IFGL Refractories Ltd Q2 FY2025 Concall Summary

Key Takeaways

• Domestic strength, overseas drag: Standalone domestic revenue grew 15% YoY and now represents 69% of total revenue, while overseas subsidiaries faced economic pressure, geopolitical uncertainty and a major customer restructuring.
• Margin squeezed from both sides: Realizations fell 7–9% as India became a net steel importer, while alumina and magnesia raw material costs spiked sharply. The 4–5 month price pass-through lag means relief has not yet arrived, pushing standalone EBITDA margin to 13% against a maintained 15% guidance.
• Strategic pivot from ISO to DBM bricks: Management shelved a planned ISO capacity expansion, judging existing 80,000 pieces/year sufficient for five years, and redirected the ~INR 150 crores capex toward DBM bricks instead.
• Greenfield JV with Marvels for cement refractories: A 51:49 JV with Marvels International Group will build a ~INR 300 crores greenfield plant in Northwest India, targeting trial production by March 2026, bringing Make in India capacity to a sector historically reliant on imports.
• What to watch next quarter: Whether the promised H2 demand recovery materializes, any sign of raw material cost pass-through to customers, and concrete details on the DBM bricks market size and JV project report that management deferred to future calls.

Domestic vs Overseas Performance

• Domestic business: Consistent growth over 2-plus years, with 30% annual increases for three years running. The 15% YoY rise in Q2 came despite shutdowns at some major client facilities, underscoring the breadth of demand.
• Overseas subsidiaries: Faced economic slowdown, geopolitical uncertainties and competitive pressure. The preventive restructuring of Liberty Ostrava, a significant prior-year revenue contributor, weighed directly on financial performance.
• Regional steel context: North American steel market was down ~3.9% year-to-date; European business showed no growth. Management anticipates some moderation in challenges during H2, with a moderate demand revival from the EU and US, though at least one more difficult quarter is expected for subsidiaries.
• India steel demand tailwind: India's steel demand projected to grow 8% over 2024 and 2025, fueled by sustained infrastructure investments across all steel-consuming sectors.

Shanmugam: "passing on takes place after 4 to 5 months or even 2 quarters constant effort to customers. And that has not happened."

Margin Walk & Cost Pressures

• Realization pressure: Steel customer realizations reduced 7–9% as India became a net steel importer, putting stress on medium-sized steel producers and reducing their production volumes.
• Raw material spike: Alumina index more than doubled from INR 350–360 to INR 600-plus; magnesia prices also increased sharply. The refractory industry's price pass-through mechanism carries a 4–5 month or even 2-quarter lag, and that pass-through has not yet occurred.
• Freight cost: Freight cost in other expenses increased substantially from H1 last year. When pressed to quantify the impact, management declined to go into macro details and simply maintained the same guidance.
• Deloitte HR transformation cost: A cost from Q4 FY24 is still reflecting in other expenses; the contract runs for one full year and will not continue next year.
• Sheffield refractories: Sales maintained at Q1 levels but profit dipped due to the geopolitical and economic scenario.

Shanmugam: "Overall, we are. Because as a total, like some kind of a new area we are entering. So we need to do something to maintain that."

Strategic Projects & Capex

• Marvels JV for cement refractories: A 51:49 JV with Marvels International Group (Seychelles) and Marvel Refractories (China) will establish a greenfield facility in Northwest India, close to modern high-throughput cement plants. The ~INR 300 crores project will manufacture basic fired magnesite spinel bricks, magnesite bricks and magnesia chrome bricks for cement, glass, nonferrous and gasification industries. Debt-to-equity ratio will not exceed 1:1, with trial and commercial production planned by March 2026.
• DBM bricks pivot: Management decided against adding more Continuous Casting Refractories (ISO) capacity, judging the combined 80,000 pieces/year (Kandla plant at 50,000 plus existing) sufficient for the next five years. The ~INR 150 crores capex originally earmarked for ISO will now go toward DBM bricks instead, with margins expected in double digits.
• Odisha greenfield: Land payment to the government entity is complete and possession is expected shortly; commercial production anticipated in the latter part of FY27.
• US subsidiary expansion: EI Ceramics acquired a building in Ohio to develop a state-of-the-art ISO plant, which will deliver a 40% capacity uplift when complete.
• New capacity online: A state-of-the-art casting flux granules production unit was inaugurated in Visakhapatnam with annual capacity of 18,000 metric tons; a new magnesia carbon production line was launched as part of Phase 3 expansion. Actual supply volumes from both are expected in Q4.
• Acquisition under review: One acquisition located in India is currently under review; no further details were shared.
• Sheffield technology transfer: Plans are underway to bring Sheffield's cutting-edge technologies, particularly in monolithic technology, to the Indian market. More details expected after Q3.

Shanmugam: "Going for one more ISO now will not make big sense as far as capacity utilization is concerned, okay? And so that's the reason why we have changed the thought process."

End-Market Outlook

• Global steel demand: The World Steel Association expects global steel demand to decline 0.9% in 2024, with a broad-based recovery excluding China anticipated in 2025 and global demand forecast to rebound 1.2%. A moderate demand recovery is expected in H2 of this financial year.
• H2 vs H1 trajectory: Management stated H2 will be definitely better than H1, with a plan to make up some of the H1 misses. Brick and casting flux volumes are expected to grow in Q4, though management declined to give an exact growth percentage, saying it depends on Q3 visibility.
• US steel market: With the US election now over, management hopes for a more positive stance on steel growth, aided by geopolitical changes.
• Nonferrous market: Current contribution stands at 15–17% of revenue; management expects maturity in this market in 3–5 years, at which point the share may change.
• Provisioned client recovery: No recoveries have been received from the provisioned customer as of now; the exposure is 100% provided for. Management will update if anything materializes.

Shanmugam: "By establishing a local plant in India, we are set to bring more Make in India opportunities to the refractories industry, particularly for the cement sector, which has historically relied on imports."

Guidance & Commitments

Key Metrics