IFGL Refractories Ltd.… · specialized refractories and operating systems for steel industry, in...

$: IFGL Refractories Ltd.… · specialized refractories and operating systems for steel industry, in technical collaboration with Krosaki Harima Corporation of Japan, a subsidiary of$
January 5, 2018

IFGL Refractories Ltd.

Solid, stable, … ready for a ‘steely’ growth

CMP INR 309 Target INR 403 Initiating Coverage - BUY

SKP Securities Ltd www.skpmoneywise.com Page 1 of 22

Key Share Data

Face Value (INR) 10.0

Equity Capital (INR Mn) 360.4

Market Cap (INR Mn) 11,138.2

52 Week High/Low (INR) 354/294

1 month Avg. Daily Volume (BSE) 9,905

BSE Code 540774

NSE Code IFGLEXPOR

Reuters Code IFGLRF:NS

Bloomberg Code IFGLRF:IN Shareholding Pattern (Post Amalgamation)

72%

5%

23%

Promoter

FII/MF

Puiblic & Other

Source: Company

Particulars FY17 FY18E FY19E FY20E

Net Sales 7,655.7 8,131.1 8,911.3 9,822.9

Growth (%) 6.8% 6.2% 9.6% 10.2%

EBITDA 945.4 1,057.0 1,211.9 1,385.0

PAT 441.5 447.5 564.0 702.4

Growth (%) 5.3% 1.3% 26.1% 24.5%

EPS (INR) 12.3 12.4 15.7 19.5

BVPS (INR) 189.8 202.2 217.9 237.2

Key Financials (INR Million)

Particulars FY17 FY18E FY19E FY20E

P/E (x) 22.9 24.9 19.8 15.9

P/BVPS (x) 1.5 1.5 1.4 1.3

Mcap/Sales (x) 1.3 1.4 1.3 1.1

EV/EBITDA (x) 11.2 10.8 8.9 7.5

ROCE (%) 6.7% 6.6% 7.7% 9.0%

ROE (%) 8.2% 6.4% 7.7% 8.8%

EBITDA Mar (%) 12.3% 13.0% 13.6% 14.1%

PAT Mar (%) 5.8% 5.5% 6.3% 7.2%

Debt - Equity (x) 0.1 0.1 0.0 0.0

Key Financials Ratios

Source: Company, SKP Research

Company Background IFGL Refractories Ltd (IFGL), promoted in 1989 by Mr S.K. Bajoria of Kolkata produces specialized refractories and operating systems for steel industry, in technical collaboration with Krosaki Harima Corporation of Japan, a subsidiary of Nippon Steel Corporation. IFGL has expanded its reach and product basket through several strategic acquisitions over the last decade and has manufacturing plants located in India, China, Europe and America. It has recently completed its reverse merger with its subsidiary IFGL Exports Ltd (IEL). Investment Rationale

Favourable export demand Demand for refractories from European steel mills is expected to be better going

forward due to gradual pick up in steel production (steel demand in European region including UK is expected to grow by 2.1% to 206.5 mtpa in CY18) and improving macro situation (as is visible from the pick-up in GDP numbers). Since European region accounts for ~70% of IFGL’s exports from domestic operations and ~48% of revenues on a consolidated basis (including overseas subsidiaries’ net sales), we expect IFGL to benefit from improving demand situation in Europe.

Strategic Kandla location resulting in better margins IFGL’s Kandla plant is strategically located in Gujarat’s SEZ for better proximity

with export customers in Europe and Middle East. It helps in reducing freight cost due to lower transit time, resulting in lower receivable cycle, alongwith benefits like income tax exemption, tax savings on domestically procured raw materials and no duty on imported raw materials. Collectively, its is a substantial saving as reflected in FY17 EBITDA margins at 26.6% for IEL vs 10.1% for IFGL standalone.

Incremental capacity to drive volumes IFGL is in the midst of capacity expansion at Kandla unit from 1,60,000

pieces/year to 2,40,000 pieces/year at an investment of Rs 10 crores which is expected to get commissioned by FY19E. This expansion will be a game changer for IFGL as margins at Kandla is double of consolidated margins due to SEZ benefits and freight advantage on exports. We expect volumes & EBITDA at Kandla unit to more than double by FY20E. Exports from standalone operations (~35% share) should be substituted by Kandla gradually, improving margins at the standalone entity as it supplies more in the domestic market.

Acquisitions led to expansion of product mix IFGL has increased its presence in overseas market through several acquisitions

in the past few years, aimed at enriching product mix, access to new technologies, new markets and new customers. All subsidiaries are profitable and self-sufficient to fund their capex and maintenance requirement and have reported consistent performance. Every plant of the company's international subsidiary is dedicated for the local needs of steel industry except the Chinese plant.

Merger of IFGL with IFGL exports (IEL) to rationalize costs With a view to rationalize cost and improve overall margins, IFGL has recently

completed a reverse merger with IEL. Following the merger, IFGL’s 51% shareholding in IEL gets cancelled and to that extent profitability of merged IEL improved. Also, merger has been accounted following purchase method, resulting in Rs 267 crores as goodwill, which is to be amortised over a period of 10 years.

Strong free cash flow generation and low leverage IFGL’s EBITDA margins deteriorated significantly from 14.5% in FY14 to 12.7% in

FY17 due to 1) under utilization of capacities (slow down across steel industry) and 2) lower realisations. Margins are expected to improve gradually as revenues from Kandla unit picks up. Going forward, increase in volume, prices and cost control measures are likely to expand margins despite increase in costs. We expect IFGL’s consolidated EBITDA margins to improve to 14%+ by FY20E.

IFGL has a strong balance sheet with gross debt of Rs 0.8 bn and cash & cash equivalents of ~Rs 0.7 bn resulting in a net debt of ~Rs 0.1 bn at the end of FY17. D/E stands at an attractive level of 0.1x and is expected to improve further as no incremental capex is planned in near term.

Valuation

IFGL is well positioned to capitalize on the recovery in steel production in key markets of US/Europe/India (aided by regulatory support and demand revival) coupled with operationally sound high-quality global assets and a solid balance sheet with strong free cash flow visibility. We have valued the stock on the basis of P/E of 15x of FY20E EPS adjusted for goodwill write-off and recommend a BUY on the stock with a target price of Rs 403/‐ (~30% upside) in 18 months.

Analysts: Nikhil Saboo

Tel No: +91-33-40077019; Mobile: +91-9330186643

e-mail: [email protected]

Anik Das

Tel No: +91-33-40077020; Mobile: +91-8017914822

e-mail: [email protected]



Exhibit: Share of refractories by form & raw materials


Shaped, 55%

Unshaped,45%

Refractory share by form

Clay, 65%

Non Clay, 35%

Refractory share by raw material

Industry Snapshot Refractories are produced from non-metallic minerals and are used in internal lining of

industrial furnaces and posses capability to withstand heat and pressure. Refractories are

mainly of two types – shaped and unshaped (monolithics), used mainly by the steel industry

as a consumable in the internal linings of furnaces, kilns, reactors and other vessels for

holding and transporting metal and slag. It is also used in glass, cement, petrochemicals,

non-ferrous metals, thermal power plants, ceramic industry, etc.

Shaped refractories are characterized by fixed shapes with most common being rectangular

brick. Brick shapes may be divided into two — standard shapes and special shapes.

Standard shapes have dimensions that are used by most refractory manufacturers and are

applicable to kilns and furnaces of same type. Special shapes are customized for particular

kilns and furnaces. Shaped refractories are always machine-pressed and possess high

uniformity in properties. Unshaped refractories are without a definite form and are only

given shape upon application. They form jointless lining and are better known as monolithic

refractories.

Raw materials used to manufacture refractories are broadly classified into clay and non-

clay. Clay refractories consist of naturally occurring alumina silicate like fireclay, flint clay,

flint brick and high alumina, used to produce bricks and insulating refractories. Non-clay

refractories are made from non-clay materials and are classified into basic (made in the

form of bricks from magnesia, dolomite, chrome etc), extra high alumina, mullite (made from

kyanite, bauxite, alumina), silicon carbide and zircon.

Applications of refractories - Largely used in steel industry for furnace lining:

Applications of refractory materials are found in lining of plants that carry out thermal

processes such as melting, firing, heat treatment, heat recovery systems, heat insulation

and in transportation vessels. Steel industry accounts for ~60% of refractory consumption

globally and ~75% in the domestic market. In non-metallurgical industries (cement, glass,

nonferrous), refractories are mostly installed on fired heaters, hydrogen reformers, cracking

furnaces, incinerators, utility boilers, air heaters, ducting, stacks, etc. Non-ferrous industries

like copper and aluminium require high performance refractories in several equipments like

anode baking furnaces, induction furnaces, reduction pots, slag cleaning surfaces etc.

Glass industry also requires refractories in refiner, regenerator, dog-house and ports of

furnace.



Exhibit: Sector wise refractories demand

Source: RHI, SKP Research

Steel, 60%Non-Metallic , 15%

Non-Ferrous, 15

%

Others , 10%

Sector wise refractories demand - Global

Steel , 75%

Cement , 12%

Non-Ferrous

, 6%

Glass, 3%

Sector wise refractories demand - India

Exhibit: Global Refractories Market size

Source: Industry, SKP Research

$45.09 Bn $53.08 Bn

2016 2021Growing at CAGR

of 3.32%

>60% 42.5 Mn MT 15kg/tonne

Iron & Steel to contribute in Product-Demand in Volume Terms

Size of Refractories Market in 2016

Average consumption of Refractories per tonne in crude steel

Global refractory market estimated at ~USD 45 bn; expected to grow ~3% CAGR: Global refractories market valued at USD 45 bn in 2016 is expected to reach USD 53 billion

by 2021, witnessing CAGR of 5%. In terms of tonnage, the global market was at 42.5 million

metric tons per annum (mtpa) in 2016 and is expected to post a substantial growth over the

next 2-3 years. China enjoys ~50% of global refractory market and is expected to maintain

that. Growing forward, with rebound in global steel sector along with strengthening

economic conditions, we expect volume of refractories consumed to rise in the U.S.,

Western Europe, and Japan.

Domestic refractory industry - Strong growth within process flow: According to various

industry studies, Indian refractories market is estimated at ~Rs 70 bn with production of 1.2

mtpa in FY17 on an installed base of 2 mtpa (~60% capacity utilization, accounting for a

mere ~3% of global refractories market by volume). In India, the refractory industry is

fragmented with more than 150 players, of which, 15 to 16 are major players while the

remaining are small private players. Although the average consumption of refractories has

fallen from 19 kg per tonne of steel about five years ago to 13-15 kg on an average, the

scope for growth is good in case of established refractory players with strong product

portfolios in the steel flow control segment and catering to customised requirements of steel

companies.



This will be led by the thin castings segment, which is at ~15% of the current refractory

market, growing at ~50%, wherein players like VIL, ORL and IFGL have a strong

competitive advantage. The slump in the global steel market and a surge in imported

finished steel products have led to an oversupply of refractories and refractory minerals in

India. Domestic producers also have to contend with competition from low cost raw

materials, particularly from China.

Exhibit: Indian refractory industry—SWOT analysis

Strengths

- Increasing preference for quality & service (complete solution provider) - Global parentage of established players

Weaknesses - Declining consumption per ton of refractory for steel companies - Low pricing power - Raw material dependence on China

Opportunities

- Increasing production of primary producers with BOF set up - Import substitution of monolithic - Technological advancement among steel players - Steel under penetration in India

Threats - Tighter working capital during slowing steel cycle - Competition from Chinese players - Any possible disruption in Raw Material Imports from China

Source: SKP Research

Refractory industry - Raw materials sourcing: The industry is largely dependent on

imports for key raw materials like high grade alumina, bauxite, magnesite, silicon carbide,

etc. Raw material accounts for 50% of total production costs and roughly 70% of global

magnesite deposits are located in China, North Korea and Russia. Magnesia products are

mainly imported from China, because India does not have magnesite of high enough purity

to make refractory bricks – products, which only a handful of Indian companies make. Also,

other raw materials are imported from China, as quality of domestically produced raw

materials does not meet the standards required by the steel industry. Similarly, the

availability of high quality refractory clays is limited, while kyanite, sillimanite and alusite

remain unavailable from Indian suppliers.



Exhibit: Favorable Government Policies aiding Indian Steel Exhibit: New Steel Policy 2017…


Imposition of CVD for 5 years on import of certain Stainless steel products will boost domestic production.

Make in India and preference to Locally produced Steel in Projects

Increased focus and budgetary allocation towards R&D & Innovation

100% FDI through automatic route in Indian Steel

Reduction in Customs Duty on Plant & Equipment

Adoption of energy efficient technologies in the MSME steel sector to improve productivity

To facilitate R&D in the sector via setting up Steel Research and Technology Mission of India (SRTMI)Projects

Entire Demand of High grade automotive steel, electrical steel, special steels and alloys to be met ‘DOMESTICALLY

Increase per capita Steel Consumption to 160Kgs from current level of 60Kg by 2030

Targets to achieve 300MT of Steel Making by 2030

Demand Drivers:

Indian refractory sector is well placed to reap the benefits arising because of: (a) steady

rebound of global steel demand (b) sizeable growth potential as per capita consumption of

steel at 60 kg is a meagre one fourth of world’s average (217 kg) and one tenth of China’s

average (447 kg); (c) the National Steel Policy devised to enhance India’s steel capacity

2.5x to 300 mtpa by 2030; and (d) shift of steel production in favour of primary steel makers

with increasing quality, services and customised refractory needs to ensure maximum

safety, quality and productivity.

Exhibit: Growing Opportunities in India a positive Exhibit: World Steel Utilization levels improving

Source: Company, SKP Research Source: WSA, SKP Research

The government targets capacity addition of 100 GW under the

13th FiveYear Plan (2017–22)

Rural India is expected to reach per capita consumption of

12.11 kg to 14 kg for f inished steel by 2020

Automotive

Capital Goods

Infrastructure

Airports

Railw ays

Oil-Gas

Pow er

Rural India

The Automotive industry is forecasted to grow in size by USD

74 billion in 2015 to USD 260-300 billion by 2026

The capital goods sector accounts for 11% of steel

consumption w hich is expected to increase to 14/15% by 2025-

26 and has the potential to increase in tonnage & market share

The infrastructure sector accounts for 9% of steel consumption

w hich is expected to increase to 11% by 2025- 26

Estimated steel consumption in airport building is likely to grow

more than 20% over next few years

Crisil estimated that the railw ays sector could create business

opportunities w orth USD 99.65 billion

Oil and gas amongst major end-user segment accounted for

~34.4% of primary energy consumption in FY16

72%

72%

69%

69%

71%

70%

70%

68%

70%

71%

73%

74%

72%

74%

73%

73% 74%

73%

64%

66%

68%

70%

72%

74%

76%

May

-16

Jun

-16

Jul-

16

Au

g-1

6

Sep

-16

Oct

-16

No

v-1

6

De

c-1

6

Jan

-17

Feb

-17

Mar

-17

Ap

r-1

7

May

-17

Jun

-17

Jul-

17

Au

g-1

7

Sep

-17

Oct

-17

Capacity Utilization (%)

1



(In tonne) FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16CAGR (%)

(FY08-16)

China 327 409 438 476 487 540 519 489 493 5.3%

S. Korea 936 1077 1067 1143 1090 1038 1109 1110 1130 2.4%

Japan 416 503 499 504 503 514 534 497 493 2.1%

USA 193 258 258 286 306 302 335 299 283 4.9%

Russia 178 256 257 290 299 302 300 277 266 5.1%

Germany 343 441 451 506 466 472 492 487 500 4.8%

India 48 52 53 56 57 58 59 61 63 3.5%

World (average) 181 203 193 206 207 218 217 208 208 1.7%

Source: WSA, SKP Research

Exhibit: India hugely under penetrated in steel despite rising consumption (Kg)

Exhibit: Global Steel Production Growth


135.7

29.6 84.9

92.7

33.7

9.7 24

847

79.1140.8

33.6 85.2

96.5

36.2

11.1

27.2

891

84.1

0

200

400

600

800

1000

Euro

pean

Un

ion

Oth

er E

uro

pe

CIS

No

rth

Am

eri

ca

So

uth

Am

eri

ca

Afr

ica

Mid

dle

East

Asia

Ex I

nd

ia

Ind

ia

Jan-Oct 2016 Jan-Oct 2017

13.5% 0.4% 4.1% 7.4% 14.4% 13.3%

5.2%

6.4%

Figures in Mn MT

3.8%

The strongest driving factor will be growing per capita consumption of steel, which is

currently abysmally low compared to the global benchmark. Consequently, the refractory

industry is bound to be a big beneficiary of the expected huge uptick in the steel industry.

Within sub-segments, the 10 mtpa thin cast market, which constitutes ~15% of the industry,

is expected to grow at the fastest clip of ~50%, riding capacity expansion plans of players

and dynamics of the steel industry favoring this segment. India has lagged other major steel

producing countries in terms of intensity of steel use in overall economic activities or per

capita consumption of steel despite clocking a robust production growth.

Global steel demand to remain positive in CY17

The World Steel Association expects demand for steel to grow by 1.6% y-o-y in CY18 while

steel demand in China is expected to remain flat. Overall, steel demand will get boost from

higher demand in USA, India, Middel East and Africa. We believe that increased demand

from these countries will lead to higher steel production which will drive demand for

refectories, benefiting existing players like IFGL.

Domestic refractory demand to come back:

Over the last few years, domestic refractory industry has been witnessing muted

consumption growth (due to a fall in per tonne consumption for steel making on account of

technological advances) and faces strong import pressure with one fourth of the market

being serviced by net imports (mainly from cheap supplies from China which accounts for

two thirds of refractory imports in India). Demand for refractories in China is anticipated to



Exhibit: Refractory Companies Deal History

Year Acquirer Target Stake(%)Deal Size (Rs

Mn)

EV/EBITDA

(x)

2004 Sarvesh Refractroies Raasi Refractories 55% 10 8.3x

2005 Calderys, France ACE Refractories (from ICICI VF) 99% 5500 7.7x

2005 IFGL Refractories Ltd Monocon International Refractories Ltd, UK 100% 777 7.9x

2008 IFGL Refractories Ltd Hofmann Ceramic GmbH,Germany 96% 545 9.0x

2010 IFGL Refractories Ltd EI Ceramics 100% 616 5.7

2013 RHI AG Austria Orient Refractories Ltd 70% 3890 8.5x

2016 RHI AG Austria Magnesita Refratários S.A 45% 3157 7.9x


Exhibit: Refractory consumption dynamics across user industries

Key Industry Application Replacement Per tonne consumption Refractory requirements

Steel

BF(BOF, EAF,Casting Ladles,

Induction Furnaces, Pellet

rotary Kilns

20 minutes to 2

months

Global avg - 10-15Kgs. India

avg - 15 Kgs

Consumable product ( Systems and solutions

for complete refractory management)

Cement Kilns Annually 1 Kgs

Glass Glass Furnace Upto 10 years 4 Kgs

Non(Ferrous) Converters 1-10 yearsAluminium - 6 Kgs, Copper -

3 Kgs

Source: RHI PPT, SKP Research

Investment Goods (Longer replacement cycles,

Customized solutions based on the specif ic

requirements of various industrial production

processes, complete lining concepts)

drop to 21.4 mtpa (including export) by 2020, of which refractory for steel will hit about 10.5

mtpa as Chinese steel manufacturers have closed down ~150 mtpa of steel plants capacity

through consolidation. We expect industry growth to pick up due to scope for higher steel

production (backed by higher infra spend and expansion in per capita steel consumption)

and lessen dumping from the Chinese players. Recently, India and U.S have imposed anti-

dumping duties on the imports from China.

Consolidation to intensify in the refractory industry; paves way for price recovery and margin improvements:

The refractory industry is capital intensive in nature and is characterized by closely guarded

technology. The competitive environment and global excess capacities in refractory

production paves the way for a consolidation within the refractories industry in the medium

to long term. Especially in China, the world’s largest refractories market, the industry is

highly fragmented with more than 2,000 manufacturers. In accordance with the directive of

the Chinese government, local producers are sounding out their options for mergers. This

directive provides for a consolidation to roughly five companies of international size in the

coming years and will also put pressure on refractory producers outside of China to

consolidate. With expectations of increased demand of refractory in future and no new

capacity addition in pipeline, the gains of incremental volumes are expected to accrue to

existing players.

Replacement trend in steel industry driving demand

Refractory application and consumption favour replacement dynamics for 70% of the

business, leading to non-cyclical growth. Steel making requires maximum amount of

refractories (10-15 kg/tonne) with replacement requirement ranging from 20 minutes to 2

months. Steel industry demands complete refractory management and services driven

solutions from refractory makers. While cement industry is the next big user with annual

replacement requirement, non-ferrous and glass industries have longer replacement cycles.



Exhibit: Corporate Structure

Source: Company,SKP Research

IFGL Refractories Limited (formerly IFGL Exports Limited)3.604 Cr Equity Shares with a Face Value of Rs. 10 each

100%

Monocon Group Hofmann Ceramic EI Ceramics

Plants at Kalunga, Orissa, India+

Plant at Kandla SEZ, Kandla, Gujarat, India(earlier held 51% equity; now 100% owned)

IFGL Worldwide Holdings Limited

100%

100% 100%

UK / USA / China Germany USA

Exhibit: Key Milestones

1970 Indo Flogates founded (Jointly promoted by Flogates Limited of UK ).

1983 Started manufacturing facilities with slide gate refractories and systems for teeming of steel.

1993 IFGL Refractories Founded Collaboration with Harima Corp., Japan

Purchase of stake from Vesuvius.

Indo Flogates merged with IFGL Refractories.

2005 Acquired Monocon group at a cost of 9.5mn pounds with its plants located in Brazil, Taiwan, China, UK and USA.

2006 Acquired Goricon group in at a cost of 1.1mn pounds and later merged it with Monocon.

2008 Hoffman ceramics was acquired at a cost of 7mn euros for getting entry into foundries for supply of consumables.

2010Acquired EI Ceramics which has similar product basket as IFGL’s domestic operations but provided access to

key markets in Americas.

2012Subsidiary IFGL Exports started operations in FY13 (May 2012) with a capacity of 80k pcs/year and achieved

sales volumes of ~64k pcs in FY14.

2016Announced reversed merger of IFGL Export with IFGL announced (expected to complete by FY17-end) in 1:1

share swap ratio.

2017IFGL has completed a reversed merger with IEL. Following the merger, IFGL’s 51% shareholding in IEL gets

cancelled and to that extent profitability of merged IEL improve.

Source: Company,SKP Research

1999

Company Profile IFGL Refractories Ltd (IFGL), incorporated in 1989, is the flagship company of S.K. Bajoria

group, engaged in manufacturing of specialized refractories and operating systems for the

steel industry, having technical collaboration with Krosaki Harima Corporation of Japan

(KHC), a subsidiary of Nippon Steel Corporation. IFGL offers total solutions for refractory for

flow control in steel teeming and continuous casting of steel.

With focus on export markets, IFGL had set up a subsidiary named IFGL exports Ltd (IEL)

in 2012 at Kandla, Gujarat which is engaged in manufacturing of iso-statically pressed

continuous casting refractories with focus on exp. IFGL hold 51% stake in IEL followed by

20% stake held by KHC.

With a view to rationalize cost and improve overall margins, IFGL has recently completed a

reverse merger with IEL. Following the merger, IFGL’s 51% shareholding in IEL gets

cancelled and to that extent profitability of merged IEL improved. Also, merger has been

accounted following purchase method, resulting in Rs 267 crores as goodwill, which is to be

amortised over a period of 10 years.



Exhibit: IFGL plants in India – Capacity and freight differential for exports

IFGL- Kalunga (Plant), Orissa In Pcs IFGL- Kandla (Plant), Gujarat In Pcs

Continuous casting ref.(pcs/yr) 360000 Continuous casting ref.(pcs/yr) 160000

Slide gate ref. (pcs/yr) 300000 Slide gate ref. (pcs/yr) NA

Purge plugs, cast products (pcs/yr) 116000 Purge plugs, cast products (pcs/yr) NA

Unshaped (tpa) 24000 Unshaped (tpa) NA

Distance from port 400Kms Distance from port 50Kms

Plant set-up date 1990 Plant set-up date 2012


ParameterRevenue contribution (FY17)

Revenue contribution (FY19E)

Key competitors

Demand drivers

Increasing contribution from silica bricks and concast to boost margins.


Margin drivers

Growth in steel and cement industries to boost refractory demand.

IFGL has low traded goods portion in sales and hence has highest gross margins in the

industry.

100%

100%

Mainly used in steel, cement, glass manufacturing and other non-ferrous industries like

copper, aluminium, etc.

Orient Refractories, Vesuvius India,OCL Refractory.

Domestic and export markets

End market and top clients

Dependent on raw material imported from China.

Exhibit : IFGL - Business Mix

Geographic presenceExport markets: US, Europe, China , Czech Republic, Germany.

~77% of the total revenue is largely driven by sales from overseas customer. ~33% of the

total RM is imported. ~7% of the total revenue is driven by import trading (reporting losses).

~65% of the total domestic manufactured good is driven by integrated steel players (ISP).

Market position

Refractory

Plant Location:

The company has 8 manufacturing plants strategically located across the globe - India,

China, Europe and America. IFGL's plants cater to domestic demand especially in East

India, where major steel plants are located. Most of the key customers lie within

distance of 0-400 KM from the IFGL’s manufacturing site, which gives the company

logistical advantage. On the other hand, its Kandla facility is closer to the port in an

SEZ, which would cater to the export market.

Region-wise Revenue Mix:

IFGL operates in four geographical segments — India, Europe, Asia ex-India and

America. It enjoys a strong presence in export markets such as Brazil, China, Czech

Republic, Germany, UK and USA. IFGL's standalone operations accounts for ~40% of

its consolidated revenue, while sales from overseas customers account for ~50% of the

standalone operations through its plant at Kalunga, Orissa and Europe accounts for

~65% of sales from overseas customers. Overall, overseas market accounted for ~77%

of the IFGL's consolidated revenue.



Exhibit: Revenue Mix (%)- Consolidated


24% 25% 19% 21% 23% 23%

38% 39%51% 48% 41% 41%

10% 8% 7% 8% 12% 12%

24% 25% 23% 23% 24% 24%

0%

20%

40%

60%

80%

100%

FY12 FY13 FY14 FY15 FY16 FY17

India Europe Asia Ex India America

Strong Clientele:

The Company has got its plants spread across the Europe, USA, China, Latin America

and India. Apart from domestic steel majors like Jindal Steel, Adhunik, JSW Steel,

Bushan Steel, SAIL and Tata Steel, it supplies its products to the renowned steel maker

Arcelor Mittal and steel companies in Australia, New-Zealand and Middle East etc.



Exhibit: Domestic operations - Locational advantage

Plant Distance (In KM)

SAIL – Rourkela Steel Plant <10 KM

SAIL – Bhilai Steel Plant 400 KM

SAIL – Bokaro Steel Plant 250 KM

SAIL – Durgapur Steel Plant 350 KM

Jindal Steel and Power 150 KM


Exhibit: Capacity expansion planned at Kandla


Exhibit: Sales volumes at Kandla to double in 3 years


760

00 12

58

00 17

40

00

21

60

00

-30000

40000

110000

180000

250000

FY17 FY18E FY19E FY20E

Sales Volumes (pcs)

800

00 1

60

00

0

160

00

0 24

00

00

0

70000

140000

210000

280000

FY16 FY17 FY18E FY19E

Capacity In Pcs

Investment Rationale

Strategically located Kandla unit providing flexibility of supplying in export markets;

Capacity expansion to drive volume growth

IFGL’s Kandla plant (an SEZ) is strategically located in Gujarat which in close proximity to

export customers (European region & Middle East) which helps in reducing freight cost

(lower transit time) resulting in lower receibalbe cycle along with other benefits like income

tax exemption, tax savings on domestic procured raw materials and no duty on imported

raw materials. The Kandla plant started operations in FY13, specializing in continuous

casting product line with focus on exports to European markets, having production capacity

of 80,000 pieces/year (achieved sales volumes of ~76,000 pcs in FY17). The steel demand

in European Union is expected to grow by 1.4% to 164.3 mtpa in CY18, reflecting good

demand for specialized refractory products which augurs well for IFGL.

IFGL is in the midst of increasing the capacity of continuous casting refractories by 1,60,000

pieces/year (in phase-1 and phase-2) at its Kandla plant with an investment of ~Rs 160 mn,

funded through internal accruals, to cater to export market. With this capacity augmentation

plan, the capacity of the Kandla plant will go up from 80,000 pieces/year to 2,40,000

pieces/year by the end of FY19E. Phase-1 capacity of 80,000 pieces/year is already

commissioned in FY17 while phase-2 expansion is expected to get commissioned by

FY19E. Post expansion we expect the company to achieve utilization levels of 80%-85%

levels with sales volume to reach 2,16,000 pieces by FY19E. We note that, IFGL’s Kandla

unit has shown sharp jump in its operating profitability in FY17 (EBITDA margin of ~26%

vis-a-vis consolidated margin of ~12.7%) within fifth year of company’s operations which

demonstrates superior management quality and expertise in the refractory business.

Orissa plant located nearer to customer site; plant to cater domestic demand

IFGL has its main

manufacturing unit situated at

Kalunga, Orissa which is the

industrial belt of easten India.

These plants cater to the

domestic demand especially

in East India, where major

steel plants are located. Most

of the key customers lie

within distance of less than

400 KM from the IFGL’s manufacturing site, which gives the company logistical advantage.



Exhibit: Exports share in total standalone sales to reduce Exhibit: Capacity utilization at Orissa to improve

Source: Company, SKP Research Source: Company, SKP Research

72% 68% 68% 70% 73% 75% 78% 80%85%

0%

35%

70%

105%

FY

12

FY

13

FY

14

FY

15

FY

16

FY

17

FY

18E

FY

19E

FY

20E

Capacity Utilisation (%)

48%

49%

43%

50%

54%

58%

60%

62%

65%

52%

51%

57%

50%

46%

42%

40%

38%

35%

0%

20%

40%

60%

80%

100%

120%

FY

12

FY

13

FY

14

FY

15

FY

16

FY

17

FY

18E

FY

19E

FY

20E

Domestic Exports

IFGL’s flagship plant at Orissa (standalone operations) is expected to capture increasing

domestic demand and gradually reducing the share of sales from overseas customers in

total sales as sales from overseas customer will continue to get shifted to Kandla unit in

coming years. The freed up capacity at Odisha plant will allow for capitalizing domestic steel

sector growth as the integrated steel capacity coming on stream to drive volume for shaped

refectories segment.

IFGL is currently running at near full utilization levels for continuous casting refractories at

its Orissa plant and has an opportunity to increase its utilization in other shaped products

like slide gate refractories, purge plugs and cast products. Also, utilization in unshaped

refractories is expected to improve. Lower share of sales from overseas customers would

result in savings on freight coupled with higher utilization lead to lower fixed costs.

Domestic steel production is shifting to large steel mills, thereby improving demand outlook

for organised refractory producers. We see good demand visibility in the domestic market

as steel production is expected to pick up, led mainly by higher volumes from large steel

mills. IFGL derives ~65% of its domestic revenue from large steel mills and is expected to

be a key beneficiary of the gradual shift in domestic steel production to large steel mills.

IFGL has shown revenue CAGR of ~8% at its standalone operations during FY13-17 led by

better pricing, weak rupee benefitting sales from overseas customers revenue and

improvement in capacity utilization, but we expect revenue CAGR of ~5.2% during FY17-

20E on account of limited room for higher volumes (particularly in continuous casting

refractories segment which is almost completely utilized), reduced share of sales from

overseas customers going forward and low pricing power due to increased competition.

Acquisitions led to expansion of product mix

IFGL has increased its presence in overseas market through several acquisitions in the past

few years, aimed at enriching product mix, access to new technologies, new markets and

new customers. All subsidiaries are profitable and self-sufficient to fund their capex &

maintenance requirement and have reported consistent performance. Every plant of the

company's international subsidiary is dedicated for the local needs of steel industry except

the Chinese plant. The company does not cater to the local Chinese market, but is

predominately works as an export base for raw material of refractories.The Indian plant also

buys some raw material from China through this subsidiary.



IFGL acquired Monocon group in 2005 at a cost of 9.5 mn Pounds (Rs 560 mn) with its

plants located in Brazil, Taiwan, China, UK and USA. Monocon group provided IFGL

with wide range product basket (from Lances, Darts, Monolithics & Castables) and also

gave access to key large steel plants in Europe of steelmakers like Corus & Arcelor

Mittal.

IFGL acquired Goricon group in 2006 at a cost of 1.1 mn Pounds (Rs 70 mn) and later

merged it with Monocon as the companies had similar products and were competitors of

each other.

Hoffman ceramics was acquired in 2008 at a cost of 7 mn Euros for getting entry into

foundries for supply of consumables.

FGL bought EI Ceramics in 2010 which has similar product basket as IFGL’s domestic

operations but provided access to key markets in US. IFGL acquired EI Ceramics with

an eye on future expansion as it had space to increase capacity by ~3x. IFGL also

acquired CUSC international in US (later merged with EI) which was providing ancillary

services to EI including processing of raw materials, warehousing & packaging.

Overseas subsidiaries have seen steady improvements over the years and remain self

sustaining

IFGL has faced several challenges in managing the profitability and operations of its

overseas acquisitions due to global economic crisis in CY08 which impacted steel

production in US & Europe very severely. The slowdown resulted in removal of competition

from refractory players in EU & US and aggressive cost control measures helped the

industry to sail through bad times. Both Monocon and Hoffman group had EBITDA loss in

FY09 but management efforts into consolidation of key group entities (Goricon was merged

with Monocon) and closure of certain unviable facilities (Taiwan, Brazil plants of Monocon

were closed, Czech plant of Hoffman was closed) coupled with recovery in demand has led

to gradual improvement in profitability of company’s subsidiaries.

Demand for refractories from European steel mills is expected to be better going forward

due to gradual pick up in steel production and improving macro situation (as is visible from

the pick-up in GDP numbers). Since Europe (including UK) accounts for ~70% of IFGL’s

sales from overseas customers from domestic operations and ~48% of revenues on a

consolidated basis (including overseas subsidiaries’ net sales), we expect IFGL to benefit

from improving demand situation in Europe.

Exhibit: Snapshot of overseas acquisitions

Company

Acquired

Year of

acquisition

Purchase

Cost

(Rs mn)

Plant

LocationsProducts Markets Comments

Monocon Group 2005 560

UK,

US,

China

Refractory darts, lances,

monolithics

UK,

Europe,

China

Services key customers in

Europe like TATA steel UK,

Arcelor. Brazil plant closed and

Taiwan plat shifted to China.

Goricon Group 2006 70UK,

US

Darts, lances and ladle

PowderEurope Merged into Monocon

Hoffman

Ceramics2008 470 Germany

Refractory ceramics like

filters, feeders etcEurope

Supplies consumables to

foundries

EI Ceramics 2010 590 Ohio, USContinuous casting

refractories

US,

Canada,

Mexico

Acquired to gain traction in

America market




Exhibit: Revenue trend for overseas subs Exhibit: EBITDA margin has shown improvement

Source: Company, SKP Research Source: Company, SKP Research

862

1005

100

7

100

6

11

57

224

4

265

4

27

04

223

5

20

85

690

825

784

762

727

0

700

1400

2100

2800

3500

4200

4900

FY

13

FY

14

FY

15

FY

16

FY

17

EI Ceramics Monocon Group Hoffmann Ceramics

Rs Mn

13.6

% 16.2

%

15.7

%

10.5

%

15.9

%

5.1

%

9.1

%

8.4

%

4.9

%

8.6

%

5.1

%

4.9

%

9.0

%

10.4

%

10.4

%

0.0%

5.0%

10.0%

15.0%

20.0%

FY

13

FY

14

FY

15

FY

16

FY

17

EI Ceramics Monocon Group Hoffmann Ceramics

We note that Monocon group’s profitability has improved substantially during FY11-17 with

EBITDA CAGR of ~12% and improvement in margins/ROCE to 8.6%/10% in FY17.

Hoffman group has also returned to profits although margins remain low. IFGL’s acquisition

in US of EI Ceramics in 2010 has been rewarding and the company has performed

consistently well post acquisition and achieved PAT CAGR of ~11% during FY13-17. Since

EI Ceramics enjoys the best margins (~16%) among IFGL’s overseas subsidiaries, increase

in share of earnings from EI Ceramics is expected to lead to margin improvement for IFGL

at a consolidated level.

Sustainable competitive strength of IFGL’s refractory business with many entry barriers

IFGL possesses sustainable competitive strengths in refractory business which it has

conscientiously developed over a decade. Refractory business has significant entry barriers

which new entrants find challenging to break; ensuring the availability of incremental business

pie to existing players, of which only ~4-5 players with meaningful size exist in worldwide.

Industry’s competitive strength is driven by huge entry barriers in the form of:

High initial capital outlay and low turnover potential for a new entrant: Setting up new

refractory capacities are not only capital intensive but also provides very low turnover

potential with asset turnover well below 1x. Moreover, working capital requirements are high

in addition to high probability of rejection in early stages of product manufacturing.

Acceptability of refractories is the major entry barrier: Refractories being a low-cost

element in overall steel production costs, pricing is not a differentiating factor. It stated that

consistent supply is the most important entry barrier, as refractories have a critical role in

steel production. It takes years for its products to get an entry because steel players refrain

from changing their refractory suppliers frequently. IFGL has positioned itself as an

alternative to global players like Vesuvius/RHI, as steel players source refractories from

three-four players in order to avoid dependability on a single/few players.

Relationship oriented Industry: The industry is marked by a relationship and referral

based model. A new entrant has to prove the quality of its products by supplying to a steel

manufacturer and then get referral and word-of-mouth publicity from the manufacturer. The

entire process often takes several years, as the steel manufacturers are not inclined to try

out a new supplier.



Exhibit: Market Share (Domestic)

Company Market Share (%)Supply to Integrated

steel millsComments

Vesuvius India Ltd 10% 95%+

Leading supplier with wide product

basket, strong customer

relationships with large mills.

Orient Refractories (RHI) 7% 10%-15%Has developed a niche with mini

steel mills

IFGL Refractories (incl. IEL) 6% 65%+

Mainly into flow control shaped

refractories, good relationship with

large mills

Tata Refractories 16% NALargely into bricks supplies

(Commodity refractories)

Calderys 10% NA

Supply largely to non-ferrous

producers, strong in bricks and

monolithics

OCL 7% NA


Commodity Prices to remain stable

Alumina, Zirconia and Resin constitute close to half of the raw martial cost and a quarter of

the sale value; together with other raw materials the ratio of raw material to sales stood at

~47-50% during FY11-17. Raw martial prices are off the mean as the expectation of

proximity of commodity super-cycle driven by China remains distant. We expect the raw

material trend in the ratio to remain constant as the prices globally have normalised and

also due to local sourcing of raw materials. We believe the raw material to sales ratio to

reach to 46% of sales by FY20E.

Benefits of safeguard duties to flow in

India and U.S have recently imposed anti-dumping duties on the imports from China. We

believe that, this move is positive for IFGL, as the full benefits of antidumping duty will

accrue in FY18E, leading to a pickup in order inflow. Despite, the weak FY17, IFGL was

able to generate strong cash flow, and we expect the momentum to continue going ahead.

Growth ahead with limited incremental capex

IFGL has invested well in its global assets and it expects that, growth in the coming years

would be contributed by brownfield expansions at Kandla unit, improvement in steel

consumption globally, higher capacity utilisation and operating leverage at its subsidiary,

Hofmann Ceramics (expansion via debottlenecking) and increase in market share.

Expansion in Gujarat is likely to come at the cost of Rs 100-110 mn, while its annual

maintenance capex would be in the range of Rs 100-120 mn.

On track to increase market share

IFGL has achieved strong revenue CAGR in the last decade (higher than steel production

growth) led by acquisitions across the globe and change in product mix. IFGL was able to

increase its market share from 0.1% in FY05 to 0.5% in FY16, in the global refractory

market of ~USD25 bn. Given its scale of operations and presence in key markets, we

believe that, there is huge room for IFGL to increase its market share in the years to come.

Assuming global refractory market remains constant, every 10 bps increase in IFGL market

share would lead to incremental revenue of USD 25 mn.



Exhibit: Expect revenue CAGR of ~8.7% during FY17-20E led by pick-up in sales volume


4689.4

6038.5

6768.0

7810.0

7867.7

7169.7

7655.7

8131.1

8911.3

9822.9

28.8

12.115.4

0.7

-8.9

6.8 6.29.6 10.2

-30

-10

10

30

0.0

2500.0

5000.0

7500.0

10000.0

FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E

Revenue (Rs Mn) Growth (%)

Exhibit: EBITDA CAGR of ~14% during FY17-20E


410.7

739.3

627.0

1130.0

921.7

760.7

945.4

1057.0

1211.9

1385.0

8.8%

12.2%

9.3%

14.5%

11.7%10.6%

12.3% 13.0%

13.6%14.1%

0.0%

5.0%

10.0%

15.0%

20.0%

100.0

400.0

700.0

1000.0

1300.0

1600.0


EBITDA (Rs Mn) EBITDA Margin%

Strong Financial performance:

Consolidated top-line to grow at a CAGR of ~8.7% over FY17-20E on higher Volumes

The company has managed a reasonable top-line growth over the last 7 years (despite

lower capacity utilizations in the steel sector and de-stocking of inventories by steel

manufacturers) backed by strategic investments, foray into new geographies, increased

product portfolio and healthier industrial relationships. We expect IFGL to witness a turn-

around following an improvement in volumes backed by recent capacity expansions,

cyclical uptrend in the steel industry and continuation of anti‐dumping duty on Chinese

imports and assumed realizations improvement in FY18E, FY19E & FY20E. Driven by an

increase in capacity utilisation, IFGL’s revenues are expected to grow at ~8.7% CAGR over

FY17-19E to Rs 9.8 bn.

EBITDA margins to trend upwards

On the back of an improvement in capacity utilisation, we expect IFGL to enjoy economies

of scale. Steps taken by the company to control costs are expected to aid in expanding

operating margins from current levels. Going forward, in the next couple of years, margins

are expected to improve gradually as revenues from Kandla picks up. Also, increase in

volume, prices coupled with costs control measures are likely to aid in expansion of margins

despite increase in costs.



Exhibit: Strong free cash flow generation Exhibit: Gross debt & Debt/Equity Ratio


80

35

6

64

3

89

8

99

5

92

9

10

26

83

4 11

94

17

62

-200

200

600

1000

1400

1800

FY

12

1

FY

12

FY

13

FY

14

FY

15

FY

16

FY

17

FY

18

E

FY

19

E

FY

20

E

FCF (Rs Mn)

12

52

.5

13

03

.2

12

87

.0

11

69

.3

11

62

.1

83

7.3

75

0.0

46

3.2

22

9.1

15

0.5

0.7

0.60.5

0.3 0.3

0.20.1

0.10.0 0.0

0.0

0.2

0.4

0.6

0.8

-100.0

300.0

700.0

1100.0

1500.0

FY

11

FY

12

FY

13

FY

14

FY

15

FY

16

FY

17

FY

18

E

FY

19

E

FY

20

E

Gross Debt (Rs Mn) D/E Ratio (x)

Exhibit: PAT CAGR of ~17% during FY17-20E


237.9

390.3

27

4.7

632.7

531.3

419.2

441.5

447.5 564.0 702.4

5.2%

6.6%

3.8%

8.1%6.8%

5.8% 5.8% 5.5%

6.3%7.2%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

-600.0

-400.0

-200.0

0.0

200.0

400.0

600.0

800.0


PAT PAT Margin%

Earnings to grow 1.6x aided by better product mix and lower interest outgo

Net profit is expected to improve by ~1.6x on account of proactively managing production

schedules, cost control initiatives across facilities and strategically located Kandla unit

providing flexibility of supplying in export markets. Factoring in the above, we expect IFGL

to report PAT of Rs 448 mn in FY18E, Rs 564 mn in FY19E & Rs 702 mn in FY20E. In

FY17, there was reduction in PAT as financials were restated to account for Ind-AS and the

merger resulted in ~Rs 2.7 bn goodwill to be amortised over a period of 10 years, sharp

increase in networth and drop in return ratios on account of the same.

Strong free cash flow generation ahead with limited capex; Net cash status augurs well

for company

IFGL has high quality assets and expects incremental revenue of Rs 2–2.4 bn to Rs 10 bn

from its existing operations, assuming ~80-85% utilization versus ~55-60% now. The

company is expected to maintain capex of Rs 100-120 mn which is a minimal outgo for de-

bottlenecking the manufacturing facilities; allowing for faster ramp-up of production. As a

result, we see a strong free cash flow generation in the coming years. Due to the slowdown

in the steel industry, its debtor days have increased. Despite this, the company has been

able to generate return ratios of 8-9% in FY17.

Better working capital management led to a reduction in debt levels for the company. IFGL

boasts of a strong balance sheet with gross debt of Rs 0.8 bn and cash & cash equivalents

of ~Rs 0.7 bn resulting in a net debt of ~Rs 0.1 bn at the end of FY17. D/E stands at an

attractive level of 0.1x and is expected to improve further as no incremental capex is

planned in near term.




Exhibit: Valuation Charts

-2.0

4.0

10.0

16.0

22.0

28.0

Dec-1

1

Mar-

12

Jun

-12

Sep

-12

Dec-1

2

Mar-

13

Jun

-13

Sep

-13

Dec-1

3

Mar-

14

Jun

-14

Sep

-14

Dec-1

4

Mar-

15

Jun

-15

Sep

-15

Dec-1

5

Mar-

16

Jun

-16

Sep

-16

Dec-1

6

Mar-

17

Jun

-17

Sep

-17

Dec-1

7

Rolling forward P/E(x) chart

Fwd P/EPS Mean P/EPS P/EPS+1sd P/EPS-1sd

Valuations

IFGL is well positioned to capitalize on the recovery in steel production in key markets of

US/Europe/India (aided by regulatory support & demand revival) coupled with operationally

sound high-quality global assets, improvement in operational efficiencies, increased share of

higher-margin subsidiary and a strong balance sheet with free cash flow visibility. Given the

above factors, visibility of margins expansion and strong clientele augurs well for IFGL.

We have valued the stock on the basis of P/E of 15x of FY20E EPS adjusted for goodwill

write-off and recommend a BUY on the stock with a target price of Rs 403/‐ (~30% upside) in

18 months.

Risks & Concerns

Sharp slowdown in steel industry leading to lower volumes:

Like any other refractory company, IFGL’s fortunes depend on the steel industry and any

slowdown in global economy may hamper the steel industry’s growth and IFGL’s volume

growth would be more vulnerable. Sharp slowdown in the steel industry (vs expectations of

recovery) in coming years could lead to lower capacity utilization and lower than expected

volumes.

Dependent on raw material sourcing through imports:

The industry is dependent on imports of key raw materials like high grade alumina, bauxite,

magnesia, silicon carbide etc. China is the major supplier and has imposed heavy taxes on

export of raw materials of refractories. This has resulted in sharp increase in imported raw

material costs. IFGL sources ~52% of its raw materials through imports and remains

exposed to increase in costs which can impact its margins.

Currency Fluctuation

We believe that steady weakening of Rupee over the past couple of years has been

favourable to the industry as well as for IFGL due to better import substitution and higher

realizations on exports negated only to a partial extent by higher import costs for raw

materials. IFGL has 80% of its revenues coming from overseas on a consolidated basis. On

a standalone basis, approximately 58% of the revenues (FY14) came from overseas

customerss. Company’s revenues remain exposed to sharp appreciation of Rupee against

foreign currencies.



Particulars Q2FY18 Q2FY17 Y-o-Y (%) Q1FY18 Q-o-Q (%) H1-FY18 H1-FY17 Y-o-Y (%)

Net Sales 1,991.9 1,928.5 3.3% 1,977.5 0.7% 3,969.4 3,734.6 6.3%

Total Income 1,991.9 1,928.5 3.3% 1,977.500 0.7% 3,969.4 3,734.6 6.3%

Expenditure 1,724.4 1,634.5 5.5% 1,731.2 -0.4% 3,455.6 3,232.9 6.9%

Raw Material Consumed 936.9 879.9 6.5% 962.0 -2.6% 1,898.9 1,614.5 17.6%

(as a % of Total Income) 47.0% 45.6% 141 Bps 48.6% (161)Bps 47.8% 43.2% 461 Bps

Purchase of Traded goods 40.1 68.2 -41.2% 34.4 16.6% 74.5 266.8 -72.1%

(as a % of Total Income) 2.0% 3.5% (152)Bps 1.7% 27 Bps 1.9% 7.1% (527)Bps

Employees Cost 309.9 308.8 0.4% 325.7 -4.9% 635.6 618.3 2.8%

(as a % of Total Income) 15.6% 16.0% (45)Bps 16.5% (91)Bps 16.0% 16.6% (54)Bps

Changes in Inventories & WIP 14.8 (60.2) -124.6% 11.3 31.0% 26.1 (101.9) -125.6%

(as a % of Total Income) 0.7% -3.1% 386 Bps 0.6% 17 Bps 0.7% -2.7% 339 Bps

Other Expenses 422.7 437.8 -3.4% 397.8 6.3% 820.5 835.2 -1.8%

(as a % of Total Income) 21.2% 22.7% (148)Bps 20.1% 110 Bps 20.7% 22.4% (169)Bps

EBITDA 267.5 294.0 -9.0% 246.3 8.6% 513.8 501.7 2.4%

EBITDA M argin (%) 13.4% 15.2% (182)Bps 12.5% 97 Bps 12.9% 13.4% (49)Bps

Depreciation 107.1 105.3 1.7% 106.9 0.2% 80.0 78.0 2.6%

Goodw ill w ritten off 134.0 134.0

EBIT 160.4 188.7 -15.0% 139.4 15.1% 299.8 289.7 3.5%

Other Income 7.2 16.0 -55.0% 7.0 2.9% 14.2 32.2 -55.9%

Interest Expense 9.2 9.8 -6.1% 10.7 -14.0% 19.9 20.6 -3.4%

Profit Before Tax 158.4 194.9 -18.7% 135.7 16.7% 294.1 301.3 -2.4%

Income Tax 64.1 17.7 262.1% 23.4 173.9% 87.5 34.3 155.1%

Effective Tax Rate (%) 40.5% 9.1% - 17.2% - 29.8% 11.4% -

Profit After Tax (PAT) 94.3 177.2 -46.8% 112.3 -16.0% 206.6 267.0 -22.6%

PAT M argins (%) 4.7% 9.2% (445)Bps 5.7% (94)Bps 5.20% 7.15% (194)Bps

Diluted EPS 2.6 4.9 -46.8% 3.1 -16.0% 5.7 7.4 -22.6%

Exhibit: Q2FY18 Result Review Figs. in Rs M illion

Source: Company Data, SKP Research

Q2 FY18 Result Update



Exhibit: Balance Sheet

Particulars FY17 FY18E FY19E FY20E Particulars FY17 FY18E FY19E FY20E

Total Income 7,655.7 8,131.1 8,911.3 9,822.9 Share Capital 360.0 360.0 360.0 360.0

Growth (%) 6.8% 6.2% 9.6% 10.2% Reserve & Surplus 6,480.0 6,927.5 7,491.5 8,190.3

Expenditure 6,710.3 7,074.0 7,699.3 8,437.8 Shareholders Funds 6,840.0 7,287.5 7,851.5 8,550.3

Material Cost 3,098.2 3,268.7 3,582.3 3,948.8 Total Debt 750.0 463.2 219.7 141.0

Traded goods 522.0 593.6 623.8 668.0 Current Liabilities & Prov 1,400.4 1,439.3 1,359.7 1,406.1

Employee Cost 1,253.9 1,325.4 1,452.5 1,591.3 Total Liabilities 8,990.4 9,190.0 9,430.9 10,097.5

Admin & Other Exp. 1,836.2 1,886.4 2,040.7 2,229.8

EBITDA 945.4 1,057.0 1,211.9 1,385.0 Net Block inc. Capital WIP 3720.0 4276.6 4229.4 4177.2

Depreciation 175.0 182.0 197.2 202.2 Goodwill on Consolidation 1,090.0 1,090.0 1,090.0 1,090.0

Goodwill 267.0 267.0 267.0 267.0 Other Non Current Assets - - - -

EBIT 503.4 608.0 747.8 915.8 Non-Current Assets 3,940.4 4,075.5 4,414.5 5,242.8

Other Income 29.6 24.4 26.7 29.5 Inventories 940.0 968.9 977.4 1,151.6

Interest Expense 45.3 35.8 22.4 8.8 Sundry Debtors 2,280.0 2,041.7 1,913.4 2,150.3

Profit Before Tax (PBT) 487.8 596.6 752.1 936.5 Cash & Bank Balance 560.4 575.1 952.9 1,244.1

Income Tax 46.3 149.2 188.0 234.1 Other Current Assets 40.0 81.3 44.6 98.2

Profit After Tax (PAT) 441.5 447.5 564.0 702.4 Current Investments 120.0 408.4 526.3 598.6

Growth (%) 5.3% 1.3% 26.1% 24.5% Loans and Advances 240.0 252.1 303.0 412.6

Diluted EPS 12.3 12.4 15.7 19.5 Total Assets 8,990.4 9,190.0 9,430.9 10,097.5

Exhibit: Ratio Analysis

Particulars FY17 FY18E FY19E FY20E Particulars FY17 FY18E FY19E FY20E

Profit Before Tax (PBT) 488.3 596.6 752.1 936.5 Earning Ratios (%)

Depreciation 441.5 182.0 197.2 202.2 EBITDA Margin (%) 12.3% 13.0% 13.6% 14.1%

Finance Costs 32.6 35.8 22.4 8.8 PAT Margins (%) 5.8% 5.5% 6.3% 7.2%

Chg. in Working Capital (599.7) 264.9 (54.1) (447.8) ROCE (%) 6.7% 6.6% 7.7% 9.0%

Direct Taxes Paid 196.9 149.2 188.0 234.1 ROE (%) 8.2% 6.4% 7.7% 8.8%

Other Charges 145.1 35.8 22.4 8.8 Per Share Data (INR)

Operating Cash Flows 278.4 894.4 707.1 456.8 Diluted EPS 12.3 12.4 15.7 19.5

Capital Expenditure (133.4) (556.6) (47.2) (52.2) Cash EPS (CEPS) 26.1 26.5 30.2 34.1

Investments 22.2 (0.6) (16.2) (22.4) BVPS 189.8 202.2 217.9 237.2

Others 108.9 - - - Valuation Ratios (x)

Investing Cash Flows (2.3) (557.1) (63.3) (74.6) P/E 22.9 24.9 19.8 15.9

Changes in Equity - - - - Price/BVPS 1.5 1.5 1.4 1.3

Inc / (Dec) in Debt (35.9) (286.8) (243.5) (78.6) EV/Sales 1.4 1.4 1.2 1.1

Dividend Paid (inc tax) (5.5) - - (3.6) EV/EBITDA 11.2 10.8 8.9 7.5

Financing Cash Flows (41.4) (322.6) (266.0) (91.0) Mcap/Sales (x) 1.3 1.4 1.3 1.1

Net Cashflow 143.1 14.7 377.8 291.2 Balance Sheet Ratios

Opening Cash Balance 417.3 560.4 575.1 952.9 Debt - Equity 0.1 0.1 0.0 0.0

Cash flow drng the year 143.1 14.7 377.8 291.2 Current Ratio 2.1 2.3 2.3 2.3

Closing Cash Balance 560.4 575.1 952.9 1,244.1 Asset Turn. Ratios 1.0 0.9 0.9 1.0

Exhibit: Income Statement Figures in INR Million Figures in INR Million

Exhibit: Cash Flow Statement Figures in INR Million




Notes:

The above analysis and data are based on last available prices and not official closing rates. SKP Research is also available on Bloomberg and

Thomson First Call.

DISCLAIMER:

This document has been prepared by SKP Securities Ltd, hereinafter referred to as SKP to provide information about the company(ies)/sector(s), if any, covered in the report and may be distributed by it and/or its affiliates. SKP Securities Ltd., offers broking and depository participant services and is regulated by Securities and Exchange Board of India (SEBI). It also distributes investment products/services like mutual funds, alternative investment funds, bonds, IPOs, etc., renders corporate advisory services and invests its own funds in securities and investment products. We declare that no material disciplinary action has been taken against SKP by any regulatory authority impacting Equity Research Analysis. As a value addition to its clients, it offers its research services and reports in various formats to its clients and prospects. As such, SKP is making these disclosures under SEBI (Research Analysts) Regulations, 2014.

Terms & Conditions and Other Disclosures:

This research report (“Report”) is for the personal information of the selected recipient(s), does not construe to be any investment, legal or taxation advice, is not for public distribution and should not be copied, reproduced or redistributed to any other person or in any form without SKP’s prior permission. The information provided in the Report is from publicly available data, which we believe, are reliable. While reasonable endeavours have been made to present reliable data in the Report so far as it relates to current and historical information, but SKP does not guarantee the accuracy or completeness of the data in the Report. Accordingly, SKP or its promoters, directors, subsidiaries, associates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained and views and opinions expressed in this publication. Past performance mentioned in the Report should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information, opinions and estimates contained in this report reflect a judgment of its original date of publication by SKP and are subject to change without notice. The price, value of and income from any of the securities mentioned in this report can rise or fall. The Report includes analysis and views of individual research analysts (which, hereinafter, includes persons reporting to them) covering this Report. The Report is purely for information purposes. Opinions expressed in the Report are SKP’s or its research analysts’ current opinions as of the date of the Report and may be subject to change from time to time without notice. SKP or any person connected with it does not accept any liability arising from the use of this document. Investors should not solely rely on the information contained in this Report and must make investment decisions based on their own investment objectives, judgment, risk profile and financial position. The recipients of this Report may take professional advice before acting on this information. SKP, along with its affiliates, are engaged in various financial services and so might have financial, businesses or other interest in other entities, including the subject company or its affiliates mentioned in this report, for which it might have received any compensation in the past twelve months. SKP does not provide any merchant banking or market making service and does not manage public offers. However, SKP encourages independence in preparation of research reports and strives to minimize conflict in preparation of research reports. SKP and its analysts did not receive any compensation or other benefits from the subject company mentioned in the Report or from a third party in connection with preparation of the Report. Accordingly, SKP and its Research Analyst do not have any material conflict of interest at the time of publication of this Report. SKP’s research analysts may provide input into its other business activities. Investors should assume that SKP and/or its affiliates are seeking or will seek business assignments from the company(ies) that are the subject of this material and that the research analysts who are involved in preparing this material may educate investors on investments in such businesses. The research analysts responsible for the preparation of this document may interact with trading desk/sales personnel and other parties for the purpose of gathering, applying and interpreting information. Our research analysts are paid on the profitability of SKP, which may include earnings from business activities for which this Report is being used, but not for the preparation of this report. SKP generally prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any company(ies) that the analyst covers. Additionally, SKP generally, prohibits its analysts and persons reporting to analysts from serving as an officer, director or advisory board member of any companies that the analyst cover. The following Disclosure of Interest Statement, clarifies it further: SKP and/or its Directors/or its affiliates or its Research Analyst(s) engaged in preparation of this Report or his/her relative (i) do not own 1% or more of the equity securities of the subject company mentioned in the report as of the last day of the month preceding the publication of the research report (ii) do not have any financial interests in the subject company mentioned in this report (iii) do not have any other material conflict of interest at the time of publication of the research report. The distribution of this document in other jurisdictions may be strictly restricted and/ or prohibited by law, and persons into whose possession this document comes should inform themselves about such restriction and/ or prohibition, and observe any such restrictions and/ or prohibition.

SKP Securities Limited is registered as a Research Analyst under SEBI (Research Analyst) Regulations, 2014 having registration no. INH300002902.



Analyst Certification

The views expressed in this research report accurately reflect the personal views of the analyst about the subject securities or issues, which are subject to change without prior notice and does not represent to be an authority on the subject. No part of the compensation of the research analyst was, is, or will be directly or indirectly related to the specific recommendations and views expressed by research analyst in this report. The research analysts, strategists, or research associates principally responsible for preparation of SKP research receive compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

Disclosure of Interest Statement

Analyst ownership of the stock NIL

Served as an officer, director or employee NIL

SKP Securities Ltd

Contacts Research Sales

Mumbai Kolkata Mumbai Kolkata

Phone 022 4922 6006 033 4007 7000 022 4922 6000 033 4007 7400

Fax 022 4922 6066 033 4007 7007 022 4922 6066 033 4007 7007

E-mail [email protected] [email protected] [email protected]

Member: NSE BSE NSDL CDSL

INB/INF: 230707532, NSECDS – NSE230707532, BSE INB: 010707538, CDSL DPID: 021800, IN-DP-155-2015, NSDL DP ID: IN302646, IN-DP-NSDL: 222-2001, ARN: 0006

Institutional & Retail Broking Wealth Advisory & Distribution Investment Banking

IFGL Refractories Ltd.… · specialized refractories and operating systems for steel industry, in...

Documents

Transcript of IFGL Refractories Ltd.… · specialized refractories and operating systems for steel industry, in...