IFGLEXPORNSEQ2/FY2022-23November 15, 2022

IFGL Refractories Limited

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78turns

11analyst exchanges

3executives

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Management on call

James Mcintosh

MANAGING DIRECTOR – IFGL REFRACTORIES LIMITED

Kamal Sarda

DIRECTOR & CHIEF EXECUTIVE

Sahil Sanghvi

MONARCH NETWORTH CAPITAL

Key numbers — 29 extracted

6.1%

our company are India, as the number two supplier or producer in the world. It grew is growing at 6.1% in 2022 and is predicted to grow by a further 6.7% in 2023, taking us to over 120 million metric

6.7%

producer in the world. It grew is growing at 6.1% in 2022 and is predicted to grow by a further 6.7% in 2023, taking us to over 120 million metric tons. And the USA, where growth by 2.1% in 2022

120 million

is growing at 6.1% in 2022 and is predicted to grow by a further 6.7% in 2023, taking us to over 120 million metric tons. And the USA, where growth by 2.1% in 2022 and then a further 1.6% in 2023 is pred

2.1%

y a further 6.7% in 2023, taking us to over 120 million metric tons. And the USA, where growth by 2.1% in 2022 and then a further 1.6% in 2023 is predicted. As regards to our company, our new res

1.6%

to over 120 million metric tons. And the USA, where growth by 2.1% in 2022 and then a further 1.6% in 2023 is predicted. As regards to our company, our new research and technology center in Odisha

rs,

th the recently introduced corporate identity and is aimed at improving our interface with customers, prospective employees, suppliers and other stakeholders. Going ahead, we expect with enhanced ca

f the financial highlights of Q2 FY '23. On the stand-alone side, total income in Q2 increased by 8% on a Y-on-Y basis, while it was down by 3% on a quarter- on-quarter basis to INR 218 crores. EBITD

the stand-alone side, total income in Q2 increased by 8% on a Y-on-Y basis, while it was down by 3% on a quarter- on-quarter basis to INR 218 crores. EBITDA in Q2 FY '23 was down by 13% on a Y-on-Y

INR 218 crore

in Q2 increased by 8% on a Y-on-Y basis, while it was down by 3% on a quarter- on-quarter basis to INR 218 crores. EBITDA in Q2 FY '23 was down by 13% on a Y-on-Y basis, while it was 4% up on a Q-on-Q basis. EB

13%

t was down by 3% on a quarter- on-quarter basis to INR 218 crores. EBITDA in Q2 FY '23 was down by 13% on a Y-on-Y basis, while it was 4% up on a Q-on-Q basis. EBITDA margins stood at 13.6%. PAT was d

rter basis to INR 218 crores. EBITDA in Q2 FY '23 was down by 13% on a Y-on-Y basis, while it was 4% up on a Q-on-Q basis. EBITDA margins stood at 13.6%. PAT was down by 16% on year on year basis

13.6%

was down by 13% on a Y-on-Y basis, while it was 4% up on a Q-on-Q basis. EBITDA margins stood at 13.6%. PAT was down by 16% on year on year basis, while it was up by 17% on a quarter-on-quarter bas

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Guidance — 20 items

James McIntosh

opening

“As a result, the World Steel Association has revised the steel demand forecast down in its October short range outlook.”

James McIntosh

opening

“The forecast for the top 10 steel nations show a short-range outlook for finished steel production, most nations showing contractions in 2022, followed by a slight correction in 2023 to some degree.”

James McIntosh

opening

“As regards to our company, our new research and technology center in Odisha is on track to be operational in the first half of 2023.”

James McIntosh

opening

“Many of the new products will be new to India, and will improve our customer process yields and our little margin contracts.”

James McIntosh

opening

“In the UK, our largely automated manufacturing system for activated gel casting project is almost ready to go with robots already installed and being programmed, allowing us to manufacture larger, more complex and higher-value products than before.”

James McIntosh

opening

“Going ahead, we expect with enhanced capability and new product introductions to improve the scale of the business, which will lead to operating leverage in the long term for the company.”

Jainam Gelani

“So basically, what will be the capacity addition from a new capex at Kandla and Visakhapatnam?”

Kamal Sarda

“Phase 3 will be coming in casting flux, which will be about 14,000 tons per year.”

Jainam Gelani

“So we can expect that quarter four of FY '24, like end of FY '24 for them to -- operationalize?”

Kamal Sarda

“We cannot estimate what will be the basic debt levels.”

Risks & concerns — 10 flagged

As we all know, the global economic environment has deteriorated significantly in 2022 as inflation risk fully materialized along with other major headwinds, namely the Russia, Ukrainian war, and China lockdowns.

— James McIntosh

The Russia, Ukraine war exacerbated the inflationary pressure that was ignited by the post-lockdown supply and demand imbalances as the war disrupted energy and food supplies with a normalization of supply chains.

— James McIntosh

In the USA, the Fed's aggressive interest rate hikes and strong US dollar are propelling with recessions and will have a ripple effect on the rest of the world for capital outflows in the emerging economies, increasing the financial stress of embedded countries and consumers.

— James McIntosh

For the USA, we think, again, there's a bit of a slowdown at the moment on the steel making front.

— James McIntosh

So what could be sustainable margin levels over year -- and volatile – yes?

— Sahil Sanghvi

So raw material rates are mainly, there has been impact of the ocean freight of the inward ocean freight of the imported raw materials.

— Kamal Sarda

And second question is, do you further see our EBITDA margin compression in view of rising inflation going ahead?

— Aditi Sawant

Do you further see EBITDA margin compression in the view of rising inflation going ahead?

— Aditi Sawant

Only thing is that some of the countries where there's an issue of energy and all, there's a slowdown in Europe and some of the other countries.

— Kamal Sarda

So basically, when the company is having excess cash and has no debt at all on the book, so then why don't we use this opportunity when our margins are under pressure to buyback and extinguish our shares?

— Mohit Rathi

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Q&A — 11 exchanges

Congratulations for having a great set of numbers. I just had one -- like two questions. So basically, what will be the capacity addition from a new capex at Kandla and Visakhapatnam? And initially, I guess, it was supposed to be over by quarter 1 of FY '23. So sir, could you please tell me what has caused a delay in our capex plans?

Kamal Sarda

So capacity additions in various plants there are several products which we are going into. The Kandla plant capacity is getting doubled in the isostatic refractories. And in the Vizag plant, in the precast shapes, we are talking of almost 800 tons per month, which is about 10,000 tons per year. And then the phase 2 will be coming. Phase 3 will be coming in casting flux, which will be about 14,000 tons per year. So I think some of these have got marginally delayed because of the ongoing COVID situations also, at that point of time and some delays have happened due to order finalisation. I thin

I just have a couple of questions. Firstly, being debt is almost rising. It is more than twice of your pre-COVID time. What is the steady state debt in your opinion? And how do you see it progressing over the coming years?

Kamal Sarda

I think debts are rising in terms of only working capital debt, which are there. It's primarily because of a huge inventory build-up and some of the debtors, we had delays in usual debt. And then overall, our volume of business has also gone up in the last one, one and half years. So these are linked. We cannot estimate what will be the basic debt levels. So my next question is, is there a possibility of Krosaki selling their approximately 15.5% stake in the open market? We don't know.

My first question was can you share which are a top five clients and what would be their approximately revenue contribution?

Kamal Sarda

I said we don’t have the ready figures with me right now. And sir, can you tell us what could be the sustainable level of EBITDA margin on standalone and consolidated levels? Anywhere between 14% to 17%.

Can you provide a breakup of the revenue in terms of domestic and export for Q2 FY '23?

Kamal Sarda

I think I mentioned in the previous call, it's almost 50% of export. And just as a general flavour, how is the domestic market compared to the international market, which is performing better for us, at least some colour on that? Yes. In this quarter, the domestic market was better than export because export has slowed down a bit. And on that front, any future outlook on our three international subsidiaries? Jim, I think if you can take this call? Yes. I mean, obviously, the two European subsidiaries, Monocon in the UK and Hofmann in Germany. We believe the next quarter will be quite challengi

So my first question is, if you look at the consolidated cash flow, I think we had a capex outflow of around INR 50 crore, roughly in the first half. And similarly, in the standalone valuation, we see about INR 25 crores, INR 28 crores kind of a number. So could you please elaborate where the capex has been put in for the -- I mean, outside the standalone business? And what are we - - I mean, what is the purpose? And what are we expecting from there?

Kamal Sarda

Jim would you take the call on the international capex? Yes, the international capex, I covered the maybe briefly and what I was talking about, but we have a few areas that we've been working on and our plant in Germany. We have an expansion project going on where we are expanding the size of the manufacturing hall and this will declutter more than add capacity at the initial stages. And the British company, Monocon, we have a project for the activated gel casting system, which is our precast shape manufacturing center. And that's coming along nicely. We expect to finish that early in 2023.And

I have a couple of questions. First is, could you give us the revenue EBITDA and PAT for three subsidiaries for this quarter? And second question is, do you further see our EBITDA margin compression in view of rising inflation going ahead?

Kamal Sarda

Sorry, on the individual subsidiaries, I don't think we'll be able to give you any further details on what is presented in our presentation. So going into that granular level, we thought that it is not required. So what was your second question? On the inflationary aspects of -- for the subsidiaries. Do you further see EBITDA margin compression in the view of rising inflation going ahead? Yes. I think that -- I mean, of course, in the European and American markets, there is very high inflation for sure. However, we have been quite successful in achieving price increases to cover these inflatio

Sir, what do you plan to do with the excess of cash on the books? And how do you plan to utilize the same?

Kamal Sarda

We have a big capex plan as of now. So partially, it will be met by the term loan, but partially from our internal cash which we have. And further, I think, we have kept that for any future requirements. And sir, can you also provide us with your current order book position as on 30th September? Order, I don't think we have any issue with the orders. We don't maintain an order book as such. But we don't have any issue for the order, and our orders would be there. Only thing is that some of the countries where there's an issue of energy and all, there's a slowdown in Europe and some of the othe

Sir, I wanted to understand that, sir, have we added any new customers in India in the last quarter or even this financial year?

Kamal Sarda

No, not really. I think we are there almost on all the customers in India. So in that case, there is only scope for additional business from existing customers since we have already penetrated the domestic market? Yes. And sir, lastly, sir, if you could just give us some idea, sir, that our stock price is trailing below book value and we all know that the market price of the assets of the company will be far higher than the book value. So basically, when the company is having excess cash and has no debt at all on the book, so then why don't we use this opportunity when our margins are under pr

I wanted to ask, can you please share the capacity added in metric tons?

Kamal Sarda

In our Kandla plant, it is a number of pieces. We have the current capacity in 20,000 pieces per month. It will go to 40,000 pieces. And in Vizag, the phase II expansion will add 800 tons per month. And the phase III expansion will add about 1,200 tons per month.

I have two questions. Firstly, to meet our guidance of INR 1,600 crores in FY '25, a percentage of garment sales has to be 25%. So what is the incremental capex that we will incur with that? And also what is the current…

Kamal Sarda

Please come again with the question? Yes. So I was saying to meet our guidance of INR 1,600 crores, our percentage of garment sales has to be closed to 25%. So what is the incremental capex that we have to incur for that? And what is the current capacity utilization of garment business? Where did you get the INR 1,600 crores guidance, which we have. I think the company has not given any such guidance. Sorry, that’s a little mixed up. I'm asking the revenue growth led by price growth or volume growth? Is the revenue growth led by price growth or volume growth? I don't have the breakup as such.

Yes. So Jim, I'm giving the closing remarks. Thank you, everyone, for joining in this earnings call. I hope we have been able to answer most of your queries. We look forward to your active participation in the subsequent calls. For any queries or any questions you may have, you may contact SGA, our Investor Relations advisor. Thank you very much, and have a nice day.

Management

Speaking time

Kamal Sarda

Moderator

James McIntosh

Sahil Sanghvi

Jainam Gelani

Akash Mehta

Aditi Sawant

Raj Joshi

Mohit Rathi

Riya Verma

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Opening remarks

Sahil Sanghvi

Yes. Thank you, Chris. Good evening to all. on behalf of Monarch Networth Capital, we welcome you all for the IFGL Refractories Q2 FY '23 earnings call. We are delighted to host the management from IFGL today, and we have the Managing Director, Mr. James McIntosh; and the CEO, Mr. Kamal Sarda. So without taking much time, I'll hand over the call to Mr. James McIntosh for the opening remarks. Thank you, and over to you, James, sir.

James McIntosh

Okay. Thank you. Good evening, ladies and gentlemen. Thank you for joining us on the IFGL Refractories Limited Q2 FY '23 Earnings Conference Call. I hope you and everyone around you is safe and in good health. Along with me on the call, we have Mr. Kamal Sarda, Director and CEO of IFGL and SGA, our Investor Relations Advisors. We have uploaded the results presentation on the stock exchanges, and I hope everyone has had a chance to go through it. Let me start with the business highlights. As we all know, the global economic environment has deteriorated significantly in 2022 as inflation risk fully materialized along with other major headwinds, namely the Russia, Ukrainian war, and China lockdowns. The Russia, Ukraine war exacerbated the inflationary pressure that was ignited by the post-lockdown supply and demand imbalances as the war disrupted energy and food supplies with a normalization of supply chains. In particular, in Europe, we have dependence on Russian gas supply as high econo

Kamal Sarda

Thanks, James for the quick overview. Let me give a short brief on the performance of the company. Our company recorded its one of the highest ever revenue in H1 FY '23 on the back of strong demand from India as well as some of the international businesses. Our EBITDA margins were impacted on account of sharp inflation, increased operating expenses and foreign exchange variations. However, we are taking several cost optimization measures by implementing automations at various stages, which will benefit us to improve margins. Additionally, Indian demand remains a bright spot in the major steel market as the domestic consumption, as mentioned by James, is going to be very high in the next one year or so. So, also, in the coming months, a major catalysts in demand growth would be infrastructure investments, mainly ahead of the Indian elections in 2024. All these factors are expected to have a great demand of refractories and IFGL being one of the leading players is expected to benefit the

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