IFGL Refractories Limited (IFGLEXPOR.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the IFGL Refractories Limited Q1 FY '26 Earnings Conference Call hosted by Monarch Networth Capital Limited. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sahil Sanghvi from Monarch Networth Capital Limited. Thank you, and over to you, sir.

Thank you. Good evening, everyone. On behalf of Monarch Networth Capital, I welcome you all to the Q1 FY '26 Earnings Conference Call of IFGL Refractories Limited. We are pleased to have with us the management being represented by Mr. James McIntosh, Managing Director; Mr. Arasu Shanmugam, Director and CEO, India; and Mr. Amit Agarwal, Chief Financial Officer. We'll have the opening remarks from the management followed by a Q&A session. Thank you, and over to the management for the opening remarks, please.

Yes. Good evening, ladies and gentlemen, and thank you for joining us on the IFGL Refractories Limited Q1 FY '26 Earnings Conference Call. I hope you and your family and friends are in good health. Along with me on the call, we have our Director and CEO, India, Mr. Arasu Shanmugam; and Mr. Amit Agarwal, our CFO; as well as SGA, our Investment Relations Advisers. We have uploaded the results and presentation on the stock exchanges, and I hope everyone of you have had the chance to go through these. IFGL Refractories began the year on a healthy note and delivering strong performance on both a stand-alone and consolidated basis, achieving the highest ever quarterly revenues. On a year-on-year basis, stand-alone revenues grew by 14%, while consolidated revenues rose by 10%. Stand-alone EBITDA stood at INR 37.7 crores with margins of 13.5%, while consolidated EBITDA was INR 39 crores translated into margins of 8.5%. Amid well reported global headwinds, India continues to outperform, backed by strong economic fundamentals and maintains its position as the shining star of the global steel industry, recording a 6.3% growth year-to-date. As the world's second largest producer, this reinforces the decision we made in 2021 to prioritize our domestic market growth. Our India made, India sold strategy has driven a 32% increase in stand-alone domestic business, reaching INR 213 crores. We remain confident in India's growth potential reflecting in our ongoing CapEx investments in the country. Amid the ongoing global volatility, we are encouraged by early signs of improvement in some of our subsidiaries, particularly in the United States. The recent policy direction from President Trump focusing on made in America includes a doubling of steel tariffs from 25% to 50% under Section 232 of the Trade Expansion Act. This move aims to boost domestic steel manufacturing by protecting U.S. producers from foreign imports, which we expect will positively impact our American operations by strengthening local steel production. Our U.K. operations from Sheffield, are performing well. The planned Sheffield technology transfer is on track for completion in quarter 3 of this year and will enable us to bring advanced technologies and new products to the Indian market. Additionally, the ongoing restructuring of British Steel is expected to open up positive opportunities for us. On the Monocon side, our restructuring program is well underway. With our new leadership team, our new product development focus is beginning to bear fruit with industrial side orders received after very encouraging trials at many of our customers. We have opened new sales channels including a wholly owned subsidiary in Australia, which will enable us to capitalize on growth opportunities there. And finally, the creation of a new team focused towards refractories and technology begin to make their influence felt. We believe that we will see positive figures within the next 3 quarters and then beyond, we will be in a position to grow our business and profitability. Our German operations continue to face pressure on the ongoing European economic slowdown in the foundry space as discussed last quarter. We remain focused on navigating this challenging environment by actively exploring alternative applications for our foundry products to diversify our opportunities. Though market conditions remain uncertain, we are confident that once stability returns to the region, our strategic initiatives will start bringing in tangible benefits. With that now I would like to hand over to Arasu for his comments on our developments in the [indiscernible] region.

Thank you, Jim and good evening, ladies and gentlemen. I am pleased to share that we have delivered our highest ever quarterly revenues, which is INR 278 crores first time in history in first quarter of FY '26, with the stand-alone revenue up 14% in the first quarter. Domestic revenues grew strongly by 32% to INR 213 crores while exports stood at INR 63 crores, down 22% on year-on-year basis. Profitability was lower compared to the last year, primarily due to higher raw material costs which are taking longer than expected time of stabilization and increased employee costs following organizational changes we implemented over the past 8-9 months, which is an investment in human resource. Building on strategic revenue, 2 years prior to the actual revenue generation is paramount importance for company planning and growth. It is also important to note that Q1 FY '25 EBITDA has been benefited from onetime provisional reverse of about INR 3.5 crores related to specific customer, which is not reflected in the current quarter numbers. Moving ahead, our prudent decision a few years ago to focus on the Indian domestic market is now delivering strong results. India continues to stand out as a bright spot in global steel industry and indeed the global economy with GDP growth estimated over 6%, ahead of any major economy. As mentioned by Mr. McIntosh, our strategic domestic focus has been supported by steadily building capacity expansion. And last year, we took another important step by entering the nonferrous refractory segment. We see this as a high potential growth driver for the future, offering significant opportunities while helping us diversify our product portfolio. A dedicated leadership team is spearheading this initiative, and we are confident it will add meaningfully to our long-term growth trajectory. On the CapEx front, our greenfield project at Khurda, Odisha has been kicked off and is expected to be completed by the end of financial year '27-'28 with a project cost in the range of INR 300 crores to INR 350 crores. Our Gujarat greenfield project, joint venture with Marvel, currently under regulatory approvals, and is targeted for completion by the start of year of FY'29, with an estimated cost of INR 300 crores. This JV focuses on nonferrous refractories primarily producing basic fired magnesite spinel bricks, basic fired magnesite bricks, and other fired magnesia chrome bricks. This expansion will strengthen our product portfolio and open new growth opportunities. Moving ahead, I am pleased to share that during the quarter, our research team in India could internalize and implement the technology provided by our subsidiary EIC in America for developing a cold start SES for slab caster. The newly designed solution for cold start operation is being planned. Ongoing trials have shown encouraging results with the design demonstrating stability in most cold start scenarios. This innovation directly addresses real-world challenges in steel casting and reinforces our commitment to delivering high performance reliable solution to customers worldwide. During the quarter we also inaugurated a 60-ton per day fully automatic, continuous tempering kiln for magnesia carbon production at our Vizag unit. This milestone enhances our ability to manufacture high-performance magnesia carbon brick for steel making, ensuring superior performance, longevity and reliability in high temperature applications. Our technology transfer from Sheffield, another subsidiary, is progressing well and is expected to be completed by third quarter of this year. This will enhance our product capabilities and enable us to supply products that are currently not manufactured in India. Our experts are actively working on the process, and we aim to complete it at the earliest possible time. Our total refractory management offering also gained traction, and we are actively engaging with few steel plants in this space. We believe we have immense potential to deliver. Despite the global scenario, we remain confident in our long-term growth story. With this, I hand over to Amit for financial performances.

Thank you, sir. Let me give you a brief on the financials. Starting with stand-alone financial highlights. Total income in Q1 FY '26 stood at INR 278 crores, registering a strong 12% year-on-year growth, our highest ever total income during any quarter. EBITDA for the quarter was INR 37.7 crores, decline of 15% year-on-year growth. The decline in EBITDA and margins was primarily driven by ongoing global [disruptions], elevated raw material costs and higher employee expenses resulting from structural changes as team expansions were undertaken. Additionally, operating expenses increased due to new plants. It is also important to note that Q1 FY '25 EBITDA included a provisional reversal as mentioned by Mr. Arasu for around INR 3.5 crore related to a customer which was not present in the current quarter. [Indiscernible] Let me move forward to consolidated financial highlights. Our consolidated financial highlights also include our international subsidiaries. EBITDA margins were 8.5% in quarter 1 FY26 representing a decline of 405 basis points over the same period last year, though improving by 40 basis points sequentially. Profit after tax stood at ₹11 crores for Q1FY26, compared to ₹8.4 crores in the previous quarter, reflecting a strong 28% growth on a quarter-on-quarter basis. With this, I shall now leave the floor open for question and answer.

[Operator Instructions] Our first question comes from Lakshmi Narayanan KG with Tunga Investments.

So, you had a very impressive performance in the India stand-alone. I want to understand you talked about raw material issues. So, which raw material exactly you are talking about where the prices have been elevated. Can you just give us some of what kind of price escalation you actually got? And how are the prices trending now raw material -- and how are you seeing it now in the mid of August that it is...

[Indiscernible]

Okay. Like alumina alone, how much it has actually gone up for us?

" No, I think in part, I think we can discuss... [Indiscernible]

And in terms of your India stand-alone business, can you just give a split of how much is flow control and how much is, et cetera, broadly?

I mean for me, it's what's been important in the growth of IFGL since 2021 is to not only grow our business in India, but also to grow the breadth of products which we manufacture. I mean it's absolutely clear in the prior to 2021, the focus of IFGL was flow control. Flow control was very much on the fingertips of everyone. But since then, we've added carbon bricks, we've added alumina bricks, we've added. We've added a wide range of shapes. We've added important to talk about percentage in flow control

Correct.

And another question is that the revenue growth which you are actually getting in standalone, are you gaining market from -- are you displacing a company or these are all greenfield client engagements?

Mostly all are through gaining market share in existing as well as spreading our total management model to already running , not much of greenfield project revenues. [Indiscernible]

And this goodwill written off will continue till which quarter?

Goodwill. This is the last year after that, there is no... [Indiscernible]

Q4. This year, it will be – [Indiscernible]

Our next question comes from Harsh Shah with...

A few questions from my side. So firstly, great work on the domestic side. Just wanted to check here. I mean, in terms of the strategy in the domestic market, is it a case that we are focused more on gaining more market share at the cost of aggressive pricing? So why I ask this question is because one of the listed players have been kind of calling out since many quarters that in general, the competition is kind of undercutting. So, I wanted your thoughts on it. If someone could...

[Indiscernible] No, no. Our Managing Director has mentioned, it is our strategy. And competition will -- we also have the same feeling, okay? So other competitors are cutting, but in spite of that, we have our strategy of increasing market share. So it's not -- what you mentioned, what the other competioned is incorrect. And it is basically because of our different strategy, which also I would say that we won't elaborate much on that. But you ignore what they have said.

So basically, what you're trying to say is that you are not undercutting, right? I mean, to be very precise.

Absolutely.

And, I mean, do you have any kind of a data point in terms of what your market share could be within the flow control in India?

We don't have that figure immediately calculated...

Got it. Then secondly, for any like-to-like products between, say, IGL or any of your peers, how would you rate your product now that since last 4 years, you have been kind of bringing a lot of changes. So how would you compare in terms of the performance or tech to your peers? And also if you could -- do you have any low-hanging fruit in terms of the product portfolio or something which you would like to highlight on that?

On performance part of whatever [Indiscernible]

If I could just add, every area that we, as a company have looked at entering our first starting point is to look at obviously the performance in the market. And the reason that we invest so much in research and new product development is to create products which compete in the market favorably from a performance point of view and also from an economic point of view. Some of these new products will create for the customer value in different ways depending on the customer. Our objective always is to look at the market and to decide and determine what is the best way for us to grow in that market in the most effective fashion. And now IGL today after certainly the last 4 years is in a much better technical position than it has ever been to capitalize on growth potential and new opportunities than it has ever been. And we aim to continue doing that in all of the areas that we are concerned with and all of the new product areas that we are looking at is to grow our business perform.

Okay. And also, sir, if you could kind of help us understand, right? I mean you have mentioned in the PPT that the new projects would start contributing, say, from FY '28 and onwards. But if one has to say, understand how, say, FY '26 and FY '27 could pan out just for our stand-alone operation, which is purely the Indian part, what are the growth levers? I mean, how should one consider in terms of what growth projections or maybe if you can help us understand from where we'll be able to grow in a similar manner, which we have kind of done in the past few quarters. If you could help us deep dive at least on the Indian operations, how -- what is the plan for the next 2 years till the other projects come upstream.

[Indiscernible]

What would be the average capacity for us [Indiscernible]

It is difficult to put single number don't single number on capacity

I mean I think that obviously, the efforts of IFGL to grow in the domestic space has been focused towards new product development, new areas of investment. We've invested heavily in all areas of flow control. We've invested heavily in all of the new product areas. And of course, when you invest in production capacity, then that enables you to be in a situation where you can grow the business. Now our objective over the next few years is to grow the business, and we don't have any more expansion plans for our current product that gives you an indication that we have plenty of capacity. Also, if you look at our objective for the future, it's to introduce more new products, and this will come as a result of our investments in the new joint venture that Arasu mentioned earlier and also the development of our new plant. So, there's an awful lot of growth potential for us. And most of the investment that we have in our existing businesses, for example, on the ISO side is purely technical. It's upgrading the technical capability of the product.

Got it. So safe to assume that...

Upgrading the technical capability

So safe to assume that in the stand-alone, we can grow in excess of 15%, 20% for the next 2 years, even without any incremental CapEx?

Correct.

You are right.

[Operator Instructions] Our next question comes from Sahil Sanghvi with Monarch Networth Capital Limited.

Congratulations for good numbers, especially on the domestic side, now we are across the 70% exposure from the domestic market. So, my first question is, this time, what we see is that the revenue numbers and the EBIT margin from America has improved substantially after a very long time. So, if you can just highlight what were the factors leading to this and how sustainable is this?

In the United States, there has been very much very positive change in sentiment since we see a very much more buoyant market as a result. If you were to look at the United States back in the last term of President Trump, it was very positive for the steel industry, very positive for the steel industry because obviously, when you have tariff protection against low-priced products coming from other countries, that enables the domestic manufacturers to really focus on developing, and there is tremendous investment in the Group and various other groups. You have the very positive Nippon Steel deal with U.S. Steel. So there's an awful lot happening in America and the steel industry, which is all very positive for suppliers. And obviously, that's where IFGL benefits because we have specific businesses in the United States, which are focused on the steel industry and both of them are seeing very good improvement, and we believe that will continue. We believe that will continue very positively from now.

And second, I wanted to understand I mean on the new products that we have introduced, Magnesia Carbon Bricks and Casting Flux, I mean how are we doing on that front? And what kind of ramp-up do we see on that?

We do see a very good ramp-up for example, we expect sizable share there [Indiscernible]