contributed a full quarter for the first time, but European margins compressed sequentially on macro weakness; the US subsidiaries are doing comparatively well.
• Odisha greenfield anchors the growth story: A new state-of-the-art facility will make higher-margin continuous casting refractories, targeting ₹150-200 crores peak turnover and funded by a mix of debt and internal accruals.
• Price pressure is arriving, but costs are softening too: Q2 will see some realization decline, which management expects to be offset by easing raw material, freight, and fuel costs.
• What to watch next quarter: Whether the promised H2 recovery in Europe materializes, the pace of domestic volume growth after a flat Q1, and the net impact of price pressure versus cost tailwinds on margins.

Performance & Profitability

• Standalone surge: Total income grew 2% YoY to ₹230 crores, but EBITDA soared 63% to ₹46.5 crores, lifting margins 760 bps to 20.2%, the highest quarterly EBITDA ever. PAT rose 88% YoY to ₹22.5 crores.
• Consolidated records: Revenue hit ₹427 crores (up 19% YoY), EBITDA grew 72% to ₹59 crores with a 430 bps margin expansion to 13.9%, and PAT more than doubled to ₹29.6 crores. This was the highest ever Q1 for revenue, PBT, PAT, and EBITDA.
• Sheffield fillip: The February 2023 acquisition contributed ~₹54 crores this quarter versus ~₹20 crores in Q4 last year, providing a full-quarter boost. All other US subsidiaries also performed comparatively well after a weak Q1 last year.
• India flat, but management calls it noise: India revenue was flat YoY despite the steel sector growing 7-9% in production. Management attributed this to quarterly aberrations and pointed to ~8-9% sequential growth, without directly reconciling the YoY stagnation against industry expansion.
• Europe margin squeeze: Margins in Europe compressed sharply on a sequential basis, with no one-off driver cited. Management characterized it as a general margin trend, with Sheffield margins running in line with existing European operations.
• Export benefits normalize: A one-time release of old MEIS scheme backlog inflated prior export benefits. Only the RODTEP scheme remains, so current levels of ~₹3 crores will persist without large lumpy additions.
• Traded goods to shift in-house: Some products like Magnesia carbon bricks are currently imported and sold as traded goods. The Vizag plant will switch these to manufactured goods, improving margins once commissioned.

Sarda: "In my last call, I mentioned we should be above 12%. So, that's the sustainable margin which we have mentioned 12% plus."

Growth Projects & Capex

• New Odisha greenfield: The company received approval from IPICOL and has obtained land approval, though the specific location is yet to be finalized. The facility will produce continuous casting refractories for tundish applications, which carry higher margins due to greater technology content. Construction should take 18-24 months from land acquisition.
• Odisha scale and ambition: Peak turnover is targeted at ₹150-200 crores, with scope to add more facilities on the same land parcel. The project will be funded through a combination of loans and internal accruals.
• Capex nearing completion: Spending on existing projects is ~50% complete for Odisha and Vizag, and ~90% complete for Kandla. The remaining capex is expected to be finished by March 2024.
• Research Center imminent: A state-of-the-art Research Center at Kalunga is almost ready and likely to be operationalized in Q3 FY24.
• Vizag mould powder plant: A new mould casting flux/mould powder plant is being set up in Visakhapatnam, adding to the domestic capacity build-out.
• Brownfield peak capacity: Existing brownfield expansions can reach roughly 3x at full capacity utilization. The Vizag plant, commissioned in 2021 and 2022, has contributed a bit already, with the remainder getting commissioned by the middle and end of this year.

Sarda: "We will be producing continuous casting refractory, which is used in the Tundish in steel making side of the steel industry, and definitely, these are considered to be a higher margin products because of the higher technology, and this will be a state-of-the-art manufacturing facility with one of the best technologies which we have within the group."

Geographic & End-Market Dynamics

• Europe: waiting on H2: Europe continues to face headwinds from macroeconomic factors and the Russia-Ukraine conflict. Management hopes for a recovery in the second half, which would lift European subsidiary performance.
• US: steady strength: The US business is doing comparatively well and is expected to remain at good levels through this financial year.
• Domestic focus intensifies: The company is placing specific focus on the domestic steel industry with a boosted marketing team. Domestic business is expected to grow faster than exports.
• Export weakness tied to regions: Export business is down due to slowness in Europe and Middle East segments. Recovery is expected when those regions improve.
• Odisha steel tailwind: Odisha currently produces ~3-3.5 crore tonnes of steel, with stated expansion plans to exceed 13 crore tonnes by 2030-31, at which point the state would produce ~40-45% of Indian steel.
• Customer footprint: IFGL is present in all large steel mills including public sector plants and major private players like JSW, JSP, and Tata Steel Kalinganagar, though its share at the latter is comparatively smaller and the company is working to increase it.
• Performance contracts dominate: About 70% of domestic sales come from performance contracts priced per heat or per ton of steel, and this share is increasing.

Sarda: "Europe is still having some issues. We hope that H2 will be better. So, if there is a recovery in H2, European companies or the European market should do well."

Pricing, Costs & Competitive Position

• Price realization under pressure: Q1 saw some indications of price realizations declining. Q2 will also see some pressure, but management expects this to be compensated by softening raw material costs, freight rates, and fuel costs. The full-year picture needs monitoring.
• Recycling at 10-12%: The company already recycles internal rejects and some rejects from steel plants, amounting to about 10-12% of total input.
• Industry consolidation largely done: In management's personal view, the large part of refractory industry consolidation has already occurred, with the top five companies contributing around 60% or nearly two-thirds of Indian refractory output.
• Automation claims dismissed: Management stated that automation in Indian steel applications is very, very limited, with hardly any existing. Claims of automation by peers were characterized as potentially a marketing tool rather than a material reality.
• No after-sales service category: Products are consumables, so there is no distinct after-sales service function. Service occurs at the point of product sale.
• Promoter stake increase: Promoters are acquiring Krosaki's 15% stake, which will take their holding to 72.6%. Management declined to comment on the rationale, calling it a promoter's call, but noted it shows reposed confidence in the company.

Sarda: "See, automation in the Indian steel application is very, very limited. It's very, very limited. There is hardly any. Yes, there is hardly any automation. So, I think it's some sort of a marketing tool which somebody is trying to apply, but in Indian steel industry, the automation is hardly any."

Guidance & Commitments

Key Metrics