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IFGL REFRACTORIES

IFGL Refractories Ltd. is a completely debt free company engaged in manufacturing of Specialised Refractories and requisite Operating Systems for Iron and  Steel Industry.

Current Market Price-: 290 Rs

IFGL Started with Slide Gate Refractories Plant in the year 1984. Indo Flogates was a joint venture with Flogates Ltd, UK, and the exclusive Indian licensee of the Flocon Slide Gate Systems created by US Steel Corporation through their wholly-owned subsidiary USS Engineers & Consultants Inc. This facility presently manufactures Slide Gate Systems and Refractories using the most recent know-how from Krosaki Harima Corporation, Japan, a division of Nippon Steel Corporation.

In 1993, the Continuous Casting Refractories Plant began production of Isostatically Pressed Continuous Casting Refractories and Magnesia Carbon Tap Hole Sleeves in technical partnership with Krosaki Harima Corporation, Japan (then known as Harima Ceramics Corporation).

IFGL has a Quality Management System in place that meets the criteria of BS EN ISO 9001:2008 and ISO 14001:2004.

Today IFGL Refractories Ltd. is a prominent manufacturer of specialised flow control refractories, including isostatic, sliding gate, and continuous casting refractories, which are used in primary and secondary steel production. Shaped refractory accounts for 85 percent of its sales, whereas major steel factories, such as PSU, account for over 90 percent. JSPL, JSW Steel, SAIL, Tata Steel, and other major domestic steel mills, including Arcelor Mittal, use the company’s refractories. Exports account about 60% of the company’s total income.

IFGL Refractories has a significant presence in worldwide markets through its wholly owned subsidiaries, which principally serve markets in the EU, the Middle East, Asia, and the United States. The company operates in 60 markets throughout the world. With the inauguration of its third plant in Vizag, it has expanded its footprint in South India. Its Kalunga and Kandla capacities are utilised at more than 70% of their capacity on a combined basis. The company holds a 7% share of the domestic market as of FY21.

IFGL has 3 wholly owned subsidiaries Monocon Group (US/UK/CHINA) , Hoffman Ceramics (Germany )  & El ceramics (USA).

Monocon Group (US/UK/CHINA)

IFGL acquired Monocon Group in September, 2005, with production facilities for

  • Tundish Spraying Mass
  • Refractory Darts
  • Monolithic Lances
  • Robotics for EAF, Ladle and Tundish lining maintenance.
  • Monolithics for EAF, Ladle and Tundish

In December, 2006, Monocon Group acquired Goricon Metallurgical Services Ltd, Wales (UK) and Goricon LLC, Ohio (USA) engaged in manufacture of Darts, Lances, Ladle Powders etc used by the Steel Industry.

Monocon is the most profitable subsidiary, accounting for 54% of total income. After 3-4 years of sub-optimal performance, it is projected that Monocon’s performance would improve in the next time due to a rebound in steel demand in the EU region. Prior to the pandemic, the EU area was experiencing practically recessionary circumstances due to a drop in automotive sales and overall sluggish economic activity. The economy was on the mend in early CY20 when the pandemic struck, and steel demand never truly recovered. Steel output in the EU has finally begun to improve, as illustrated in the graph below.

Utilisation rate at Monocon was at 65% in FY21 and is expected to recover with higher growth in steel production 

Steel Production in Europe – chart

Hoffman Group

In July, 2008 Hoffman Group was acquired with manufacturing facilities for

  • Foundry Ceramics – Casting Filters, Feeders, SiC Chill Plates, Pouring System and Monoblock Stopper
  • High Grade fire proof refractory shapes
  • Drawing tools and Tread Guides

Hoffman Ceramics, Germany (15 percent of total subsidiary revenues), has historically been a poor performer due to challenges with product acceptance, as Hoffman has a distinct product range then the other subsidiaries. Hoffman produces filters for iron, aluminium, and steel castings, as well as feeders for moulding factories. Automobile manufacture drives a substantial portion of demand for these sectors. IFGL has been working hard to enhance its performance at Hoffman and has had some success in improving margins in the previous two quarters.

The performance of IFGL’s subsidiaries, particularly Hoffman and Monocon, has not improved significantly in the previous five years; nonetheless, all subsidiaries have been net cash since the last three years and have never burnt the parent’s capital.

El ceramics (USA)

In September, 2010 IFGL acquired EI Ceramics LLC and CUSC International Limited (CUSC), both Cincinnati, Ohio based companies engaged in manufacture of Isostatically Pressed Continuous Casting Refractories.

EI Ceramics, accounts for 30% of total income from subsidiaries, is likely to maintain its better performance in comparison to other subsidiaries, owing to a significant comeback in steel demand in the United States. EI Ceramics’ utilisation rate was 65 percent in FY21 and is likely to grow as demand recovers.

Business Products

What are Refractories?

Refractories are materials with high melting points and qualities that allow them to function as heat-resistant barriers between high and low temperature zones. Refractories are inorganic nonmetallic materials that can endure high temperatures while remaining in contact with molten slag, metal, and gases without suffering physical or chemical changes.

Various uses of Refractories

The metallurgy industry uses refractories for flow control as well as the interior linings of furnaces, kilns, reactors, and other containers for retaining and conveying metal and slag. Refractories are commonly used in nonmetallurgical industries on fired heaters, hydrogen reformers, ammonia primary and secondary reformers, cracking furnaces, utility boilers, catalytic cracking units, coke calciners, sulphur furnaces, air heaters, ducting, stacks, and so on.

For more detailed specifications about various products please visit the company website from this link.

Capex

Due to high demand post-pandemic and customer additions, IFGL has been able to ramp up utilisation at shaped capacity post-expansion to optimal levels (85-90 percent). Kandla’s new unshaped refractory capacity has been scaled up to 30-35 percent utilisation and will take 1-2 years to completely ramp up. The achievement of optimal capacity at shaped refractory facilities at Kandla and Kalunga has resulted in cost savings. This, coupled with other internal cost efficiencies through modest initiatives, has resulted in long-term rise in IFGL’s EBITDA margins. The subsidiaries have also increased their reliance on assistance from improved economic activity in Europe and the United States during the outbreak. Except for Hoffman, which is at 85 percent utilisation, all other subsidiaries are at 65 percent utilisation, which is higher than previous prior years.

Along with increasing monolithic and pre-cast capacity, IFGL is debottlenecking the shaped capacity (ISO) at Kalunga at a capital expenditure of Rs100 million. Similarly, Rs100 million is being spent on debottlenecking at Kandla.

Odisha Plant -: IFGL is going to spend around Rs. 10 Cr  for Normal Capex & debottlenecking by H1/FY23.

Visakhapatnam Project

  • Company has acquired 10-acre freehold Land acquired for manufacturing of New products including Monolithics & Precast Shapes . 
  • Phase 1 (project cost of Rs. 30 Cr) has been completed in Q2FY22. 
  • Commercial production of Monolithics and Castables has commenced from September 2021. Installed capacity is 48,000 MT per annum. 
  • Phase 2 (project cost of Rs. 20 Cr) is expected to be completed by Q2FY23

Financials

For the Year ended FY 21

  • Net Sales at Rs 1022 crore in March 2021 up 11% from Rs. 917 crore in March 2020.
  • Net Profit at Rs. 66 crore in March 2021 up 247% from Rs. 19 crore in March 2020.
  • EBITDA stands at Rs. 157 crore in March 2021 up 70% from Rs. 92 crore in March 2020.
  • EPS stands at Rs. 18.20 crore in March 2021 up 237% from Rs. 5.40 crore in March 2020.
  • Total income, profit before tax, and profit after tax on a consolidated basis are up 12.30 percent, 314.51 percent, and 237.11 percent, respectively, compared to FY 2019-20. 
  • Total income, profit before tax, and profit after tax are up 29.44 percent, 183.22 percent, and 50.78 percent, respectively, for fiscal 2020-21. 
  • Return on Net Worth on a Consolidated and Standalone basis has improved by 4.96 percent and 2.24 percent, respectively, as a result of cost reduction and other efficiency-improving initiatives implemented by management, as well as factors favourable to the steel industry. 
  • Company remained net debt free on both a consolidated and standalone basis. 
  • Cash and Cash Equivalents comprising Investments (both Current and Non-Current and excluding Investment in wholly owned subsidiary) on a Consolidated and Standalone basis was Rs 3,219.13 million and Rs 1,745.12 million, respectively, as of March 31, 2021.

For the 2Q FY 22

  • Standalone, total income increased by 20% year-on-year to Rs. 201.5 crores. 
  • EBITDA was marginally down to Rs. 34 crores down by 6% year-on-year. 
  • EBITDA margin stood at 17.1% compared to 21.7% in the corresponding quarter. 
  • PAT was down by 13% yearon-year to Rs. 16.6 crore.
  • Total consolidated income increased by 26% to Rs. 314 crores. 
  • Consolidated EBITDA was marginally down by 1% to Rs. 40.7 crore. 
  • Consolidated EBITDA margin stood at 13% compared to 16.6% in the corresponding quarter. 
  • PAT was down by 3% to Rs. 20 crores.

For Subsidiaries

  • EI Ceramic our U.S. subsidiary, total income stood at $4.4 million up 13% year-on-year. 
  • EBITDA was USD $0.23 million down 51% yearon-year. 
  • PAT stood at $0.12 million down 63% year-on-year. 

Monocon, UK subsidiary, 

  • Total income stood at GBP 7.1 million up 5%. 
  • EBITDA stood at GBP 0.33 million up 50%. 
  • PAT was GBP 0.22 million up 82%. 

Hofmann Ceramics, German subsidiary, 

  • Total income was €1.97 million up 54% year-on-year. 
  • EBITDA stood at €0.15 million compared to loss of €0.07 million last year. 
  • PAT was €0.16 million compared to a PAT loss of €0.17 million last year.

In terms of liquidity, the company is net debt free, has a healthy balance sheet, and generates a lot of cash from operations. As of September 2021, cash and cash equivalents were Rs. 273 crores.

Sectorial Outlook

Steel accounts for 5% of refractory demand, and a rebound in steel demand following the epidemic is already seen, with a 28% increase in steel output in 1HFY22. This trend is projected to continue due to increased government expenditure on programmes such as national infrastructure projects, PLI schemes, Jal Jeevan Mission, housing schemes, and so on. New steel capacity worth 38 million tonnes over the next four years will also increase demand for refractories. Strong export demand for Indian steel as a result of China’s output limits would drive refractory demand even more. 

With a positive prognosis for steel demand from end-user sectors, steel makers have unveiled a capacity development plan that includes more than 35 million tonnes of additional steel capacity over the next 3.5 years. This equates to a 35% increase in steel capacity in India, which will almost certainly translate into additional demand for refractories. We think that, in addition to replacement demand and demand from increased utilisation at existing plants, additional capacity will result in significant volume growth for refractory producers.

With global steel demand at an inflection moment as a result of numerous nations emerging from the epidemic and several financial stimulus packages proposed, we anticipate considerable increase in refractory exports by Indian producers.

Conclusion

IFGL Refractories is a completely debt-free leading manufacturer of specialised flow control refractories, including isostatic, sliding gate, and continuous casting refractories used in primary and secondary steel production.

IFGL is predicted to achieve substantial profits growth in the following year. Steel drives 75% of refractory demand, and the post-pandemic rebound in steel demand is already seen, with a 28% increase in steel output in 1HFY22. The rise of the refractory business will be driven by the need for steel, which, as previously noted, is at an inflection point in India’s steel industry.

Some of the positive factors for IFGL include the recent addition of customers, particularly in mini mills (10-11 percent of revenue now as opposed to no presence previously), as well as the recruitment of industry veterans from peers at key positions, market share gains in domestic refractory business, and a favourable demand scenario from both the domestic and global steel industries.

One of the primary causes for the firm’s rapid sales momentum is the client acquisition in the previous two years, which has enabled the company sail over the difficult times of the pandemic. Looking at IFGL Refractories’ market share over the previous six years, it is one of the two top refractory producers that has shown significant market share gains.

Going forward, the new steel capacity of roughly 38 million tonnes to be added in the next time, as well as high export demand for Indian steel owing to Chinese production limitations, would further accelerate refractory demand, resulting in greater revenue and profitability for IFGL.

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