IFGLEXPORNSEQ3/FY2021-22February 16, 2022

IFGL Refractories Limited

6,369words

127turns

9analyst exchanges

3executives

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Management on call

Navin Agarwal

HEAD, INSTITUTIONAL

Kamal Sarda

DIRECTOR & CHIEF EXECUTIVE

James Mcintosh

MANAGING DIRECTOR – IFGL REFRACTORIES LIMITED

Key numbers — 38 extracted

rs,

n India. Our domestic steel production has witnessed very strong demand growth in the past few years, which will continue for the long term. In support of this statement, I think one of the most impor

34%

think one of the most important matrices is the per capita steel consumption for India, which is 34% of the world average and only 14% of China average. We have also in recent times seen a very stro

14%

atrices is the per capita steel consumption for India, which is 34% of the world average and only 14% of China average. We have also in recent times seen a very strong bounce as many of the world eco

Rs.10 Crore

l Sarda: Thanks. Let me give you a short brief on the capex. In FY2023, we planned to spend about Rs.10 Crores in our Odisha plant and also in our Kandla plant. At Visakhapatnam, the phase one where we have

Rs.20 Crore

dy announced the commercial production. The phase two expansion, we are talking of spending about Rs.20 Crores and it should be completed by FY2023. Our focus remains to complete these capex and projects in

ive you a brief of the financial highlights. On a standalone basis, the total income increased by 8% year-on-year to Rs.196.5 Crores. Sequentially, it was down by 2%. EBITDA was down by 19% to Rs.35

Rs.196.5 Crore

the financial highlights. On a standalone basis, the total income increased by 8% year-on-year to Rs.196.5 Crores. Sequentially, it was down by 2%. EBITDA was down by 19% to Rs.35.1 Crores. EBITDA margins stood

s, the total income increased by 8% year-on-year to Rs.196.5 Crores. Sequentially, it was down by 2%. EBITDA was down by 19% to Rs.35.1 Crores. EBITDA margins stood at 17.9% compared to 23.8% in Q3

19%

ased by 8% year-on-year to Rs.196.5 Crores. Sequentially, it was down by 2%. EBITDA was down by 19% to Rs.35.1 Crores. EBITDA margins stood at 17.9% compared to 23.8% in Q3 corresponding quarters.

Rs.35.1 Crore

by 8% year-on-year to Rs.196.5 Crores. Sequentially, it was down by 2%. EBITDA was down by 19% to Rs.35.1 Crores. EBITDA margins stood at 17.9% compared to 23.8% in Q3 corresponding quarters. However, it incre

17.9%

equentially, it was down by 2%. EBITDA was down by 19% to Rs.35.1 Crores. EBITDA margins stood at 17.9% compared to 23.8% in Q3 corresponding quarters. However, it increased from Q2 FY2022 margin of 17

23.8%

s down by 2%. EBITDA was down by 19% to Rs.35.1 Crores. EBITDA margins stood at 17.9% compared to 23.8% in Q3 corresponding quarters. However, it increased from Q2 FY2022 margin of 17.1%. PAT was also

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Guidance — 20 items

Kamal Sarda

opening

“We expect the demand for the refractories to be steady and growing with the continuous unlocking of the economy.”

Kamal Sarda

opening

“With the enhanced capacities and new product capabilities, we expect to improve the scale of the business, which will lead to scale benefit and operating cycle playing out in the long term of the company.”

Kamal Sarda

opening

“Both James and I will be happy to answer.”

Subham Agarwal

“There is a hypothesis which says that there may be a huge amount of spare capacity in Chinese players and because this is not a high-power intensive company, they may dump product in various other countries so I wanted to know given in context that our 60% of revenue is global, so how does it impact us and your views will be appreciated around it?”

James McIntosh

“Our objective for the future is to look at ways that we can increase our technology and increase the performance of the products in the future obviously to combat that, but generally speaking I would say that the Chinese suppliers are already very, very strong worldwide and I do not think the effect of the Chinese market will be such that it is going to make a major effect on the global scale.”

Kamal Sarda

“On the power front what you mentioned it is not so power intensive as far as refractory industry is concerned but the real impact would be on the raw material side, which I think will be impacting the refractory industry both worldwide not only in China, but also worldwide, but the situation has eased up over the last few months, so the situation is not bad as it used to be projected in the month of October and November last year so the situation has eased up.”

Subham Agarwal

“Regarding the goodwill of subsidiary, we had taken, last year FY2020, Rs.20 Crores write off, do we expect any further write off in the subsidiary goodwill part?”

Subham Agarwal

“Okay, lastly on the capacity part, given that we are doing phase II of Vizag and recently commissioned phase I also and also we are doing debottlenecking, so out of the entire capex that we have done recently and that we are supposed to do what is the incremental revenue that we expect out of this in absolute terms?”

Kamal Sarda

“It will be very difficult for me to quantify that right now, but I think mentioned in my previous calls on a Greenfield project you can look at a three to three and a half times.”

Kamal Sarda

“On a Brownfield project you can always look at five to six times.”

Risks & concerns — 8 flagged

I do not whether that was the impact of only this quarter or a cumulative impact from beginning to the end, but that is one of the reasons.

— Kamal Sarda

It will be very difficult for me to quantify that right now, but I think mentioned in my previous calls on a Greenfield project you can look at a three to three and a half times.

— Kamal Sarda

Sir a couple of questions; I have been reading that raw material pricing has been difficult because of the freight disruption has increased so what is your sense on this, industry consolidating or can we increase market share going forward like the way we have done in the last five years going forward?

— Gunjan Kabra

Sir I am asking that raw material sourcing has become difficult after the pandemic or because of the freight in disruption, so is the industry consolidating at the macro level in our country is what I wanted to gain and can we gain market share going forward like we have done in the last five years?

— Gunjan Kabra

On the raw material situation, I do not think there is a pressure.

— Kamal Sarda

There is only a pressure on the logistics part.

— Kamal Sarda

Hopefully as freight starts to release in the coming quarters, then I do not get the feeling that there is any end in sight there with regard to changes in the freight and therefore it will be very difficult for someone to indicate that the price or the costs saturation with regard to the raw materials is going to change significantly in the coming months.

— James McIntosh

That is a very, very difficult question.

— Kamal Sarda

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Q&A — 9 exchanges

Thank you for the opportunity. Good evening team of IFGL. Sir, my first question is slightly at the macro end. If we see the Chinese production of steel, which is going down year-on-year and they have already mentioned that they can reduce substantially the steel production this year. What I wanted to understand in this context is how does the refractory industry get impacted because of the Chinese refractory players? There is a hypothesis which says that there may be a huge amount of spare capacity in Chinese players and because this is not a high-power intensive company, they may dump produc

Kamal Sarda

James. I think that the Chinese refractory companies have been very aggressive for many years in the global scale. Certainly, and most of our markets that are Chinese refractory suppliers. Our product area, we have a very great advantage at the moment on the performance side of the products. Our objective for the future is to look at ways that we can increase our technology and increase the performance of the products in the future obviously to combat that, but generally speaking I would say that the Chinese suppliers are already very, very strong worldwide and I do not think the effect of the

Thank you so much Sir for the opportunity. Sir, just wanted to understand the issues that we might be facing at EI Ceramics because FY2022 till date has been a very rough year at EI whereas generally EI Ceramics has been one of our best overseas subsidiaries with margins in the mid teen range between 13% to 15% if you look at a long-term tract record of that subsidiary. Do you believe there were some operational issues and if you can mention that whether are those are addressed and by when EI can return to its normal level of profitability?

James McIntosh

Every country was affected definitely by COVID and in some countries there were certain programs, which were initiated by the government to help during the following period of companies we never furloughed in America at all, but even so there were existing in some general employee base where, I think it is fair to say that the employee base available in the United States has reduced. Many people have decided not to return to the work place following the period that they had been under the government schemes and so there were some areas where certainly on the manpower side were affected and in

Thank you for the opportunity. Sir could you comment on the demand trends in the near term from the steel industry? Are you seeing strong demand continuing from your customers?

Kamal Sarda

Sorry. James, can you take this. There is no indication that the steel is not going to continue its growth trend. If you look at the steel in the last five years, the annual growth is somewhere in the region of 4% or 5% thereabouts and there is no reason to believe it is going to be any tough from there. Obviously, we have seen a massive increase in demand this year relative to the last year just by virtue of the fact that many countries were affected and through the COVID saturation and so even if you look at the difference between 2019 and 2021 you still got growth there, so I would say that

Thank you for the opportunity. Sir a couple of questions; I have been reading that raw material pricing has been difficult because of the freight disruption has increased so what is your sense on this, industry consolidating or can we increase market share going forward like the way we have done in the last five years going forward?

Kamal Sarda

I honestly did not get your question. What do you want to know sorry? Sir I am asking that raw material sourcing has become difficult after the pandemic or because of the freight in disruption, so is the industry consolidating at the macro level in our country is what I wanted to gain and can we gain market share going forward like we have done in the last five years? On the raw material situation, I do not think there is a pressure. There is only a pressure on the logistics part. Availability is still there. May be the logistics is getting delayed. The shipment time from China to India it use

Sir my question has been answered. Thank you.

Management

Good evening, Sir. Thank you for taking my question. Sir what is your percentage of our high-end refractories in our total basket of products?

Kamal Sarda

What do you mean by high-end refractories? I think if you ask us, all the products are high-end refractories. Alright? If we compare this quarter’s performance vis-à-vis our RHI Magnesita so they have posted some fabulous set of numbers with a significant expansion in the operating margins, but where are we lagging for this quarter? I think I answered in my previous answers. Sir if you can kindly come again Sir because I might have missed out as I joined the call late Sir? We really do not know. As I mentioned that they always have a slightly higher margin than ours. If you look at one of the

Good evening to the management. My call is specifically to Mr. James McIntosh? Sir I would like to just understand that becoming as an MD for IFGL refractory; what are the few areas where you would like to target, one of the few specific targets you have now that you take over operations, specifically if you can give some color on a product wise or customer wise or technology wise, so what are the few goals that you are looking for?

James McIntosh

I think at the moment we have a lot of discussions going on regarding the company and the future for the company. Obviously, the domestic market for India, IFGL is very proud possession. We are one of the fast refractories manufactures in India. It is a very accepting situation to be and Kalunga being the main plant for IFGL. Kandla has really come on well since we started and as you can see from the capex plans there, we will get back for product expansion in Kandla. Visakhapatnam, we are currently looking at because it is a phased expansion. You know what currently we are looking at the next

Namaskar. Good evening. Sir if you could summarize what the discussions has already been? This could be treated as a one of quarters wherein the margins lift for our business outside India will return to normalcy in the next quarter itself with the revision in the finished product cycle? Is that assessment correct Sir?

Kamal Sarda

Yes, in the Q4 we are looking at a normal situation. Sir coming to the margin profile when we look at the margin profile for our businesses outside India, Europe and the Americas, the profile is significantly lower than what we are doing for India. What are the key reasons for these margins and do the global players also have similar margins the ones who are competing with you in Europe and America are of the same margin profile if you could explain this Sir? Global players also will have a lower margin than what they have in India. If you look at their results compared to Indian results and o

Thank you everyone for participation and it was I think very good question and answer session and I hope I have been able to answer most of your queries to your satisfaction and thanks to our Managing Director for joining and we look forward to all of your participation in the next call. For any queries if you have you may contact SGA our investor relation advisors. Thank you all and have a good day.

Management

Speaking time

Kamal Sarda

James McIntosh

Subham Agarwal

Moderator

Saket Kapoor

Abhisar Jain

Gokul Maheshwari

Gunjan Kabra

Sanjay

Sahil Sanghvi

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Opening remarks

Navin Agrawal

Good afternoon ladies and gentlemen. It is 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 and CEO. We will have the opening remarks from Mr. Sarda followed by a Q&A session. Thank you and over to you Mr. Sarda!

Kamal Sarda

Thank you. Good evening, ladies and gentlemen. Thank you for joining us on the IFGL Refractories Limited Q3 FY2022 earnings conference call. I hope you and everyone around you are safe and in good health. Along with me on the call for the first time, we have Mr. James McIntosh, our Managing Director. James has been appointed as the Managing Director in September. Before becoming Managing Director, he was our President of our US subsidiary EI Ceramics and MCI. Also on the call, we have SGA, our investor relation advisors. We have uploaded the results and presentation on stock exchange and I hope everyone had a chance to go through the same. I would now request Mr. James McIntosh to give a brief overview. Over to you James!

James McIntosh

Thank you Kamal. Good evening, everyone. It is a pleasure for me to interact with you all for the first time. Let us now share a few of the business highlights for the quarter. As we all know, steel is one of the most recyclable materials and existence here in India. Our domestic steel production has witnessed very strong demand growth in the past few years, which will continue for the long term. In support of this statement, I think one of the most important matrices is the per capita steel consumption for India, which is 34% of the world average and only 14% of China average. We have also in recent times seen a very strong bounce as many of the world economies bring back to normal after the last one and a half years of being impacted by the COVID-19 pandemic. Again, you all know that refractories are a key product used in steel making process and therefore we have also witnessed strong demand in our products worldwide, however, at the same time challenges to the supply chains have ca

Kamal Sarda

Thanks. Let me give you a short brief on the capex. In FY2023, we planned to spend about Rs.10 Crores in our Odisha plant and also in our Kandla plant. At Visakhapatnam, the phase one where we have already announced the commercial production. The phase two expansion, we are talking of spending about Rs.20 Crores and it should be completed by FY2023. Our focus remains to complete these capex and projects in a time-bound manner and continue ramping up our existing capacities. We expect the demand for the refractories to be steady and growing with the continuous unlocking of the economy. With the enhanced capacities and new product capabilities, we expect to improve the scale of the business, which will lead to scale benefit and operating cycle playing out in the long term of the company. Let me give you a brief of the financial highlights. On a standalone basis, the total income increased by 8% year-on-year to Rs.196.5 Crores. Sequentially, it was down by 2%. EBITDA was down by 19% to Rs

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