IFGL Refractories Limited
7,543words
148turns
11analyst exchanges
3executives
Management on call
Sahil Sanghvi
MONARCH NETWORTH CAPITAL
Kamal Sarda
DIRECTOR & CHIEF EXECUTIVE
James Mcintosh
MANAGING DIRECTOR – IFGL REFRACTORIES LIMITED
Key numbers — 40 extracted
1.1%
and refugee inflows. Steel demand and the defense developed what is this forecast to increase by 1.1% and 2.4% in 2022 and 2023 respectively after recovering by a quite a large 16.5% in 2021. Further
2.4%
gee inflows. Steel demand and the defense developed what is this forecast to increase by 1.1% and 2.4% in 2022 and 2023 respectively after recovering by a quite a large 16.5% in 2021. Further comments
16.5%
st to increase by 1.1% and 2.4% in 2022 and 2023 respectively after recovering by a quite a large 16.5% in 2021. Further comments regarding the main markets of IFGL business worldwide are as follows.
8%
ow its economy will maintain strong income although high inflation is a concern with inflation at 8% in February 2022 the highest since early 80s. The recovery is expected to continue in 2022 and 20
5.8%
and energy links with Russia. Russia is the fifth largest trade partner of the EU accounting for 5.8% of the EUs total trade in 2021. Energy takes the lion’s share of EUs import from Russia about 45%
45%
.8% of the EUs total trade in 2021. Energy takes the lion’s share of EUs import from Russia about 45% of the imports and 25% of of oil imports come from Russia. Italy and Germany appear the most vene
25%
ade in 2021. Energy takes the lion’s share of EUs import from Russia about 45% of the imports and 25% of of oil imports come from Russia. Italy and Germany appear the most venerable amongst the major
rs,
our expansion plans which aim to strengthen our possession in the currently supplied market sectors, expand the product line capabilities to invest in new products and Improve the technological capab
Rs.50 Crore
as mentioned by James in his comments. In FY2023 and FY2024 put together we plan to invest about Rs.50 Crores in our Odisha plant which includes almost Rs.20 Crores for the new research and technology centr
Rs.20 Crore
Y2024 put together we plan to invest about Rs.50 Crores in our Odisha plant which includes almost Rs.20 Crores for the new research and technology centre. We are also expanding facilities of our Kandla plant
Rs.44 Crore
gy centre. We are also expanding facilities of our Kandla plant with an approximate cost of about Rs.44 Crores and about Rs.65 Crores will be spent in new product lines in our Visakhapatnam plants. Our focus
Rs.65 Crore
expanding facilities of our Kandla plant with an approximate cost of about Rs.44 Crores and about Rs.65 Crores will be spent in new product lines in our Visakhapatnam plants. Our focus now remains to complet
Guidance — 20 items
“Steel demand and the defense developed what is this forecast to increase by 1.1% and 2.4% in 2022 and 2023 respectively after recovering by a quite a large 16.5% in 2021.”
“In the USA, which expects to grow its economy will maintain strong income although high inflation is a concern with inflation at 8% in February 2022 the highest since early 80s.”
“Steel demand will be supported by a recovery in nonresidential construction or to production and investment in the energy sector as well as capital investment projects as a consequence of the infrastructure boom.”
“We expect the raw material supply constraints in the international market will result in higher domestic market and the support of capital goods sector.”
“Construction at least will be affected by high material cost.”
“We continue our expansion plans which aim to strengthen our possession in the currently supplied market sectors, expand the product line capabilities to invest in new products and Improve the technological capability of our products and improve the cost effectives of our operations.”
“We have also started construction of new state of the art research and technology center which will be built within our core manufacturing location in Odisha.”
“Also our approach in the area of ESG will be strengthened and we have recently signed an agreement with a global consultant in this area which will focus initially on our Indian operations to bring our approach to consumption in the industry and then be rolled out globally.”
“At our locations in Germany, UK and the USA we are also investing in our manufacturing capability and we will share more about this in the forthcoming quarters once the investment approach is clear and still will be followed by our local management teams.”
“James but as the economy continues to expand we anticipate the need for refractories to remain buoyant with improved capacities and additional production capabilities, we aim to increase the businesses of scale leading to operating leverages benefit over the long run.”
Risks & concerns — 11 flagged
The World Steel Association forecasted that steel demand will continue to grow till 2022 and then till 2023 however the outlook for 2022 has weakened due to inflation of pressure which is probably enforced by the events surrounded by Ukraine the impact of the war EU due to high dependence on Russian energy and refugee inflows.
— James McIntosh
In the USA, which expects to grow its economy will maintain strong income although high inflation is a concern with inflation at 8% in February 2022 the highest since early 80s.
— James McIntosh
In Europe the impact of the war is expected to grow larger due to Europe’s close trade and energy links with Russia.
— James McIntosh
Sir firstly I wanted to understand what would be the potential impact of steel export duty on the refractory industry and have the capex of the steel industry can it get postponed for some time because of the duty?
— Gunjan Kabra
Sir also if you could bifurcate it would be great that growth in revenue between volume quarter- on-quarter and has the raw material pressure eased out its effect to the previous quarter?
— Gunjan Kabra
Sir I wanted to understand when are our American subsidiaries will stop underperforming even on a low base of last year, we have registered a decline year-on-year from Rs.15.5 Crores PBIT to Rs.4.4 Crores and the operating margin in this business is 2% and return on capital is 3% so why are we putting so much time, effort and management bandwidth over there?
— Keshav Garg
I think the quantity information are difficult.
— Kamal Sarda
My second question was regarding these two customers in Ukraine for which we have realized these provisions so on an annual basis what was the revenue that we got from these customers, which is at risk going ahead in FY2023?
— Sahil Sanghvi
Sir if I just compare the material cost to sales right so if I just do that so what am I saying is that our material cost to sale is increasing by 200 to 300 BPS, while both the other listed entities like of considerable size theirs got reduce by 200 to 300 BPS so I was just comparing that so what I thought anything on the pricing pressure or if we are passing it on to the customer of anything of that sort so if you could highlight?
— Vineet Gala
I do not know about them but definitely pricing pressure has been there.
— Kamal Sarda
I think we spoke extensively James in his speech has mentioned the impact of the price pressures including the ocean freight for all imports from China and the pricing pressure has been there and also he spoke of the timing difference between the cost increase and the time when the customer gets the increases there is always a time lag.
— Kamal Sarda
Q&A — 11 exchanges
Q
Sir thank you for the opportunity. Sir firstly I wanted to understand what would be the potential impact of steel export duty on the refractory industry and have the capex of the steel industry can it get postponed for some time because of the duty?
Kamal Sarda
I think what is our understanding is that this export duty is just to control the prices and the inflation and I think this should be pretty short term may be one month to three months time. It should not affect any performance of the industry as such and we have not heard any deferment of any capex plan. Sir also if you could bifurcate it would be great that growth in revenue between volume quarter- on-quarter and has the raw material pressure eased out its effect to the previous quarter? What is the outlook on the raw material side going forward? We do not have the figures between volume and
Q
Good afternoon Sir. Good evening. Could you give us the revenue, EBITDA and PAT for the three subsidiaries for the full year?
Kamal Sarda
Chirag can talk separately. Can I call you after this? Sure Sir, but the annual report would have these numbers in any case right? Annual report will have it yes. The printed annual report will have it. We can talk separate Chirag if it is okay with you. Sure that is fine.
Q
Sir congrats on a very good set of numbers. I just wanted to know what will be your capacity utilization for Q4 and full year FY2022.
Kamal Sarda
I think we were at about 80% plus levels. Okay and I would like to understand that we have done like Rs.360 Crores for this quarter so is it fair to assume that from going forward from here we would be on that run rate around Rs.350 odd Crores in quarterly results? I am sorry. I could not hear your question. Now that we are at 80%, I wanted to know is it fair to assume that we will have a quarterly run rate of Rs.350 odd Crores in sales? I think that will be our target yes. Okay and just last bit on the price hikes so have received all the price hikes or there are few price hikes that we might
Q
Thank you for the opportunity. My first question would be like this year our cash conversion is very low. Historically we have been a very cash rich company like converting all of our EBITDA into cash but this year it has been very disappointing to see that our whole cash has crunched into inventories and receivables? Any particular reason like any problem from the client side, we are not receiving the payments and all?
Kamal Sarda
Because of the logistics and all other situations we explained in our speech that there had been a shortage of raw material and there were some logistic issues and all. We had to keep high inventories and that is the reason the inventory has gone up and then you are seeing the cash conversion to be slightly different. Why are the receivables so high like it is like Rs.70 Crores, money is stuck in our receivables? Our sales have gone up. If you look at our sales have also gone up significantly. There are no bad issues there. So it would be recovered eventually? Yes. Everything will be recovered
Q
Sir I wanted to understand when are our American subsidiaries will stop underperforming even on a low base of last year, we have registered a decline year-on-year from Rs.15.5 Crores PBIT to Rs.4.4 Crores and the operating margin in this business is 2% and return on capital is 3% so why are we putting so much time, effort and management bandwidth over there? Why do not we just dispose off this business while the going is still good because as soon as the steel cycle turns this business might start making losses?
Kamal Sarda
James will you answer this or shall I? Sure. Could you repeat the question please? I think you said why do not we dispose off the business in the USA is that correct? Yes because this business is not giving us anything? No return on capital and no margin? I would say that is a correct statement perhaps the last financial year. We still managed to get margins but certainly not at the levels that one normally used to. The US businesses normally provide us with profitability which is amongst the highest levels in the group, but over the last year we have seen deterioration in that. We are very co
Q
Thank you Sir for the opportunity. I have a few questions? Sir can you please some insights on the refractory demand from Indian market?
Kamal Sarda
What do you want to know please? The refractory Sir demand for that? Demand. Yes demand? I think the current Indian market will be close to anywhere between Rs.12000 Crores to Rs.15000 Crores. That is I think, we have no authentic data, which I have, but I can only just give you the guess work. I think also Kamal and the Indian market is growing at pace which is larger than any other market. Certainly India is the number two producer of steel in the world. I think in 2022 the production will grow about 6.5% to 7% and in 2023, it will up from 7%. I think I am correct in saying. These are levels
Q
Good evening Sir and thank you for the opportunity. Sir firstly if you could give some more color on how the raw material basket be in currently? Has escalation in prices still stand abated or have they plateaued out?
Kamal Sarda
I think I just mentioned that for some raw material they have flattened. I think they are coming to a stable situation but there are some raw materials where the price is still increasing because you know that China the situation of COVID is still very unclear. They have on and off COVID related restrictions in some place or the other so till that situation I think the price for the next three to six months will remain for some raw material it will for some raw material it will remain on the higher end. Sir for the geographies what have been utilization levels currently for India, Europe and A
Q
Sir my first question is regarding Hoffman this year we have seen the margins remaining very healthy both in 12% and the last quarter was record high so what are the reasons for such healthy margins and how do we see this subsidiary in performance going ahead? What kind of margins can we maintain going ahead?
Kamal Sarda
James will you take this question. We believe that Hofmann over the past year, we have introduced a very dynamic young organization and as I think allowed us to grow the company on basis which we believe and will be able to sustain the kind of margins that we see today and in fact to grow these extended manufacturing investment which we hope to do during the coming year and we believe that obviously the product mix that we have there is such that we are benefited from the local customers in Europe reluctance to buy especially from China in the past a great focus of the European customers espec
Q
Thank you so the last two to three quarters other listed players have expanded their growth margins by around 200 to 300 bps on their base while our margins are under some sort of pressure so just curious to understand why is this happening?
Kamal Sarda
If you look at our Q4 notes to accounts we have taken a provision of Rs.14 Crores on account of Ukraine. I am talking about the gross margins so I am just comparing the material cost? Material cost ours has always been on a higher side only. It was never on a lower side so it all depends on the product mix. I do not know with whom you are trying to compare, but if you look at gross profit margins the way you are looking at, our gross profit margins are higher compared to the other two listed entities. Sir if I just compare the material cost to sales right so if I just do that so what am I sayi
Q
Thank you for the opportunity Sir. Sir just one question I had to ask like you are also entering into precast brick and monolithic? Basically we are the specialty refractory players so how it will impact our gross margins going ahead? Would it decrease or it would be stable around the same level?
Kamal Sarda
These are also profitable products. I know that these are profitable but specialty decrease we do not phase any competition from Chinese imports and we the market leaders in specialty, obviously they will come with more benefit and we will have more? Magnesia carbon manufacturing into India comes from the Atmanirbhar Bharat and Make in India plan so most of these steel companies today wants to buy products made locally so you will see in the next one to one and a half year time I think the entire magnesia carbon will be served by manufactures. That I am observing like Dalmia Refractories they
Q
Thanks for attending this call and it was wonderful question and answer session. Some of them, I think we could answer quite well and some if there are any queries you can contact our SGA Investor Relation Advisors and look forward to your participation in the next call. Thank you very much and have a nice evening.
Opening remarks
Sahil Sanghvi
Thank you Faizan. Good evening to all. On behalf of Monarch Networth Capital, we welcome you all for the IFGL Refractories Q4 FY2022 earnings call. We are delighted to host the management and from their side, we have their MD, Mr. James McIntosh and their CEO Mr. Kamal Sarda. So without any much time, I will hand over the call to Mr. James McIntosh for the opening remarks. Thank you and over to you James Sir!
James McIntosh
Thank you. Good evening ladies and gentlemen. Thank you for joining us on the IFGL Refractories Limited Q4 and FY2022 earnings conference call. I hope you and everyone around you are safe and in good health. Along with me on the call we have Kamal Sarda, Director and CEO and SGA, our Investor Relations Advisors. We have uploaded the results and presentation on stock exchanges and I hope everyone has had a chance to go through these. Now let me share some of the business highlights with you for the year that has gone by. During the year 2021-2022 our global business was impacted by the COVID-19 pandemic which led to disruptions to greater and lesser extents throughout the company worldwide. The pandemic combined with other well documented conditions resulted in disruptions to our global supply chains and caused unprecedented cost increases and a number of areas. Freight particularly for vessels originating in China used in supply of our products and receipt of raw materials for our manu
Kamal Sarda
Thanks James for the quick overview of the business. Let me give you a brief on the business performance for the financial year FY2021-FY2022. As you must have seen our company has recorded its highest ever revenue in FY2022 on the back of strong demand from India as well as from the international businesses however margins were impacted on account of sharp inflation in raw material, operating cost, freight and energy cost as explained by Mr. James but as the economy continues to expand we anticipate the need for refractories to remain buoyant with improved capacities and additional production capabilities, we aim to increase the businesses of scale leading to operating leverages benefit over the long run. Let me give you a brief update on the capex front as mentioned by James in his comments. In FY2023 and FY2024 put together we plan to invest about Rs.50 Crores in our Odisha plant which includes almost Rs.20 Crores for the new research and technology centre. We are also expanding fac