IFGL Refractories Limited (IFGLEXPOR) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to IFGL Refractories Limited Q1 FY '27 Earnings Conference Call hosted by Monarch Networth Capital Limited. Before we begin, a brief disclaimer. This conference call may contain forward-looking statements about the company, which are based on beliefs, opinions and expectations of the company as on date of this call. These statements are not guarantee 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 over the conference to Mr. Sahil Sanghvi from Monarch Networth Capital Limited. Thank you, and over to you, sir.

Thank you, Pari. Good evening, everyone. On behalf of Monarch Networth Capital, I welcome you all to the Q1 FY '27 Earnings Conference Call of IFGL Refractories Limited. We are pleased to have with us the management team represented by Mr. Mihir Bajoria, Managing Director; Mr. Mukesh Rawal, Director; Mr. Manoj Rakhecha, Chief Executive Officer, Monocon; Mr. Amit Agarwal, Chief Financial Officer. We will have the opening remarks from Mr. Mihir Bajoria, which will be followed by a Q&A session. Thank you, and over to you, Mihir sir.

Hello. Good evening, ladies and gentlemen. Thank you for joining us on [indiscernible] Limited Q1 FY '27 earnings conference call. I am joined by Mr. Mukesh Rawal [Indiscernible] Chief Investing Officer, India; Mr. Manoj Rakhecha, CEO Monocon; and Mr. Amit Agarwal, CFO, IFGL; and SGA, our Investor Relations advisors. Our results and investor presentation have been uploaded on the stock exchange list and company websites. We trust you have had the opportunity to review them. Let me start with industry updates followed by our performance for the quarter. We face multiple challenges in FY '26 including geopolitical uncertainties, supply chain disruptions, delay in CapEx, and [indiscernible]. Hello?

Yes, yes. Go ahead.

Meanwhile we fix this. Despite of headwinds IFGL, delivers growth ahead of the underlying industry performance and supporting a strong growth in the domestic market along with continuous [indiscernible] addition [indiscernible] wallet share across key customers and in our global [indiscernible] On the industry front, we are [indiscernible] of the strongest steel market with steel demand for our [indiscernible] and 9.2% [indiscernible] is in a very strong position. USA steel production has been very robust and has [indiscernible] year on year [indiscernible] result of our U.S. subsidiaries. Europe steel demand is botteling with growth expected to be [indiscernible] in '26 and '27. Financial result has published by the big steel groups in Europe [indiscernible], [indiscernible], et cetera. [indiscernible] overall growth area -- given the picture of overall growth in the industry. It's not IFGL position. IFGL delivers a strong performance in [indiscernible] group a 13% in year-on-year and Q1, actually supported by IFGL overseas operations. Details will be shared by [indiscernible] and Manoj. I'll act on my extended responsibility as a managing director and remain committed to building on this strong foundation established over the years. Opinion [indiscernible] is now all placed [indiscernible] and delivering greater value to the shareholders and investors. With that, I will now hand over the podium to [indiscernible] operation and financial performance for the quarter and deliver in greater detail. Thank you, and over to you, Mukesh.

Thank you, Mihir. Good evening, everyone. It is a pleasure to be speaking with all of you today. As Mihir mentioned earlier, I will be transiting into the role of Chief Executive Officer, India Operations. Against the backdrop of strong steel demand and continued capacity expansion of steel manufacturing capacity in India as well as forecast to grow by 7.4% in 2026 and 9.2% in 2027, we remain very positive about the outlook of our domestic business. Now I will take you through the financial performance of Q1 FY '27. Revenue for Q1 FY '27 stood at INR 297 crores, registering an 8% year-on-year growth in our stand-alone business with domestic revenue growing 7% and export increasing 9%, and we remain confident of growing ahead of underlying market over the medium term. Coming to profitability. EBITDA for the stand-alone business stood at INR 31 crores in the current quarter, a decline of 17% year-on-year. The contraction was primarily driven by higher raw material costs arising from geopolitical uncertainties and supply chain disruptions, along with elevated LPG costs due to availability constraints during the quarter. To mitigate these pressures, we have implemented appropriate price increase across customers and product categories. However, given the nature of our business, there is typically a time lag in passing on cost increases with some of the elevated costs being absorbed in near term. We expect the benefits of pricing actions to flow through progressively over the coming quarters. Needless to say, our IFGL team have risen to the occasion and registered our manufacturing plants are operating without hindrance in spite of headwinds and supply chain disruptions. As mentioned earlier, we are having extra impetus on new products and categories such as bricks, casting flux and various products from our group company, Sheffield Refractories. IFGL also is working very closely with Monocon who has its own engineering division to bring some of the advanced refractory application equipment to the market. With that, I would like to invite Manoj to provide an update on our overseas business. Manoj, come in, please.

Thank you, Mukeshji and Mihir. Good evening, everyone. Our focus remains on strengthening our product portfolio, improving operational efficiencies and leveraging our global capabilities to cross-sell products across multiple geographies. In Q1 financial year '26-'27, we saw improving demand conditions across our key overseas market. In U.K., British Steel is now in public ownership, alleviating much concerns about longevity of British Steel manufacturing operations, bringing cheer to our group companies in U.K. in terms of long-term visibility of business and growth opportunities. Further, we are told from market sources that the administrators of the erstwhile Liberty Steel [indiscernible], now called Specialty Steel, is also looking to restart their roder and melt shops sometimes in November to December 2026. Among the above positive lights, we cannot ignore headwinds like British Steel producing at a very minuscule levels in Q1 due to the blast furnace problems, which hopefully will be rectified in Q2 and the spurt in ocean freights due to the prevailing geopolitical situation, which has had a big impact on our operations in U.K. and China. Monocon U.K. and Monocon China operations continue to make inroads into new geographies with multiple new products and year-on-year turnover has increased significantly. Business turnaround remains key focus. Sheffield Refractories product portfolio integration with our IFGL India operations is going on well and at desired pace, including regular interactions and joint visits to the customers. We have also commenced production of Sheffield Refractories plastic grinding mass at our IFGL Vizag facility. Overall, our Monocon and Sheffield Refractories revenue have a double-digit growth year-on-year in spite of the headwinds mentioned above. U.S. business has delivered a revenue growth of double digit year-on-year. Cost optimization and efficiency initiatives also supported a positive trajectory in margins. The results are testament of the resilience of our U.S. operations and teams to deliver consistent results. The U.S. steel market remains healthy, supported by investments in new facilities as well as modernization and expansion of existing plants, while the broader Americas region, including Canada, Mexico and select Latin American markets continue to offer attractive opportunities. Overall, we remain positive on the outlook for the Americas and see the region continuing to be an important driver of our international growth. At Hoffmann Ceramics, we have been able to maintain order book at similar levels compared to corresponding periods. New initiatives undertaken across product enhancement, customer additions and cost rationalizations are beginning to show progress. Turning around the business remains a key priority, and we are taking multiple measures to improve performance with the objective of reducing losses and achieving breakeven by the end of financial year '27. With that, I would like to hand over to Mr. Amit Agarwal, CFO, for financial performance.

Thank you, Manojji. Let me give you a brief on financials. Starting with the stand-alone financial highlights. Total income for quarter 1 FY '27 stood at INR 299 crores, reflecting a 7% year-on-year growth. Gross margin stood at 43% in quarter 1 FY '27 compared to 47% in quarter 1 FY '26. Impact on gross margins was on account of increased raw material prices due to supply chain disruption and geopolitical tension. EBITDA for quarter 1 FY '27 stood at INR 31 crores, down by 17% year-on-year. EBITDA margins were impacted on account of lower gross profit and also on account of significant surge in fuel prices in current quarter. PAT for the current quarter stood at INR 16 crores, a growth of 7% year-on-year. Breaking it down further by domestic and export sales, the domestic business continued to demonstrate strong momentum, delivering 7% year-on-year growth in quarter 1 FY '27. Export revenue has shown sharp surge and grew by 9% year-on-year. Increasing operational efficiency and visibility help us from an optimistic view going forward. Let me now move forward to consolidated financial highlights. Our consolidated financial highlights also include our international subsidiary. Total income for quarter 1 FY '27 grew by 13% year-on-year to INR 515 crores. Gross margin stood stable at 48%, showcasing our resilience and operational efficiency built up. EBITDA for the quarter was INR 40 crores, registering a 2% year-on-year increase. As mentioned, EBITDA was impacted due to increase in raw material prices and surge in fuel prices, impacting the domestic margin, which had overall impact on consolidated numbers. Profit after tax stood at INR 17 crores, an increase of 58% year-on-year. PAT margin for the quarter stood at 3%. 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 Krishnan from [indiscernible].

Congratulations on the good set of numbers. Sir, my first question is our overseas subsidiary has shown good growth. Can you elaborate what changed also the margins strong? Any color on margin outlook?

This is Manoj here. So as you mentioned, Krishnan, overseas subsidiaries top line have had significant growth. The important reason, as we discussed earlier also was from Americas. Americas margins are also quite robust. In terms of individual breakup of the margins, et cetera, we do publish our segment results in the consolidated results, what we have published. And if you can see from there year -- quarter-on-quarter, there has been significant improvements on those results. Individual company-wise details, we are unable to divulge at the moment.

Manoj, just answer them on this future, how do we see? I think it will answer the query.

See, going forward, we expect the momentum to be maintained for all the subsidiaries which in consideration. And as I mentioned, on individual operations of U.K., Europe, America and Germany, in each area, we have taken significant steps to see that we keep the momentum of growth and the companies which were in red, the objective is to bring it back to black and turn the operations around. So our operational focus and efficiency remains. We are expanding our product portfolio across various geographies, helping us to get the numbers where we wish to.

Sir, my second question would be, how can -- how have been the subsidiaries performing, especially Monocon that has been under some pressure last year.

Yes. So as I mentioned, for Monocon, we are now taking a very aggressive stand of introducing new products as well as getting into new geographies. In my last conference call also, I mentioned we have put a robust team across the globe to help Monocon drive the growth plan, which we have set forth. Second, we have had some positive news from the U.K. industry, where British Steel is now in public ownership. So the business longevity and visibility is much better than before. And in November, December, if the other melt shops, as I mentioned in my opening remarks, open, it will be much more positive and robust for Monocon operations going forward. But overall, we are quite buoyant about the way things are moving, and we will continue to trend along that path.

The next question is from the line of Neha [indiscernible] from [indiscernible] Broking.

Am I audible?

Yes.

My question is regarding the tech transfer product from Phase 1 has commenced. Can you let us know on how much time it will take for full transfer of capabilities? And by when do we see those products being available in the domestic market?

So as I mentioned -- this is Manoj here. So as I mentioned, Sheffield Refractories Phase 1 plastic running mass has already started to be produced in our IFGL Vizag facility. That is already complete. And now marketing trials and all the other relevant activities relating to promoting the product is ongoing now. In terms of the various other products, joint visits to the customers, interactions with the groups, technology transfers, all that have been put in place. So -- but as you know, these products will take time to mature in the market. It will undergo a full set of trials and accreditation at the customers' end. So the process is already on.

The next question is from the line of Amit Ahuja from CJ Capital.

Congratulations for the good set of numbers. So I have two questions. The first one is growth in the domestic business was like 7% compared to the higher growth number in the previous year. So how has been the demand environment? And is there any market share loss? And my second question is also the EBIT margin were down by like 17%. Is this because of competitive pricing and intensity? Like what has impacted the margins sharply?

Amit, this growth number what we are talking of domestic business, the base number has grown up. So that's why in terms of percentage, it's looking small. We are almost double digit. So we have to see on a consol basis, including the domestic business as well as export business. This time, we have done very well in terms of export. But we continue to, I think, give importance to domestic business, and we target to increase by double digit at least for -- at the year-end.

And what is the like competitive pricing?

No, with respect to dip in EBITDA margin, as we said that because of geopolitical condition, our raw material prices has gone up and the LPG or the fuel prices have gone up like anything. Although we have been able to get price increase from the customer, but that was not enough to compensate the overall price increase in input cost. So this is the major reason for dip in EBITDA margin as compared with the corresponding quarter.

The next question is from the line of Sahil Sanghvi from Monarch Networth Capital.

Sir, my first question is on the EBIT margins that we have shown for the Europe business. Now after some quarters of reaching towards the breakeven, especially Q4 was very close to breakeven. We've again started going towards 9% and negative 8%. So what's exactly happening over here? And do we expect to again breakeven this year, or how do you see that evolving for the Europe business?

Sahi, it is with respect to stand-alone business or consol?

This is the segmental split that you've given in the financial Europe, in that category.

Okay. I think Europe per se, I tell you Europe consists of two companies, basically majorly Monocon U.K. and Sheffield Refractory, okay? So both have individually performing good. But as mentioned by Mr. Manoj that because of lower performance of British Steel, one of our customers, our sale in Sheffield Refractory was considerably low. So that's why this quarter is exceptionally low for Sheffield Refractory. Otherwise, Monocon is doing better from the previous quarter, and we are moving towards the breakeven. So that we maintain that Monocon U.K. per se, we are reaching towards breakeven and that continues to do so. And for Sheffield, this is, I think, one of the quarters, Manoj can further put light on this that quarter 2 will be normal as usual, I believe.

Very much, true. Amit. Because British Steel, hopefully, in quarter 2 with the blast furnace coming back in operations, their sales, et cetera, will come back immediately. It's not that we have lost any orders, et cetera. It's just because of the timing difference. The plant is not producing, so we were not able to sell much there. But in quarter 2, we will be back to where we should be for Sheffield.

So has the margins also affected at Sheffield because of this low offtake?

Yes, yes.

Okay, okay, okay. Second, I wanted to understand in the opening remarks, we heard that there are some more price hikes to be expected. So would this be across all products, or would this be across geographies? Or how should we think about it? And what kind of benefit do you expect on the margins because of this?

So see, I tell you this is not all across evenly distributed. So every contract has its own feature and accordingly, we are going and getting the price increases. And these are all temporary price increase based on the input cost, which has increased on this geopolitical front. So we are trying to get and continue the prices increase as long as we are being impacted by input price cost. Otherwise, no additional margin on this account we see.

Okay. Okay. And on the stand-alone, we are seeing a big bump up on the staff cost, which is roughly INR 28.7 crores, roughly 10% of the top line. So should we assume that the staff cost will continue at 10% of the top line because absolute numbers, it's -- I mean it's a jump to how...

[indiscernible]. If you compare this with quarter 4 number, which is around INR 24 crores, there is an increase. If you compare this with quarter 1 FY '26, this is at the similar level. So 10%, obviously, this is 10% of overall revenue. And we are trying to manage this, and we do not expect this to go beyond this.

Okay, okay. But on the consol front also, there is a big jump. So INR 84 crores versus INR 76 crores Y-o-Y and INR 77 crores Q-o-Q. So is it safe to assume that this run rate will continue? And what is composing this increase?

No, if you see again for consol also for corresponding quarter, INR 76 crores to INR 77. So only INR 1 crore price hike. But if you compare this with quarter last quarter, there is an impact because I believe because of this some provision reversal happening in last quarter. But employee cost is our focus area, and we are working on it.

Okay, okay. Now with respect to a longer-term guidance, like we were maintaining for one particular time that we can achieve a 12% EBITDA margin. Do we stick to that kind of guidance? And is that possible on the consol business?

The consol business, we are trying to achieve double-digit EBITDA margin, and it all depends on how the geopolitical situation stand and overseas demand stand with us. We'll be back again for sure on this.

Okay, okay. With respect to Liberty Steel restarting, is there a possibility to get any kind of lost dues that we had historically?

No. So Liberty Steel, this is not under the erstwhile management. Now Liberty Steel is under the administrators, and they have renamed as specialty steel. So the old dues because of being unsecured in nature, that the administrator will deal with it in due course once the new buyers are in place. But given the historical situation, how things turn out, I very much doubt there would be anything which is forthcoming from that side. But the silver lining is if the operations start, we can start reselling the products. We have -- which we used to have a big sales and a big service team placed in that plant. So in that way, our Monocon operations will get a big impetus once those operations start.

And when do you expect this to reflect in our revenue numbers? Any time line on this?