IFGLEXPORNSEQ1/FY2022August 17, 2022

IFGL Refractories Limited

4,890words

97turns

12analyst exchanges

3executives

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Management on call

James Mcintosh

MANAGING DIRECTOR, IFGL REFRACTORIES LIMITED

Kamal Sarda

DIRECTOR & CHIEF EXECUTIVE OFFICER, IFGL REFRACTORIES LIMITED

Navin Agrawal

HEAD, INSTITUTIONAL EQUITIES, SKP SECURITIES LIMITED

Key numbers — 31 extracted

30%

e all of these challenges, we have posted a very robust quarterly revenue growth year-on-year and 30% growth in our consolidated results and 38% growth in our stand- alone revenue, where we received s

38%

very robust quarterly revenue growth year-on-year and 30% growth in our consolidated results and 38% growth in our stand- alone revenue, where we received strong support from our customers worldwide

rs,

y complete the modernization of our website which is aimed at improving our interface with customers, prospective employees, suppliers, and all of our stakeholders. And our approach in the ESG will be

Rs. 226 crore

e financials. On the stand-alone, the total income increased by 38% and closing in the quarter at Rs. 226 crores. EBITDA was up by 3% year on year over Rs. 28.5 crores. EBITDA margins reduced to 12.6% compared

the total income increased by 38% and closing in the quarter at Rs. 226 crores. EBITDA was up by 3% year on year over Rs. 28.5 crores. EBITDA margins reduced to 12.6% compared to 17% in the corre

Rs. 28.5 crore

reased by 38% and closing in the quarter at Rs. 226 crores. EBITDA was up by 3% year on year over Rs. 28.5 crores. EBITDA margins reduced to 12.6% compared to 17% in the corresponding quarter. PAT was about Rs.

12.6%

Rs. 226 crores. EBITDA was up by 3% year on year over Rs. 28.5 crores. EBITDA margins reduced to 12.6% compared to 17% in the corresponding quarter. PAT was about Rs. 12 crores compared to Rs. 13.4 cr

17%

BITDA was up by 3% year on year over Rs. 28.5 crores. EBITDA margins reduced to 12.6% compared to 17% in the corresponding quarter. PAT was about Rs. 12 crores compared to Rs. 13.4 crores in the co

Rs. 12 crore

ores. EBITDA margins reduced to 12.6% compared to 17% in the corresponding quarter. PAT was about Rs. 12 crores compared to Rs. 13.4 crores in the corresponding quarter FY22. On the consolidated which inclu

Rs. 13.4 crore

ed to 12.6% compared to 17% in the corresponding quarter. PAT was about Rs. 12 crores compared to Rs. 13.4 crores in the corresponding quarter FY22. On the consolidated which includes all our subsidiaries in

Rs. 360 crore

which includes all our subsidiaries in the U.S. and Europe, the total income increased by 30% to Rs. 360 crores. The consolidated EBITDA was down by 3% to Rs. 34.5 crores. EBITDA margins were 9.6% compared to

Rs. 34.5 crore

e, the total income increased by 30% to Rs. 360 crores. The consolidated EBITDA was down by 3% to Rs. 34.5 crores. EBITDA margins were 9.6% compared to 12.9% in the corresponding quarter. PAT was about 14.6 cro

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Guidance — 15 items

James McIntosh

opening

“We started construction of a new state-of-the-art research and technology center which will be built in our core manufacturing location in Odisha.”

James McIntosh

opening

“And our approach in the ESG will be strengthened.”

James McIntosh

opening

“We have recently signed an agreement with our global consultants who live in this area which will focus initially on the Indian operations and then after that will be go out globally.”

Kamal Sarda

“Maybe, this is the primary reason but we still maintain that these margins which we said about 15% generally EBITDA margins over a period we will be able to maintain.”

Kamal Sarda

“All these pricing impacts will be discussed when the contract renewal takes place.”

Sanjay Nandi

“But sir, if we export something, rupee depreciation will be a support for us, right, sir?”

Kamal Sarda

“So, we will wait for 1 or 2 quarters more until we have more clarity, but our target is to remain at 15% plus EBITDA level.”

James McIntosh

“For example, if we were to look at the Visakhapatnam project, all of the expenditures that we plan to invest in Visakhapatnam are in new product areas for the company.”

Sahil Sanghvi

“You have addressed that a few of the capacities, especially Vizag will cater largely to exports, so do we still expect”

Sahil Sanghvi

“The proportion of exports from our stand-alone business will still hover around 55% to 60% going forward or do we expect to reduce that?”

Risks & concerns — 7 flagged

Unfortunately, the ongoing conflict between Ukraine and Russia continues to place us under pressure, particularly in the European operations with regard to the cost of gas.

— James McIntosh

And it's very important for us to stress, as we did in the last conversation that we have got a very robust and targeted CapEx expenditure – actually the largest in the company's history.

— James McIntosh

Overseas subsidiaries' operating costs also increased more than those of the parent company because of logistics that played a greater role, and consequently, there was a margin pressure on these entities as well.

— Kamal Sarda

This quarter, suddenly, the rupee depreciation, the continuous increase in freight cost, timing difference of price increase, and usual global slowdown in the steel industry affected all those things.

— Kamal Sarda

The gross margin decline is attributable to what factors?

— Lakshmi Narayanan

If you break the gross margin decline, which is usually the material margin would be around 50% plus, right?

— Lakshmi Narayanan

Again, it's very difficult to really target and understand is it due to any particular outside factors or is it just because of the normal close down which occurs in certain parts of Europe due to the vacation period.

— James McIntosh

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Q&A — 12 exchanges

My first question is that if I look at your gross margin, it used to operate in a particular band of 50+ right? And this quarter has been a little disappointment. If I look at on the next 3- to 5-year perspective, what is the band of gross margin you would like to operate and you think that is possible for you to hold on to?

Kamal Sarda

I think we still maintain the margins which we had told in the past. This quarter, suddenly, the rupee depreciation, the continuous increase in freight cost, timing difference of price increase, and usual global slowdown in the steel industry affected all those things. Maybe, this is the primary reason but we still maintain that these margins which we said about 15% generally EBITDA margins over a period we will be able to maintain. The gross margin decline is attributable to what factors? If you break the gross margin decline, which is usually the material margin would be around 50% plus, rig

Sir, could you help us understand how does the pricing work with the domestic customers? What I am looking for is what is the tenure of the contract? And what was the price hike that was taken probably in this quarter or at least in the last 6 months, if you could elaborate on that?

Kamal Sarda

The domestic contracts are generally on a 6 months to 1-year contract, but of late, it has been like a 3 to 6 months because the user industry wants a shorter term because of price volatility. We have got price increase in the last quarter, the quarter 4. This current quarter, we have got some price increase, but still we are talking to the customers. That is how these are negotiated on a…. Now, it is a short-term basis, it's like 3 months to 6 months term. Just a followup, if you can quantify the price hike? And in the event of the raw material prices, if they cool off, will we benefit from t

Sir, on a consolidated note, if we compare with the peers along with our company, we could find that we have a good healthy top line growth on a Y-o-Y basis. But if we compare the EBITDA, that margin has got dipped a bit significantly on a Y-o-Y basis whereas its peers have registered an uptick in the margins on a Y-o-Y basis. What is held responsible for arresting of our margins on a Y-o-Y basis? What has been the laggard for these things?

Kamal Sarda

If you look at our stand-alone results – you take both the things together – the impact is there on the stand-alone results. If you look at the EBITDA margins of stand-alone, they have reduced from 17% to about 13%. That has been transferred to the consolidated results. And on the cost impact, I think I mentioned already the impact on the gross margin. We have already discussed that. Sir, is it because of our product basket which we were trading like those are not…. I think I told in the previous thing that the cost increases are due to raw material price increase, the rupee depreciation vis-a

As has been explained by you in the opening commentary, just a followup to that. The raw material pass-on has happened completely or are we expecting any further reduction in margins and when are we going to again rejoin that band of 15% on a consolidated level? When can we see the improvement in the other geographies other than India? If you could outline to us where are we in the midst of that.

Kamal Sarda

I think most of that I have already answered in my previous comments. For the margin improvement, we will wait for quarter 2 and quarter 3 until we have clarity on the stability of the economic situation worldwide. You have the Ukraine-Russia war impacting everywhere. So, we will wait for 1 or 2 quarters more until we have more clarity, but our target is to remain at 15% plus EBITDA level. On the utilization level, since this is directly also proportional to the utilization levels, in the global geography, what kind of utilization levels are we expecting going ahead because of these vagaries i

I just have one question. The CapEx which we are incurring between '23 and '24, can you provide some color in terms of what product categories will these be towards? Is it primarily for the domestic market or is it a mix of domestic and exports? I am asking this on the backdrop because if we look at all players in the industry, both private and public let's say, everyone is going big on capacity expansion. So, just trying to understand, is there enough demand or other avenues available for this kind of capacity to be absorbed?

James McIntosh

For me, the CapEx that we have in the presentation, there is a slide that shows the breakdown of the CapEx according to the manufacturing plants. Obviously, from the point of view of manufacturing, our objective there is to improve our manufacturing capability and also expand our capacity. For example, if we were to look at the Visakhapatnam project, all of the expenditures that we plan to invest in Visakhapatnam are in new product areas for the company. These new product areas will undoubtedly benefit us both in India predominantly and to a lesser extent on the export side. For the Kandla pla

Can you please explain what exactly has impacted our performance at EI Ceramics where we are seeing margins dipping to almost break-even levels right now? Apart from these reasons that you have already provided for the stand-alone business, can you give me a bit more detailed explanation on what is happening and how are we handling that and how can we see some recovery over there?

James McIntosh

In EI Ceramics, we have now a good expansion in terms of the sales. Without a doubt, we are really being caught out with the scale of the cost increases that we face there. Not only the scale but also the speed at which they will hit the plant. I would say that we are certainly on an even keel from the point of view of understanding where we need to go. And that, I would say, for the next couple of quarters, we will see a gradually improving situation back to where we normally would be in terms of percentage profitability. Tremendous support where the customers are basically in such situation

Regarding the benefit of this R&D plant, I think Rs. 20 crores, if I'm not mistaken, is what we are investing. If you could give us some understanding as to what is the thought process going ahead? How is this R&D plan going to make a difference to the product profile for the company? Also, for our foreign companies, the other companies in the same geographies, at what time does they trade? We are at, I think, the book value of 259. We are trading at 1 time. If you could give us some color other listed companies in the different geographies if you have that data with you just to have a compara

Kamal Sarda

Can we discuss offline on this? You can give me a call later on. You can take SGA along with or Navinji in SKP and then we can talk. Because it's a big question, so we can talk separately.

My first question is regarding that I think there has been an event where we have sacked two Independent Directors. If the management could throw some light on the same? And there's one other thing that I would like to suggest to the management regarding during the calls a lot of times when the management is saying, I will just take this question privately, we will just have interview or conversation. In order to enhance the corporate governance, I would request the management to disclose the transcripts of all the private calls that are made.

Kamal Sarda

I am just taking the last question first. On the first question, I will let Mr. Jim answer to it. Why I said because there is a time limit to our taking these calls. We have set a time limit to this. Because this question was large, some of these questions will take a little longer time. That is why I said, okay, we can have a discussion separately. I don't have any intent not to tell you or not to tell them. Just because the questions large otherwise, keep on. That's the reason why I am taking this call…. If you ask a question what's the benefit of our research center, that's not a question w

Sir, my question is regarding the CapEx that we have outlined. Out of the 3 CapEx that we have mentioned, can you help us understand the timeline of each of the projects by when it is coming on? Also, if you can help us understand what is the total potential revenue that we can achieve out of this? And again, the timeline that we will be able to manage that?

Kamal Sarda

The timeline is already mentioned in the presentation which we have sent. FY24 is the timeline overall. I think that's what we have already mentioned in FY23 and FY24. They will come in phases. FY24 is the final timeline when we will complete our total expansion and the program. And on the top line growth, we normally take, say, a level of about 3 to 3.5x of CapEx. You can assume that 3x to 3.5x. It will take anywhere between 3 to 5 years' time till we reach that level. So, maybe you can keep an outer limit of 5 years. But on the timeline bit, it says FY23 and FY24 very broadly. Can we conside

What would be our capacity utilization for Q1 on a consolidated level?

Kamal Sarda

There are various companies at various product levels, like some of the product levels where we have capacity utilization could be anywhere between 85% and 90%, and some will have about, say 60% or so. Is it fair to say we are at 75%? Just sort of a ballpark number? Yes, you can average it out like that, yes.

We have a lot of cash on the balance sheet and we generate a lot of cash every year. So I just want to know, incrementally, how we are thinking about utilizing this cash. Because I think the CapEx plans we can fund via the yearly accruals itself. I just want to know are we looking out for any acquisitions? I just wanted your thoughts on this.

Kamal Sarda

I think we have mentioned in our presentation that the expansion which we are doing in India will be funded out of internal accruals as well as we will take some loans. And cash, we have in our balance sheet on various balance sheets today. That is there for any kind of opportunity to either acquire a company or maybe a major CapEx somewhere. That's the cash which we have in there. As of now, that is there in mind. But there is nothing on the horizon? No, we don't have anything to speak about right now.

I just wanted to understand the current status of the freight cost and raw material cost vis-a-vis the one which is being reported in the 1Q FY23 numbers. Have we seen any kind of easing on the freight and the RM cost post the completion of the quarter? Currently, what is the status?

Kamal Sarda

The increase of freight cost, the increase has stopped, I would say so. There is a nominal reduction which is being seen both in terms of the freight cost as well as – I would not say all – some raw material, but some raw materials have got increased. This has got impacted further, if you talk of the rupee depreciation because everything is majorly dollars. Rupee has depreciated by almost 8% to 8.5% in dollar terms. That has aggravated more than any kind of reduction which has happened. So, I would say in a nutshell, there has been an increase, and that is one of the reasons of the impact in t

Speaking time

Kamal Sarda

Moderator

James McIntosh

Sahil Sanghvi

Raj Shah

Navin B. Agrawal

Lakshmi Narayanan

Sanjay Nandi

Saket Kapoor

Viraj

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Opening remarks

Navin B. Agrawal

Good afternoon ladies and gentlemen. It's my pleasure to welcome you on behalf of IFGL Refractories Limited and SKP Securities to this financial results conference. We have with us Mr. James McIntosh – Managing Director and Mr. Kamal Sarda – Director & CEO with us. We will have the opening remarks from Mr. James McIntosh, followed by a Q&A session. Over to you, Mr. McIntosh.

James McIntosh

Good evening, ladies and gentlemen. Thanks for joining us on this conference call. I hope you and everyone around you are safe and in good health. Along with me on the call, we have Mr. Kamal Sarda, the Director & CEO of IFGL and SGA, our investor relations advisors. We have uploaded the results of the presentation on the stock exchanges, and I hope everyone has had a chance to go through these. Let me share some business highlights. In Q1 FY'23, we witnessed some normalcy in the business operations globally as the intensity of COVID reduced. However, the challenges we highlighted in the last quarter to the global supply chains remain. Those are cost increases and freight, remain high, particularly from (Inaudible) 2:06 China. And obviously, this is used in raw materials for supply of our plants worldwide and receipts of products from our manufacturing plants in China and sold to our customers worldwide. We have cost increases in all the raw materials and plant consumables and componen

Kamal Sarda

Thanks, Jim, for the quick overview of the business. Let me give you a short brief on the business performance. Revenue of quarter 1, as James said, there is a strong growth in India as well as overseas on the basis of some increased prices, increased volumes and a good order book from the customers. Profitability was impacted on account of the raw material prices, operating expenses including logistics, energy charges and all that and also the foreign exchange – the rupee depreciation vis- a-vis dollar. Overseas subsidiaries' operating costs also increased more than those of the parent company because of logistics that played a greater role, and consequently, there was a margin pressure on these entities as well. I will give you a small brief overview of the financials. On the stand-alone, the total income increased by 38% and closing in the quarter at Rs. 226 crores. EBITDA was up by 3% year on year over Rs. 28.5 crores. EBITDA margins reduced to 12.6% compared to 17% in the correspo

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