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

Ladies and gentlemen, good day, and welcome to IFGL Refractories Limited Q2 and H1 FY '26 Earnings Conference Call hosted by Monarch Networth Capital Limited. [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, [ Ikra ]. Good afternoon, everyone. On behalf of Monarch Networth Capital, I welcome you all to the Q2 FY '26 earnings conference call of IFGL Refractories Limited. We are pleased to have with us the management being represented by 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 Q&A. Thank you. And over to the management for the opening remarks, please.

So good evening, ladies and gentlemen. I am Arasu Shanmugam. Thank you for joining us on IFGL Refractories Limited Q2 and H1 FY '26 earnings call. So I hope you and family and friends are in good health. Along with me on the call, we have Mr. Amit Agarwal, our CFO; and SGA, our Investor Relations Advisors. We have uploaded the results and presentation on the stock exchange. I hope everybody had a chance to go through the same. I'm pleased to share that IFGL Refractories delivered a steady performance in second quarter, reflecting our continued focus on operational excellence. On a consolidated basis, total income grew by 18% year-on-year, supported by a strong traction across markets. On a standalone basis, revenue grew by 12%, driven primarily by a robust growth in our domestic business. Let me now share a brief perspective on the global steel industry, which continues to be the key demand driver for refractories. According to the World Steel Association's latest outlook, global steel demand in 2025 is expected to remain broadly stable at around 1,749 million tonnes. This is likely to be followed by a modest rebound of about 1.3% in '26, taking overall demand to roughly 1,773 million tonnes. Now while trade tensions and geopolitical uncertainties continue to weigh on sentiment, the overall outlook remains cautiously optimistic. This is being supported by steady economic activity, ongoing public infrastructure investment and softer financial conditions across major economies. Regionally, India stands out as the most dynamic growth market. Steel demand here is expected to grow by around 9% a year over 2025 and 2026, driven by strong infrastructure spending, manufacturing expansion and broad-based industrial growth. India is now firmly positioned as one of the fastest growing steel consuming nations, which provides a solid foundation for refractory demand going forward. In Europe and the U.K. after a prolonged period of slowdown, steel demand is set to see a gradual recovery growing by about 1.3% in 2025 and 3.2% in 2026. This improvement will come on the back of renewed infrastructure and defense spending along with a more stable macroeconomic environment marked by lower inflation and improved credit conditions. These signs indicate the industrial recovery in the region is gaining traction. United States too is expected to post steady growth with demand projected to rise by around 1.8% in both years in 2025 and 2026. Key drivers here will include sustained infrastructure investments, a stronger domestic manufacturing push and supportive trade policies. In addition, we are using financial conditions and policy stability to continue to support key end users sectors such as construction and automotive. In China, steel demand is expected to contract modestly by about 2% in '25 and 1% in 2026, reflecting a continued slowdown in the sourcing market. That said, this decline is likely to ease over time. The infrastructure spending helps cushion the weakness in the real estate. Outside these major markets, developing countries, excluding China, including Vietnam, Egypt and Saudi Arabia are expected to deliver robust growth of 3% to 5% annually supported by sustained construction and industrial activities. In Africa, steel demand is also gaining momentum, rising with roughly 5.5% each year, helping by -- helped by improving macroeconomic stability, structural reforms and growth in Northern and Eastern regions. Similarly, Central and South America are projected to grow by around 5.5% in 2025, led by Argentina's recovery and continued strong demand in Brazil. Now while challenges such as higher production cost, trade friction and geopolitical tensions continue to pose risk, the medium-term outlook for the steel industry remains constructive. Growth is becoming more balanced across regions and more diversified by sector. With our presence across India, Europe, the U.K., the U.S. and China, we are well positioned to capture these opportunities. Our wide geographic reach, strong technical expertise and focus on high-performance refractories give us the right foundation to benefit as global steel demand stabilizes and gradually recovers over the next few years. Moving on to our operational performance. Our Indian operations have been performing exceptionally well, establishing a strong position in the domestic market. The strategic decision taken a few years ago to focus on India-made India-sold is now yielding significant results. While global steel markets continue to face macroeconomic challenges, India stands out as a bright spot with steel demand expected to grow by around 9% as per the World Steel Association. Our domestic focus is not only aligned as with this growth opportunity, but also strengthened our relationship with leading Indian steel producers. Backed by our advanced technology and the continuous efforts of our research and development center, we have successfully added new customers. We are also witnessing higher penetration across both steel and cement plants supported by new products introduction and a steady pickup in our non-ferrous business, which we see as a strong growth driver in the coming years. Entry into major cement plants and the rising demand for alumina bricks in coke oven and coal gasification plants will further strengthen our domestic footprint. As a result, our domestic revenue grew by 27% during the quarter and by 29% during the first half on a year-on-year basis. Notably, nearly 78% of our standalone revenue now comes from the Indian market, a remarkable turnaround from the earlier years when exports accounted for nearly 70% to 80% of our business. Moving ahead, our American operations have shown encouraging improvement. The recent tariff policy changes, price adjustment with key customers and a rebound in demand have all contributed to a very strong performance. Revenue from our U.S. operations grew by 26% during the quarter, reflecting this positive momentum. Our European operations, particularly Sheffield, have performed steadily despite continued weakness in overall demand across the region. The long awaited recovery in European Union steel demand is gradually emerging, providing some optimism for the sector. At Monocon U.K., performance is improving under the new management team with enhanced focus on the core refractory products. This transition is already showing encouraging results, and we expect Monocon U.K. to achieve breakeven within this financial year or early next year. Additionally, the Sheffield technology transfer is progressing well and is expected to be completed by December this year, 2025. Following this, the imported product will undergo testing at a major cement plant in India for shortening application and more -- shotcreting application and more. Monocon International Refractories Incorporated, a wholly owned subsidiary in Australia, a milestone that expands our footprint into new geographies and positions us for future growth and to tap a new market. Moving on to our CapEx initiatives, our greenfield projects at Khurdha, Odisha has been initiated and is progressing well. The project is estimated -- with an estimated investment of INR 300 crores to INR 350 crores is expected to be completed by the end of financial year 2028 and the remaining -- I mean, it remains firmly on the table. Our second greenfield project in Gujarat is being developed in joint venture, is currently under the regulatory approval stage. This project is targeted for completion by the beginning of FY '29 subject to regulatory approval with a total estimated outlay of around INR 300 crores. Our continued focus on both ferrous and non-ferrous refractories supported by rigorous work on specialization, innovation and high product positions us strongly for the future. By offering total solutions and maintaining the highest standard of quality, we are building a sustainable foundation for long-term growth. We remain confident of taking the business to the next level. With healthy and stable margins going ahead, we remain confident in our long-term growth story. With this, now I hand over to Mr. Amit Agarwal, CFO for financial performance.

Thank you, sir. Let me give you a brief on the financials. Starting with the standalone financial highlights, total income in the quarter 2 FY '26 stood at INR 288 crores, raising a strong 12% year-on-year growth. For H1 FY '26, total income stood at INR 567 crores, which also saw an improvement of 12% year-on-year. EBITDA for the quarter was INR 37.4 crores, up 12% year-on-year. EBITDA margins stood at 13% and 13.2% for the both quarter and the half year ended respectively, reflecting the impact of product mix, lower export offtake, higher employee costs and initial expenses related to our new plant operations. Despite these near-term pressures, we remain confident of sustaining our growth momentum in the coming quarters. PAT stood at INR 15 crores for quarter 2 FY '26, a 9% percent growth -- year-on-year growth, and INR 30 crores for the first half of the fiscal. Breaking revenue down further by geography. Our domestic business recorded a robust 27% year-on-year growth in quarter 2 FY '26, and a 29% growth for H1 FY '26, reaching INR 440 crores. The domestic market contributed 78% of our standalone revenue in H1 FY '26, up from 69% in H1 FY '25. Our export business declined by 20% year-on-year to INR 60 crores, contributing 21% of the total standalone revenue in quarter 2 FY '26, compared to 29% in quarter 2 FY '25. For H1 FY '26, exports were lower by 21%, primarily due to a strategic shift in focus towards the domestic market and moderate demand in key overseas geographies amid broader economic slowdowns. Let me now move over to consolidated financial highlights. Our consolidated financial highlights also include our international subsidiary. Total income for quarter 2 FY '26 grew by 18% year-on-year, which is INR 490 crores. For H1 FY '26, total income stood at INR 947 crores which also saw an increase of 13% year-on-year. Our EBITDA stood at INR 40 crores for the quarter with a growth of 10% on a year-on-year basis, and for the half year it was reaching INR 79 crores. EBITDA margins were 8.2% in quarter 2 of FY '26 and for H1 FY '26 were 8.3%. Profit after tax stood at INR 12.7 crores for quarter 2 FY '26, up by 5% year-on-year. And for H1 FY '26, it stood at INR 23.5 crores. With respect to liquidity position, we have debt of INR 205.5 crores with a strong balance sheet. Cash and cash equivalents stood at INR 124 crores on a consolidated basis as on September '25. Our annualized ROEC (sic) [ ROCE ] stood at 6.7%. With this, I shall now leave the floor open for question and answer. Thank you.

[Operator Instructions] The first question is from the line of Mayank Bhandari from Asian Markets.

So just on the margin side, if you could highlight to, I mean, whether we have been able to move away from the alumina -- impact of the alumina price rise, which we have seen in last 2 quarters and -- or whether it was still the impact -- I mean, we have felt the impact of that in this quarter also. And how should we see this going forward, at least, if you could tell in terms of gross margin?

So alumina prices per se, to some extent has become stable, but only it is affected by ocean price whenever we are importing. So barring that variation, otherwise, overall the prices are, I would say, at par and there are no increasing trends which we are seeing now.

So our gross margin has been fairly in the range of 47%, 48% on the consol level. So we still -- in fact, in standalone, we have seen dip a bit -- I mean, sequentially at least. So I mean, is it related to product mix? Or how should we look at it?

So I think it's a combination of product mix and everything. So product mix as well as the export market and slight bit of raw material prices, which we are carrying from the past. So we do not find further it to be going down from here.

And sir, in your Europe subsidiary, the performance in Europe seems to be good in terms of top line growth, but we still see that there is losses of almost INR 16 crores at EBIT level in first half. So I mean, why is -- I mean, till -- what -- how long it will continue on the losses? Or how do -- what will be the breakeven point in the Europe operations? Because I think we have shown good growth there in the Europe in the first half, at least in this quarter?

See, at least as you said, we have -- our losses have reduced from corresponding quarter as well as previous quarter. So we do see a betterment in their figures and performance. And we expect that by -- maybe by this year-end, we may achieve a breakeven. But all of this depends on this macroeconomic position out there in Europe. But we are optimistic, henceforth.

And would you comment on like how is the performance in subsidiaries, at least in the foundry business, are we still facing the Germany? Are we still facing issues with respect to demand?

I think this -- the economy of Germany, as we have mentioned in our speech also, Europe is more or less now stable, and we can see a slight bit of positiveness to tune of 1% growth. So we need to take advantage of that. And maybe in next 2 quarters, we may see further improvement in revenue as well as bottom line of European subsidiaries.

[Operator Instructions] The next question is from the line of Rajesh Majumdar from 360 ONE B&K.

I just wanted to have an outlook on the pricing scenario in the sector, especially in the non-flow control areas. Are there any price increases which have come through or are likely to come through because the margins are more or less static for everyone in the industry, and there is a lot of import trade also happening here. So is the pricing scenario looking better? And why? And how much price improvement can you expect in some time -- in the times to come?

So I mean, there are no improvement in the pricing trend is expected, but whatever pricing are we getting now, that is expected to be hold. We will be holding on to that. And on the other side, the prices are also on not -- on a plateau, not increase more. So that's why the margin and the price level will be maintained for some time, but I don't think we can expect any better --

Further price increase.

Further price increase. Yes.

What about flow control? Is there any price increase expected in those -- that area?

Same. There is no price -- whatever price increase has happened 3 months back, so that will be the only thing. So now we don't expect. And then flow controls are also decided in a cycle of 1 year, 2 years. So once done, at least for next 1 year, there is no change.

And we have seen alumina prices have corrected by almost half. So that impact is not likely to come. How much of -- first of all, how much of your refractories are alumina based? And will the impact of the low alumina prices not come in, in terms of margins? Or will it get absorbed in the higher cost?

No, I don't think there's low alumina, because particularly alumina indices which are you comparing and the specialty alumina, what it is used in refractories, I think they are not comparable. But otherwise, the alumina, the purer version of white fused alumina and tabular alumina, there is no -- all in the price. It's only the ready.

What has gone up from $600, $700 to $1,100 per tonne, as I understand the specialty is still there or it has corrected there -- from there?

It is maybe $1,100 to $1,000. Look, it's like tune of $12 or something, which is insignificant.

Okay. And what about magnesite?

Magnesite almost remains plateau, same because even the raw magnesite and all the prices are same. But on the other side, it is leveled by price increase on power costs. So overall, there is no much change.

The next question is from the line of Lakshminarayanan from Tunga Investments.

Just want to understand the last 6 months, what has been the India-made and India-sold flow control devices? What has been the revenue growth in that in the last 6 months? And the second question is that you are setting up this dolomite capacity. And I understand that Calderys is also setting up something similar. So do you anticipate some kind of -- I mean, if my judgment is right, we are also doing into dolomite. Is it -- are we looking at surplus capacity in that area? These are the 2 questions for now.

Yes. So as far as India-made India-sold is concerned, as already in our speech itself we have given, so the growth is to the tune of 20% to 22%, okay in India-made, India-sold, which was already -- okay? And on the second part of the question, what you said dolomite is about, I think in the previous calls also, I was mentioning about that, dolomite usage outside India for steel -- general steel, I mean, in addition to stainless steel as well as in cement industry is much more, but the trend has never come into India. I'm telling you even once when we are going to be at least, if not 100%, at least 50% of the trend what is used outside India in Europe and America and other places, then India, the dolomite demand will be so high that even if there are 2, 3 players comes in -- I mean, what I'm meaning to say, even if it is going to be 200,000 tonnes a year, it will be consumed because it is now under test. Once that is confirmed, I'm telling you the demand/supply gap is going to be absolutely favorable to the producer of dolomite refractory, number one. Number two, the primary consumer of the dolomite in the country is now stainless steel. But if you track the projects which are announced and the capacity expansion in stainless steel alone, they themselves will have almost 15% to 20% growth on volume in terms of consumed dolomite refractory. But I do not know about your information about the other competition also coming into this. We do not have such information. But even if it comes, we will be running short. I'm telling you even if whatever you mentioned is going to be fructify in coming 2, 3 years, by the time FY '29 starts, still I'm telling you, still that is going to be a very, very favorable demand/supply gap for the producers of dolomite refractory.

Got it. Sir, in the first half in the standalone revenue, what has been the export growth? Sorry, I didn't read it properly. So if you can -- if that information is already told. I'll take that from the transcript.

Export is 21% of total revenue for the quarter.

I think standalone, I'm talking about.