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description
transcript
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
httpslidepdfcomreaderfullifgl-refractories-initiating-coverage-centrum-24062014 126
34Centrum Equity Research is available on Bloomberg Thomson Reuters and FactSet
Lining up for growth and margin expansion
We initiate coverage on IFGL Refractories Ltd (IFGL) with ~55 upside as
we are impressed by the companyrsquos foresight in strategically expanding itshigh margin facilities at Kandla Gujarat and Ohio US at minimal capexwhich provides strong visibility on earnings growth and margin expansionFavorable demand outlook for refractories from both domestic andEuropean markets on the back of increasing steel production provides anopportunity for growth Improving balance sheet health strong free cashflow visibility (yield of ~12 in FY16E) and attractive returns (ROE of 185in FY16E) are added positives
Expansion at Kandla to be the game changer for domestic operations Weexpect expansion (doubling of capacity by Q1FY16E) at IFGL Exports Ltd (IEL)Kandla to be the game changer for IFGL as margins at IEL are ~25 (vs ~14 atstandalone operations) due to SEZ benefits and huge freight advantage on
exports (~US$700container for a shipment to Europe) on account of its portbased location We expect volumes amp EBITDA at IEL to more than double in thenext three years Exports from standalone operations (~57 share) should besubstituted by IEL gradually improving margins at the standalone entity as itsupplies more in the domestic market
Steady growth seen from overseas operations after turnaround IFGL hassuccessfully turned around its overseas operations (~53 of cons revenue inFY14) by consolidation amp recalibration of various facilities and has seen steadyearnings trajectory with key subsidiaries like Monocon groupEI Ceramics clockingEBITDA CAGR of ~1638 during FY11-14 Doubling of capacity (by Q1FY16E) atEI Ceramics which enjoys highest margins (~16) among overseas subsidiaries isexpected to not only provide strong earnings growth but also marginimprovement to IFGL from its overseas subsidiariesrsquo basket
Balance sheet strengthened free cash flow generation strong IFGL has turnedfree cash flow positive at a consolidated level in FY14 as operating cash flowimproved sharply (up 240 YoY) led by higher profitability across operations Wesee strong free cash flow generation ahead on the back of limited capex(~Rs250mn annually over FY15-16E) We see free cash flowEBITDA going up to04x in FY16E (vs 02x in FY14) and free cash flow yield is expected to be ~12 inFY16E Balance sheet remains strong and we expect the company to be debt freeat a consolidated level in the next three years
Valuation and risks - poised for rerating We expect earnings momentum tocontinue with an EBITDAPAT CAGR of 136116 during FY14-16E led byvolume growth from expansions and margin improvement Despite the recent upmove the stock trades at attractive valuations of 62x FY16E PE and 36x FY16E
EVEBITDA We value the stock at 55xMarrsquo16E EVEBITDA to arrive at our TP ofRs220 Initiate with a Buy The stock is currently very thinly covered by the streetKey risks are sharp increase in imported raw material costs and extreme stress inthe steel industry in India and Europe
Target Price Rs220 Key Data
Bloomberg Code IFGL IN
CMP Rs142 Curr Shares OS (mn) 346
Diluted Shares OS(mn) 346
Upside 55 Mkt Cap (RsbnUSDmn) 49816
Price Performance () 52 Wk H L (Rs) 1567235
1M 6M 1Yr 5 Year H L (Rs) 1567153
IFGL IN 212 1510 4219 Daily Vol (3M NSE Avg) 88220
Nifty 17 192 322
as on 23 June 2014 Source Bloomberg Centrum Research
Shareholding pattern ()
Mar-14 Dec-13 Sep-13 Jun-13
Promoter 713 713 713 713
FIIs 00 00 00 00
DIIs 11 22 22 22
Others 277 265 265 265
Source BSE as on 23 June 2014
Strong free cash flow generation ahead
Source Company Centrum Research Estimates
ROE has improved surpasses peers
Source Company Centrum Research Estimates CY07 = FY08
EVEBITDA of IFGL vs Vesuvius
Source Bloomberg Centrum Research
Abhisar Jain CFA abhisarjaincentrumcoin 91 22 4215 9928
YE Mar(Rs mn) Rev YoY () EBITDA EBITDA () PAT YoY () EPS (Rs) RoE () RoCE () PE (x) EVEBITDA (x)
FY13 6712 112 582 87 282 (292) 82 115 84 174 102
FY14 7776 159 1096 141 640 1269 185 212 177 77 53
FY15E 8484 91 1210 143 686 71 198 190 175 72 46
FY16E 9554 126 1414 148 798 163 231 185 189 62 36
FY17E 10697 120 1630 152 928 163 268 181 198 53 27
Source Company Centrum Research Estimates
-527
-99 -39
211
445549
657
(1000)
(500)
0
500
1000
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( R s m n )
OCF Capex Free Cash Flow
(10)
(5)
0
5
10
15
20
25
30
35
CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14ECY15E
( )
Vesuvius India IFGL Refractories (FY)Vesuvius PLC Puyang Refractories
Cie de St-Gobain Magnesita RefractariosChosu n Refractories Krosaki Harima (FY)Shinagawa (FY)
0
2
4
6
8
10
12
F e b 0 9
J u n - 0 9
O c t - 0 9
F e b - 1 0
J u n - 1 0
O c t - 1 0
F e b - 1 1
J u n - 1 1
O c t - 1 1
F e b 1 2
J u n - 1 2
O c t - 1 2
F e b - 1 3
J u n - 1 3
O c t - 1 3
F e b 1 4
J u n - 1 4
( x )
EVEBITDA IFGL EVEBITDA Vesuvius
BuyMetals amp Mining
Initiating Coverage 24 June 2014
INDIA
IFGL Refractories Ltd
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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2IFGL Refractories Ltd
Table of Content
Expansion at Kandla to be the game changer for domestic operations 3
Capacity being doubled at IFGL Exports Ltd (IEL Kandla) 3
Substantial savings in freight expenses for exports from Kandla vis-agrave-vis Orissa 3
IEL enjoys higher margins due to SEZ benefits and strategic location 4
Higher utilization and lower exports to provide margin uptick at Orissa 5
Expansions by integrated steel mills provide domestic demand visibility 6
Steady growth seen from overseas operations after turnaround 7
Several strategic acquisitions in last decade for expanding reach and product basket 7
Overseas operations have been consolidated and profitability has improved 8
EI Ceramics doubling capacity to maintain growth 9
Share of higher margin EI Ceramics to keep increasing in IFGLrsquos overseas earnings 9
Balance sheet strengthened free cash flow generation strong 10
Strong free cash flow generation ahead with limited capex 10
ROE shows improvement beats most peers at a global level 11
Financials 12
Revenue growth to be led by IEL and overseas operations 12
Margins and return ratios to remain healthy FY14-17E EBITDA CAGR of 141 12
Key Assumptions and Sensitivity 13
Valuation ndash poised for rerating 14
Steep valuation discount exists for IFGL compared to global peers 14
IFGL trading at a higher discount to Vesuvius than historical average 15
Key risks to our thesis 16
Company Background 17
Comments on recent quarterly results 18
Annexure ndash Refractory Industry 19
About refractories ndash consumables for manufacturing processes with high temperatures 19
Applications of refractories ndash largely used in steel industry for furnace linings 20
Global refractory market size at ~US$25bn expected to grow at ~35 CAGR 21
Domestic refractory demand-supply indicates low industry growth amp import pressure 22
Financials (Cons) 23
Financials (Cons) - Historical 24
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Expansion at Kandla to be the game changer for domestic operations
Capacity being doubled at IFGL Exports Ltd (IEL Kandla)
IFGL is currently in the process of doubling the capacity of continuous casting refractories at itssubsidiary (51 stake) IFGL Exports Ltd (IEL) IEL started operations in FY13 (May 2012) with a capacityof 80k pcsyear and achieved sales volumes of ~64k pcs in FY14 We see sales volumes from IEL more
than doubling by FY17E to reach 136k pcs IFGL has spent ~Rs400mn on IEL so far and plans to spend~Rs60mn for the second phase of expansion (80k pcsyear) while the third phase of expansion wouldtake the capacity to 300k pcsyear at an additional capex of Rs140mn
Exhibit 1 Capacity expansion planned at IEL Kandla Exhibit 2 Sales volumes at IEL to double in 3 years
Source Company Centrum Research Estimates Source Company Centrum Research Estimates
Substantial savings in freight expenses for exports from Kandla vis-agrave-vis Orissa
Exports account for 55+ share in revenues from IFGLrsquos standalone operations through its plant atKalunga Orissa and Europe accounts for ~65 of exports IEL specifically chose an SEZ in KandlaGujarat to enjoy the benefits of lower freight costs for exports (~US$700 lower freight on per containerbasis for shipment to Europe ndash see exhibit 3 below)
Exhibit 3
IFGL plants in India ndash Capacity and freight differential for exports
Source Company Centrum Research
80000
80000
160000
140000
300000
0
50000
100000
150000
200000
250000
300000
350000
Phase 1 Phase 2 TotalCapacity
PotentialPhase 3
Potential Total
Capacity
( p c s y r )
Currently Installed FY16E FY17-18E
21148
64225
80000
112000
136000
0
20000
40000
60000
80000
100000
120000
140000
160000
FY13 FY14 FY15E FY16E FY17E
Sales Volumes (pcs)
Odisha
Gujrat
Kalunga
Kandla
Capacity of IFGL ExportsKandla getting doubled
to 160k pcsyear byQ1FY16E
Kandla facility providescrucial freight savings forexports apart from otherSEZ benefits
IFGL Exports Ltd
Kandla Gujarat Products
IFGL
RefractoriesOrissa
CapacityCurrent
CapacityPost
Expansion
80000 300000Continuous casting ref(pcsyr)
360000
NA NA Slide gate ref (pcsyr) 300000
NA NAPurge plugs cast products(pcsyr)
116000
NA NA Unshaped (tpa) 24000
~50Kms Distance from port ~400Kms
2012 Plant set-up date 1990
FY14 Exports - Rs1883mn (~57 of sales)
UK 7
Europe(excl
UK) 65
Asia(excl
India)15
Americas6
Others7
Freight difference for shipment toEurope form Kandla Vs Odisha
US$container
Inland Freight difference 500Sea Freight difference 200
Total Freight advantage for IEL plant 700
FY14 Exports - Rs395mn (100 of sales)
UK 8
Europe(excl
UK) 79
Asia(excl
India)2
Americas4
Others8
3IFGL Refractories Ltd
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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4IFGL Refractories Ltd
IEL enjoys higher margins due to SEZ benefits and strategic location
IEL enjoys much higher margins than its parentrsquos standalone operations (FY14 EBITDA margins stoodat 256 for IEL vs 139 for IFGL standalone) This is on account of various benefits like i) IEL beinglocated in an SEZ which has key advantages such as a) no duty on imported raw materials b) taxsavings on domestically procured raw materials and c) exemption from income tax for 5 years ii) portbased location of the plant (~50 kms) which helps in reducing inland freight and iii) proximity toexport customers (Europe amp Middle east) which helps in reducing sea freight as well as transit time andthus the debtor days With higher utilization on existing capacity and expansions we see sharp jumpin revenueEBITDA for IEL to Rs953mn257mn in FY17E (up ~150 from FY14) We note that IEL hasshown sharp jump in its operating profitability in FY14 which was just the second year of companyrsquosoperations and this demonstrates superior management quality and expertise in the refractorybusiness
Exhibit 4
IEL clocked EBITDA margin of ~26 in FY14 as first phase capacity stabilised
Source Company Centrum Research Estimates
Short payback and superior returns expected from IEL
We see extremely short payback period for IEL with full capex for expanded capacity to be recoveredby FY17E which implies payback of 34 years for the first phase and 1-2 years for next two phases Dueto attractive profitability profile of IEL on account of its strong logistics advantage we expect superiorreturns with ROEROCE of ~3626 in FY16E
Exhibit 5 Payback for full expansion by FY17E Exhibit 6 Return ratios of IEL to be strong
(Rs mn)Phase 1
(spent byFY14)
Phase 2 (tobe spent
in FY15E)
Phase 3(likely tobe spentin FY16-
17E)
Total(by FY17E)
Capex 410 60 130 600
FY14 FY15E FY16E FY17E
EBITDA 102 130 204 257
Cumulative EBITDA 102 232 435 693
Cumulative capex 410 470 600 600
Payback achieved (x) 02 05 07 12
Source Company Centrum Research Estimates Source Company Centrum Research Estimates
90
399
518
755
953
-17
102 130204
257
256 250 270 270
(30)
(20)
(10)
0
10
20
30
40
(100)
100
300
500
700
900
1100
FY13 FY14 FY15E FY16E FY17E
( R s m n )
Sales EBITDA Margin - RHS
179
252
358337
141
179
265 287
10
15
20
25
30
35
40
FY14 FY15E FY16E FY17E
ROE - ROCE -
Margins at IEL are ~25well above IFGLrsquos otheroperations
Payback for IEL to beachieved before end ofFY17E
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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5IFGL Refractories Ltd
Orissa plant to capture domestic demand and reduce export share in sales
We expect IFGLrsquos flagship plant at Orissa (standalone operations) to capture increasing domesticdemand and gradually reduce the share of exports in total sales as export sales will continue to getshifted to IEL in coming years We see share of exports coming down to 42 in FY17E from 56 inFY14 and domestic sales increasing to 58 for standalone operations IFGL has shown smart revenueCAGR of ~17 at its standalone operations during FY10-14 led by better pricing weak rupeebenefitting exports revenue and improvement in capacity utilization but we expect revenue CAGR of67 during FY14-17E on account of limited room for higher volumes (particularly in continuouscasting refractories segment which is almost completely utilized) reduced share of exports goingforward and low pricing power due to increased competition
Exhibit 7
Exports share in total standalone sales to reduce from FY15E
Source Company Centrum Research Estimates
Higher utilization and lower exports to provide margin uptick at Orissa
Though IFGL is currently running at near full utilization levels for continuous casting refractories at its
Orissa plant it has an opportunity to increase its utilization in other shaped products like slide gaterefractories purge plugs and cast products Also utilization in unshaped refractories is expected toimprove Lower share of exports would result in savings on freight and coupled with higher utilizationlead to lower fixed costs We see IFGLrsquos standalone margins improving by 150bps YoY to 153 inFY15E We expect margins to further improve to 158 by FY17E led by lower exports We note thatmargins have remained very volatile in the standalone operations due to pressure on raw materialcosts high dependence on exports and hence currency fluctuations and lacklustre demandenvironment We expect margin trajectory to remain more stable going ahead with rationalization ofsales in exports and domestic markets as well as overall improvement in demand environment
Exhibit 8 Capacity utilization at Orissa to improve Exhibit 9 Standalone margins expected to expand
Source Company Centrum Research Estimates Source Company Centrum Research Estimates
4847
50
44
50
54
5852
53
50
56
50
46
42
30
35
40
45
50
55
60
500
700
900
1100
1300
1500
1700
1900
2100
2300
2500
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( R s m n )
Domestic Sales Export Sales
Domestic - share Exports - share
68
87
78
72
7780 82 84
34
49
65 64
58 6064 66
30
40
50
60
70
80
90
FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E
Shaped Refractories Unshaped Refractories
291
196
348 342
450
534575
630
166
94
127
112
138
153 154 158
8
10
12
14
16
18
0
100
200
300
400
500
600
700
FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E
EBITDA (Rs mn) Margin - RHS
IFGLrsquos flagship plant tofocus more on domesticmarkets and see marginimprovement
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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6IFGL Refractories Ltd
European demand expected to be better on improving macros
Demand for refractories from European steel mills is expected to be better going forward due togradual pick up in steel production and improving macro situation (as is visible from the pick-up inGDP numbers) Since Europe (including UK) accounts for ~70 of IFGLrsquos exports from domesticoperations and ~50 of revenues on a consolidated basis (including overseas subsidiariesrsquo net sales)we expect IFGL to benefit from improving demand situation in Europe
Exhibit 10
Europe steel production picking up Exhibit 11
GDP in EU amp UK improving
Source Company Centrum Research Estimates CY14 nos annualised for 5MYTD Source Company Centrum Research
Expansions by integrated steel mills provide domestic demand visibility
We see good demand visibility in the domestic market as steel production is expected to pick up ledmainly by higher volumes from large steel mills We expect the share of large integrated steel mills torise to ~60 by FY17E from ~51 in FY14 led mainly by expansions and wide product range We haveconsidered a basket of players (SAIL Tata Steel JSW steel JSPL Essar RINL JSW Ispat) in large steelmills and see volume CAGR of ~12 from them as compared to 6 for the steel industry during FY14-17E IFGL derives ~65 of its domestic revenue from large steel mills and is expected to be a keybeneficiary of the gradual shift in domestic steel production to large steel mills from small mills
Exhibit 12 Steel production growth to pick up Exhibit 13 Led by higher volumes from large steel mills
Source Company Centrum Research Estimates Source Company Centrum Research Estimates
Exhibit 14 Large mills share in steel production to rise Exhibit 15 Large mills to grow faster
Source Company Centrum Research Estimates Source Company Centrum Research Estimates
2099 1969
1375
1732 1775
1412
16561759
100
120
140
160
180
200
220
CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14
EU Production (MT)
(8)
(6)
(4)
(2)
0
2
4
M a r - 0 8
J u l - 0 8
N o v - 0
8
M a r - 0 9
J u l - 0 9
N o v - 0
9
M a r - 1 0
J u l - 1 0
N o v - 1
0
M a r - 1 1
J u l - 1 1
N o v - 1
1
M a r - 1 2
J u l - 1 2
N o v - 1
2
M a r - 1 3
J u l - 1 3
N o v - 1
3
M a r - 1 4
UK GDP EU GDP
686 757 817 850 893 946 1012
132
103
79
4050
6070
0
2
4
6
8
10
12
14
40
50
60
70
80
90
100
110
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( M T )
Steel Production - India YoY Growth
339 372 389
433482
539
610
0
10
20
30
40
50
60
70
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( M T )
SAIL Tata Steel JSW Steel JSPL Essar Steel RINL Ispat Inds
69 76
82 85 89 95
101
34 37 39 43 48 54 61
4949
48
51
54
57 60
40
45
50
55
60
65
0
20
40
60
80
100
120
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( )
( M T )
Steel Production Large Integrated steel mills
share of integrated mills - RHS
74
60
86
121
00
20
40
60
80
100
120
140
CAGR (FY11-14) CAGR (FY14-17E)
Steel Production Large Integrated steel mills
Domestic steel production shifting tolarge steel mills therebyimproving demandoutlook for organisedrefractory producers
Steel productionand GDP improvingin Europe
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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7IFGL Refractories Ltd
Steady growth seen from overseas operations after turnaround
Several strategic acquisitions in last decade for expanding reach and product basket
IFGL has made several overseas acquisitions in the last decade mainly aimed at achieving inorganicgrowth through entry into new markets expanding its product basket and getting access to newtechnologies
IFGL acquired Monocon group in 2005 at a cost of 95mn pounds (Rs560mn) with its plantslocated in Brazil Taiwan China UK and USA Monocon group provided IFGL with wide rangeproduct basket (from Lances Darts Monolithics amp Castables) and also gave access to key largesteel plants in Europe of steelmakers like Corus amp Arcelor Mittal
IFGL acquired Goricon group in 2006 at a cost of 11mn pounds (Rs70mn) and later merged it withMonocon as the companies had similar products and were competitors of each other
Hoffman ceramics was acquired in 2008 at a cost of 7mn euros for getting entry into foundries for
supply of consumables
IFGL acquired EI Ceramics in 2010 which has similar product basket as IFGLrsquos domestic operationsbut provided access to key markets in Americas Company acquired EI Ceramics with an eye on
future expansion as it had space to increase capacity by ~3x IFGL also acquired CUSCinternational in US (later merged with EI) which was providing ancillary services to EI includingprocessing of raw materials warehousing and packaging
Exhibit 16
Snapshot of overseas acquisitions
CompanyAcquired
Year ofacquisition
PurchaseCost
(Rs mn)
PlantLocations
Products Markets Comments
MonoconGroup
2005 560UK USChina
Refractory dartslances monolithics
UK EuropeChina
Services key customers in Europelike Corus Arcelor Brazil plantclosed and Taiwan plant shiftedto China
GoriconGroup
2006 70 UK USDarts lances and ladlepowder
Europe Merged into Monocon
HoffmanCeramics 2008 470 Germany
Refractory ceramicslike filters feeders etc Europe
Czech plant closed suppliesconsumables to foundries
EI Ceramics 2010 590 Ohio USContinuous castingrefractories
US CanadaMexico
Acquired to gain traction inAmerica market
Source Company Centrum Research
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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8IFGL Refractories Ltd
Overseas operations have been consolidated and profitability has improved
IFGL has faced several challenges in managing the profitability and operations of its overseasacquisitions due to global economic crisis in CY08 which impacted steel production in US amp Europevery severely Both Monocon and Hoffman group had EBITDA loss in FY09 but management effortsinto consolidation of key group entities (Goricon was merged with Monocon) and closure of certainunviable facilities (Taiwan Brazil plants of Monocon were closed Czech plant of Hoffman was closed)coupled with recovery in demand has led to gradual improvement in profitability of companyrsquossubsidiaries We note that Monocon grouprsquos profitability has improved substantially during FY11-14with EBITDA CAGR of ~16 and improvement in marginsROE to 8512 in FY14 Hoffman grouphas also returned to profits although margins remain low IFGLrsquos acquisition in US of EI Ceramics in2010 has been rewarding and the company has performed consistently well post acquisition andachieved revenueEBITDA CAGR of ~3338 during FY11-14
Exhibit 17
Revenue trend for overseas subs Exhibit 18
EBITDA trend for overseas subs
Source Company Centrum Research Source Company Centrum Research
Exhibit 19 EBITDA margin has shown improvement Exhibit 20 ROE has moved up especially for EI Ceramics
Source Company Centrum Research Estimates Source Company Centrum Research Estimates
0
500
1000
1500
2000
2500
3000
3500
FY11 FY12 FY13 FY14
( R s
m n )
Monocon EI Ceramics Hoffman
FY11-14 - CAGR
Monocon - 107EI Ceramics - 328
0
50
100
150
200
250
300
FY11 FY12 FY13 FY14
( R s
m n )
Monocon EI Ceramics Hoffman
FY11-14 - CAGR
Monocon - 16EI Ceramics - 376
70
89
59
85
139
159
137
161
7080
51 5030
50
70
90
110
130
150
170
FY11 FY12 FY13 FY14
( )
Monocon EI Ceramics Hoffman
119 120 87 120
112
191
158 162
7135
4336
30
50
70
90
110
130
150170
190
210
FY11 FY12 FY13 FY14
( )
Monocon EI Ceramics Hoffman
EBITDA has shownimprovement across alloverseas subsidiariesduring FY11-14
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9IFGL Refractories Ltd
EI Ceramics doubling capacity to maintain growth
EI Ceramics is doubling its capacity as utilizations on current capacity reached ~100 in FY14 EICeramics has been IFGLrsquos best overseas acquisition achieving revenueEBITDA CAGR of ~3338since acquisition (FY11-14) We expect revenueEBITDA CAGR of 23227 during FY14-17E asexpansion would be on-stream by Q1FY16E IFGL had spent ~Rs590mn for the purchase of EI and isexpected to achieve full payback in FY15E (less than 5 years) The capex for expansion of additional 80kpcsyear in EI is limited to Rs80mn and would be funded easily through internal accruals We note thatadditional capex would have the potential to generate ~Rs1000mn in revenues on completestabilisation (by FY17E) an asset turnover of more than 10x
Exhibit 21 EI Ceramics to double capacity by Q1FY16 Exhibit 22 Strong revenue and EBITDA CAGR ahead
Source Company Centrum Research Source Company Centrum Research Estimates
Share of higher margin EI Ceramics to keep increasing in IFGLrsquos overseas earnings
We expect EI Ceramics to lead the growth in earnings from IFGLrsquos overseas subsidiaries basket We expectrevenue contribution of EI Ceramics in total overseas subs to increase to ~26 in FY17E from ~20 inFY14 while EBITDA contribution is expected to increase to 41 in FY17E from ~34 in FY14 Since EICeramics enjoys the best margins (~16) among IFGLrsquos overseas subsidiaries increase in share ofearnings from EI Ceramics is expected to lead to margin improvement for IFGL at a consolidated level
Exhibit 23
Overseas subs revenue share ndash FY14 Exhibit 24
Overseas subs revenue share ndash FY17E
Source Company Centrum Research Source Company Centrum Research Estimates
Exhibit 25
Overseas subs EBITDA share ndash FY14 Exhibit 26
Overseas subs EBITDA share ndash FY17E
Source Company Centrum Research Source Company Centrum Research Estimates
80000
80000
160000
0
20000
40000
60000
80000
100000
120000
140000
160000
180000
Phase 1 Phase 2 Total
( p c s y r )
Currently Installed FY16E
8631012
1113
1447
1881
118 163 178 231 301
0
500
1000
1500
2000
FY13 FY14 FY15E FY16E FY17E
Revenue (Rs mn) EBITDA (Rs mn)
FY14-17E - CAGR
Revenue - 23EBITDA - 227
Monocon641
EI Ceramics
197
Hoffman161
Monocon607
EI Ceramics
261
Hoffman133
Monocon577
EI Ceramics
338
Hoffman 85
Monocon530
EI Ceramics
405
Hoffman 64
Capacity at EI Ceramicsto increase to 160k pcsyear by FY15-end
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10IFGL Refractories Ltd
Balance sheet strengthened free cash flow generation strong
Strong free cash flow generation ahead with limited capex
IFGL has turned free cash flow positive at a consolidated level in FY14 as operating cash flow improvedsharply (up 240 YoY) led by higher profitability across operations We see strong free cash flowgeneration ahead on the back of limited capex (~Rs250mn annually over FY15-16E) and continued
traction in operating cash flow on the back of higher capacities and better utilizations
Exhibit 27 Free cash flow generation expected to be strong going ahead
Source Company Centrum Research Estimates
Free cash flow yield to improve significantly
We see free cash flow yield improving to ~12 and free cash flowEBITDA going up to 04x in FY16EBalance sheet remains strong and we expect the company to be debt free at a consolidated level inthe next three years if there is no new acquisition or major capex
Exhibit 28
Free cash flow yield attractive Exhibit 29
Debt free status in next two years
Source Company Centrum Research Estimates Source Company Centrum Research Estimates
-527
-99 -39
211
445549
657
(1000)
(800)
(600)
(400)
(200)
0
200
400
600
800
1000
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( R s m n )
OCF Capex Free Cash Flow
019
037 039
040
45
95
117
141
00
40
80
120
160
00
01
02
03
04
05
FY14 FY15E FY16E FY17E
Free Cash FlowEBITDA (x) Free Cash Flow Yield -
(02)
00
02
04
06
08
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( x )
Debt-equity Net debt-equity
Free cash flow yieldexpected to go up from45 in FY14 to 117 inFY16E
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11IFGL Refractories Ltd
ROE shows improvement beats most peers at a global level
IFGL has shown sharp improvement in its ROE in FY14 as overseas subsidiariesrsquo profitability hasimproved and domestic profitability is on an upswing post start of IEL We expect ROE of IFGL to be thebest in the industry at a global level in the next few years
Exhibit 30
IFGL ROE well above that of global peers
Source Company Bloomberg Centrum Research Estimates CY07 = FY08
(10)
(5)
0
5
10
15
20
25
3035
CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14E CY15E
( )
Vesuvius India IFGL Refractories (FY) Vesuvius PLC
Puyang Refractories Cie de St-Gobain Magnesita Refractarios
Chosun Refractories Krosaki Harima (FY) Shinagawa (FY)
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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12IFGL Refractories Ltd
Financials
Revenue growth to be led by IEL and overseas operations
We expect consolidated net sales CAGR of 112 for IFGL during FY14-17E This is expected to be ledby ~33 CAGR from IEL and 12 CAGR from overseas subsidiaries while standalone operations CAGRis expected to slow down to 67
Exhibit 31
Net sales CAGR of 112 during FY14-17E
Source Company Centrum Research Estimates
Margins and return ratios to remain healthy FY14-17E EBITDA CAGR of 141
Backed by better margins from IEL and recovery in demand we expect EBITDA CAGR of 141 duringFY14-17E Margins are expected to improve gradually as revenues from high margin subsidiary IELpicks up Expansion at EI Ceramics is also expected to help in EBITDA growth and margins Returnratios are expected to remain healthy on account of operating efficiency and high asset turnover ratiosfrom new expansions
Exhibit 32
EBITDA margin to remain stable Exhibit 33
Healthy return ratios
Source Company Centrum Research Estimates Source Company Centrum Research Estimates
Exhibit 34
Du Pont analysis
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
PATSales (x) 005 007 004 008 008 008 009
SalesAssets (x) 154 174 179 187 189 192 191
AssetsEquity (x) 174 156 152 138 124 115 109
ROE - 138 180 115 212 190 185 181
Source Company Centrum Research Estimates
4689
6039 6712
77768484
9554 10697
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( R s m n )
Standalone (IFGL) IFGL Exports (IEL) Overseas Subs Total
411 739 582 1096 1210 1414 1630
88
122
87
141 143 148
152
60
80
100
120
140
160
0
200
400
600
800
1000
1200
1400
1600
1800
FY11 FY12 FY13 FY14 FY15E FY16E FY17EEBITDA-Cons (Rs mn) OPM - RHS
50
100
150
200
250
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( )
ROE ROCE (post tax) ROIC (post tax)
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13IFGL Refractories Ltd
Key Assumptions and Sensitivity
Exhibit 35 Key Assumptions
Revenue (Rs mn) FY12 FY13 FY14 FY15E FY16E FY17E
Indian Operations
Domestic sales 1305 1495 1391 1744 2014 2304
Exports 1443 1567 1883 1744 1716 1669
Total standalone operations 2748 3061 3274 3487 3730 3973
IFGL Exports Ltd 0 90 399 518 755 953
Total Indian operations 2748 3152 3673 4005 4485 4926
Overseas Operations
Monocon Group 2410 2801 3288 3617 3979 4376
EI Ceramics 716 863 1012 1113 1447 1881
Hoffman Group 758 692 827 868 911 957
Less Intersegment revenues 596 790 1023 1120 1267 1443
Total Overseas operations 3287 3566 4103 4478 5069 5771
Total Consolidated operations 6035 6717 7776 8484 9554 10697
Source Company Centrum Research Estimates
Exhibit 36
EPS sensitivity to shaped refractory segment
EPS - FY16E (Rs) -Cons
Realizations
-10 -5 Base 5 10
V o l u m e s
-10 177 192 206 221 236
-5 187 203 218 234 250
Base 197 214 231 247 264
5 208 225 243 260 277
10 218 236 255 273 291
Source Company Centrum Research Estimates
Exhibit 37
EPS sensitivity to unshaped refractory segment
EPS - FY16E (Rs) - ConsRealizations
-10 -5 Base 5 10
V o l u m e s
-10 230 233 235 237 239
-5 228 230 233 235 237
Base 226 228 231 233 235
5 223 226 228 231 234
10 221 223 226 229 232
Source Company Centrum Research Estimates
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14IFGL Refractories Ltd
Valuation ndash poised for rerating
IFGLrsquos mean EVEBITDA stands at 47x with standard deviation of 26x and we note that the stock pricehas been volatile in last 6-7 years due to sharp fluctuations in earnings which explains the highstandard deviation However we believe that earnings would be more linear going forward asoverseas operations have been stabilised and growth would be driven by expansions at higher marginsubsidiaries of IEL and EI Ceramics At the CMP of Rs142 the stock trades at attractive valuations of 62xFY16E PE and 36x FY16E EVEBITDA and we believe that sharp improvement in free cash flow canlead to rerating in the stock We assign an EVEBITDA of 55x on Marrsquo16E earnings to arrive at a fairvalue of Rs220 and initiate with a Buy The multiple assigned by us remains below mean+05sd andthus provides comfort on historical valuations even though we expect much better earnings trajectoryfor the company going forward
Exhibit 38
EVEBITDA Valuation
(Rs mn) FY16E
EBITDA 1414
Ascribed EVEBITDA (x) 55
EV 7776
Add Net Cash (123)
Fair value mkt cap 7653
No of shares (mn) 346
Fair Valueshare (Rs) 220
Source Company Centrum Research Estimates
Exhibit 39
1-year forward EVEBITDA chart Exhibit 40
1-year forward PE chart
Source Bloomberg Company Centrum Research Estimates Source Bloomberg Company Centrum Research Estimates
Steep valuation discount exists for IFGL compared to global peersComparison of IFGLrsquos valuations with global peers shows that the company is trading at a steepdiscount despite strong fundamentals which we feel is unwarranted We expect re-rating in the stockwith improvement in outlook and stability in earnings
Exhibit 41 Valuationndash Peer comparison
CompanyMkt Cap(US$ mn)
CAGR CY13-CY15E () EBITDA Margin () PE (x) EVEBITDA (x) RoE () Div Yield ()
Rev EBITDA PAT CY13 CY14E CY15E CY13 CY14E CY15E CY13 CY14E CY15E CY13 CY14E CY15E CY13 CY14E CY15E
IFGL Refractories 82 108 136 116 141 143 148 77 72 62 53 46 36 212 190 185 12 14 16
Vesuvius India Ltd 220 110 115 126 184 178 186 203 192 161 110 100 82 164 152 158 07 08 09
Global Peers
RHI AG 1322 29 (02) 318 137 122 129 153 103 89 59 65 57 131 177 180 31 31 35
Vesuvius PLC 2140 04 53 80 117 123 128 149 141 127 86 82 74 93 1 02 108 31 34 36
Magnesita SA 574 122 129 344 156 149 158 157 180 101 60 63 55 21 17 35 15 11 21
Cie de St(Gobain 32544 20 91 32 3 100 107 114 218 181 133 76 68 60 58 76 94 29 30 33
Source Bloomberg Estimates Centrum Research Estimates CY13=FY14 for IFGL and so on
0
2
4
6
810
12
14
J u n - 0 7
O c t - 0 7
F e b - 0 8
J u n - 0 8
O c t - 0 8
F e b - 0 9
J u n - 0 9
O c t - 0 9
F e b - 1 0
J u n - 1 0
O c t - 1 0
F e b - 1 1
J u n - 1 1
O c t - 1 1
F e b - 1 2
J u n - 1 2
O c t - 1 2
F e b - 1 3
J u n - 1 3
O c t - 1 3
F e b - 1 4
J u n - 1 4
EVEBITDA MeanMean + Std Dev Mean - Std Dev
0
5
10
15
20
25
J u n - 0 7
O c t - 0 7
F e b - 0 8
J u n - 0 8
O c t - 0 8
F e b - 0 9
J u n - 0 9
O c t - 0 9
F e b - 1 0
J u n - 1 0
O c t - 1 0
F e b - 1 1
J u n - 1 1
O c t - 1 1
F e b - 1 2
J u n - 1 2
O c t - 1 2
F e b - 1 3
J u n - 1 3
O c t - 1 3
F e b - 1 4
J u n - 1 4
PE MeanMean + Std Dev Mean - Std Dev
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15IFGL Refractories Ltd
IFGL trading at a higher discount to Vesuvius than historical average
IFGL has historically (based on average during JanrsquoCY09-JunersquoCY14) traded at a discount of ~35 toVesuvius India Ltd (VIL) on EVEBITDA basis However currently IFGL is trading at a discount of ~60 toVIL which is unwarranted as the profitability of IFGL is on an uptrend post stabilisation of overseasoperations and IEL The historical discount has seen an increase in the past 3 years due to volatility inearnings of IFGL but with operations having stabilised we see the discount narrowing We also expectIFGL to be above its peers (incl VIL) in terms of ROE for the next few years and see a high cash flowyield of ~12 in FY16E The multiple assigned by us implies ~35 discount to VILrsquos current valuationswhich is in line with the historical average even though IFGL is expected to generate better returnsand free cash flow going forward
Exhibit 42
EVEBITDA ndash IFGL vs Vesuvius India Exhibit 43
Discount of IFGL EVEBITDA vs Vesuvius
Source Bloomberg Company Centrum Research Source Bloomberg Company Centrum Research
0
2
4
6
8
10
12
F e b - 0
9
J u n - 0
9
O c t - 0 9
F e b - 1
0
J u n - 1
0
O c t - 1 0
F e b - 1
1
J u n - 1
1
O c t - 1 1
F e b - 1
2
J u n - 1
2
O c t - 1 2
F e b - 1
3
J u n - 1
3
O c t - 1 3
F e b - 1
4
J u n - 1
4
( x )
EVEBITDA IFGL EVEBITDA Vesuvius
(90)
(60)
(30)
0
30
60
F e b - 0
9
J u n - 0
9
O c t - 0 9
F e b - 1
0
J u n - 1
0
O c t - 1 0
F e b - 1
1
J u n - 1
1
O c t - 1 1
F e b - 1
2
J u n - 1
2
O c t - 1 2
F e b - 1
3
J u n - 1
3
O c t - 1 3
F e b - 1
4
J u n - 1
4
( )
EVEBITDA discount of IFGL vs Vesuvius
Avg discount of IFGL vs Vesuvius
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16IFGL Refractories Ltd
Key risks to our thesis
Dependent on raw material sourcing through imports The industry is dependent on importsof key raw materials like high grade alumina bauxite magnesia silicon carbide etc China is themajor supplier of imports and has imposed heavy taxes on export of raw materials of refractories This has resulted in sharp increase in imported raw material costs IFGL sources ~52 of its raw
materials through imports and remains exposed to increase in costs which can impact its margins Low pricing power due to excess domestic supply and import pressure The industry suffers
from low capacity utilization of ~60 with excess installed capacities (~22 MTPA) and as a resultpricing power is low for refractory makers who are squeezed between raw material suppliers andsteel makers Cheap refractory imports from China have also kept prices in check IFGL does notenjoy as much pricing power as VIL does as customers prefer VIL for its strong brand name andproven track record of providing quality products and services Further increase in competitiveintensity can lead to lower pricing for IFGL in both domestic and export markets
Sharp slowdown in steel industry leading to lower volumes Like any other refractorycompany IFGLrsquos fortunes depend on the steel industry and any slowdown in global economy mayhamper the steel industryrsquos growth and IFGLrsquos volume growth would be more vulnerable as itdoes not have strong relationships like VIL has Sharp slowdown in the steel industry (vs
expectations of recovery) in coming years could lead to lower capacity utilization and lower thanexpected volumes
Currency Fluctuation We believe that steady weakening of rupee over the past couple of yearshas been favourable to the industry as well as for IFGL due to better import substitution andhigher realizations on exports negated only to a partial extent by higher import costs for rawmaterials IFGL has 80 of its revenues coming from overseas on a consolidated basis On astandalone basis approximately 58 of the revenues (FY14) came from exports Companyrsquosrevenues remain exposed to sharp appreciation of rupee against foreign currencies
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17IFGL Refractories Ltd
Exhibit 44
Shareholding pattern ()
Q4FY14 Q3FY14 Q2FY14 Q1FY14
Promoter 713 713 713 713
FIIs 00 00 00 00
DIIs 11 22 22 22
Others 277 265 265 265
Source BSE
Company Background
IFGL Refractories Ltd is a manufacturer of specialisedrefractories and requisite operating systems for the steelIndustry IFGL offers its customers total solution for refractoryfor flow control in steel teeming and continuous casting ofSteel IFGL has 8 manufacturing plants strategically located
across the globe in India China Europe and Americas Thecompany has a presence in over 50 of the global markets Itacquired the Monocon group UK in 2005 (06 Hofmanngroup Germany in 2008 and EI Ceramics USA in 2010 Theseoverseas acquisitions have brought along access to newproducts amp technologies new markets and new customers The company has also set up a subsidiary IFGL exports atKandla Gujarat which also has technical collaboration withKrosaki Harima Corporation Japan Apart from this IFGL alsoplans to expand its capacities in India and abroad over thecoming years
Exhibit 45 Key management personnel
Name Position Profile
Mr S K Bajoria Chairman
Promoter of S K Bajoria Group based at Kolkata engaged in diversified business activitiesHas been honorary vice consul of Denmark in Kolkata president of the Indian chamber ofcommerce director of West Bengal industrial development corporation Ltd and industrialpromotion amp investment corporation of Orissa Ltd
Mr Pradeep Bajoria Managing Director
Associated with IFGL from the very early days of Indo Flogates even before thecommencement of production in 1984 Has been director amp chief executive of erstwhileIndo Flogates Ltd More than 30 years of experience of refractory industry and has beeninvolved in various capacities in Indian refractories makers association
Mr Gian Carlo Cozzani Directorr Monocon UK
Associated with IFGL since Oct 2009 Former president and CEO of Vesuvius (now Vesuviusplc) Instrumental in steering Vesuvius from US$ 100 million to over US$ 1 billion Based inEurope he is a member of IFGLrsquos Core group and a director of Monocon InternationalRefractories Limited UK
Source Company
Exhibit 46
IFGL refractories holding structure
Source Company
10051
983113983110983111983116 983127983151983154983148983140983159983145983140983141 983112983151983148983140983145983150983143 983116983145983149983145983156983141983140
983113983110983111983116 983109983160983152983151983154983156983155 983116983156983140
983117983151983150983151983139983151983150 983111983154983151983157983152 983109983113 983107983141983154983137983149983145983139983155 983112983151983142983149983137983150983150
983107983141983154983137983149983145983139
983124983141983139983144983150983145983139983137983148 983137983150983140 983110983145983150983137983150983139983145983137983148
983107983151983148983148983137983138983151983154983137983156983145983151983150 983151983142
983115983154983151983155983137983147983145 983112983137983154983145983149983137
983107983151983154983152983151983154983137983156983145983151983150983084 983114983137983152983137983150983084
983080983123983157983138983155983145983140983145983137983154983161 983151983142 983118983145983152983152983151983150
983123983156983141983141983148 983107983151983154983152983151983154983137983156983145983151983150983084
983114983137983152983137983150983081
983125983123983105 983125983115 983087 983125983123983105 983087 983107983144983145983150983137
983115983137983150983140983148983137 983123983109983130983084 983111983157983146983137983154983137983156983084 983113983150983140983145983137
983111983141983154983149983137983150983161
983113983110983111983116 983122983141983142983154983137983139983156983151983154983145983141983155 983116983145983149983145983156983141983140
983112983119 983085 983115983151983148983147983137983156983137983084 983113983150983140983145983137
983127983151983154983147983155 983085 983115983137983148983157983150983143983137983084 983119983154983145983155983155983137983084 983113983150983140983145983137
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18IFGL Refractories Ltd
Exhibit 47 Quarterly financials (cons)
YE Mar (Rs mn) Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14
Net sales 1725 1657 1690 1641 1811 2014 1947 2003
Other Operating Income 5 4 0 0 3 0 0 0
Total Income 1729 1662 1690 1641 1814 2014 1947 2003
Accretion to Stocks in trade amp work in progress (29) (10) 4 46 (65) (54) (25) 9
Cost of Raw Materials consumed 840 898 835 581 911 908 817 808
Purchase of traded goods 66 28 42 223 46 73 182 168
Staff Cost 239 234 250 264 247 275 294 281
Other Operational expenses 407 400 375 439 430 513 407 455
Operating Profit (Core EBITDA) 206 112 183 89 246 299 272 282
Depreciation 32 34 35 33 32 34 46 43
EBIT 174 78 149 56 214 265 226 239
Interest 21 22 21 15 17 18 19 16
Other RevenueIncome 16 5 7 8 5 9 6 12
Profit Before Tax 169 61 134 49 202 255 213 236
Tax 50 31 48 31 54 57 68 70
Profit After Tax 119 31 86 18 148 199 145 166
Minority Interest (7) (9) (8) (4) (1) 8 3 8
Profit after minority interest 126 40 95 22 149 191 143 158
Growth (YoY )
Revenue 371 36 61 36 50 216 153 221
EBITDA 129 (457) (125) (477) 195 1672 485 2164
PAT 174 (666) (111) (669) 189 3765 503 6292
Margin ()
EBITDA 119 67 109 54 136 148 140 141
EBIT 100 47 88 34 118 131 116 120
PAT 73 24 56 13 82 95 73 79
Segment Revenue (Net Sales Income from ops)
India 764 749 810 829 872 926 936 941
Asia (excl India) 142 175 160 167 188 213 163 156
Europe 593 545 542 543 612 744 689 764
Americas 405 370 363 344 384 399 427 386
Segment EBIT
India 83 32 84 63 92 103 129 139
Asia (excl India) 8 11 6 9 12 10 5 7
Europe 55 44 51 (4 45 76 74 81Americas 22 13 23 39 38 45 55 36
Source Company Centrum Research
Comments on recent quarterly results
Q4FY14 witnessed a healthy growth with revenue up 221 YoY EBITDA and PAT jumpedsubstantially YoY Margins showed good improvement EBITDA margin expanded by 860 bps YoYOther operating expenses as a proportion of sales reduced to 227 from 267 in Q4FY13 this had apositive impact on margins
Revenue grew 28 QoQ EBITDA amp PAT margins showed signs of consistency further improving fromQ3FY14 European business looks to be on a growth trajectory as revenues have jumped 140 YoYand 11 QoQ Revenue from American segment saw growth of 124 YoY but declined QoQ
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19IFGL Refractories Ltd
Annexure ndash Refractory Industry
About refractories ndash consumables for manufacturing processes with high temperatures
Refractories are inorganic non-metallic and heterogeneous materials having very high melting pointswhich make them suitable to be used as heat-resisting barriers consumed within various productionprocesses providing heat chemical and mechanical resistance Refractories are mainly of two types ndash
shaped and unshaped (monolithics) and are used mainly by the steel industry as a consumableproduct in the internal linings of furnaces kilns reactors and other vessels for holding andtransporting metal and slag
Shaped refractories are those which have fixed shapes with most common form being rectangularbrick Brick shapes may be divided into two standard shapes and special shapes Standard shapeshave dimensions that are conformed to by most refractory manufacturers and are generally applicableto kilns and furnaces of the same type Special shapes are specifically made for particular kilns andfurnaces Shaped refractories are almost always machine-pressed and possess high uniformity inproperties are expected
Unshaped refractories are without definite form and are only given shape upon application It forms joint less lining and are better known as monolithic refractories They are manufactured in powderform as granular material and known as plastic refractories ramming mixes castables gunning mixesfettling mixes and mortars
The raw materials used to manufacture refractories are broadly classified into clay and non-clay Clayrefractories consist of naturally occurring alumina silicate like fireclay flint clay flint brick and highalumina and are used to produce bricks and insulating refractories Non-clay refractories are madefrom non-clay materials and are further classified into basic (made in the form of bricks from magnesiadolomite chrome etc) extra high alumina mullite (made from kyanite bauxite alumina) siliconcarbide and zircon
Exhibit 48
Refractory share by form Exhibit 49
Refractory share by raw material
Source Industry data Centrum Research Source Industry data Centrum Research
Unshaped45Shaped 55
Clay 65
Non Clay35
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20IFGL Refractories Ltd
Applications of refractories ndash largely used in steel industry for furnace linings
Steel industry accounts for ~60 of refractory consumption globally and ~75 in the domesticmarket In non-metallurgical industries (cement glass lime) the refractories are mostly installed onfired heaters hydrogen reformers cracking furnaces incinerators utility boilers air heaters ductingstacks etc The different areas of the steel manufacturing processes are exposed to differenttemperatures slag and sulphur gases Refractory selection for the lining of a furnace is invariably builtupon a combination of material qualities and brick size to maximize performance Steel industry usesrefractory for diverse applications in blast furnaces coke ovens torpedo ladles and secondary refiningladles
In cement industry refractories are used in the kiln the preheating system and the cooler whichoperate in a very high temperature to protect against heat abrasion and chemical attack Commonrefractory materials used are Dolomite Magnesia-Chrome Spinel Magnesia-Alumina Spinel Fireclayand High Alumina The cement kiln clinker area is usually provided with Dolomite refractories
Non(-errous industries like copper and aluminium require high performance refractories in severalequipments like anode baking furnaces induction furnaces reduction pots slag cleaning surfaces etcGlass industry also requires refractories in refiner regenerator dog-house and ports of furnace
Exhibit 50
Refractories consumption in steel making process
Source Magnesita ppt
Exhibit 51
Refractories consumption in steel making process
Source Vesuvius PLC ppt
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21IFGL Refractories Ltd
Steel industry accounts for ~60 of refractory consumption globally and ~75 in the domesticmarket In non-metallurgical industries (cement glass lime) refractories are mostly installed on firedheaters hydrogen reformers cracking furnaces incinerators utility boilers air heaters ducting stacksetc
Exhibit 52
Sector wise refractories demand - Global Exhibit 53
Sector wise refractories demand - India
Source Industry data Centrum Research Source Industry data Centrum Research
Refractory application consumption and replacement dynamics are shown in the table belowSteelmaking requires maximum amount of refractories (10-15kgstonne) with replacement required ina time period of 20 minutes to 2months Cement industry is the next biggest user with annualreplacement requirement while non-ferrous and glass industries have longer replacement cycles
Exhibit 54
Refractory consumption dynamics across user industries
Key Industry Application Replacement Per tonne consumption Refractory requirements
Steel
BF(BOF EAFCasting LadlesInduction FurnacesPellet rotary Kilns
20 minutes to 2months
Global avg - 10-15KgsIndia avg - 15 Kgs
Consumable product ( Systems and solutions for completerefractory management
Cement Kilns annually 1 KgsInvestment goods ( Longer replacement cycles Customizedsolutions based on the specific requirements of various industrialproduction processes complete lining concepts
Glass Glass Furnace upto 10 years 4 Kgs
Non(Ferrous Converters 1(10 yearsAluminium - 6 KgsCopper - 3 Kgs
Source RHI ppt Centrum Research
Global refractory market size at ~US$25bn expected to grow at ~35 CAGR
According to various industry studies global refractoriesrsquo market size is ~US$25bn with production of415MT in CY12 According to industry estimates the global refractories industry is expected to witnessCAGR of 35 during CY13-16E and grow to 46MT with a market value of US$29bn China accountedfor ~70 of the market by volume and ~60 by value in CY12 whereas India accounts for ~3 of theglobal refractories market by volume
Exhibit 55
Global refractory market size at ~US$25bn Exhibit 56
China accounts for ~70 of the market
CY12 Production (MT) Value (US$ bn)
World 415 25
China 295 143
EU 41 39
North America 14 14
India 13 09
Source Industry Centrum Research Source Industry Centrum Research
6015
15
10 Steel
Non-Metallic (Cement GlassLime)
Non-Ferrous (AluminiumCopper Zinc Silver)
Others (paper ceramicspetrochemicals)
75
12
6 3
4
Steel
Cement
Non-Ferrous
Glass
Others
415
463
25
29
0
10
20
30
40
50
CY12 CY16
Volume (MT) Mkt Value ($ bn)
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22IFGL Refractories Ltd
Domestic refractory demand-supply indicates low industry growth amp import pressure
Demand supply analysis of domestic refractory industry shows that it has been witnessing mutedconsumption growth (due to a fall in per tonne consumption for steel making due to technologicaladvances) and faces strong import pressure with one fourth of the market being serviced by netimports (mainly from cheap supplies from China which accounts for two thirds of refractory imports inIndia) Capacity utilization for the industry remains at ~60 on installed capacity of ~22MT and marketsize is ~US$1bn Domestic refractory consumption in steel has grown at a CAGR of ~2 during FY08-14 We expect industry growth to pick up due to scope for higher steel production (backed by higherinfra spend and expansion in per capita steel consumption) The industry has seen consolidation andacquisitions by global majors in the last five years and organised sector (split between (6 players)accounts for ~65 of the market
Exhibit 57 Refractory demand from domestic steel industry
(In tonne) FY08 FY09 FY10 FY11 FY12 FY13 FY14E FY15E FY16E FY17E
Steel Production (MT) 561 572 606 686 757 817 850 893 946 1012
Growth 20 59 132 103 79 40 50 60 70
Avg Refractory consumption(kgt of crude steel)
188 173 168 16 15 145 140 140 140 140
Refractory consumption (steel) 1054680 989560 1018080 1097600 1135500 1184650 1190000 1249500 1324470 1417183
Growth (62) 29 78 35 43 05 50 60 70
Source Ministry of Steel (MoS) Centrum Research Estimates
Exhibit 58
Organised sector accounts for ~65 of domestic refractory industry
Company RevenueMarket
Share ()
Supply toIntegratedsteel mills
Comments
Vesuvius India Ltd 6017 100 95+Leading supplier with wide product basket strongcustomer relationships with large steel mills
Orient Refractories (RHI) 4035 67 10-15 Has developed a niche with mini steel mills
IFGL Refractories (incl IEL) 3674 61 85+Mainly into flow control shaped refractories goodrelationship with large mills
Tata Refractories 9800 163 Not available Largely into bricks supplies (commodity refractories)
Calderys 6250 104 Not available
Supplies largely to non-ferrous producers strong in
bricks and monolithics
OCL 4056 68 Not available
Total Organized Sector 39332 656
Source Company Centrum Research Estimates
Exhibit 59
Net imports accounts for one fourth of market Exhibit 60
China accounts for two thirds of imports
Source MoS Industry Centrum Research Source MoS Industry Centrum Research
(800000)
(600000)
(400000)
(200000)
0
200000
400000
FY07 FY08 FY09 FY10 FY11 FY12
( T o n n e )
Imports Exports Net Imports
167259
380
167228
647594
551
696 685
10
20
30
40
50
60
70
80
FY07 FY08 FY09 FY10 FY11
Net Imports - share China share in imports
Domestic refractory production growth hasbeen largely flat andcapacity utilization is~60
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23IFGL Refractories Ltd
Financials (Cons)
Exhibit 61
Income Statement
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
Revenues from Operations 6712 7776 8484 9554 10697
Raw Materials consumed 3201 3444 3725 4208 4716
of net sales 477 443 439 440 441
Employee expenses 987 1097 1185 1279 1382
of net sales 147 141 140 134 129
Other operational expenses 1621 1805 2013 2243 2486
of net sales 241 232 237 235 232
Total expenses 6130 6680 7273 8140 9068
of net sales 913 859 857 852 848
EBITDA 582 1096 1210 1414 1630
EBITDA Margin () 87 141 143 148 152
Depreciation amp Amortisation 134 155 174 189 204
EBIT 448 942 1036 1225 1425
Interest expenses 80 70 51 29 6
Other Income 45 34 40 44 484
EBT 413 906 1025 1240 1467
Provision for tax 159 248 307 372 440
Effective tax rate () 386 274 300 300 300Net Profit 254 658 717 868 1027
Less Minority interest (28) 18 32 70 99
Net Profit after MI 282 640 686 798 928
Source Company data Centrum Research Estimates
Exhibit 62 Key Ratios
YE Mar FY13 FY14 FY15E FY16E FY17E
Growth Ratio ()
Revenue 112 159 91 126 120
EBITDA (213) 884 104 168 153
PAT (292) 1269 71 163 163
Margin Ratios ()
PBIT Margin 67 121 122 128 133
PBT Margin 62 116 121 130 137
PAT Margin 42 82 81 84 87
Return Ratios ()
ROE 115 212 190 185 181
ROCE 84 177 175 189 198
ROIC 87 179 178 200 224
Turnover Ratios (days)
Asset turnover ratio (x) 18 19 19 19 19
Debtors 78 78 80 80 80
Inventory 46 49 50 50 50
Creditors 43 45 45 45 45
Net Working capital 74 76 80 80 80
Gearing Ratio (x)
Debt-equity 05 03 02 01 00
Net debt-equity 04 03 02 00 (01)
Current ratio 25 23 24 25 27
Dividend
Dividend per share 15 18 20 23 23
Dividend Payout () 251 124 130 125 107
Dividend Yield () 11 13 15 17 17
Per share Ratios (Rs)
Basic EPS 82 185 198 231 268
Fully diluted EPS 82 185 198 231 268
Book value 709 871 1044 1245 1485
Cash earnings per share 120 230 249 285 327
Valuation (x)
PE 174 77 72 62 53
PBV 20 16 14 11 10
EVEBITDA 102 53 46 36 27
EVSales 07 06 06 05 04
M-CapSales 07 06 06 05 05
Source Company data Centrum Research Estimates
Exhibit 63
Balance Sheet
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
Equity share capital 491 491 491 491 491
Reserves amp surplus 1964 2525 3121 3819 4648
Shareholders fund 2455 3016 3612 4310 5139
Total debt 1142 982 682 382 82
Deferred tax liabilities 65 74 74 74 74
Total Liabilities 3741 4167 4495 4963 5591
Gross block 2474 2656 2906 3156 3406
Less acc depreciation 1276 1430 1605 1794 1998
Net block 1198 1225 1301 1362 1407
Capital work in progress 20 20 20 20 20
Goodwill 1105 1342 1342 1342 1342
Investments 5 5 5 5 5
Inventories 848 1034 1162 1309 1465
Trade Receivables 1427 1658 1859 2094 2345
Cash amp cash equivalents 113 33 69 259 609
Loans amp advances 51 107 116 131 147
Trade payables 799 962 1046 1178 1319
Other current liabilities 166 210 232 262 293Provisions 94 124 139 157 176
Total Assets 3741 4167 4495 4963 5591
Source Company data Centrum Research Estimates
Exhibit 64 Cash Flow
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
PBT 413 906 1025 1240 1467
Interest 72 70 51 29 6
Depreciation 134 155 174 189 204
Increase in debtors (330) (231) (201) (235) (251)
Increase in inventories 7 (186) (128) (147) (157)
Increase in trade payables 46 163 84 132 141
Tax 197 248 307 372 440
Cash flow from operations 183 629 695 799 907
Change in fixed assets (194) (418) (250) (250) (250)
Cash flow from investments (172) (418) (250) (250) (250)
Change in debt 19 (160 (300) (300) (300)
Dividends paid (71) (79) (89) (100) (100)
Interest paid (80) (70) (51) (29) (6)
Cash flow from financing (94) (291) (409) (358) (306)
Net cash flow (81) (81) 36 191 350
Opening cash balance 195 113 33 69 259
Closing cash balance 113 33 69 259 609
Source Company data Centrum Research Estimates
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24IFGL Refractories Ltd
Financials (Cons) - Historical
Exhibit 65
Income Statement
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
Revenues from Operations 3780 3982 4152 4689 6039
Raw Materials consumed 1743 1907 2058 2389 3024
of net sales 461 479 496 509 501
Employee expenses 487 589 539 661 843
of net sales 129 148 130 141 140
Other operational expenses 918 1036 951 1148 1418
of net sales 243 260 229 245 235
Total expenses 3244 3708 3575 4279 5299
of net sales 858 931 861 912 878
EBITDA 536 274 578 411 739
EBITDA Margin () 142 69 139 88 122
Depreciation amp Amortisation 63 74 70 71 123
EBIT 473 200 508 339 617
Interest expenses 82 95 45 56 68
Other Income 18 24 34 43 33
EBT 409 128 497 327 582
Provision for tax 123 67 155 84 183
Effective tax rate () 301 523 311 258 315Net Profit 286 61 343 243 398
Less Minority interest 1 0 0 0 0
Net Profit after MI 285 61 343 243 399
Source Company data Centrum Research Estimates
Exhibit 66 Key Ratios
YE Mar FY08 FY09 FY10 FY11 FY12
Growth Ratio ()
Revenue 171 53 43 129 288
EBITDA 98 (489) 1111 (289) 800
PAT 85 (785) 4586 (292) 642
Margin Ratios ()
PBIT Margin 125 50 122 72 102
PBT Margin 108 32 120 70 96
PAT Margin 75 15 83 52 66
Return Ratios ()
ROE 294 54 250 138 180
ROCE 182 49 169 93 128
ROIC 195 53 183 98 141
Turnover Ratios (days)
Asset turnover ratio (x) 20 18 19 15 17
Debtors 97 55 79 85 69
Inventory 46 47 52 55 52
Creditors 49 23 41 50 44
Net Working capital 105 81 89 93 67
Gearing Ratio (x)
Debt-equity 09 09 06 07 05
Net debt-equity 08 08 05 07 04
Current ratio 29 36 26 25 24
Dividend
Dividend per share 20 00 10 05 15
Dividend Payout () 284 00 118 103 63
Dividend Yield () 15 00 07 04 11
Per share Ratios (Rs)
Basic EPS 82 18 99 70 115
Fully diluted EPS 82 18 99 70 115
Book value 280 328 396 508 641
Cash earnings per share 101 39 119 91 151
Valuation (x)
PE 164 762 136 193 117
PBV 48 41 34 27 21
EVEBITDA 102 203 93 142 76
EVSales 12 12 11 10 08
M-CapSales 12 12 11 10 08
Source Company data Centrum Research Estimates
Exhibit 67
Balance Sheet
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
Equity share capital 346 346 346 491 491
Reserves amp surplus 623 789 1026 1266 1728
Shareholders fund 969 1135 1372 1757 2219
Total debt 869 1003 793 1253 1128
Deferred tax liabilities 41 38 38 40 48
Total Liabilities 1879 2185 2206 3054 3465
Gross block 1456 1948 1966 2738 2238
Less acc depreciation 687 827 864 960 1122
Net block 769 1121 1102 1778 1117
Capital work in progress 46 53 28 21 45
Goodwill 347 594 559 1032 1094
Investments 0 0 4 14 5
Inventories 474 513 592 702 855
Trade Receivables 1001 596 895 1096 1134
Cash amp cash equivalents 77 129 120 100 195
Loans amp advances 152 121 133 152 38
Trade payables 507 256 471 637 729
Other current liabilities 32 90 137 112 194Provisions 102 2 60 60 151
Total Assets 1879 2185 2206 3054 3465
Source Company data Centrum Research Estimates
Exhibit 68 Cash Flow
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
PBT 409 128 497 327 582
Interest 81 96 45 56 59
Depreciation 63 74 75 87 129
Increase in debtors (196) 559 (330) (184) 25
Increase in inventories (72) 35 (79) (77) (135)
Increase in trade payables 82 (304 266 115 67
Tax 119 90 138 70 135
Cash flow from operations 285 814 359 237 520
Change in fixed assets (94) (99) (120) (157) (49)
Cash flow from investments (62 (536 (119 (677 (98
Change in debt (88) 15 (276) 245 (242)
Dividends paid (76) (80) (6) (46) (25)
Interest paid (87) (98) (47) (60) (68)
Cash flow from financing (261) (245) (241) 408 (339)
Net cash flow (43) 24 (8) (29) 94
Opening cash balance 120 77 129 120 100
Closing cash balance 77 129 120 100 195
Source Company data Centrum Research Estimates
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25IFGL Refractories Ltd
Appendix A
Disclaimer
Centrum Broking Limited (ldquoCentrumrdquo) is a full(service Stock Broking Company and a member of The Stock Exchange Mumbai (BSE) and National StockExchange of India Ltd (NSE) Our holding company Centrum Capital Ltd is an investment banker and an underwriter of securities As a group Centrumhas Investment Banking Advisory and other business relationships with a significant percentage of the companies covered by our Research Group Ourresearch professionals provide important inputs into the Groups Investment Banking and other business selection processes
Recipients of this report should assume that our Group is seeking or may seek or will seek Investment Banking advisory project finance or otherbusinesses and may receive commission brokerage fees or other compensation from the company or companies that are the subject of thismaterialreport Our Company and Group companies and their officers directors and employees including the analysts and others involved in thepreparation or issuance of this material and their dependants may on the date of this report or from time to time have long or short positions in actas principal in and buy or sell the securities or derivatives thereof of companies mentioned herein Centrum or its affiliates do not own 1 or more in theequity of this company Our sales people dealers traders and other professionals may provide oral or written market commentary or trading strategies toour clients that reflect opinions that are contrary to the opinions expressed herein and our proprietary trading and investing businesses may makeinvestment decisions that are inconsistent with the recommendations expressed herein We may have earlier issued or may issue in future reports on thecompanies covered herein with recommendations information inconsistent or different those made in this report In reviewing this document youshould be aware that any or all of the foregoing among other things may give rise to or potential conflicts of interest We and our Group may rely oninformation barriers such as Chinese Walls to control the flow of information contained in one or more areas within us or other areas units groups oraffiliates of Centrum Centrum or its affiliates do not make a market in the security of the company for which this report or any report was writtenFurther Centrum or its affiliates did not make a market in the subject companyrsquos securities at the time that the research report was published
This report is for information purposes only and this documentmaterial should not be construed as an offer to sell or the solicitation of an offer to buypurchase or subscribe to any securities and neither this document nor anything contained herein shall form the basis of or be relied upon in connection
with any contract or commitment whatsoever This document does not solicit any action based on the material contained herein It is for the generalinformation of the clients of Centrum Though disseminated to clients simultaneously not all clients may receive this report at the same time Centrumwill not treat recipients as clients by virtue of their receiving this report It does not constitute a personal recommendation or take into account theparticular investment objectives financial situations or needs of individual clients Similarly this document does not have regard to the specificinvestment objectives financial situationcircumstances and the particular needs of any specific person who may receive this document The securitiesdiscussed in this report may not be suitable for all investors The securities described herein may not be eligible for sale in all jurisdictions or to allcategories of investors The countries in which the companies mentioned in this report are organized may have restrictions on investments voting rightsor dealings in securities by nationals of other countries The appropriateness of a particular investment or strategy will depend on an investorsindividual circumstances and objectives Persons who may receive this document should consider and independently evaluate whether it is suitable forhis hertheir particular circumstances and if necessary seek professionalfinancial advice Any such person shall be responsible for conductinghishertheir own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risks involvedin the securities forming the subject matter of this document
The projections and forecasts described in this report were based upon a number of estimates and assumptions and are inherently subject to significantuncertainties and contingencies Projections and forecasts are necessarily speculative in nature and it can be expected that one or more of the estimateson which the projections and forecasts were based will not materialize or will vary significantly from actual results and such variances will likely increase
over time All projections and forecasts described in this report have been prepared solely by the authors of this report independently of the Company These projections and forecasts were not prepared with a view toward compliance with published guidelines or generally accented accountingprinciples No independent accountants have expressed an opinion or any other form of assurance on these projections or forecasts You should notregard the inclusion of the projections and forecasts described herein as a representation or warranty by or on behalf of the Company Centrum theauthors of this report or any other person that these projections or forecasts or their underlying assumptions will be achieved For these reasons youshould only consider the projections and forecasts described in this report after carefully evaluating all of the information in this report including theassumptions underlying such projections and forecasts
The price and value of the investments referred to in this documentmaterial and the income from them may go down as well as up and investors mayrealize losses on any investments Past performance is not a guide for future performance Future returns are not guaranteed and a loss of original capitalmay occur Actual results may differ materially from those set forth in projections Forward (looking statements are not predictions and may be subject tochange without notice Centrum does not provide tax advice to its clients and all investors are strongly advised to consult regarding any potentialinvestment Centrum and its affiliates accept no liabilities for any loss or damage of any kind arising out of the use of this report Foreign currenciesdenominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derived fromthe investment In addition investors in securities such as ADRs the value of which are influenced by foreign currencies effectively assume currency riskCertain transactions including those involving futures options and other derivatives as well as non(investment(grade securities give rise to substantial
risk and are not suitable for all investors Please ensure that you have read and understood the current risk disclosure documents before entering into anyderivative transactions
This reportdocument has been prepared by Centrum based upon information available to the public and sources believed to be reliable Norepresentation or warranty express or implied is made that it is accurate or complete Centrum has reviewed the report and in so far as it includescurrent or historical information it is believed to be reliable although its accuracy and completeness cannot be guaranteed The opinions expressed inthis documentmaterial are subject to change without notice and have no obligation to tell you when opinions or information in this report change
This report or recommendations or information contained herein dodoes not constitute or purport to constitute investment advice in publicly accessiblemedia and should not be reproduced transmitted or published by the recipient The report is for the use and consumption of the recipient only Thispublication may not be distributed to the public used by the public media without the express written consent of Centrum This report or any portionhereof may not be printed sold or distributed without the written consent of Centrum
The distribution of this document in other jurisdictions may be restricted by law and persons into whose possession this document comes should informthemselves about and observe any such restrictions Neither Centrum nor its directors employees agents or representatives shall be liable for anydamages whether direct or indirect incidental special or consequential including lost revenue or lost profits that may arise from or in connection withthe use of the information
This document does not constitute an offer or invitation to subscribe for or purchase or deal in any securities and neither this document nor anythingcontained herein shall form the basis of any contract or commitment whatsoever This document is strictly confidential and is being furnished to yousolely for your information may not be distributed to the press or other media and may not be reproduced or redistributed to any other person Thedistribution of this report in other jurisdictions may be restricted by law and persons into whose possession this report comes should inform themselvesabout and observe any such restrictions By accepting this report you agree to be bound by the fore going limitations No representation is made thatthis report is accurate or complete
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The opinions and projections expressed herein are entirely those of the author and are given as part of the normal research activity of Centrum Brokingand are given as of this date and are subject to change without notice Any opinion estimate or projection herein constitutes a view as of the date of thisreport and there can be no assurance that future results or events will be consistent with any such opinions estimate or projection
This document has not been prepared by or in conjunction with or on behalf of or at the instigation of or by arrangement with the company or any of itsdirectors or any other person Information in this document must not be relied upon as having been authorized or approved by the company or itsdirectors or any other person Any opinions and projections contained herein are entirely those of the authors None of the company or its directors orany other person accepts any liability whatsoever for any loss arising from any use of this document or its contents or otherwise arising in connectiontherewith
Centrum and its affiliates have not managed or co(managed a public offering for the subject company in the preceding twelve months Centrum andaffiliates have not received compensation from the companies mentioned in the report during the period preceding twelve months from the date of thisreport for service in respect of public offerings corporate finance debt restructuring investment banking or other advisory services in amergeracquisition or some other sort of specific transaction
As per the declarations given by them Mr Abhisar Jain research analyst and andor any of his family members do not serve as an officer director or anyway connected to the companycompanies mentioned in this report Further as declared by him he has not received any compensation from the abovecompanies in the preceding twelve months He does not hold any shares by him or through his relatives or in case if holds the shares then will not to doany transactions in the said scrip for 30 days from the date of release such report Our entire research professionals are our employees and are paid asalary They do not have any other material conflict of interest of the research analyst or member of which the research analyst knows of has reason toknow at the time of publication of the research report or at the time of the public appearance
While we would endeavour to update the information herein on a reasonable basis Centrum its associated companies their directors and employees areunder no obligation to update or keep the information current Also there may be regulatory compliance or other reasons that may prevent Centrumfrom doing so
Non(rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable
regulations andor Centrum policies in circumstances where Centrum is acting in an advisory capacity to this company or any certain othercircumstances
This report is not directed to or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality statecountry or other jurisdiction where such distribution publication availability or use would be contrary to law or regulation or which would subjectCentrum Broking Limited or its group companies to any registration or licensing requirement within such jurisdiction Specifically this document doesnot constitute an offer to or solicitation to any US person for the purchase or sale of any financial instrument or as an official confirmation of anytransaction to any US person unless otherwise stated this message should not be construed as official confirmation of any transaction No part of thisdocument may be distributed in Canada or used by private customers in United Kingdom
The information contained herein is not intended for publication or distribution or circulation in any manner whatsoever and any unauthorized readingdissemination distribution or copying of this communication is prohibited unless otherwise expressly authorized Please ensure that you have read ldquoRiskDisclosure Document for Capital Market and Derivatives Segmentsrdquo as prescribed by Securities and Exchange Board of India before investing in IndianSecurities Market
Rating Criteria
Rating Market cap lt Rs20bn Market cap gt Rs20bn but lt 100bn Market cap gt Rs100bn Buy Upside gt 25 Upside gt 20 Upside gt 15
Hold Upside between (25 to +25 Upside between (20 to +20 Upside between (15 to +15
Sell Downside gt 25 Downside gt 20 Downside gt 15
Member (NSE BSE MCX(SX) Depository Participant (CDSL) and SEBI registered Portfolio Manager
Registration Nos
CAPITAL MARKET SEBI REGN NO BSE INB011454239 NSE INB231454233
DERIVATIVES SEBI REGN NO NSE INF231454233 (TRADING amp SELF CLEARING MEMBER)
CDSL DP ID 12200 SEBI REGISTRATION NO IN(DP(CDSL(661(2012
PMS REGISTRATION NO INP000004383
MCX ndash SX (Currency Derivative segment) REGN NO INE261454230
Website wwwcentrumcoin
Investor Grievance Email ID investorgrievancescentrumcoin
Compliance Officer Details
Tel (022) 4215 9413 Email ID compliancecentrumcoin
Centrum Broking Limited
Registered Office Address
Bombay Mutual Building
2nd Floor
Dr D N Road
Fort Mumbai ( 400 001
Correspondence Address
Centrum House
6th Floor CST Road Near Vidya Nagari Marg Kalina
Santacruz (E) Mumbai 400 098
Tel (022) 4215 9000
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2IFGL Refractories Ltd
Table of Content
Expansion at Kandla to be the game changer for domestic operations 3
Capacity being doubled at IFGL Exports Ltd (IEL Kandla) 3
Substantial savings in freight expenses for exports from Kandla vis-agrave-vis Orissa 3
IEL enjoys higher margins due to SEZ benefits and strategic location 4
Higher utilization and lower exports to provide margin uptick at Orissa 5
Expansions by integrated steel mills provide domestic demand visibility 6
Steady growth seen from overseas operations after turnaround 7
Several strategic acquisitions in last decade for expanding reach and product basket 7
Overseas operations have been consolidated and profitability has improved 8
EI Ceramics doubling capacity to maintain growth 9
Share of higher margin EI Ceramics to keep increasing in IFGLrsquos overseas earnings 9
Balance sheet strengthened free cash flow generation strong 10
Strong free cash flow generation ahead with limited capex 10
ROE shows improvement beats most peers at a global level 11
Financials 12
Revenue growth to be led by IEL and overseas operations 12
Margins and return ratios to remain healthy FY14-17E EBITDA CAGR of 141 12
Key Assumptions and Sensitivity 13
Valuation ndash poised for rerating 14
Steep valuation discount exists for IFGL compared to global peers 14
IFGL trading at a higher discount to Vesuvius than historical average 15
Key risks to our thesis 16
Company Background 17
Comments on recent quarterly results 18
Annexure ndash Refractory Industry 19
About refractories ndash consumables for manufacturing processes with high temperatures 19
Applications of refractories ndash largely used in steel industry for furnace linings 20
Global refractory market size at ~US$25bn expected to grow at ~35 CAGR 21
Domestic refractory demand-supply indicates low industry growth amp import pressure 22
Financials (Cons) 23
Financials (Cons) - Historical 24
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Expansion at Kandla to be the game changer for domestic operations
Capacity being doubled at IFGL Exports Ltd (IEL Kandla)
IFGL is currently in the process of doubling the capacity of continuous casting refractories at itssubsidiary (51 stake) IFGL Exports Ltd (IEL) IEL started operations in FY13 (May 2012) with a capacityof 80k pcsyear and achieved sales volumes of ~64k pcs in FY14 We see sales volumes from IEL more
than doubling by FY17E to reach 136k pcs IFGL has spent ~Rs400mn on IEL so far and plans to spend~Rs60mn for the second phase of expansion (80k pcsyear) while the third phase of expansion wouldtake the capacity to 300k pcsyear at an additional capex of Rs140mn
Exhibit 1 Capacity expansion planned at IEL Kandla Exhibit 2 Sales volumes at IEL to double in 3 years
Source Company Centrum Research Estimates Source Company Centrum Research Estimates
Substantial savings in freight expenses for exports from Kandla vis-agrave-vis Orissa
Exports account for 55+ share in revenues from IFGLrsquos standalone operations through its plant atKalunga Orissa and Europe accounts for ~65 of exports IEL specifically chose an SEZ in KandlaGujarat to enjoy the benefits of lower freight costs for exports (~US$700 lower freight on per containerbasis for shipment to Europe ndash see exhibit 3 below)
Exhibit 3
IFGL plants in India ndash Capacity and freight differential for exports
Source Company Centrum Research
80000
80000
160000
140000
300000
0
50000
100000
150000
200000
250000
300000
350000
Phase 1 Phase 2 TotalCapacity
PotentialPhase 3
Potential Total
Capacity
( p c s y r )
Currently Installed FY16E FY17-18E
21148
64225
80000
112000
136000
0
20000
40000
60000
80000
100000
120000
140000
160000
FY13 FY14 FY15E FY16E FY17E
Sales Volumes (pcs)
Odisha
Gujrat
Kalunga
Kandla
Capacity of IFGL ExportsKandla getting doubled
to 160k pcsyear byQ1FY16E
Kandla facility providescrucial freight savings forexports apart from otherSEZ benefits
IFGL Exports Ltd
Kandla Gujarat Products
IFGL
RefractoriesOrissa
CapacityCurrent
CapacityPost
Expansion
80000 300000Continuous casting ref(pcsyr)
360000
NA NA Slide gate ref (pcsyr) 300000
NA NAPurge plugs cast products(pcsyr)
116000
NA NA Unshaped (tpa) 24000
~50Kms Distance from port ~400Kms
2012 Plant set-up date 1990
FY14 Exports - Rs1883mn (~57 of sales)
UK 7
Europe(excl
UK) 65
Asia(excl
India)15
Americas6
Others7
Freight difference for shipment toEurope form Kandla Vs Odisha
US$container
Inland Freight difference 500Sea Freight difference 200
Total Freight advantage for IEL plant 700
FY14 Exports - Rs395mn (100 of sales)
UK 8
Europe(excl
UK) 79
Asia(excl
India)2
Americas4
Others8
3IFGL Refractories Ltd
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4IFGL Refractories Ltd
IEL enjoys higher margins due to SEZ benefits and strategic location
IEL enjoys much higher margins than its parentrsquos standalone operations (FY14 EBITDA margins stoodat 256 for IEL vs 139 for IFGL standalone) This is on account of various benefits like i) IEL beinglocated in an SEZ which has key advantages such as a) no duty on imported raw materials b) taxsavings on domestically procured raw materials and c) exemption from income tax for 5 years ii) portbased location of the plant (~50 kms) which helps in reducing inland freight and iii) proximity toexport customers (Europe amp Middle east) which helps in reducing sea freight as well as transit time andthus the debtor days With higher utilization on existing capacity and expansions we see sharp jumpin revenueEBITDA for IEL to Rs953mn257mn in FY17E (up ~150 from FY14) We note that IEL hasshown sharp jump in its operating profitability in FY14 which was just the second year of companyrsquosoperations and this demonstrates superior management quality and expertise in the refractorybusiness
Exhibit 4
IEL clocked EBITDA margin of ~26 in FY14 as first phase capacity stabilised
Source Company Centrum Research Estimates
Short payback and superior returns expected from IEL
We see extremely short payback period for IEL with full capex for expanded capacity to be recoveredby FY17E which implies payback of 34 years for the first phase and 1-2 years for next two phases Dueto attractive profitability profile of IEL on account of its strong logistics advantage we expect superiorreturns with ROEROCE of ~3626 in FY16E
Exhibit 5 Payback for full expansion by FY17E Exhibit 6 Return ratios of IEL to be strong
(Rs mn)Phase 1
(spent byFY14)
Phase 2 (tobe spent
in FY15E)
Phase 3(likely tobe spentin FY16-
17E)
Total(by FY17E)
Capex 410 60 130 600
FY14 FY15E FY16E FY17E
EBITDA 102 130 204 257
Cumulative EBITDA 102 232 435 693
Cumulative capex 410 470 600 600
Payback achieved (x) 02 05 07 12
Source Company Centrum Research Estimates Source Company Centrum Research Estimates
90
399
518
755
953
-17
102 130204
257
256 250 270 270
(30)
(20)
(10)
0
10
20
30
40
(100)
100
300
500
700
900
1100
FY13 FY14 FY15E FY16E FY17E
( R s m n )
Sales EBITDA Margin - RHS
179
252
358337
141
179
265 287
10
15
20
25
30
35
40
FY14 FY15E FY16E FY17E
ROE - ROCE -
Margins at IEL are ~25well above IFGLrsquos otheroperations
Payback for IEL to beachieved before end ofFY17E
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5IFGL Refractories Ltd
Orissa plant to capture domestic demand and reduce export share in sales
We expect IFGLrsquos flagship plant at Orissa (standalone operations) to capture increasing domesticdemand and gradually reduce the share of exports in total sales as export sales will continue to getshifted to IEL in coming years We see share of exports coming down to 42 in FY17E from 56 inFY14 and domestic sales increasing to 58 for standalone operations IFGL has shown smart revenueCAGR of ~17 at its standalone operations during FY10-14 led by better pricing weak rupeebenefitting exports revenue and improvement in capacity utilization but we expect revenue CAGR of67 during FY14-17E on account of limited room for higher volumes (particularly in continuouscasting refractories segment which is almost completely utilized) reduced share of exports goingforward and low pricing power due to increased competition
Exhibit 7
Exports share in total standalone sales to reduce from FY15E
Source Company Centrum Research Estimates
Higher utilization and lower exports to provide margin uptick at Orissa
Though IFGL is currently running at near full utilization levels for continuous casting refractories at its
Orissa plant it has an opportunity to increase its utilization in other shaped products like slide gaterefractories purge plugs and cast products Also utilization in unshaped refractories is expected toimprove Lower share of exports would result in savings on freight and coupled with higher utilizationlead to lower fixed costs We see IFGLrsquos standalone margins improving by 150bps YoY to 153 inFY15E We expect margins to further improve to 158 by FY17E led by lower exports We note thatmargins have remained very volatile in the standalone operations due to pressure on raw materialcosts high dependence on exports and hence currency fluctuations and lacklustre demandenvironment We expect margin trajectory to remain more stable going ahead with rationalization ofsales in exports and domestic markets as well as overall improvement in demand environment
Exhibit 8 Capacity utilization at Orissa to improve Exhibit 9 Standalone margins expected to expand
Source Company Centrum Research Estimates Source Company Centrum Research Estimates
4847
50
44
50
54
5852
53
50
56
50
46
42
30
35
40
45
50
55
60
500
700
900
1100
1300
1500
1700
1900
2100
2300
2500
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( R s m n )
Domestic Sales Export Sales
Domestic - share Exports - share
68
87
78
72
7780 82 84
34
49
65 64
58 6064 66
30
40
50
60
70
80
90
FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E
Shaped Refractories Unshaped Refractories
291
196
348 342
450
534575
630
166
94
127
112
138
153 154 158
8
10
12
14
16
18
0
100
200
300
400
500
600
700
FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E
EBITDA (Rs mn) Margin - RHS
IFGLrsquos flagship plant tofocus more on domesticmarkets and see marginimprovement
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6IFGL Refractories Ltd
European demand expected to be better on improving macros
Demand for refractories from European steel mills is expected to be better going forward due togradual pick up in steel production and improving macro situation (as is visible from the pick-up inGDP numbers) Since Europe (including UK) accounts for ~70 of IFGLrsquos exports from domesticoperations and ~50 of revenues on a consolidated basis (including overseas subsidiariesrsquo net sales)we expect IFGL to benefit from improving demand situation in Europe
Exhibit 10
Europe steel production picking up Exhibit 11
GDP in EU amp UK improving
Source Company Centrum Research Estimates CY14 nos annualised for 5MYTD Source Company Centrum Research
Expansions by integrated steel mills provide domestic demand visibility
We see good demand visibility in the domestic market as steel production is expected to pick up ledmainly by higher volumes from large steel mills We expect the share of large integrated steel mills torise to ~60 by FY17E from ~51 in FY14 led mainly by expansions and wide product range We haveconsidered a basket of players (SAIL Tata Steel JSW steel JSPL Essar RINL JSW Ispat) in large steelmills and see volume CAGR of ~12 from them as compared to 6 for the steel industry during FY14-17E IFGL derives ~65 of its domestic revenue from large steel mills and is expected to be a keybeneficiary of the gradual shift in domestic steel production to large steel mills from small mills
Exhibit 12 Steel production growth to pick up Exhibit 13 Led by higher volumes from large steel mills
Source Company Centrum Research Estimates Source Company Centrum Research Estimates
Exhibit 14 Large mills share in steel production to rise Exhibit 15 Large mills to grow faster
Source Company Centrum Research Estimates Source Company Centrum Research Estimates
2099 1969
1375
1732 1775
1412
16561759
100
120
140
160
180
200
220
CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14
EU Production (MT)
(8)
(6)
(4)
(2)
0
2
4
M a r - 0 8
J u l - 0 8
N o v - 0
8
M a r - 0 9
J u l - 0 9
N o v - 0
9
M a r - 1 0
J u l - 1 0
N o v - 1
0
M a r - 1 1
J u l - 1 1
N o v - 1
1
M a r - 1 2
J u l - 1 2
N o v - 1
2
M a r - 1 3
J u l - 1 3
N o v - 1
3
M a r - 1 4
UK GDP EU GDP
686 757 817 850 893 946 1012
132
103
79
4050
6070
0
2
4
6
8
10
12
14
40
50
60
70
80
90
100
110
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( M T )
Steel Production - India YoY Growth
339 372 389
433482
539
610
0
10
20
30
40
50
60
70
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( M T )
SAIL Tata Steel JSW Steel JSPL Essar Steel RINL Ispat Inds
69 76
82 85 89 95
101
34 37 39 43 48 54 61
4949
48
51
54
57 60
40
45
50
55
60
65
0
20
40
60
80
100
120
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( )
( M T )
Steel Production Large Integrated steel mills
share of integrated mills - RHS
74
60
86
121
00
20
40
60
80
100
120
140
CAGR (FY11-14) CAGR (FY14-17E)
Steel Production Large Integrated steel mills
Domestic steel production shifting tolarge steel mills therebyimproving demandoutlook for organisedrefractory producers
Steel productionand GDP improvingin Europe
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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7IFGL Refractories Ltd
Steady growth seen from overseas operations after turnaround
Several strategic acquisitions in last decade for expanding reach and product basket
IFGL has made several overseas acquisitions in the last decade mainly aimed at achieving inorganicgrowth through entry into new markets expanding its product basket and getting access to newtechnologies
IFGL acquired Monocon group in 2005 at a cost of 95mn pounds (Rs560mn) with its plantslocated in Brazil Taiwan China UK and USA Monocon group provided IFGL with wide rangeproduct basket (from Lances Darts Monolithics amp Castables) and also gave access to key largesteel plants in Europe of steelmakers like Corus amp Arcelor Mittal
IFGL acquired Goricon group in 2006 at a cost of 11mn pounds (Rs70mn) and later merged it withMonocon as the companies had similar products and were competitors of each other
Hoffman ceramics was acquired in 2008 at a cost of 7mn euros for getting entry into foundries for
supply of consumables
IFGL acquired EI Ceramics in 2010 which has similar product basket as IFGLrsquos domestic operationsbut provided access to key markets in Americas Company acquired EI Ceramics with an eye on
future expansion as it had space to increase capacity by ~3x IFGL also acquired CUSCinternational in US (later merged with EI) which was providing ancillary services to EI includingprocessing of raw materials warehousing and packaging
Exhibit 16
Snapshot of overseas acquisitions
CompanyAcquired
Year ofacquisition
PurchaseCost
(Rs mn)
PlantLocations
Products Markets Comments
MonoconGroup
2005 560UK USChina
Refractory dartslances monolithics
UK EuropeChina
Services key customers in Europelike Corus Arcelor Brazil plantclosed and Taiwan plant shiftedto China
GoriconGroup
2006 70 UK USDarts lances and ladlepowder
Europe Merged into Monocon
HoffmanCeramics 2008 470 Germany
Refractory ceramicslike filters feeders etc Europe
Czech plant closed suppliesconsumables to foundries
EI Ceramics 2010 590 Ohio USContinuous castingrefractories
US CanadaMexico
Acquired to gain traction inAmerica market
Source Company Centrum Research
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8IFGL Refractories Ltd
Overseas operations have been consolidated and profitability has improved
IFGL has faced several challenges in managing the profitability and operations of its overseasacquisitions due to global economic crisis in CY08 which impacted steel production in US amp Europevery severely Both Monocon and Hoffman group had EBITDA loss in FY09 but management effortsinto consolidation of key group entities (Goricon was merged with Monocon) and closure of certainunviable facilities (Taiwan Brazil plants of Monocon were closed Czech plant of Hoffman was closed)coupled with recovery in demand has led to gradual improvement in profitability of companyrsquossubsidiaries We note that Monocon grouprsquos profitability has improved substantially during FY11-14with EBITDA CAGR of ~16 and improvement in marginsROE to 8512 in FY14 Hoffman grouphas also returned to profits although margins remain low IFGLrsquos acquisition in US of EI Ceramics in2010 has been rewarding and the company has performed consistently well post acquisition andachieved revenueEBITDA CAGR of ~3338 during FY11-14
Exhibit 17
Revenue trend for overseas subs Exhibit 18
EBITDA trend for overseas subs
Source Company Centrum Research Source Company Centrum Research
Exhibit 19 EBITDA margin has shown improvement Exhibit 20 ROE has moved up especially for EI Ceramics
Source Company Centrum Research Estimates Source Company Centrum Research Estimates
0
500
1000
1500
2000
2500
3000
3500
FY11 FY12 FY13 FY14
( R s
m n )
Monocon EI Ceramics Hoffman
FY11-14 - CAGR
Monocon - 107EI Ceramics - 328
0
50
100
150
200
250
300
FY11 FY12 FY13 FY14
( R s
m n )
Monocon EI Ceramics Hoffman
FY11-14 - CAGR
Monocon - 16EI Ceramics - 376
70
89
59
85
139
159
137
161
7080
51 5030
50
70
90
110
130
150
170
FY11 FY12 FY13 FY14
( )
Monocon EI Ceramics Hoffman
119 120 87 120
112
191
158 162
7135
4336
30
50
70
90
110
130
150170
190
210
FY11 FY12 FY13 FY14
( )
Monocon EI Ceramics Hoffman
EBITDA has shownimprovement across alloverseas subsidiariesduring FY11-14
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9IFGL Refractories Ltd
EI Ceramics doubling capacity to maintain growth
EI Ceramics is doubling its capacity as utilizations on current capacity reached ~100 in FY14 EICeramics has been IFGLrsquos best overseas acquisition achieving revenueEBITDA CAGR of ~3338since acquisition (FY11-14) We expect revenueEBITDA CAGR of 23227 during FY14-17E asexpansion would be on-stream by Q1FY16E IFGL had spent ~Rs590mn for the purchase of EI and isexpected to achieve full payback in FY15E (less than 5 years) The capex for expansion of additional 80kpcsyear in EI is limited to Rs80mn and would be funded easily through internal accruals We note thatadditional capex would have the potential to generate ~Rs1000mn in revenues on completestabilisation (by FY17E) an asset turnover of more than 10x
Exhibit 21 EI Ceramics to double capacity by Q1FY16 Exhibit 22 Strong revenue and EBITDA CAGR ahead
Source Company Centrum Research Source Company Centrum Research Estimates
Share of higher margin EI Ceramics to keep increasing in IFGLrsquos overseas earnings
We expect EI Ceramics to lead the growth in earnings from IFGLrsquos overseas subsidiaries basket We expectrevenue contribution of EI Ceramics in total overseas subs to increase to ~26 in FY17E from ~20 inFY14 while EBITDA contribution is expected to increase to 41 in FY17E from ~34 in FY14 Since EICeramics enjoys the best margins (~16) among IFGLrsquos overseas subsidiaries increase in share ofearnings from EI Ceramics is expected to lead to margin improvement for IFGL at a consolidated level
Exhibit 23
Overseas subs revenue share ndash FY14 Exhibit 24
Overseas subs revenue share ndash FY17E
Source Company Centrum Research Source Company Centrum Research Estimates
Exhibit 25
Overseas subs EBITDA share ndash FY14 Exhibit 26
Overseas subs EBITDA share ndash FY17E
Source Company Centrum Research Source Company Centrum Research Estimates
80000
80000
160000
0
20000
40000
60000
80000
100000
120000
140000
160000
180000
Phase 1 Phase 2 Total
( p c s y r )
Currently Installed FY16E
8631012
1113
1447
1881
118 163 178 231 301
0
500
1000
1500
2000
FY13 FY14 FY15E FY16E FY17E
Revenue (Rs mn) EBITDA (Rs mn)
FY14-17E - CAGR
Revenue - 23EBITDA - 227
Monocon641
EI Ceramics
197
Hoffman161
Monocon607
EI Ceramics
261
Hoffman133
Monocon577
EI Ceramics
338
Hoffman 85
Monocon530
EI Ceramics
405
Hoffman 64
Capacity at EI Ceramicsto increase to 160k pcsyear by FY15-end
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10IFGL Refractories Ltd
Balance sheet strengthened free cash flow generation strong
Strong free cash flow generation ahead with limited capex
IFGL has turned free cash flow positive at a consolidated level in FY14 as operating cash flow improvedsharply (up 240 YoY) led by higher profitability across operations We see strong free cash flowgeneration ahead on the back of limited capex (~Rs250mn annually over FY15-16E) and continued
traction in operating cash flow on the back of higher capacities and better utilizations
Exhibit 27 Free cash flow generation expected to be strong going ahead
Source Company Centrum Research Estimates
Free cash flow yield to improve significantly
We see free cash flow yield improving to ~12 and free cash flowEBITDA going up to 04x in FY16EBalance sheet remains strong and we expect the company to be debt free at a consolidated level inthe next three years if there is no new acquisition or major capex
Exhibit 28
Free cash flow yield attractive Exhibit 29
Debt free status in next two years
Source Company Centrum Research Estimates Source Company Centrum Research Estimates
-527
-99 -39
211
445549
657
(1000)
(800)
(600)
(400)
(200)
0
200
400
600
800
1000
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( R s m n )
OCF Capex Free Cash Flow
019
037 039
040
45
95
117
141
00
40
80
120
160
00
01
02
03
04
05
FY14 FY15E FY16E FY17E
Free Cash FlowEBITDA (x) Free Cash Flow Yield -
(02)
00
02
04
06
08
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( x )
Debt-equity Net debt-equity
Free cash flow yieldexpected to go up from45 in FY14 to 117 inFY16E
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11IFGL Refractories Ltd
ROE shows improvement beats most peers at a global level
IFGL has shown sharp improvement in its ROE in FY14 as overseas subsidiariesrsquo profitability hasimproved and domestic profitability is on an upswing post start of IEL We expect ROE of IFGL to be thebest in the industry at a global level in the next few years
Exhibit 30
IFGL ROE well above that of global peers
Source Company Bloomberg Centrum Research Estimates CY07 = FY08
(10)
(5)
0
5
10
15
20
25
3035
CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14E CY15E
( )
Vesuvius India IFGL Refractories (FY) Vesuvius PLC
Puyang Refractories Cie de St-Gobain Magnesita Refractarios
Chosun Refractories Krosaki Harima (FY) Shinagawa (FY)
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12IFGL Refractories Ltd
Financials
Revenue growth to be led by IEL and overseas operations
We expect consolidated net sales CAGR of 112 for IFGL during FY14-17E This is expected to be ledby ~33 CAGR from IEL and 12 CAGR from overseas subsidiaries while standalone operations CAGRis expected to slow down to 67
Exhibit 31
Net sales CAGR of 112 during FY14-17E
Source Company Centrum Research Estimates
Margins and return ratios to remain healthy FY14-17E EBITDA CAGR of 141
Backed by better margins from IEL and recovery in demand we expect EBITDA CAGR of 141 duringFY14-17E Margins are expected to improve gradually as revenues from high margin subsidiary IELpicks up Expansion at EI Ceramics is also expected to help in EBITDA growth and margins Returnratios are expected to remain healthy on account of operating efficiency and high asset turnover ratiosfrom new expansions
Exhibit 32
EBITDA margin to remain stable Exhibit 33
Healthy return ratios
Source Company Centrum Research Estimates Source Company Centrum Research Estimates
Exhibit 34
Du Pont analysis
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
PATSales (x) 005 007 004 008 008 008 009
SalesAssets (x) 154 174 179 187 189 192 191
AssetsEquity (x) 174 156 152 138 124 115 109
ROE - 138 180 115 212 190 185 181
Source Company Centrum Research Estimates
4689
6039 6712
77768484
9554 10697
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( R s m n )
Standalone (IFGL) IFGL Exports (IEL) Overseas Subs Total
411 739 582 1096 1210 1414 1630
88
122
87
141 143 148
152
60
80
100
120
140
160
0
200
400
600
800
1000
1200
1400
1600
1800
FY11 FY12 FY13 FY14 FY15E FY16E FY17EEBITDA-Cons (Rs mn) OPM - RHS
50
100
150
200
250
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( )
ROE ROCE (post tax) ROIC (post tax)
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13IFGL Refractories Ltd
Key Assumptions and Sensitivity
Exhibit 35 Key Assumptions
Revenue (Rs mn) FY12 FY13 FY14 FY15E FY16E FY17E
Indian Operations
Domestic sales 1305 1495 1391 1744 2014 2304
Exports 1443 1567 1883 1744 1716 1669
Total standalone operations 2748 3061 3274 3487 3730 3973
IFGL Exports Ltd 0 90 399 518 755 953
Total Indian operations 2748 3152 3673 4005 4485 4926
Overseas Operations
Monocon Group 2410 2801 3288 3617 3979 4376
EI Ceramics 716 863 1012 1113 1447 1881
Hoffman Group 758 692 827 868 911 957
Less Intersegment revenues 596 790 1023 1120 1267 1443
Total Overseas operations 3287 3566 4103 4478 5069 5771
Total Consolidated operations 6035 6717 7776 8484 9554 10697
Source Company Centrum Research Estimates
Exhibit 36
EPS sensitivity to shaped refractory segment
EPS - FY16E (Rs) -Cons
Realizations
-10 -5 Base 5 10
V o l u m e s
-10 177 192 206 221 236
-5 187 203 218 234 250
Base 197 214 231 247 264
5 208 225 243 260 277
10 218 236 255 273 291
Source Company Centrum Research Estimates
Exhibit 37
EPS sensitivity to unshaped refractory segment
EPS - FY16E (Rs) - ConsRealizations
-10 -5 Base 5 10
V o l u m e s
-10 230 233 235 237 239
-5 228 230 233 235 237
Base 226 228 231 233 235
5 223 226 228 231 234
10 221 223 226 229 232
Source Company Centrum Research Estimates
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14IFGL Refractories Ltd
Valuation ndash poised for rerating
IFGLrsquos mean EVEBITDA stands at 47x with standard deviation of 26x and we note that the stock pricehas been volatile in last 6-7 years due to sharp fluctuations in earnings which explains the highstandard deviation However we believe that earnings would be more linear going forward asoverseas operations have been stabilised and growth would be driven by expansions at higher marginsubsidiaries of IEL and EI Ceramics At the CMP of Rs142 the stock trades at attractive valuations of 62xFY16E PE and 36x FY16E EVEBITDA and we believe that sharp improvement in free cash flow canlead to rerating in the stock We assign an EVEBITDA of 55x on Marrsquo16E earnings to arrive at a fairvalue of Rs220 and initiate with a Buy The multiple assigned by us remains below mean+05sd andthus provides comfort on historical valuations even though we expect much better earnings trajectoryfor the company going forward
Exhibit 38
EVEBITDA Valuation
(Rs mn) FY16E
EBITDA 1414
Ascribed EVEBITDA (x) 55
EV 7776
Add Net Cash (123)
Fair value mkt cap 7653
No of shares (mn) 346
Fair Valueshare (Rs) 220
Source Company Centrum Research Estimates
Exhibit 39
1-year forward EVEBITDA chart Exhibit 40
1-year forward PE chart
Source Bloomberg Company Centrum Research Estimates Source Bloomberg Company Centrum Research Estimates
Steep valuation discount exists for IFGL compared to global peersComparison of IFGLrsquos valuations with global peers shows that the company is trading at a steepdiscount despite strong fundamentals which we feel is unwarranted We expect re-rating in the stockwith improvement in outlook and stability in earnings
Exhibit 41 Valuationndash Peer comparison
CompanyMkt Cap(US$ mn)
CAGR CY13-CY15E () EBITDA Margin () PE (x) EVEBITDA (x) RoE () Div Yield ()
Rev EBITDA PAT CY13 CY14E CY15E CY13 CY14E CY15E CY13 CY14E CY15E CY13 CY14E CY15E CY13 CY14E CY15E
IFGL Refractories 82 108 136 116 141 143 148 77 72 62 53 46 36 212 190 185 12 14 16
Vesuvius India Ltd 220 110 115 126 184 178 186 203 192 161 110 100 82 164 152 158 07 08 09
Global Peers
RHI AG 1322 29 (02) 318 137 122 129 153 103 89 59 65 57 131 177 180 31 31 35
Vesuvius PLC 2140 04 53 80 117 123 128 149 141 127 86 82 74 93 1 02 108 31 34 36
Magnesita SA 574 122 129 344 156 149 158 157 180 101 60 63 55 21 17 35 15 11 21
Cie de St(Gobain 32544 20 91 32 3 100 107 114 218 181 133 76 68 60 58 76 94 29 30 33
Source Bloomberg Estimates Centrum Research Estimates CY13=FY14 for IFGL and so on
0
2
4
6
810
12
14
J u n - 0 7
O c t - 0 7
F e b - 0 8
J u n - 0 8
O c t - 0 8
F e b - 0 9
J u n - 0 9
O c t - 0 9
F e b - 1 0
J u n - 1 0
O c t - 1 0
F e b - 1 1
J u n - 1 1
O c t - 1 1
F e b - 1 2
J u n - 1 2
O c t - 1 2
F e b - 1 3
J u n - 1 3
O c t - 1 3
F e b - 1 4
J u n - 1 4
EVEBITDA MeanMean + Std Dev Mean - Std Dev
0
5
10
15
20
25
J u n - 0 7
O c t - 0 7
F e b - 0 8
J u n - 0 8
O c t - 0 8
F e b - 0 9
J u n - 0 9
O c t - 0 9
F e b - 1 0
J u n - 1 0
O c t - 1 0
F e b - 1 1
J u n - 1 1
O c t - 1 1
F e b - 1 2
J u n - 1 2
O c t - 1 2
F e b - 1 3
J u n - 1 3
O c t - 1 3
F e b - 1 4
J u n - 1 4
PE MeanMean + Std Dev Mean - Std Dev
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15IFGL Refractories Ltd
IFGL trading at a higher discount to Vesuvius than historical average
IFGL has historically (based on average during JanrsquoCY09-JunersquoCY14) traded at a discount of ~35 toVesuvius India Ltd (VIL) on EVEBITDA basis However currently IFGL is trading at a discount of ~60 toVIL which is unwarranted as the profitability of IFGL is on an uptrend post stabilisation of overseasoperations and IEL The historical discount has seen an increase in the past 3 years due to volatility inearnings of IFGL but with operations having stabilised we see the discount narrowing We also expectIFGL to be above its peers (incl VIL) in terms of ROE for the next few years and see a high cash flowyield of ~12 in FY16E The multiple assigned by us implies ~35 discount to VILrsquos current valuationswhich is in line with the historical average even though IFGL is expected to generate better returnsand free cash flow going forward
Exhibit 42
EVEBITDA ndash IFGL vs Vesuvius India Exhibit 43
Discount of IFGL EVEBITDA vs Vesuvius
Source Bloomberg Company Centrum Research Source Bloomberg Company Centrum Research
0
2
4
6
8
10
12
F e b - 0
9
J u n - 0
9
O c t - 0 9
F e b - 1
0
J u n - 1
0
O c t - 1 0
F e b - 1
1
J u n - 1
1
O c t - 1 1
F e b - 1
2
J u n - 1
2
O c t - 1 2
F e b - 1
3
J u n - 1
3
O c t - 1 3
F e b - 1
4
J u n - 1
4
( x )
EVEBITDA IFGL EVEBITDA Vesuvius
(90)
(60)
(30)
0
30
60
F e b - 0
9
J u n - 0
9
O c t - 0 9
F e b - 1
0
J u n - 1
0
O c t - 1 0
F e b - 1
1
J u n - 1
1
O c t - 1 1
F e b - 1
2
J u n - 1
2
O c t - 1 2
F e b - 1
3
J u n - 1
3
O c t - 1 3
F e b - 1
4
J u n - 1
4
( )
EVEBITDA discount of IFGL vs Vesuvius
Avg discount of IFGL vs Vesuvius
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16IFGL Refractories Ltd
Key risks to our thesis
Dependent on raw material sourcing through imports The industry is dependent on importsof key raw materials like high grade alumina bauxite magnesia silicon carbide etc China is themajor supplier of imports and has imposed heavy taxes on export of raw materials of refractories This has resulted in sharp increase in imported raw material costs IFGL sources ~52 of its raw
materials through imports and remains exposed to increase in costs which can impact its margins Low pricing power due to excess domestic supply and import pressure The industry suffers
from low capacity utilization of ~60 with excess installed capacities (~22 MTPA) and as a resultpricing power is low for refractory makers who are squeezed between raw material suppliers andsteel makers Cheap refractory imports from China have also kept prices in check IFGL does notenjoy as much pricing power as VIL does as customers prefer VIL for its strong brand name andproven track record of providing quality products and services Further increase in competitiveintensity can lead to lower pricing for IFGL in both domestic and export markets
Sharp slowdown in steel industry leading to lower volumes Like any other refractorycompany IFGLrsquos fortunes depend on the steel industry and any slowdown in global economy mayhamper the steel industryrsquos growth and IFGLrsquos volume growth would be more vulnerable as itdoes not have strong relationships like VIL has Sharp slowdown in the steel industry (vs
expectations of recovery) in coming years could lead to lower capacity utilization and lower thanexpected volumes
Currency Fluctuation We believe that steady weakening of rupee over the past couple of yearshas been favourable to the industry as well as for IFGL due to better import substitution andhigher realizations on exports negated only to a partial extent by higher import costs for rawmaterials IFGL has 80 of its revenues coming from overseas on a consolidated basis On astandalone basis approximately 58 of the revenues (FY14) came from exports Companyrsquosrevenues remain exposed to sharp appreciation of rupee against foreign currencies
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17IFGL Refractories Ltd
Exhibit 44
Shareholding pattern ()
Q4FY14 Q3FY14 Q2FY14 Q1FY14
Promoter 713 713 713 713
FIIs 00 00 00 00
DIIs 11 22 22 22
Others 277 265 265 265
Source BSE
Company Background
IFGL Refractories Ltd is a manufacturer of specialisedrefractories and requisite operating systems for the steelIndustry IFGL offers its customers total solution for refractoryfor flow control in steel teeming and continuous casting ofSteel IFGL has 8 manufacturing plants strategically located
across the globe in India China Europe and Americas Thecompany has a presence in over 50 of the global markets Itacquired the Monocon group UK in 2005 (06 Hofmanngroup Germany in 2008 and EI Ceramics USA in 2010 Theseoverseas acquisitions have brought along access to newproducts amp technologies new markets and new customers The company has also set up a subsidiary IFGL exports atKandla Gujarat which also has technical collaboration withKrosaki Harima Corporation Japan Apart from this IFGL alsoplans to expand its capacities in India and abroad over thecoming years
Exhibit 45 Key management personnel
Name Position Profile
Mr S K Bajoria Chairman
Promoter of S K Bajoria Group based at Kolkata engaged in diversified business activitiesHas been honorary vice consul of Denmark in Kolkata president of the Indian chamber ofcommerce director of West Bengal industrial development corporation Ltd and industrialpromotion amp investment corporation of Orissa Ltd
Mr Pradeep Bajoria Managing Director
Associated with IFGL from the very early days of Indo Flogates even before thecommencement of production in 1984 Has been director amp chief executive of erstwhileIndo Flogates Ltd More than 30 years of experience of refractory industry and has beeninvolved in various capacities in Indian refractories makers association
Mr Gian Carlo Cozzani Directorr Monocon UK
Associated with IFGL since Oct 2009 Former president and CEO of Vesuvius (now Vesuviusplc) Instrumental in steering Vesuvius from US$ 100 million to over US$ 1 billion Based inEurope he is a member of IFGLrsquos Core group and a director of Monocon InternationalRefractories Limited UK
Source Company
Exhibit 46
IFGL refractories holding structure
Source Company
10051
983113983110983111983116 983127983151983154983148983140983159983145983140983141 983112983151983148983140983145983150983143 983116983145983149983145983156983141983140
983113983110983111983116 983109983160983152983151983154983156983155 983116983156983140
983117983151983150983151983139983151983150 983111983154983151983157983152 983109983113 983107983141983154983137983149983145983139983155 983112983151983142983149983137983150983150
983107983141983154983137983149983145983139
983124983141983139983144983150983145983139983137983148 983137983150983140 983110983145983150983137983150983139983145983137983148
983107983151983148983148983137983138983151983154983137983156983145983151983150 983151983142
983115983154983151983155983137983147983145 983112983137983154983145983149983137
983107983151983154983152983151983154983137983156983145983151983150983084 983114983137983152983137983150983084
983080983123983157983138983155983145983140983145983137983154983161 983151983142 983118983145983152983152983151983150
983123983156983141983141983148 983107983151983154983152983151983154983137983156983145983151983150983084
983114983137983152983137983150983081
983125983123983105 983125983115 983087 983125983123983105 983087 983107983144983145983150983137
983115983137983150983140983148983137 983123983109983130983084 983111983157983146983137983154983137983156983084 983113983150983140983145983137
983111983141983154983149983137983150983161
983113983110983111983116 983122983141983142983154983137983139983156983151983154983145983141983155 983116983145983149983145983156983141983140
983112983119 983085 983115983151983148983147983137983156983137983084 983113983150983140983145983137
983127983151983154983147983155 983085 983115983137983148983157983150983143983137983084 983119983154983145983155983155983137983084 983113983150983140983145983137
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18IFGL Refractories Ltd
Exhibit 47 Quarterly financials (cons)
YE Mar (Rs mn) Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14
Net sales 1725 1657 1690 1641 1811 2014 1947 2003
Other Operating Income 5 4 0 0 3 0 0 0
Total Income 1729 1662 1690 1641 1814 2014 1947 2003
Accretion to Stocks in trade amp work in progress (29) (10) 4 46 (65) (54) (25) 9
Cost of Raw Materials consumed 840 898 835 581 911 908 817 808
Purchase of traded goods 66 28 42 223 46 73 182 168
Staff Cost 239 234 250 264 247 275 294 281
Other Operational expenses 407 400 375 439 430 513 407 455
Operating Profit (Core EBITDA) 206 112 183 89 246 299 272 282
Depreciation 32 34 35 33 32 34 46 43
EBIT 174 78 149 56 214 265 226 239
Interest 21 22 21 15 17 18 19 16
Other RevenueIncome 16 5 7 8 5 9 6 12
Profit Before Tax 169 61 134 49 202 255 213 236
Tax 50 31 48 31 54 57 68 70
Profit After Tax 119 31 86 18 148 199 145 166
Minority Interest (7) (9) (8) (4) (1) 8 3 8
Profit after minority interest 126 40 95 22 149 191 143 158
Growth (YoY )
Revenue 371 36 61 36 50 216 153 221
EBITDA 129 (457) (125) (477) 195 1672 485 2164
PAT 174 (666) (111) (669) 189 3765 503 6292
Margin ()
EBITDA 119 67 109 54 136 148 140 141
EBIT 100 47 88 34 118 131 116 120
PAT 73 24 56 13 82 95 73 79
Segment Revenue (Net Sales Income from ops)
India 764 749 810 829 872 926 936 941
Asia (excl India) 142 175 160 167 188 213 163 156
Europe 593 545 542 543 612 744 689 764
Americas 405 370 363 344 384 399 427 386
Segment EBIT
India 83 32 84 63 92 103 129 139
Asia (excl India) 8 11 6 9 12 10 5 7
Europe 55 44 51 (4 45 76 74 81Americas 22 13 23 39 38 45 55 36
Source Company Centrum Research
Comments on recent quarterly results
Q4FY14 witnessed a healthy growth with revenue up 221 YoY EBITDA and PAT jumpedsubstantially YoY Margins showed good improvement EBITDA margin expanded by 860 bps YoYOther operating expenses as a proportion of sales reduced to 227 from 267 in Q4FY13 this had apositive impact on margins
Revenue grew 28 QoQ EBITDA amp PAT margins showed signs of consistency further improving fromQ3FY14 European business looks to be on a growth trajectory as revenues have jumped 140 YoYand 11 QoQ Revenue from American segment saw growth of 124 YoY but declined QoQ
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19IFGL Refractories Ltd
Annexure ndash Refractory Industry
About refractories ndash consumables for manufacturing processes with high temperatures
Refractories are inorganic non-metallic and heterogeneous materials having very high melting pointswhich make them suitable to be used as heat-resisting barriers consumed within various productionprocesses providing heat chemical and mechanical resistance Refractories are mainly of two types ndash
shaped and unshaped (monolithics) and are used mainly by the steel industry as a consumableproduct in the internal linings of furnaces kilns reactors and other vessels for holding andtransporting metal and slag
Shaped refractories are those which have fixed shapes with most common form being rectangularbrick Brick shapes may be divided into two standard shapes and special shapes Standard shapeshave dimensions that are conformed to by most refractory manufacturers and are generally applicableto kilns and furnaces of the same type Special shapes are specifically made for particular kilns andfurnaces Shaped refractories are almost always machine-pressed and possess high uniformity inproperties are expected
Unshaped refractories are without definite form and are only given shape upon application It forms joint less lining and are better known as monolithic refractories They are manufactured in powderform as granular material and known as plastic refractories ramming mixes castables gunning mixesfettling mixes and mortars
The raw materials used to manufacture refractories are broadly classified into clay and non-clay Clayrefractories consist of naturally occurring alumina silicate like fireclay flint clay flint brick and highalumina and are used to produce bricks and insulating refractories Non-clay refractories are madefrom non-clay materials and are further classified into basic (made in the form of bricks from magnesiadolomite chrome etc) extra high alumina mullite (made from kyanite bauxite alumina) siliconcarbide and zircon
Exhibit 48
Refractory share by form Exhibit 49
Refractory share by raw material
Source Industry data Centrum Research Source Industry data Centrum Research
Unshaped45Shaped 55
Clay 65
Non Clay35
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20IFGL Refractories Ltd
Applications of refractories ndash largely used in steel industry for furnace linings
Steel industry accounts for ~60 of refractory consumption globally and ~75 in the domesticmarket In non-metallurgical industries (cement glass lime) the refractories are mostly installed onfired heaters hydrogen reformers cracking furnaces incinerators utility boilers air heaters ductingstacks etc The different areas of the steel manufacturing processes are exposed to differenttemperatures slag and sulphur gases Refractory selection for the lining of a furnace is invariably builtupon a combination of material qualities and brick size to maximize performance Steel industry usesrefractory for diverse applications in blast furnaces coke ovens torpedo ladles and secondary refiningladles
In cement industry refractories are used in the kiln the preheating system and the cooler whichoperate in a very high temperature to protect against heat abrasion and chemical attack Commonrefractory materials used are Dolomite Magnesia-Chrome Spinel Magnesia-Alumina Spinel Fireclayand High Alumina The cement kiln clinker area is usually provided with Dolomite refractories
Non(-errous industries like copper and aluminium require high performance refractories in severalequipments like anode baking furnaces induction furnaces reduction pots slag cleaning surfaces etcGlass industry also requires refractories in refiner regenerator dog-house and ports of furnace
Exhibit 50
Refractories consumption in steel making process
Source Magnesita ppt
Exhibit 51
Refractories consumption in steel making process
Source Vesuvius PLC ppt
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21IFGL Refractories Ltd
Steel industry accounts for ~60 of refractory consumption globally and ~75 in the domesticmarket In non-metallurgical industries (cement glass lime) refractories are mostly installed on firedheaters hydrogen reformers cracking furnaces incinerators utility boilers air heaters ducting stacksetc
Exhibit 52
Sector wise refractories demand - Global Exhibit 53
Sector wise refractories demand - India
Source Industry data Centrum Research Source Industry data Centrum Research
Refractory application consumption and replacement dynamics are shown in the table belowSteelmaking requires maximum amount of refractories (10-15kgstonne) with replacement required ina time period of 20 minutes to 2months Cement industry is the next biggest user with annualreplacement requirement while non-ferrous and glass industries have longer replacement cycles
Exhibit 54
Refractory consumption dynamics across user industries
Key Industry Application Replacement Per tonne consumption Refractory requirements
Steel
BF(BOF EAFCasting LadlesInduction FurnacesPellet rotary Kilns
20 minutes to 2months
Global avg - 10-15KgsIndia avg - 15 Kgs
Consumable product ( Systems and solutions for completerefractory management
Cement Kilns annually 1 KgsInvestment goods ( Longer replacement cycles Customizedsolutions based on the specific requirements of various industrialproduction processes complete lining concepts
Glass Glass Furnace upto 10 years 4 Kgs
Non(Ferrous Converters 1(10 yearsAluminium - 6 KgsCopper - 3 Kgs
Source RHI ppt Centrum Research
Global refractory market size at ~US$25bn expected to grow at ~35 CAGR
According to various industry studies global refractoriesrsquo market size is ~US$25bn with production of415MT in CY12 According to industry estimates the global refractories industry is expected to witnessCAGR of 35 during CY13-16E and grow to 46MT with a market value of US$29bn China accountedfor ~70 of the market by volume and ~60 by value in CY12 whereas India accounts for ~3 of theglobal refractories market by volume
Exhibit 55
Global refractory market size at ~US$25bn Exhibit 56
China accounts for ~70 of the market
CY12 Production (MT) Value (US$ bn)
World 415 25
China 295 143
EU 41 39
North America 14 14
India 13 09
Source Industry Centrum Research Source Industry Centrum Research
6015
15
10 Steel
Non-Metallic (Cement GlassLime)
Non-Ferrous (AluminiumCopper Zinc Silver)
Others (paper ceramicspetrochemicals)
75
12
6 3
4
Steel
Cement
Non-Ferrous
Glass
Others
415
463
25
29
0
10
20
30
40
50
CY12 CY16
Volume (MT) Mkt Value ($ bn)
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22IFGL Refractories Ltd
Domestic refractory demand-supply indicates low industry growth amp import pressure
Demand supply analysis of domestic refractory industry shows that it has been witnessing mutedconsumption growth (due to a fall in per tonne consumption for steel making due to technologicaladvances) and faces strong import pressure with one fourth of the market being serviced by netimports (mainly from cheap supplies from China which accounts for two thirds of refractory imports inIndia) Capacity utilization for the industry remains at ~60 on installed capacity of ~22MT and marketsize is ~US$1bn Domestic refractory consumption in steel has grown at a CAGR of ~2 during FY08-14 We expect industry growth to pick up due to scope for higher steel production (backed by higherinfra spend and expansion in per capita steel consumption) The industry has seen consolidation andacquisitions by global majors in the last five years and organised sector (split between (6 players)accounts for ~65 of the market
Exhibit 57 Refractory demand from domestic steel industry
(In tonne) FY08 FY09 FY10 FY11 FY12 FY13 FY14E FY15E FY16E FY17E
Steel Production (MT) 561 572 606 686 757 817 850 893 946 1012
Growth 20 59 132 103 79 40 50 60 70
Avg Refractory consumption(kgt of crude steel)
188 173 168 16 15 145 140 140 140 140
Refractory consumption (steel) 1054680 989560 1018080 1097600 1135500 1184650 1190000 1249500 1324470 1417183
Growth (62) 29 78 35 43 05 50 60 70
Source Ministry of Steel (MoS) Centrum Research Estimates
Exhibit 58
Organised sector accounts for ~65 of domestic refractory industry
Company RevenueMarket
Share ()
Supply toIntegratedsteel mills
Comments
Vesuvius India Ltd 6017 100 95+Leading supplier with wide product basket strongcustomer relationships with large steel mills
Orient Refractories (RHI) 4035 67 10-15 Has developed a niche with mini steel mills
IFGL Refractories (incl IEL) 3674 61 85+Mainly into flow control shaped refractories goodrelationship with large mills
Tata Refractories 9800 163 Not available Largely into bricks supplies (commodity refractories)
Calderys 6250 104 Not available
Supplies largely to non-ferrous producers strong in
bricks and monolithics
OCL 4056 68 Not available
Total Organized Sector 39332 656
Source Company Centrum Research Estimates
Exhibit 59
Net imports accounts for one fourth of market Exhibit 60
China accounts for two thirds of imports
Source MoS Industry Centrum Research Source MoS Industry Centrum Research
(800000)
(600000)
(400000)
(200000)
0
200000
400000
FY07 FY08 FY09 FY10 FY11 FY12
( T o n n e )
Imports Exports Net Imports
167259
380
167228
647594
551
696 685
10
20
30
40
50
60
70
80
FY07 FY08 FY09 FY10 FY11
Net Imports - share China share in imports
Domestic refractory production growth hasbeen largely flat andcapacity utilization is~60
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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23IFGL Refractories Ltd
Financials (Cons)
Exhibit 61
Income Statement
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
Revenues from Operations 6712 7776 8484 9554 10697
Raw Materials consumed 3201 3444 3725 4208 4716
of net sales 477 443 439 440 441
Employee expenses 987 1097 1185 1279 1382
of net sales 147 141 140 134 129
Other operational expenses 1621 1805 2013 2243 2486
of net sales 241 232 237 235 232
Total expenses 6130 6680 7273 8140 9068
of net sales 913 859 857 852 848
EBITDA 582 1096 1210 1414 1630
EBITDA Margin () 87 141 143 148 152
Depreciation amp Amortisation 134 155 174 189 204
EBIT 448 942 1036 1225 1425
Interest expenses 80 70 51 29 6
Other Income 45 34 40 44 484
EBT 413 906 1025 1240 1467
Provision for tax 159 248 307 372 440
Effective tax rate () 386 274 300 300 300Net Profit 254 658 717 868 1027
Less Minority interest (28) 18 32 70 99
Net Profit after MI 282 640 686 798 928
Source Company data Centrum Research Estimates
Exhibit 62 Key Ratios
YE Mar FY13 FY14 FY15E FY16E FY17E
Growth Ratio ()
Revenue 112 159 91 126 120
EBITDA (213) 884 104 168 153
PAT (292) 1269 71 163 163
Margin Ratios ()
PBIT Margin 67 121 122 128 133
PBT Margin 62 116 121 130 137
PAT Margin 42 82 81 84 87
Return Ratios ()
ROE 115 212 190 185 181
ROCE 84 177 175 189 198
ROIC 87 179 178 200 224
Turnover Ratios (days)
Asset turnover ratio (x) 18 19 19 19 19
Debtors 78 78 80 80 80
Inventory 46 49 50 50 50
Creditors 43 45 45 45 45
Net Working capital 74 76 80 80 80
Gearing Ratio (x)
Debt-equity 05 03 02 01 00
Net debt-equity 04 03 02 00 (01)
Current ratio 25 23 24 25 27
Dividend
Dividend per share 15 18 20 23 23
Dividend Payout () 251 124 130 125 107
Dividend Yield () 11 13 15 17 17
Per share Ratios (Rs)
Basic EPS 82 185 198 231 268
Fully diluted EPS 82 185 198 231 268
Book value 709 871 1044 1245 1485
Cash earnings per share 120 230 249 285 327
Valuation (x)
PE 174 77 72 62 53
PBV 20 16 14 11 10
EVEBITDA 102 53 46 36 27
EVSales 07 06 06 05 04
M-CapSales 07 06 06 05 05
Source Company data Centrum Research Estimates
Exhibit 63
Balance Sheet
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
Equity share capital 491 491 491 491 491
Reserves amp surplus 1964 2525 3121 3819 4648
Shareholders fund 2455 3016 3612 4310 5139
Total debt 1142 982 682 382 82
Deferred tax liabilities 65 74 74 74 74
Total Liabilities 3741 4167 4495 4963 5591
Gross block 2474 2656 2906 3156 3406
Less acc depreciation 1276 1430 1605 1794 1998
Net block 1198 1225 1301 1362 1407
Capital work in progress 20 20 20 20 20
Goodwill 1105 1342 1342 1342 1342
Investments 5 5 5 5 5
Inventories 848 1034 1162 1309 1465
Trade Receivables 1427 1658 1859 2094 2345
Cash amp cash equivalents 113 33 69 259 609
Loans amp advances 51 107 116 131 147
Trade payables 799 962 1046 1178 1319
Other current liabilities 166 210 232 262 293Provisions 94 124 139 157 176
Total Assets 3741 4167 4495 4963 5591
Source Company data Centrum Research Estimates
Exhibit 64 Cash Flow
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
PBT 413 906 1025 1240 1467
Interest 72 70 51 29 6
Depreciation 134 155 174 189 204
Increase in debtors (330) (231) (201) (235) (251)
Increase in inventories 7 (186) (128) (147) (157)
Increase in trade payables 46 163 84 132 141
Tax 197 248 307 372 440
Cash flow from operations 183 629 695 799 907
Change in fixed assets (194) (418) (250) (250) (250)
Cash flow from investments (172) (418) (250) (250) (250)
Change in debt 19 (160 (300) (300) (300)
Dividends paid (71) (79) (89) (100) (100)
Interest paid (80) (70) (51) (29) (6)
Cash flow from financing (94) (291) (409) (358) (306)
Net cash flow (81) (81) 36 191 350
Opening cash balance 195 113 33 69 259
Closing cash balance 113 33 69 259 609
Source Company data Centrum Research Estimates
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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24IFGL Refractories Ltd
Financials (Cons) - Historical
Exhibit 65
Income Statement
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
Revenues from Operations 3780 3982 4152 4689 6039
Raw Materials consumed 1743 1907 2058 2389 3024
of net sales 461 479 496 509 501
Employee expenses 487 589 539 661 843
of net sales 129 148 130 141 140
Other operational expenses 918 1036 951 1148 1418
of net sales 243 260 229 245 235
Total expenses 3244 3708 3575 4279 5299
of net sales 858 931 861 912 878
EBITDA 536 274 578 411 739
EBITDA Margin () 142 69 139 88 122
Depreciation amp Amortisation 63 74 70 71 123
EBIT 473 200 508 339 617
Interest expenses 82 95 45 56 68
Other Income 18 24 34 43 33
EBT 409 128 497 327 582
Provision for tax 123 67 155 84 183
Effective tax rate () 301 523 311 258 315Net Profit 286 61 343 243 398
Less Minority interest 1 0 0 0 0
Net Profit after MI 285 61 343 243 399
Source Company data Centrum Research Estimates
Exhibit 66 Key Ratios
YE Mar FY08 FY09 FY10 FY11 FY12
Growth Ratio ()
Revenue 171 53 43 129 288
EBITDA 98 (489) 1111 (289) 800
PAT 85 (785) 4586 (292) 642
Margin Ratios ()
PBIT Margin 125 50 122 72 102
PBT Margin 108 32 120 70 96
PAT Margin 75 15 83 52 66
Return Ratios ()
ROE 294 54 250 138 180
ROCE 182 49 169 93 128
ROIC 195 53 183 98 141
Turnover Ratios (days)
Asset turnover ratio (x) 20 18 19 15 17
Debtors 97 55 79 85 69
Inventory 46 47 52 55 52
Creditors 49 23 41 50 44
Net Working capital 105 81 89 93 67
Gearing Ratio (x)
Debt-equity 09 09 06 07 05
Net debt-equity 08 08 05 07 04
Current ratio 29 36 26 25 24
Dividend
Dividend per share 20 00 10 05 15
Dividend Payout () 284 00 118 103 63
Dividend Yield () 15 00 07 04 11
Per share Ratios (Rs)
Basic EPS 82 18 99 70 115
Fully diluted EPS 82 18 99 70 115
Book value 280 328 396 508 641
Cash earnings per share 101 39 119 91 151
Valuation (x)
PE 164 762 136 193 117
PBV 48 41 34 27 21
EVEBITDA 102 203 93 142 76
EVSales 12 12 11 10 08
M-CapSales 12 12 11 10 08
Source Company data Centrum Research Estimates
Exhibit 67
Balance Sheet
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
Equity share capital 346 346 346 491 491
Reserves amp surplus 623 789 1026 1266 1728
Shareholders fund 969 1135 1372 1757 2219
Total debt 869 1003 793 1253 1128
Deferred tax liabilities 41 38 38 40 48
Total Liabilities 1879 2185 2206 3054 3465
Gross block 1456 1948 1966 2738 2238
Less acc depreciation 687 827 864 960 1122
Net block 769 1121 1102 1778 1117
Capital work in progress 46 53 28 21 45
Goodwill 347 594 559 1032 1094
Investments 0 0 4 14 5
Inventories 474 513 592 702 855
Trade Receivables 1001 596 895 1096 1134
Cash amp cash equivalents 77 129 120 100 195
Loans amp advances 152 121 133 152 38
Trade payables 507 256 471 637 729
Other current liabilities 32 90 137 112 194Provisions 102 2 60 60 151
Total Assets 1879 2185 2206 3054 3465
Source Company data Centrum Research Estimates
Exhibit 68 Cash Flow
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
PBT 409 128 497 327 582
Interest 81 96 45 56 59
Depreciation 63 74 75 87 129
Increase in debtors (196) 559 (330) (184) 25
Increase in inventories (72) 35 (79) (77) (135)
Increase in trade payables 82 (304 266 115 67
Tax 119 90 138 70 135
Cash flow from operations 285 814 359 237 520
Change in fixed assets (94) (99) (120) (157) (49)
Cash flow from investments (62 (536 (119 (677 (98
Change in debt (88) 15 (276) 245 (242)
Dividends paid (76) (80) (6) (46) (25)
Interest paid (87) (98) (47) (60) (68)
Cash flow from financing (261) (245) (241) 408 (339)
Net cash flow (43) 24 (8) (29) 94
Opening cash balance 120 77 129 120 100
Closing cash balance 77 129 120 100 195
Source Company data Centrum Research Estimates
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25IFGL Refractories Ltd
Appendix A
Disclaimer
Centrum Broking Limited (ldquoCentrumrdquo) is a full(service Stock Broking Company and a member of The Stock Exchange Mumbai (BSE) and National StockExchange of India Ltd (NSE) Our holding company Centrum Capital Ltd is an investment banker and an underwriter of securities As a group Centrumhas Investment Banking Advisory and other business relationships with a significant percentage of the companies covered by our Research Group Ourresearch professionals provide important inputs into the Groups Investment Banking and other business selection processes
Recipients of this report should assume that our Group is seeking or may seek or will seek Investment Banking advisory project finance or otherbusinesses and may receive commission brokerage fees or other compensation from the company or companies that are the subject of thismaterialreport Our Company and Group companies and their officers directors and employees including the analysts and others involved in thepreparation or issuance of this material and their dependants may on the date of this report or from time to time have long or short positions in actas principal in and buy or sell the securities or derivatives thereof of companies mentioned herein Centrum or its affiliates do not own 1 or more in theequity of this company Our sales people dealers traders and other professionals may provide oral or written market commentary or trading strategies toour clients that reflect opinions that are contrary to the opinions expressed herein and our proprietary trading and investing businesses may makeinvestment decisions that are inconsistent with the recommendations expressed herein We may have earlier issued or may issue in future reports on thecompanies covered herein with recommendations information inconsistent or different those made in this report In reviewing this document youshould be aware that any or all of the foregoing among other things may give rise to or potential conflicts of interest We and our Group may rely oninformation barriers such as Chinese Walls to control the flow of information contained in one or more areas within us or other areas units groups oraffiliates of Centrum Centrum or its affiliates do not make a market in the security of the company for which this report or any report was writtenFurther Centrum or its affiliates did not make a market in the subject companyrsquos securities at the time that the research report was published
This report is for information purposes only and this documentmaterial should not be construed as an offer to sell or the solicitation of an offer to buypurchase or subscribe to any securities and neither this document nor anything contained herein shall form the basis of or be relied upon in connection
with any contract or commitment whatsoever This document does not solicit any action based on the material contained herein It is for the generalinformation of the clients of Centrum Though disseminated to clients simultaneously not all clients may receive this report at the same time Centrumwill not treat recipients as clients by virtue of their receiving this report It does not constitute a personal recommendation or take into account theparticular investment objectives financial situations or needs of individual clients Similarly this document does not have regard to the specificinvestment objectives financial situationcircumstances and the particular needs of any specific person who may receive this document The securitiesdiscussed in this report may not be suitable for all investors The securities described herein may not be eligible for sale in all jurisdictions or to allcategories of investors The countries in which the companies mentioned in this report are organized may have restrictions on investments voting rightsor dealings in securities by nationals of other countries The appropriateness of a particular investment or strategy will depend on an investorsindividual circumstances and objectives Persons who may receive this document should consider and independently evaluate whether it is suitable forhis hertheir particular circumstances and if necessary seek professionalfinancial advice Any such person shall be responsible for conductinghishertheir own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risks involvedin the securities forming the subject matter of this document
The projections and forecasts described in this report were based upon a number of estimates and assumptions and are inherently subject to significantuncertainties and contingencies Projections and forecasts are necessarily speculative in nature and it can be expected that one or more of the estimateson which the projections and forecasts were based will not materialize or will vary significantly from actual results and such variances will likely increase
over time All projections and forecasts described in this report have been prepared solely by the authors of this report independently of the Company These projections and forecasts were not prepared with a view toward compliance with published guidelines or generally accented accountingprinciples No independent accountants have expressed an opinion or any other form of assurance on these projections or forecasts You should notregard the inclusion of the projections and forecasts described herein as a representation or warranty by or on behalf of the Company Centrum theauthors of this report or any other person that these projections or forecasts or their underlying assumptions will be achieved For these reasons youshould only consider the projections and forecasts described in this report after carefully evaluating all of the information in this report including theassumptions underlying such projections and forecasts
The price and value of the investments referred to in this documentmaterial and the income from them may go down as well as up and investors mayrealize losses on any investments Past performance is not a guide for future performance Future returns are not guaranteed and a loss of original capitalmay occur Actual results may differ materially from those set forth in projections Forward (looking statements are not predictions and may be subject tochange without notice Centrum does not provide tax advice to its clients and all investors are strongly advised to consult regarding any potentialinvestment Centrum and its affiliates accept no liabilities for any loss or damage of any kind arising out of the use of this report Foreign currenciesdenominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derived fromthe investment In addition investors in securities such as ADRs the value of which are influenced by foreign currencies effectively assume currency riskCertain transactions including those involving futures options and other derivatives as well as non(investment(grade securities give rise to substantial
risk and are not suitable for all investors Please ensure that you have read and understood the current risk disclosure documents before entering into anyderivative transactions
This reportdocument has been prepared by Centrum based upon information available to the public and sources believed to be reliable Norepresentation or warranty express or implied is made that it is accurate or complete Centrum has reviewed the report and in so far as it includescurrent or historical information it is believed to be reliable although its accuracy and completeness cannot be guaranteed The opinions expressed inthis documentmaterial are subject to change without notice and have no obligation to tell you when opinions or information in this report change
This report or recommendations or information contained herein dodoes not constitute or purport to constitute investment advice in publicly accessiblemedia and should not be reproduced transmitted or published by the recipient The report is for the use and consumption of the recipient only Thispublication may not be distributed to the public used by the public media without the express written consent of Centrum This report or any portionhereof may not be printed sold or distributed without the written consent of Centrum
The distribution of this document in other jurisdictions may be restricted by law and persons into whose possession this document comes should informthemselves about and observe any such restrictions Neither Centrum nor its directors employees agents or representatives shall be liable for anydamages whether direct or indirect incidental special or consequential including lost revenue or lost profits that may arise from or in connection withthe use of the information
This document does not constitute an offer or invitation to subscribe for or purchase or deal in any securities and neither this document nor anythingcontained herein shall form the basis of any contract or commitment whatsoever This document is strictly confidential and is being furnished to yousolely for your information may not be distributed to the press or other media and may not be reproduced or redistributed to any other person Thedistribution of this report in other jurisdictions may be restricted by law and persons into whose possession this report comes should inform themselvesabout and observe any such restrictions By accepting this report you agree to be bound by the fore going limitations No representation is made thatthis report is accurate or complete
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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The opinions and projections expressed herein are entirely those of the author and are given as part of the normal research activity of Centrum Brokingand are given as of this date and are subject to change without notice Any opinion estimate or projection herein constitutes a view as of the date of thisreport and there can be no assurance that future results or events will be consistent with any such opinions estimate or projection
This document has not been prepared by or in conjunction with or on behalf of or at the instigation of or by arrangement with the company or any of itsdirectors or any other person Information in this document must not be relied upon as having been authorized or approved by the company or itsdirectors or any other person Any opinions and projections contained herein are entirely those of the authors None of the company or its directors orany other person accepts any liability whatsoever for any loss arising from any use of this document or its contents or otherwise arising in connectiontherewith
Centrum and its affiliates have not managed or co(managed a public offering for the subject company in the preceding twelve months Centrum andaffiliates have not received compensation from the companies mentioned in the report during the period preceding twelve months from the date of thisreport for service in respect of public offerings corporate finance debt restructuring investment banking or other advisory services in amergeracquisition or some other sort of specific transaction
As per the declarations given by them Mr Abhisar Jain research analyst and andor any of his family members do not serve as an officer director or anyway connected to the companycompanies mentioned in this report Further as declared by him he has not received any compensation from the abovecompanies in the preceding twelve months He does not hold any shares by him or through his relatives or in case if holds the shares then will not to doany transactions in the said scrip for 30 days from the date of release such report Our entire research professionals are our employees and are paid asalary They do not have any other material conflict of interest of the research analyst or member of which the research analyst knows of has reason toknow at the time of publication of the research report or at the time of the public appearance
While we would endeavour to update the information herein on a reasonable basis Centrum its associated companies their directors and employees areunder no obligation to update or keep the information current Also there may be regulatory compliance or other reasons that may prevent Centrumfrom doing so
Non(rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable
regulations andor Centrum policies in circumstances where Centrum is acting in an advisory capacity to this company or any certain othercircumstances
This report is not directed to or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality statecountry or other jurisdiction where such distribution publication availability or use would be contrary to law or regulation or which would subjectCentrum Broking Limited or its group companies to any registration or licensing requirement within such jurisdiction Specifically this document doesnot constitute an offer to or solicitation to any US person for the purchase or sale of any financial instrument or as an official confirmation of anytransaction to any US person unless otherwise stated this message should not be construed as official confirmation of any transaction No part of thisdocument may be distributed in Canada or used by private customers in United Kingdom
The information contained herein is not intended for publication or distribution or circulation in any manner whatsoever and any unauthorized readingdissemination distribution or copying of this communication is prohibited unless otherwise expressly authorized Please ensure that you have read ldquoRiskDisclosure Document for Capital Market and Derivatives Segmentsrdquo as prescribed by Securities and Exchange Board of India before investing in IndianSecurities Market
Rating Criteria
Rating Market cap lt Rs20bn Market cap gt Rs20bn but lt 100bn Market cap gt Rs100bn Buy Upside gt 25 Upside gt 20 Upside gt 15
Hold Upside between (25 to +25 Upside between (20 to +20 Upside between (15 to +15
Sell Downside gt 25 Downside gt 20 Downside gt 15
Member (NSE BSE MCX(SX) Depository Participant (CDSL) and SEBI registered Portfolio Manager
Registration Nos
CAPITAL MARKET SEBI REGN NO BSE INB011454239 NSE INB231454233
DERIVATIVES SEBI REGN NO NSE INF231454233 (TRADING amp SELF CLEARING MEMBER)
CDSL DP ID 12200 SEBI REGISTRATION NO IN(DP(CDSL(661(2012
PMS REGISTRATION NO INP000004383
MCX ndash SX (Currency Derivative segment) REGN NO INE261454230
Website wwwcentrumcoin
Investor Grievance Email ID investorgrievancescentrumcoin
Compliance Officer Details
Tel (022) 4215 9413 Email ID compliancecentrumcoin
Centrum Broking Limited
Registered Office Address
Bombay Mutual Building
2nd Floor
Dr D N Road
Fort Mumbai ( 400 001
Correspondence Address
Centrum House
6th Floor CST Road Near Vidya Nagari Marg Kalina
Santacruz (E) Mumbai 400 098
Tel (022) 4215 9000
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Expansion at Kandla to be the game changer for domestic operations
Capacity being doubled at IFGL Exports Ltd (IEL Kandla)
IFGL is currently in the process of doubling the capacity of continuous casting refractories at itssubsidiary (51 stake) IFGL Exports Ltd (IEL) IEL started operations in FY13 (May 2012) with a capacityof 80k pcsyear and achieved sales volumes of ~64k pcs in FY14 We see sales volumes from IEL more
than doubling by FY17E to reach 136k pcs IFGL has spent ~Rs400mn on IEL so far and plans to spend~Rs60mn for the second phase of expansion (80k pcsyear) while the third phase of expansion wouldtake the capacity to 300k pcsyear at an additional capex of Rs140mn
Exhibit 1 Capacity expansion planned at IEL Kandla Exhibit 2 Sales volumes at IEL to double in 3 years
Source Company Centrum Research Estimates Source Company Centrum Research Estimates
Substantial savings in freight expenses for exports from Kandla vis-agrave-vis Orissa
Exports account for 55+ share in revenues from IFGLrsquos standalone operations through its plant atKalunga Orissa and Europe accounts for ~65 of exports IEL specifically chose an SEZ in KandlaGujarat to enjoy the benefits of lower freight costs for exports (~US$700 lower freight on per containerbasis for shipment to Europe ndash see exhibit 3 below)
Exhibit 3
IFGL plants in India ndash Capacity and freight differential for exports
Source Company Centrum Research
80000
80000
160000
140000
300000
0
50000
100000
150000
200000
250000
300000
350000
Phase 1 Phase 2 TotalCapacity
PotentialPhase 3
Potential Total
Capacity
( p c s y r )
Currently Installed FY16E FY17-18E
21148
64225
80000
112000
136000
0
20000
40000
60000
80000
100000
120000
140000
160000
FY13 FY14 FY15E FY16E FY17E
Sales Volumes (pcs)
Odisha
Gujrat
Kalunga
Kandla
Capacity of IFGL ExportsKandla getting doubled
to 160k pcsyear byQ1FY16E
Kandla facility providescrucial freight savings forexports apart from otherSEZ benefits
IFGL Exports Ltd
Kandla Gujarat Products
IFGL
RefractoriesOrissa
CapacityCurrent
CapacityPost
Expansion
80000 300000Continuous casting ref(pcsyr)
360000
NA NA Slide gate ref (pcsyr) 300000
NA NAPurge plugs cast products(pcsyr)
116000
NA NA Unshaped (tpa) 24000
~50Kms Distance from port ~400Kms
2012 Plant set-up date 1990
FY14 Exports - Rs1883mn (~57 of sales)
UK 7
Europe(excl
UK) 65
Asia(excl
India)15
Americas6
Others7
Freight difference for shipment toEurope form Kandla Vs Odisha
US$container
Inland Freight difference 500Sea Freight difference 200
Total Freight advantage for IEL plant 700
FY14 Exports - Rs395mn (100 of sales)
UK 8
Europe(excl
UK) 79
Asia(excl
India)2
Americas4
Others8
3IFGL Refractories Ltd
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4IFGL Refractories Ltd
IEL enjoys higher margins due to SEZ benefits and strategic location
IEL enjoys much higher margins than its parentrsquos standalone operations (FY14 EBITDA margins stoodat 256 for IEL vs 139 for IFGL standalone) This is on account of various benefits like i) IEL beinglocated in an SEZ which has key advantages such as a) no duty on imported raw materials b) taxsavings on domestically procured raw materials and c) exemption from income tax for 5 years ii) portbased location of the plant (~50 kms) which helps in reducing inland freight and iii) proximity toexport customers (Europe amp Middle east) which helps in reducing sea freight as well as transit time andthus the debtor days With higher utilization on existing capacity and expansions we see sharp jumpin revenueEBITDA for IEL to Rs953mn257mn in FY17E (up ~150 from FY14) We note that IEL hasshown sharp jump in its operating profitability in FY14 which was just the second year of companyrsquosoperations and this demonstrates superior management quality and expertise in the refractorybusiness
Exhibit 4
IEL clocked EBITDA margin of ~26 in FY14 as first phase capacity stabilised
Source Company Centrum Research Estimates
Short payback and superior returns expected from IEL
We see extremely short payback period for IEL with full capex for expanded capacity to be recoveredby FY17E which implies payback of 34 years for the first phase and 1-2 years for next two phases Dueto attractive profitability profile of IEL on account of its strong logistics advantage we expect superiorreturns with ROEROCE of ~3626 in FY16E
Exhibit 5 Payback for full expansion by FY17E Exhibit 6 Return ratios of IEL to be strong
(Rs mn)Phase 1
(spent byFY14)
Phase 2 (tobe spent
in FY15E)
Phase 3(likely tobe spentin FY16-
17E)
Total(by FY17E)
Capex 410 60 130 600
FY14 FY15E FY16E FY17E
EBITDA 102 130 204 257
Cumulative EBITDA 102 232 435 693
Cumulative capex 410 470 600 600
Payback achieved (x) 02 05 07 12
Source Company Centrum Research Estimates Source Company Centrum Research Estimates
90
399
518
755
953
-17
102 130204
257
256 250 270 270
(30)
(20)
(10)
0
10
20
30
40
(100)
100
300
500
700
900
1100
FY13 FY14 FY15E FY16E FY17E
( R s m n )
Sales EBITDA Margin - RHS
179
252
358337
141
179
265 287
10
15
20
25
30
35
40
FY14 FY15E FY16E FY17E
ROE - ROCE -
Margins at IEL are ~25well above IFGLrsquos otheroperations
Payback for IEL to beachieved before end ofFY17E
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5IFGL Refractories Ltd
Orissa plant to capture domestic demand and reduce export share in sales
We expect IFGLrsquos flagship plant at Orissa (standalone operations) to capture increasing domesticdemand and gradually reduce the share of exports in total sales as export sales will continue to getshifted to IEL in coming years We see share of exports coming down to 42 in FY17E from 56 inFY14 and domestic sales increasing to 58 for standalone operations IFGL has shown smart revenueCAGR of ~17 at its standalone operations during FY10-14 led by better pricing weak rupeebenefitting exports revenue and improvement in capacity utilization but we expect revenue CAGR of67 during FY14-17E on account of limited room for higher volumes (particularly in continuouscasting refractories segment which is almost completely utilized) reduced share of exports goingforward and low pricing power due to increased competition
Exhibit 7
Exports share in total standalone sales to reduce from FY15E
Source Company Centrum Research Estimates
Higher utilization and lower exports to provide margin uptick at Orissa
Though IFGL is currently running at near full utilization levels for continuous casting refractories at its
Orissa plant it has an opportunity to increase its utilization in other shaped products like slide gaterefractories purge plugs and cast products Also utilization in unshaped refractories is expected toimprove Lower share of exports would result in savings on freight and coupled with higher utilizationlead to lower fixed costs We see IFGLrsquos standalone margins improving by 150bps YoY to 153 inFY15E We expect margins to further improve to 158 by FY17E led by lower exports We note thatmargins have remained very volatile in the standalone operations due to pressure on raw materialcosts high dependence on exports and hence currency fluctuations and lacklustre demandenvironment We expect margin trajectory to remain more stable going ahead with rationalization ofsales in exports and domestic markets as well as overall improvement in demand environment
Exhibit 8 Capacity utilization at Orissa to improve Exhibit 9 Standalone margins expected to expand
Source Company Centrum Research Estimates Source Company Centrum Research Estimates
4847
50
44
50
54
5852
53
50
56
50
46
42
30
35
40
45
50
55
60
500
700
900
1100
1300
1500
1700
1900
2100
2300
2500
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( R s m n )
Domestic Sales Export Sales
Domestic - share Exports - share
68
87
78
72
7780 82 84
34
49
65 64
58 6064 66
30
40
50
60
70
80
90
FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E
Shaped Refractories Unshaped Refractories
291
196
348 342
450
534575
630
166
94
127
112
138
153 154 158
8
10
12
14
16
18
0
100
200
300
400
500
600
700
FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E
EBITDA (Rs mn) Margin - RHS
IFGLrsquos flagship plant tofocus more on domesticmarkets and see marginimprovement
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6IFGL Refractories Ltd
European demand expected to be better on improving macros
Demand for refractories from European steel mills is expected to be better going forward due togradual pick up in steel production and improving macro situation (as is visible from the pick-up inGDP numbers) Since Europe (including UK) accounts for ~70 of IFGLrsquos exports from domesticoperations and ~50 of revenues on a consolidated basis (including overseas subsidiariesrsquo net sales)we expect IFGL to benefit from improving demand situation in Europe
Exhibit 10
Europe steel production picking up Exhibit 11
GDP in EU amp UK improving
Source Company Centrum Research Estimates CY14 nos annualised for 5MYTD Source Company Centrum Research
Expansions by integrated steel mills provide domestic demand visibility
We see good demand visibility in the domestic market as steel production is expected to pick up ledmainly by higher volumes from large steel mills We expect the share of large integrated steel mills torise to ~60 by FY17E from ~51 in FY14 led mainly by expansions and wide product range We haveconsidered a basket of players (SAIL Tata Steel JSW steel JSPL Essar RINL JSW Ispat) in large steelmills and see volume CAGR of ~12 from them as compared to 6 for the steel industry during FY14-17E IFGL derives ~65 of its domestic revenue from large steel mills and is expected to be a keybeneficiary of the gradual shift in domestic steel production to large steel mills from small mills
Exhibit 12 Steel production growth to pick up Exhibit 13 Led by higher volumes from large steel mills
Source Company Centrum Research Estimates Source Company Centrum Research Estimates
Exhibit 14 Large mills share in steel production to rise Exhibit 15 Large mills to grow faster
Source Company Centrum Research Estimates Source Company Centrum Research Estimates
2099 1969
1375
1732 1775
1412
16561759
100
120
140
160
180
200
220
CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14
EU Production (MT)
(8)
(6)
(4)
(2)
0
2
4
M a r - 0 8
J u l - 0 8
N o v - 0
8
M a r - 0 9
J u l - 0 9
N o v - 0
9
M a r - 1 0
J u l - 1 0
N o v - 1
0
M a r - 1 1
J u l - 1 1
N o v - 1
1
M a r - 1 2
J u l - 1 2
N o v - 1
2
M a r - 1 3
J u l - 1 3
N o v - 1
3
M a r - 1 4
UK GDP EU GDP
686 757 817 850 893 946 1012
132
103
79
4050
6070
0
2
4
6
8
10
12
14
40
50
60
70
80
90
100
110
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( M T )
Steel Production - India YoY Growth
339 372 389
433482
539
610
0
10
20
30
40
50
60
70
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( M T )
SAIL Tata Steel JSW Steel JSPL Essar Steel RINL Ispat Inds
69 76
82 85 89 95
101
34 37 39 43 48 54 61
4949
48
51
54
57 60
40
45
50
55
60
65
0
20
40
60
80
100
120
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( )
( M T )
Steel Production Large Integrated steel mills
share of integrated mills - RHS
74
60
86
121
00
20
40
60
80
100
120
140
CAGR (FY11-14) CAGR (FY14-17E)
Steel Production Large Integrated steel mills
Domestic steel production shifting tolarge steel mills therebyimproving demandoutlook for organisedrefractory producers
Steel productionand GDP improvingin Europe
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7IFGL Refractories Ltd
Steady growth seen from overseas operations after turnaround
Several strategic acquisitions in last decade for expanding reach and product basket
IFGL has made several overseas acquisitions in the last decade mainly aimed at achieving inorganicgrowth through entry into new markets expanding its product basket and getting access to newtechnologies
IFGL acquired Monocon group in 2005 at a cost of 95mn pounds (Rs560mn) with its plantslocated in Brazil Taiwan China UK and USA Monocon group provided IFGL with wide rangeproduct basket (from Lances Darts Monolithics amp Castables) and also gave access to key largesteel plants in Europe of steelmakers like Corus amp Arcelor Mittal
IFGL acquired Goricon group in 2006 at a cost of 11mn pounds (Rs70mn) and later merged it withMonocon as the companies had similar products and were competitors of each other
Hoffman ceramics was acquired in 2008 at a cost of 7mn euros for getting entry into foundries for
supply of consumables
IFGL acquired EI Ceramics in 2010 which has similar product basket as IFGLrsquos domestic operationsbut provided access to key markets in Americas Company acquired EI Ceramics with an eye on
future expansion as it had space to increase capacity by ~3x IFGL also acquired CUSCinternational in US (later merged with EI) which was providing ancillary services to EI includingprocessing of raw materials warehousing and packaging
Exhibit 16
Snapshot of overseas acquisitions
CompanyAcquired
Year ofacquisition
PurchaseCost
(Rs mn)
PlantLocations
Products Markets Comments
MonoconGroup
2005 560UK USChina
Refractory dartslances monolithics
UK EuropeChina
Services key customers in Europelike Corus Arcelor Brazil plantclosed and Taiwan plant shiftedto China
GoriconGroup
2006 70 UK USDarts lances and ladlepowder
Europe Merged into Monocon
HoffmanCeramics 2008 470 Germany
Refractory ceramicslike filters feeders etc Europe
Czech plant closed suppliesconsumables to foundries
EI Ceramics 2010 590 Ohio USContinuous castingrefractories
US CanadaMexico
Acquired to gain traction inAmerica market
Source Company Centrum Research
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8IFGL Refractories Ltd
Overseas operations have been consolidated and profitability has improved
IFGL has faced several challenges in managing the profitability and operations of its overseasacquisitions due to global economic crisis in CY08 which impacted steel production in US amp Europevery severely Both Monocon and Hoffman group had EBITDA loss in FY09 but management effortsinto consolidation of key group entities (Goricon was merged with Monocon) and closure of certainunviable facilities (Taiwan Brazil plants of Monocon were closed Czech plant of Hoffman was closed)coupled with recovery in demand has led to gradual improvement in profitability of companyrsquossubsidiaries We note that Monocon grouprsquos profitability has improved substantially during FY11-14with EBITDA CAGR of ~16 and improvement in marginsROE to 8512 in FY14 Hoffman grouphas also returned to profits although margins remain low IFGLrsquos acquisition in US of EI Ceramics in2010 has been rewarding and the company has performed consistently well post acquisition andachieved revenueEBITDA CAGR of ~3338 during FY11-14
Exhibit 17
Revenue trend for overseas subs Exhibit 18
EBITDA trend for overseas subs
Source Company Centrum Research Source Company Centrum Research
Exhibit 19 EBITDA margin has shown improvement Exhibit 20 ROE has moved up especially for EI Ceramics
Source Company Centrum Research Estimates Source Company Centrum Research Estimates
0
500
1000
1500
2000
2500
3000
3500
FY11 FY12 FY13 FY14
( R s
m n )
Monocon EI Ceramics Hoffman
FY11-14 - CAGR
Monocon - 107EI Ceramics - 328
0
50
100
150
200
250
300
FY11 FY12 FY13 FY14
( R s
m n )
Monocon EI Ceramics Hoffman
FY11-14 - CAGR
Monocon - 16EI Ceramics - 376
70
89
59
85
139
159
137
161
7080
51 5030
50
70
90
110
130
150
170
FY11 FY12 FY13 FY14
( )
Monocon EI Ceramics Hoffman
119 120 87 120
112
191
158 162
7135
4336
30
50
70
90
110
130
150170
190
210
FY11 FY12 FY13 FY14
( )
Monocon EI Ceramics Hoffman
EBITDA has shownimprovement across alloverseas subsidiariesduring FY11-14
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9IFGL Refractories Ltd
EI Ceramics doubling capacity to maintain growth
EI Ceramics is doubling its capacity as utilizations on current capacity reached ~100 in FY14 EICeramics has been IFGLrsquos best overseas acquisition achieving revenueEBITDA CAGR of ~3338since acquisition (FY11-14) We expect revenueEBITDA CAGR of 23227 during FY14-17E asexpansion would be on-stream by Q1FY16E IFGL had spent ~Rs590mn for the purchase of EI and isexpected to achieve full payback in FY15E (less than 5 years) The capex for expansion of additional 80kpcsyear in EI is limited to Rs80mn and would be funded easily through internal accruals We note thatadditional capex would have the potential to generate ~Rs1000mn in revenues on completestabilisation (by FY17E) an asset turnover of more than 10x
Exhibit 21 EI Ceramics to double capacity by Q1FY16 Exhibit 22 Strong revenue and EBITDA CAGR ahead
Source Company Centrum Research Source Company Centrum Research Estimates
Share of higher margin EI Ceramics to keep increasing in IFGLrsquos overseas earnings
We expect EI Ceramics to lead the growth in earnings from IFGLrsquos overseas subsidiaries basket We expectrevenue contribution of EI Ceramics in total overseas subs to increase to ~26 in FY17E from ~20 inFY14 while EBITDA contribution is expected to increase to 41 in FY17E from ~34 in FY14 Since EICeramics enjoys the best margins (~16) among IFGLrsquos overseas subsidiaries increase in share ofearnings from EI Ceramics is expected to lead to margin improvement for IFGL at a consolidated level
Exhibit 23
Overseas subs revenue share ndash FY14 Exhibit 24
Overseas subs revenue share ndash FY17E
Source Company Centrum Research Source Company Centrum Research Estimates
Exhibit 25
Overseas subs EBITDA share ndash FY14 Exhibit 26
Overseas subs EBITDA share ndash FY17E
Source Company Centrum Research Source Company Centrum Research Estimates
80000
80000
160000
0
20000
40000
60000
80000
100000
120000
140000
160000
180000
Phase 1 Phase 2 Total
( p c s y r )
Currently Installed FY16E
8631012
1113
1447
1881
118 163 178 231 301
0
500
1000
1500
2000
FY13 FY14 FY15E FY16E FY17E
Revenue (Rs mn) EBITDA (Rs mn)
FY14-17E - CAGR
Revenue - 23EBITDA - 227
Monocon641
EI Ceramics
197
Hoffman161
Monocon607
EI Ceramics
261
Hoffman133
Monocon577
EI Ceramics
338
Hoffman 85
Monocon530
EI Ceramics
405
Hoffman 64
Capacity at EI Ceramicsto increase to 160k pcsyear by FY15-end
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10IFGL Refractories Ltd
Balance sheet strengthened free cash flow generation strong
Strong free cash flow generation ahead with limited capex
IFGL has turned free cash flow positive at a consolidated level in FY14 as operating cash flow improvedsharply (up 240 YoY) led by higher profitability across operations We see strong free cash flowgeneration ahead on the back of limited capex (~Rs250mn annually over FY15-16E) and continued
traction in operating cash flow on the back of higher capacities and better utilizations
Exhibit 27 Free cash flow generation expected to be strong going ahead
Source Company Centrum Research Estimates
Free cash flow yield to improve significantly
We see free cash flow yield improving to ~12 and free cash flowEBITDA going up to 04x in FY16EBalance sheet remains strong and we expect the company to be debt free at a consolidated level inthe next three years if there is no new acquisition or major capex
Exhibit 28
Free cash flow yield attractive Exhibit 29
Debt free status in next two years
Source Company Centrum Research Estimates Source Company Centrum Research Estimates
-527
-99 -39
211
445549
657
(1000)
(800)
(600)
(400)
(200)
0
200
400
600
800
1000
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( R s m n )
OCF Capex Free Cash Flow
019
037 039
040
45
95
117
141
00
40
80
120
160
00
01
02
03
04
05
FY14 FY15E FY16E FY17E
Free Cash FlowEBITDA (x) Free Cash Flow Yield -
(02)
00
02
04
06
08
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( x )
Debt-equity Net debt-equity
Free cash flow yieldexpected to go up from45 in FY14 to 117 inFY16E
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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11IFGL Refractories Ltd
ROE shows improvement beats most peers at a global level
IFGL has shown sharp improvement in its ROE in FY14 as overseas subsidiariesrsquo profitability hasimproved and domestic profitability is on an upswing post start of IEL We expect ROE of IFGL to be thebest in the industry at a global level in the next few years
Exhibit 30
IFGL ROE well above that of global peers
Source Company Bloomberg Centrum Research Estimates CY07 = FY08
(10)
(5)
0
5
10
15
20
25
3035
CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14E CY15E
( )
Vesuvius India IFGL Refractories (FY) Vesuvius PLC
Puyang Refractories Cie de St-Gobain Magnesita Refractarios
Chosun Refractories Krosaki Harima (FY) Shinagawa (FY)
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12IFGL Refractories Ltd
Financials
Revenue growth to be led by IEL and overseas operations
We expect consolidated net sales CAGR of 112 for IFGL during FY14-17E This is expected to be ledby ~33 CAGR from IEL and 12 CAGR from overseas subsidiaries while standalone operations CAGRis expected to slow down to 67
Exhibit 31
Net sales CAGR of 112 during FY14-17E
Source Company Centrum Research Estimates
Margins and return ratios to remain healthy FY14-17E EBITDA CAGR of 141
Backed by better margins from IEL and recovery in demand we expect EBITDA CAGR of 141 duringFY14-17E Margins are expected to improve gradually as revenues from high margin subsidiary IELpicks up Expansion at EI Ceramics is also expected to help in EBITDA growth and margins Returnratios are expected to remain healthy on account of operating efficiency and high asset turnover ratiosfrom new expansions
Exhibit 32
EBITDA margin to remain stable Exhibit 33
Healthy return ratios
Source Company Centrum Research Estimates Source Company Centrum Research Estimates
Exhibit 34
Du Pont analysis
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
PATSales (x) 005 007 004 008 008 008 009
SalesAssets (x) 154 174 179 187 189 192 191
AssetsEquity (x) 174 156 152 138 124 115 109
ROE - 138 180 115 212 190 185 181
Source Company Centrum Research Estimates
4689
6039 6712
77768484
9554 10697
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( R s m n )
Standalone (IFGL) IFGL Exports (IEL) Overseas Subs Total
411 739 582 1096 1210 1414 1630
88
122
87
141 143 148
152
60
80
100
120
140
160
0
200
400
600
800
1000
1200
1400
1600
1800
FY11 FY12 FY13 FY14 FY15E FY16E FY17EEBITDA-Cons (Rs mn) OPM - RHS
50
100
150
200
250
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( )
ROE ROCE (post tax) ROIC (post tax)
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13IFGL Refractories Ltd
Key Assumptions and Sensitivity
Exhibit 35 Key Assumptions
Revenue (Rs mn) FY12 FY13 FY14 FY15E FY16E FY17E
Indian Operations
Domestic sales 1305 1495 1391 1744 2014 2304
Exports 1443 1567 1883 1744 1716 1669
Total standalone operations 2748 3061 3274 3487 3730 3973
IFGL Exports Ltd 0 90 399 518 755 953
Total Indian operations 2748 3152 3673 4005 4485 4926
Overseas Operations
Monocon Group 2410 2801 3288 3617 3979 4376
EI Ceramics 716 863 1012 1113 1447 1881
Hoffman Group 758 692 827 868 911 957
Less Intersegment revenues 596 790 1023 1120 1267 1443
Total Overseas operations 3287 3566 4103 4478 5069 5771
Total Consolidated operations 6035 6717 7776 8484 9554 10697
Source Company Centrum Research Estimates
Exhibit 36
EPS sensitivity to shaped refractory segment
EPS - FY16E (Rs) -Cons
Realizations
-10 -5 Base 5 10
V o l u m e s
-10 177 192 206 221 236
-5 187 203 218 234 250
Base 197 214 231 247 264
5 208 225 243 260 277
10 218 236 255 273 291
Source Company Centrum Research Estimates
Exhibit 37
EPS sensitivity to unshaped refractory segment
EPS - FY16E (Rs) - ConsRealizations
-10 -5 Base 5 10
V o l u m e s
-10 230 233 235 237 239
-5 228 230 233 235 237
Base 226 228 231 233 235
5 223 226 228 231 234
10 221 223 226 229 232
Source Company Centrum Research Estimates
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14IFGL Refractories Ltd
Valuation ndash poised for rerating
IFGLrsquos mean EVEBITDA stands at 47x with standard deviation of 26x and we note that the stock pricehas been volatile in last 6-7 years due to sharp fluctuations in earnings which explains the highstandard deviation However we believe that earnings would be more linear going forward asoverseas operations have been stabilised and growth would be driven by expansions at higher marginsubsidiaries of IEL and EI Ceramics At the CMP of Rs142 the stock trades at attractive valuations of 62xFY16E PE and 36x FY16E EVEBITDA and we believe that sharp improvement in free cash flow canlead to rerating in the stock We assign an EVEBITDA of 55x on Marrsquo16E earnings to arrive at a fairvalue of Rs220 and initiate with a Buy The multiple assigned by us remains below mean+05sd andthus provides comfort on historical valuations even though we expect much better earnings trajectoryfor the company going forward
Exhibit 38
EVEBITDA Valuation
(Rs mn) FY16E
EBITDA 1414
Ascribed EVEBITDA (x) 55
EV 7776
Add Net Cash (123)
Fair value mkt cap 7653
No of shares (mn) 346
Fair Valueshare (Rs) 220
Source Company Centrum Research Estimates
Exhibit 39
1-year forward EVEBITDA chart Exhibit 40
1-year forward PE chart
Source Bloomberg Company Centrum Research Estimates Source Bloomberg Company Centrum Research Estimates
Steep valuation discount exists for IFGL compared to global peersComparison of IFGLrsquos valuations with global peers shows that the company is trading at a steepdiscount despite strong fundamentals which we feel is unwarranted We expect re-rating in the stockwith improvement in outlook and stability in earnings
Exhibit 41 Valuationndash Peer comparison
CompanyMkt Cap(US$ mn)
CAGR CY13-CY15E () EBITDA Margin () PE (x) EVEBITDA (x) RoE () Div Yield ()
Rev EBITDA PAT CY13 CY14E CY15E CY13 CY14E CY15E CY13 CY14E CY15E CY13 CY14E CY15E CY13 CY14E CY15E
IFGL Refractories 82 108 136 116 141 143 148 77 72 62 53 46 36 212 190 185 12 14 16
Vesuvius India Ltd 220 110 115 126 184 178 186 203 192 161 110 100 82 164 152 158 07 08 09
Global Peers
RHI AG 1322 29 (02) 318 137 122 129 153 103 89 59 65 57 131 177 180 31 31 35
Vesuvius PLC 2140 04 53 80 117 123 128 149 141 127 86 82 74 93 1 02 108 31 34 36
Magnesita SA 574 122 129 344 156 149 158 157 180 101 60 63 55 21 17 35 15 11 21
Cie de St(Gobain 32544 20 91 32 3 100 107 114 218 181 133 76 68 60 58 76 94 29 30 33
Source Bloomberg Estimates Centrum Research Estimates CY13=FY14 for IFGL and so on
0
2
4
6
810
12
14
J u n - 0 7
O c t - 0 7
F e b - 0 8
J u n - 0 8
O c t - 0 8
F e b - 0 9
J u n - 0 9
O c t - 0 9
F e b - 1 0
J u n - 1 0
O c t - 1 0
F e b - 1 1
J u n - 1 1
O c t - 1 1
F e b - 1 2
J u n - 1 2
O c t - 1 2
F e b - 1 3
J u n - 1 3
O c t - 1 3
F e b - 1 4
J u n - 1 4
EVEBITDA MeanMean + Std Dev Mean - Std Dev
0
5
10
15
20
25
J u n - 0 7
O c t - 0 7
F e b - 0 8
J u n - 0 8
O c t - 0 8
F e b - 0 9
J u n - 0 9
O c t - 0 9
F e b - 1 0
J u n - 1 0
O c t - 1 0
F e b - 1 1
J u n - 1 1
O c t - 1 1
F e b - 1 2
J u n - 1 2
O c t - 1 2
F e b - 1 3
J u n - 1 3
O c t - 1 3
F e b - 1 4
J u n - 1 4
PE MeanMean + Std Dev Mean - Std Dev
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15IFGL Refractories Ltd
IFGL trading at a higher discount to Vesuvius than historical average
IFGL has historically (based on average during JanrsquoCY09-JunersquoCY14) traded at a discount of ~35 toVesuvius India Ltd (VIL) on EVEBITDA basis However currently IFGL is trading at a discount of ~60 toVIL which is unwarranted as the profitability of IFGL is on an uptrend post stabilisation of overseasoperations and IEL The historical discount has seen an increase in the past 3 years due to volatility inearnings of IFGL but with operations having stabilised we see the discount narrowing We also expectIFGL to be above its peers (incl VIL) in terms of ROE for the next few years and see a high cash flowyield of ~12 in FY16E The multiple assigned by us implies ~35 discount to VILrsquos current valuationswhich is in line with the historical average even though IFGL is expected to generate better returnsand free cash flow going forward
Exhibit 42
EVEBITDA ndash IFGL vs Vesuvius India Exhibit 43
Discount of IFGL EVEBITDA vs Vesuvius
Source Bloomberg Company Centrum Research Source Bloomberg Company Centrum Research
0
2
4
6
8
10
12
F e b - 0
9
J u n - 0
9
O c t - 0 9
F e b - 1
0
J u n - 1
0
O c t - 1 0
F e b - 1
1
J u n - 1
1
O c t - 1 1
F e b - 1
2
J u n - 1
2
O c t - 1 2
F e b - 1
3
J u n - 1
3
O c t - 1 3
F e b - 1
4
J u n - 1
4
( x )
EVEBITDA IFGL EVEBITDA Vesuvius
(90)
(60)
(30)
0
30
60
F e b - 0
9
J u n - 0
9
O c t - 0 9
F e b - 1
0
J u n - 1
0
O c t - 1 0
F e b - 1
1
J u n - 1
1
O c t - 1 1
F e b - 1
2
J u n - 1
2
O c t - 1 2
F e b - 1
3
J u n - 1
3
O c t - 1 3
F e b - 1
4
J u n - 1
4
( )
EVEBITDA discount of IFGL vs Vesuvius
Avg discount of IFGL vs Vesuvius
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16IFGL Refractories Ltd
Key risks to our thesis
Dependent on raw material sourcing through imports The industry is dependent on importsof key raw materials like high grade alumina bauxite magnesia silicon carbide etc China is themajor supplier of imports and has imposed heavy taxes on export of raw materials of refractories This has resulted in sharp increase in imported raw material costs IFGL sources ~52 of its raw
materials through imports and remains exposed to increase in costs which can impact its margins Low pricing power due to excess domestic supply and import pressure The industry suffers
from low capacity utilization of ~60 with excess installed capacities (~22 MTPA) and as a resultpricing power is low for refractory makers who are squeezed between raw material suppliers andsteel makers Cheap refractory imports from China have also kept prices in check IFGL does notenjoy as much pricing power as VIL does as customers prefer VIL for its strong brand name andproven track record of providing quality products and services Further increase in competitiveintensity can lead to lower pricing for IFGL in both domestic and export markets
Sharp slowdown in steel industry leading to lower volumes Like any other refractorycompany IFGLrsquos fortunes depend on the steel industry and any slowdown in global economy mayhamper the steel industryrsquos growth and IFGLrsquos volume growth would be more vulnerable as itdoes not have strong relationships like VIL has Sharp slowdown in the steel industry (vs
expectations of recovery) in coming years could lead to lower capacity utilization and lower thanexpected volumes
Currency Fluctuation We believe that steady weakening of rupee over the past couple of yearshas been favourable to the industry as well as for IFGL due to better import substitution andhigher realizations on exports negated only to a partial extent by higher import costs for rawmaterials IFGL has 80 of its revenues coming from overseas on a consolidated basis On astandalone basis approximately 58 of the revenues (FY14) came from exports Companyrsquosrevenues remain exposed to sharp appreciation of rupee against foreign currencies
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17IFGL Refractories Ltd
Exhibit 44
Shareholding pattern ()
Q4FY14 Q3FY14 Q2FY14 Q1FY14
Promoter 713 713 713 713
FIIs 00 00 00 00
DIIs 11 22 22 22
Others 277 265 265 265
Source BSE
Company Background
IFGL Refractories Ltd is a manufacturer of specialisedrefractories and requisite operating systems for the steelIndustry IFGL offers its customers total solution for refractoryfor flow control in steel teeming and continuous casting ofSteel IFGL has 8 manufacturing plants strategically located
across the globe in India China Europe and Americas Thecompany has a presence in over 50 of the global markets Itacquired the Monocon group UK in 2005 (06 Hofmanngroup Germany in 2008 and EI Ceramics USA in 2010 Theseoverseas acquisitions have brought along access to newproducts amp technologies new markets and new customers The company has also set up a subsidiary IFGL exports atKandla Gujarat which also has technical collaboration withKrosaki Harima Corporation Japan Apart from this IFGL alsoplans to expand its capacities in India and abroad over thecoming years
Exhibit 45 Key management personnel
Name Position Profile
Mr S K Bajoria Chairman
Promoter of S K Bajoria Group based at Kolkata engaged in diversified business activitiesHas been honorary vice consul of Denmark in Kolkata president of the Indian chamber ofcommerce director of West Bengal industrial development corporation Ltd and industrialpromotion amp investment corporation of Orissa Ltd
Mr Pradeep Bajoria Managing Director
Associated with IFGL from the very early days of Indo Flogates even before thecommencement of production in 1984 Has been director amp chief executive of erstwhileIndo Flogates Ltd More than 30 years of experience of refractory industry and has beeninvolved in various capacities in Indian refractories makers association
Mr Gian Carlo Cozzani Directorr Monocon UK
Associated with IFGL since Oct 2009 Former president and CEO of Vesuvius (now Vesuviusplc) Instrumental in steering Vesuvius from US$ 100 million to over US$ 1 billion Based inEurope he is a member of IFGLrsquos Core group and a director of Monocon InternationalRefractories Limited UK
Source Company
Exhibit 46
IFGL refractories holding structure
Source Company
10051
983113983110983111983116 983127983151983154983148983140983159983145983140983141 983112983151983148983140983145983150983143 983116983145983149983145983156983141983140
983113983110983111983116 983109983160983152983151983154983156983155 983116983156983140
983117983151983150983151983139983151983150 983111983154983151983157983152 983109983113 983107983141983154983137983149983145983139983155 983112983151983142983149983137983150983150
983107983141983154983137983149983145983139
983124983141983139983144983150983145983139983137983148 983137983150983140 983110983145983150983137983150983139983145983137983148
983107983151983148983148983137983138983151983154983137983156983145983151983150 983151983142
983115983154983151983155983137983147983145 983112983137983154983145983149983137
983107983151983154983152983151983154983137983156983145983151983150983084 983114983137983152983137983150983084
983080983123983157983138983155983145983140983145983137983154983161 983151983142 983118983145983152983152983151983150
983123983156983141983141983148 983107983151983154983152983151983154983137983156983145983151983150983084
983114983137983152983137983150983081
983125983123983105 983125983115 983087 983125983123983105 983087 983107983144983145983150983137
983115983137983150983140983148983137 983123983109983130983084 983111983157983146983137983154983137983156983084 983113983150983140983145983137
983111983141983154983149983137983150983161
983113983110983111983116 983122983141983142983154983137983139983156983151983154983145983141983155 983116983145983149983145983156983141983140
983112983119 983085 983115983151983148983147983137983156983137983084 983113983150983140983145983137
983127983151983154983147983155 983085 983115983137983148983157983150983143983137983084 983119983154983145983155983155983137983084 983113983150983140983145983137
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18IFGL Refractories Ltd
Exhibit 47 Quarterly financials (cons)
YE Mar (Rs mn) Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14
Net sales 1725 1657 1690 1641 1811 2014 1947 2003
Other Operating Income 5 4 0 0 3 0 0 0
Total Income 1729 1662 1690 1641 1814 2014 1947 2003
Accretion to Stocks in trade amp work in progress (29) (10) 4 46 (65) (54) (25) 9
Cost of Raw Materials consumed 840 898 835 581 911 908 817 808
Purchase of traded goods 66 28 42 223 46 73 182 168
Staff Cost 239 234 250 264 247 275 294 281
Other Operational expenses 407 400 375 439 430 513 407 455
Operating Profit (Core EBITDA) 206 112 183 89 246 299 272 282
Depreciation 32 34 35 33 32 34 46 43
EBIT 174 78 149 56 214 265 226 239
Interest 21 22 21 15 17 18 19 16
Other RevenueIncome 16 5 7 8 5 9 6 12
Profit Before Tax 169 61 134 49 202 255 213 236
Tax 50 31 48 31 54 57 68 70
Profit After Tax 119 31 86 18 148 199 145 166
Minority Interest (7) (9) (8) (4) (1) 8 3 8
Profit after minority interest 126 40 95 22 149 191 143 158
Growth (YoY )
Revenue 371 36 61 36 50 216 153 221
EBITDA 129 (457) (125) (477) 195 1672 485 2164
PAT 174 (666) (111) (669) 189 3765 503 6292
Margin ()
EBITDA 119 67 109 54 136 148 140 141
EBIT 100 47 88 34 118 131 116 120
PAT 73 24 56 13 82 95 73 79
Segment Revenue (Net Sales Income from ops)
India 764 749 810 829 872 926 936 941
Asia (excl India) 142 175 160 167 188 213 163 156
Europe 593 545 542 543 612 744 689 764
Americas 405 370 363 344 384 399 427 386
Segment EBIT
India 83 32 84 63 92 103 129 139
Asia (excl India) 8 11 6 9 12 10 5 7
Europe 55 44 51 (4 45 76 74 81Americas 22 13 23 39 38 45 55 36
Source Company Centrum Research
Comments on recent quarterly results
Q4FY14 witnessed a healthy growth with revenue up 221 YoY EBITDA and PAT jumpedsubstantially YoY Margins showed good improvement EBITDA margin expanded by 860 bps YoYOther operating expenses as a proportion of sales reduced to 227 from 267 in Q4FY13 this had apositive impact on margins
Revenue grew 28 QoQ EBITDA amp PAT margins showed signs of consistency further improving fromQ3FY14 European business looks to be on a growth trajectory as revenues have jumped 140 YoYand 11 QoQ Revenue from American segment saw growth of 124 YoY but declined QoQ
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19IFGL Refractories Ltd
Annexure ndash Refractory Industry
About refractories ndash consumables for manufacturing processes with high temperatures
Refractories are inorganic non-metallic and heterogeneous materials having very high melting pointswhich make them suitable to be used as heat-resisting barriers consumed within various productionprocesses providing heat chemical and mechanical resistance Refractories are mainly of two types ndash
shaped and unshaped (monolithics) and are used mainly by the steel industry as a consumableproduct in the internal linings of furnaces kilns reactors and other vessels for holding andtransporting metal and slag
Shaped refractories are those which have fixed shapes with most common form being rectangularbrick Brick shapes may be divided into two standard shapes and special shapes Standard shapeshave dimensions that are conformed to by most refractory manufacturers and are generally applicableto kilns and furnaces of the same type Special shapes are specifically made for particular kilns andfurnaces Shaped refractories are almost always machine-pressed and possess high uniformity inproperties are expected
Unshaped refractories are without definite form and are only given shape upon application It forms joint less lining and are better known as monolithic refractories They are manufactured in powderform as granular material and known as plastic refractories ramming mixes castables gunning mixesfettling mixes and mortars
The raw materials used to manufacture refractories are broadly classified into clay and non-clay Clayrefractories consist of naturally occurring alumina silicate like fireclay flint clay flint brick and highalumina and are used to produce bricks and insulating refractories Non-clay refractories are madefrom non-clay materials and are further classified into basic (made in the form of bricks from magnesiadolomite chrome etc) extra high alumina mullite (made from kyanite bauxite alumina) siliconcarbide and zircon
Exhibit 48
Refractory share by form Exhibit 49
Refractory share by raw material
Source Industry data Centrum Research Source Industry data Centrum Research
Unshaped45Shaped 55
Clay 65
Non Clay35
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20IFGL Refractories Ltd
Applications of refractories ndash largely used in steel industry for furnace linings
Steel industry accounts for ~60 of refractory consumption globally and ~75 in the domesticmarket In non-metallurgical industries (cement glass lime) the refractories are mostly installed onfired heaters hydrogen reformers cracking furnaces incinerators utility boilers air heaters ductingstacks etc The different areas of the steel manufacturing processes are exposed to differenttemperatures slag and sulphur gases Refractory selection for the lining of a furnace is invariably builtupon a combination of material qualities and brick size to maximize performance Steel industry usesrefractory for diverse applications in blast furnaces coke ovens torpedo ladles and secondary refiningladles
In cement industry refractories are used in the kiln the preheating system and the cooler whichoperate in a very high temperature to protect against heat abrasion and chemical attack Commonrefractory materials used are Dolomite Magnesia-Chrome Spinel Magnesia-Alumina Spinel Fireclayand High Alumina The cement kiln clinker area is usually provided with Dolomite refractories
Non(-errous industries like copper and aluminium require high performance refractories in severalequipments like anode baking furnaces induction furnaces reduction pots slag cleaning surfaces etcGlass industry also requires refractories in refiner regenerator dog-house and ports of furnace
Exhibit 50
Refractories consumption in steel making process
Source Magnesita ppt
Exhibit 51
Refractories consumption in steel making process
Source Vesuvius PLC ppt
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21IFGL Refractories Ltd
Steel industry accounts for ~60 of refractory consumption globally and ~75 in the domesticmarket In non-metallurgical industries (cement glass lime) refractories are mostly installed on firedheaters hydrogen reformers cracking furnaces incinerators utility boilers air heaters ducting stacksetc
Exhibit 52
Sector wise refractories demand - Global Exhibit 53
Sector wise refractories demand - India
Source Industry data Centrum Research Source Industry data Centrum Research
Refractory application consumption and replacement dynamics are shown in the table belowSteelmaking requires maximum amount of refractories (10-15kgstonne) with replacement required ina time period of 20 minutes to 2months Cement industry is the next biggest user with annualreplacement requirement while non-ferrous and glass industries have longer replacement cycles
Exhibit 54
Refractory consumption dynamics across user industries
Key Industry Application Replacement Per tonne consumption Refractory requirements
Steel
BF(BOF EAFCasting LadlesInduction FurnacesPellet rotary Kilns
20 minutes to 2months
Global avg - 10-15KgsIndia avg - 15 Kgs
Consumable product ( Systems and solutions for completerefractory management
Cement Kilns annually 1 KgsInvestment goods ( Longer replacement cycles Customizedsolutions based on the specific requirements of various industrialproduction processes complete lining concepts
Glass Glass Furnace upto 10 years 4 Kgs
Non(Ferrous Converters 1(10 yearsAluminium - 6 KgsCopper - 3 Kgs
Source RHI ppt Centrum Research
Global refractory market size at ~US$25bn expected to grow at ~35 CAGR
According to various industry studies global refractoriesrsquo market size is ~US$25bn with production of415MT in CY12 According to industry estimates the global refractories industry is expected to witnessCAGR of 35 during CY13-16E and grow to 46MT with a market value of US$29bn China accountedfor ~70 of the market by volume and ~60 by value in CY12 whereas India accounts for ~3 of theglobal refractories market by volume
Exhibit 55
Global refractory market size at ~US$25bn Exhibit 56
China accounts for ~70 of the market
CY12 Production (MT) Value (US$ bn)
World 415 25
China 295 143
EU 41 39
North America 14 14
India 13 09
Source Industry Centrum Research Source Industry Centrum Research
6015
15
10 Steel
Non-Metallic (Cement GlassLime)
Non-Ferrous (AluminiumCopper Zinc Silver)
Others (paper ceramicspetrochemicals)
75
12
6 3
4
Steel
Cement
Non-Ferrous
Glass
Others
415
463
25
29
0
10
20
30
40
50
CY12 CY16
Volume (MT) Mkt Value ($ bn)
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22IFGL Refractories Ltd
Domestic refractory demand-supply indicates low industry growth amp import pressure
Demand supply analysis of domestic refractory industry shows that it has been witnessing mutedconsumption growth (due to a fall in per tonne consumption for steel making due to technologicaladvances) and faces strong import pressure with one fourth of the market being serviced by netimports (mainly from cheap supplies from China which accounts for two thirds of refractory imports inIndia) Capacity utilization for the industry remains at ~60 on installed capacity of ~22MT and marketsize is ~US$1bn Domestic refractory consumption in steel has grown at a CAGR of ~2 during FY08-14 We expect industry growth to pick up due to scope for higher steel production (backed by higherinfra spend and expansion in per capita steel consumption) The industry has seen consolidation andacquisitions by global majors in the last five years and organised sector (split between (6 players)accounts for ~65 of the market
Exhibit 57 Refractory demand from domestic steel industry
(In tonne) FY08 FY09 FY10 FY11 FY12 FY13 FY14E FY15E FY16E FY17E
Steel Production (MT) 561 572 606 686 757 817 850 893 946 1012
Growth 20 59 132 103 79 40 50 60 70
Avg Refractory consumption(kgt of crude steel)
188 173 168 16 15 145 140 140 140 140
Refractory consumption (steel) 1054680 989560 1018080 1097600 1135500 1184650 1190000 1249500 1324470 1417183
Growth (62) 29 78 35 43 05 50 60 70
Source Ministry of Steel (MoS) Centrum Research Estimates
Exhibit 58
Organised sector accounts for ~65 of domestic refractory industry
Company RevenueMarket
Share ()
Supply toIntegratedsteel mills
Comments
Vesuvius India Ltd 6017 100 95+Leading supplier with wide product basket strongcustomer relationships with large steel mills
Orient Refractories (RHI) 4035 67 10-15 Has developed a niche with mini steel mills
IFGL Refractories (incl IEL) 3674 61 85+Mainly into flow control shaped refractories goodrelationship with large mills
Tata Refractories 9800 163 Not available Largely into bricks supplies (commodity refractories)
Calderys 6250 104 Not available
Supplies largely to non-ferrous producers strong in
bricks and monolithics
OCL 4056 68 Not available
Total Organized Sector 39332 656
Source Company Centrum Research Estimates
Exhibit 59
Net imports accounts for one fourth of market Exhibit 60
China accounts for two thirds of imports
Source MoS Industry Centrum Research Source MoS Industry Centrum Research
(800000)
(600000)
(400000)
(200000)
0
200000
400000
FY07 FY08 FY09 FY10 FY11 FY12
( T o n n e )
Imports Exports Net Imports
167259
380
167228
647594
551
696 685
10
20
30
40
50
60
70
80
FY07 FY08 FY09 FY10 FY11
Net Imports - share China share in imports
Domestic refractory production growth hasbeen largely flat andcapacity utilization is~60
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23IFGL Refractories Ltd
Financials (Cons)
Exhibit 61
Income Statement
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
Revenues from Operations 6712 7776 8484 9554 10697
Raw Materials consumed 3201 3444 3725 4208 4716
of net sales 477 443 439 440 441
Employee expenses 987 1097 1185 1279 1382
of net sales 147 141 140 134 129
Other operational expenses 1621 1805 2013 2243 2486
of net sales 241 232 237 235 232
Total expenses 6130 6680 7273 8140 9068
of net sales 913 859 857 852 848
EBITDA 582 1096 1210 1414 1630
EBITDA Margin () 87 141 143 148 152
Depreciation amp Amortisation 134 155 174 189 204
EBIT 448 942 1036 1225 1425
Interest expenses 80 70 51 29 6
Other Income 45 34 40 44 484
EBT 413 906 1025 1240 1467
Provision for tax 159 248 307 372 440
Effective tax rate () 386 274 300 300 300Net Profit 254 658 717 868 1027
Less Minority interest (28) 18 32 70 99
Net Profit after MI 282 640 686 798 928
Source Company data Centrum Research Estimates
Exhibit 62 Key Ratios
YE Mar FY13 FY14 FY15E FY16E FY17E
Growth Ratio ()
Revenue 112 159 91 126 120
EBITDA (213) 884 104 168 153
PAT (292) 1269 71 163 163
Margin Ratios ()
PBIT Margin 67 121 122 128 133
PBT Margin 62 116 121 130 137
PAT Margin 42 82 81 84 87
Return Ratios ()
ROE 115 212 190 185 181
ROCE 84 177 175 189 198
ROIC 87 179 178 200 224
Turnover Ratios (days)
Asset turnover ratio (x) 18 19 19 19 19
Debtors 78 78 80 80 80
Inventory 46 49 50 50 50
Creditors 43 45 45 45 45
Net Working capital 74 76 80 80 80
Gearing Ratio (x)
Debt-equity 05 03 02 01 00
Net debt-equity 04 03 02 00 (01)
Current ratio 25 23 24 25 27
Dividend
Dividend per share 15 18 20 23 23
Dividend Payout () 251 124 130 125 107
Dividend Yield () 11 13 15 17 17
Per share Ratios (Rs)
Basic EPS 82 185 198 231 268
Fully diluted EPS 82 185 198 231 268
Book value 709 871 1044 1245 1485
Cash earnings per share 120 230 249 285 327
Valuation (x)
PE 174 77 72 62 53
PBV 20 16 14 11 10
EVEBITDA 102 53 46 36 27
EVSales 07 06 06 05 04
M-CapSales 07 06 06 05 05
Source Company data Centrum Research Estimates
Exhibit 63
Balance Sheet
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
Equity share capital 491 491 491 491 491
Reserves amp surplus 1964 2525 3121 3819 4648
Shareholders fund 2455 3016 3612 4310 5139
Total debt 1142 982 682 382 82
Deferred tax liabilities 65 74 74 74 74
Total Liabilities 3741 4167 4495 4963 5591
Gross block 2474 2656 2906 3156 3406
Less acc depreciation 1276 1430 1605 1794 1998
Net block 1198 1225 1301 1362 1407
Capital work in progress 20 20 20 20 20
Goodwill 1105 1342 1342 1342 1342
Investments 5 5 5 5 5
Inventories 848 1034 1162 1309 1465
Trade Receivables 1427 1658 1859 2094 2345
Cash amp cash equivalents 113 33 69 259 609
Loans amp advances 51 107 116 131 147
Trade payables 799 962 1046 1178 1319
Other current liabilities 166 210 232 262 293Provisions 94 124 139 157 176
Total Assets 3741 4167 4495 4963 5591
Source Company data Centrum Research Estimates
Exhibit 64 Cash Flow
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
PBT 413 906 1025 1240 1467
Interest 72 70 51 29 6
Depreciation 134 155 174 189 204
Increase in debtors (330) (231) (201) (235) (251)
Increase in inventories 7 (186) (128) (147) (157)
Increase in trade payables 46 163 84 132 141
Tax 197 248 307 372 440
Cash flow from operations 183 629 695 799 907
Change in fixed assets (194) (418) (250) (250) (250)
Cash flow from investments (172) (418) (250) (250) (250)
Change in debt 19 (160 (300) (300) (300)
Dividends paid (71) (79) (89) (100) (100)
Interest paid (80) (70) (51) (29) (6)
Cash flow from financing (94) (291) (409) (358) (306)
Net cash flow (81) (81) 36 191 350
Opening cash balance 195 113 33 69 259
Closing cash balance 113 33 69 259 609
Source Company data Centrum Research Estimates
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24IFGL Refractories Ltd
Financials (Cons) - Historical
Exhibit 65
Income Statement
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
Revenues from Operations 3780 3982 4152 4689 6039
Raw Materials consumed 1743 1907 2058 2389 3024
of net sales 461 479 496 509 501
Employee expenses 487 589 539 661 843
of net sales 129 148 130 141 140
Other operational expenses 918 1036 951 1148 1418
of net sales 243 260 229 245 235
Total expenses 3244 3708 3575 4279 5299
of net sales 858 931 861 912 878
EBITDA 536 274 578 411 739
EBITDA Margin () 142 69 139 88 122
Depreciation amp Amortisation 63 74 70 71 123
EBIT 473 200 508 339 617
Interest expenses 82 95 45 56 68
Other Income 18 24 34 43 33
EBT 409 128 497 327 582
Provision for tax 123 67 155 84 183
Effective tax rate () 301 523 311 258 315Net Profit 286 61 343 243 398
Less Minority interest 1 0 0 0 0
Net Profit after MI 285 61 343 243 399
Source Company data Centrum Research Estimates
Exhibit 66 Key Ratios
YE Mar FY08 FY09 FY10 FY11 FY12
Growth Ratio ()
Revenue 171 53 43 129 288
EBITDA 98 (489) 1111 (289) 800
PAT 85 (785) 4586 (292) 642
Margin Ratios ()
PBIT Margin 125 50 122 72 102
PBT Margin 108 32 120 70 96
PAT Margin 75 15 83 52 66
Return Ratios ()
ROE 294 54 250 138 180
ROCE 182 49 169 93 128
ROIC 195 53 183 98 141
Turnover Ratios (days)
Asset turnover ratio (x) 20 18 19 15 17
Debtors 97 55 79 85 69
Inventory 46 47 52 55 52
Creditors 49 23 41 50 44
Net Working capital 105 81 89 93 67
Gearing Ratio (x)
Debt-equity 09 09 06 07 05
Net debt-equity 08 08 05 07 04
Current ratio 29 36 26 25 24
Dividend
Dividend per share 20 00 10 05 15
Dividend Payout () 284 00 118 103 63
Dividend Yield () 15 00 07 04 11
Per share Ratios (Rs)
Basic EPS 82 18 99 70 115
Fully diluted EPS 82 18 99 70 115
Book value 280 328 396 508 641
Cash earnings per share 101 39 119 91 151
Valuation (x)
PE 164 762 136 193 117
PBV 48 41 34 27 21
EVEBITDA 102 203 93 142 76
EVSales 12 12 11 10 08
M-CapSales 12 12 11 10 08
Source Company data Centrum Research Estimates
Exhibit 67
Balance Sheet
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
Equity share capital 346 346 346 491 491
Reserves amp surplus 623 789 1026 1266 1728
Shareholders fund 969 1135 1372 1757 2219
Total debt 869 1003 793 1253 1128
Deferred tax liabilities 41 38 38 40 48
Total Liabilities 1879 2185 2206 3054 3465
Gross block 1456 1948 1966 2738 2238
Less acc depreciation 687 827 864 960 1122
Net block 769 1121 1102 1778 1117
Capital work in progress 46 53 28 21 45
Goodwill 347 594 559 1032 1094
Investments 0 0 4 14 5
Inventories 474 513 592 702 855
Trade Receivables 1001 596 895 1096 1134
Cash amp cash equivalents 77 129 120 100 195
Loans amp advances 152 121 133 152 38
Trade payables 507 256 471 637 729
Other current liabilities 32 90 137 112 194Provisions 102 2 60 60 151
Total Assets 1879 2185 2206 3054 3465
Source Company data Centrum Research Estimates
Exhibit 68 Cash Flow
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
PBT 409 128 497 327 582
Interest 81 96 45 56 59
Depreciation 63 74 75 87 129
Increase in debtors (196) 559 (330) (184) 25
Increase in inventories (72) 35 (79) (77) (135)
Increase in trade payables 82 (304 266 115 67
Tax 119 90 138 70 135
Cash flow from operations 285 814 359 237 520
Change in fixed assets (94) (99) (120) (157) (49)
Cash flow from investments (62 (536 (119 (677 (98
Change in debt (88) 15 (276) 245 (242)
Dividends paid (76) (80) (6) (46) (25)
Interest paid (87) (98) (47) (60) (68)
Cash flow from financing (261) (245) (241) 408 (339)
Net cash flow (43) 24 (8) (29) 94
Opening cash balance 120 77 129 120 100
Closing cash balance 77 129 120 100 195
Source Company data Centrum Research Estimates
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25IFGL Refractories Ltd
Appendix A
Disclaimer
Centrum Broking Limited (ldquoCentrumrdquo) is a full(service Stock Broking Company and a member of The Stock Exchange Mumbai (BSE) and National StockExchange of India Ltd (NSE) Our holding company Centrum Capital Ltd is an investment banker and an underwriter of securities As a group Centrumhas Investment Banking Advisory and other business relationships with a significant percentage of the companies covered by our Research Group Ourresearch professionals provide important inputs into the Groups Investment Banking and other business selection processes
Recipients of this report should assume that our Group is seeking or may seek or will seek Investment Banking advisory project finance or otherbusinesses and may receive commission brokerage fees or other compensation from the company or companies that are the subject of thismaterialreport Our Company and Group companies and their officers directors and employees including the analysts and others involved in thepreparation or issuance of this material and their dependants may on the date of this report or from time to time have long or short positions in actas principal in and buy or sell the securities or derivatives thereof of companies mentioned herein Centrum or its affiliates do not own 1 or more in theequity of this company Our sales people dealers traders and other professionals may provide oral or written market commentary or trading strategies toour clients that reflect opinions that are contrary to the opinions expressed herein and our proprietary trading and investing businesses may makeinvestment decisions that are inconsistent with the recommendations expressed herein We may have earlier issued or may issue in future reports on thecompanies covered herein with recommendations information inconsistent or different those made in this report In reviewing this document youshould be aware that any or all of the foregoing among other things may give rise to or potential conflicts of interest We and our Group may rely oninformation barriers such as Chinese Walls to control the flow of information contained in one or more areas within us or other areas units groups oraffiliates of Centrum Centrum or its affiliates do not make a market in the security of the company for which this report or any report was writtenFurther Centrum or its affiliates did not make a market in the subject companyrsquos securities at the time that the research report was published
This report is for information purposes only and this documentmaterial should not be construed as an offer to sell or the solicitation of an offer to buypurchase or subscribe to any securities and neither this document nor anything contained herein shall form the basis of or be relied upon in connection
with any contract or commitment whatsoever This document does not solicit any action based on the material contained herein It is for the generalinformation of the clients of Centrum Though disseminated to clients simultaneously not all clients may receive this report at the same time Centrumwill not treat recipients as clients by virtue of their receiving this report It does not constitute a personal recommendation or take into account theparticular investment objectives financial situations or needs of individual clients Similarly this document does not have regard to the specificinvestment objectives financial situationcircumstances and the particular needs of any specific person who may receive this document The securitiesdiscussed in this report may not be suitable for all investors The securities described herein may not be eligible for sale in all jurisdictions or to allcategories of investors The countries in which the companies mentioned in this report are organized may have restrictions on investments voting rightsor dealings in securities by nationals of other countries The appropriateness of a particular investment or strategy will depend on an investorsindividual circumstances and objectives Persons who may receive this document should consider and independently evaluate whether it is suitable forhis hertheir particular circumstances and if necessary seek professionalfinancial advice Any such person shall be responsible for conductinghishertheir own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risks involvedin the securities forming the subject matter of this document
The projections and forecasts described in this report were based upon a number of estimates and assumptions and are inherently subject to significantuncertainties and contingencies Projections and forecasts are necessarily speculative in nature and it can be expected that one or more of the estimateson which the projections and forecasts were based will not materialize or will vary significantly from actual results and such variances will likely increase
over time All projections and forecasts described in this report have been prepared solely by the authors of this report independently of the Company These projections and forecasts were not prepared with a view toward compliance with published guidelines or generally accented accountingprinciples No independent accountants have expressed an opinion or any other form of assurance on these projections or forecasts You should notregard the inclusion of the projections and forecasts described herein as a representation or warranty by or on behalf of the Company Centrum theauthors of this report or any other person that these projections or forecasts or their underlying assumptions will be achieved For these reasons youshould only consider the projections and forecasts described in this report after carefully evaluating all of the information in this report including theassumptions underlying such projections and forecasts
The price and value of the investments referred to in this documentmaterial and the income from them may go down as well as up and investors mayrealize losses on any investments Past performance is not a guide for future performance Future returns are not guaranteed and a loss of original capitalmay occur Actual results may differ materially from those set forth in projections Forward (looking statements are not predictions and may be subject tochange without notice Centrum does not provide tax advice to its clients and all investors are strongly advised to consult regarding any potentialinvestment Centrum and its affiliates accept no liabilities for any loss or damage of any kind arising out of the use of this report Foreign currenciesdenominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derived fromthe investment In addition investors in securities such as ADRs the value of which are influenced by foreign currencies effectively assume currency riskCertain transactions including those involving futures options and other derivatives as well as non(investment(grade securities give rise to substantial
risk and are not suitable for all investors Please ensure that you have read and understood the current risk disclosure documents before entering into anyderivative transactions
This reportdocument has been prepared by Centrum based upon information available to the public and sources believed to be reliable Norepresentation or warranty express or implied is made that it is accurate or complete Centrum has reviewed the report and in so far as it includescurrent or historical information it is believed to be reliable although its accuracy and completeness cannot be guaranteed The opinions expressed inthis documentmaterial are subject to change without notice and have no obligation to tell you when opinions or information in this report change
This report or recommendations or information contained herein dodoes not constitute or purport to constitute investment advice in publicly accessiblemedia and should not be reproduced transmitted or published by the recipient The report is for the use and consumption of the recipient only Thispublication may not be distributed to the public used by the public media without the express written consent of Centrum This report or any portionhereof may not be printed sold or distributed without the written consent of Centrum
The distribution of this document in other jurisdictions may be restricted by law and persons into whose possession this document comes should informthemselves about and observe any such restrictions Neither Centrum nor its directors employees agents or representatives shall be liable for anydamages whether direct or indirect incidental special or consequential including lost revenue or lost profits that may arise from or in connection withthe use of the information
This document does not constitute an offer or invitation to subscribe for or purchase or deal in any securities and neither this document nor anythingcontained herein shall form the basis of any contract or commitment whatsoever This document is strictly confidential and is being furnished to yousolely for your information may not be distributed to the press or other media and may not be reproduced or redistributed to any other person Thedistribution of this report in other jurisdictions may be restricted by law and persons into whose possession this report comes should inform themselvesabout and observe any such restrictions By accepting this report you agree to be bound by the fore going limitations No representation is made thatthis report is accurate or complete
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The opinions and projections expressed herein are entirely those of the author and are given as part of the normal research activity of Centrum Brokingand are given as of this date and are subject to change without notice Any opinion estimate or projection herein constitutes a view as of the date of thisreport and there can be no assurance that future results or events will be consistent with any such opinions estimate or projection
This document has not been prepared by or in conjunction with or on behalf of or at the instigation of or by arrangement with the company or any of itsdirectors or any other person Information in this document must not be relied upon as having been authorized or approved by the company or itsdirectors or any other person Any opinions and projections contained herein are entirely those of the authors None of the company or its directors orany other person accepts any liability whatsoever for any loss arising from any use of this document or its contents or otherwise arising in connectiontherewith
Centrum and its affiliates have not managed or co(managed a public offering for the subject company in the preceding twelve months Centrum andaffiliates have not received compensation from the companies mentioned in the report during the period preceding twelve months from the date of thisreport for service in respect of public offerings corporate finance debt restructuring investment banking or other advisory services in amergeracquisition or some other sort of specific transaction
As per the declarations given by them Mr Abhisar Jain research analyst and andor any of his family members do not serve as an officer director or anyway connected to the companycompanies mentioned in this report Further as declared by him he has not received any compensation from the abovecompanies in the preceding twelve months He does not hold any shares by him or through his relatives or in case if holds the shares then will not to doany transactions in the said scrip for 30 days from the date of release such report Our entire research professionals are our employees and are paid asalary They do not have any other material conflict of interest of the research analyst or member of which the research analyst knows of has reason toknow at the time of publication of the research report or at the time of the public appearance
While we would endeavour to update the information herein on a reasonable basis Centrum its associated companies their directors and employees areunder no obligation to update or keep the information current Also there may be regulatory compliance or other reasons that may prevent Centrumfrom doing so
Non(rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable
regulations andor Centrum policies in circumstances where Centrum is acting in an advisory capacity to this company or any certain othercircumstances
This report is not directed to or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality statecountry or other jurisdiction where such distribution publication availability or use would be contrary to law or regulation or which would subjectCentrum Broking Limited or its group companies to any registration or licensing requirement within such jurisdiction Specifically this document doesnot constitute an offer to or solicitation to any US person for the purchase or sale of any financial instrument or as an official confirmation of anytransaction to any US person unless otherwise stated this message should not be construed as official confirmation of any transaction No part of thisdocument may be distributed in Canada or used by private customers in United Kingdom
The information contained herein is not intended for publication or distribution or circulation in any manner whatsoever and any unauthorized readingdissemination distribution or copying of this communication is prohibited unless otherwise expressly authorized Please ensure that you have read ldquoRiskDisclosure Document for Capital Market and Derivatives Segmentsrdquo as prescribed by Securities and Exchange Board of India before investing in IndianSecurities Market
Rating Criteria
Rating Market cap lt Rs20bn Market cap gt Rs20bn but lt 100bn Market cap gt Rs100bn Buy Upside gt 25 Upside gt 20 Upside gt 15
Hold Upside between (25 to +25 Upside between (20 to +20 Upside between (15 to +15
Sell Downside gt 25 Downside gt 20 Downside gt 15
Member (NSE BSE MCX(SX) Depository Participant (CDSL) and SEBI registered Portfolio Manager
Registration Nos
CAPITAL MARKET SEBI REGN NO BSE INB011454239 NSE INB231454233
DERIVATIVES SEBI REGN NO NSE INF231454233 (TRADING amp SELF CLEARING MEMBER)
CDSL DP ID 12200 SEBI REGISTRATION NO IN(DP(CDSL(661(2012
PMS REGISTRATION NO INP000004383
MCX ndash SX (Currency Derivative segment) REGN NO INE261454230
Website wwwcentrumcoin
Investor Grievance Email ID investorgrievancescentrumcoin
Compliance Officer Details
Tel (022) 4215 9413 Email ID compliancecentrumcoin
Centrum Broking Limited
Registered Office Address
Bombay Mutual Building
2nd Floor
Dr D N Road
Fort Mumbai ( 400 001
Correspondence Address
Centrum House
6th Floor CST Road Near Vidya Nagari Marg Kalina
Santacruz (E) Mumbai 400 098
Tel (022) 4215 9000
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4IFGL Refractories Ltd
IEL enjoys higher margins due to SEZ benefits and strategic location
IEL enjoys much higher margins than its parentrsquos standalone operations (FY14 EBITDA margins stoodat 256 for IEL vs 139 for IFGL standalone) This is on account of various benefits like i) IEL beinglocated in an SEZ which has key advantages such as a) no duty on imported raw materials b) taxsavings on domestically procured raw materials and c) exemption from income tax for 5 years ii) portbased location of the plant (~50 kms) which helps in reducing inland freight and iii) proximity toexport customers (Europe amp Middle east) which helps in reducing sea freight as well as transit time andthus the debtor days With higher utilization on existing capacity and expansions we see sharp jumpin revenueEBITDA for IEL to Rs953mn257mn in FY17E (up ~150 from FY14) We note that IEL hasshown sharp jump in its operating profitability in FY14 which was just the second year of companyrsquosoperations and this demonstrates superior management quality and expertise in the refractorybusiness
Exhibit 4
IEL clocked EBITDA margin of ~26 in FY14 as first phase capacity stabilised
Source Company Centrum Research Estimates
Short payback and superior returns expected from IEL
We see extremely short payback period for IEL with full capex for expanded capacity to be recoveredby FY17E which implies payback of 34 years for the first phase and 1-2 years for next two phases Dueto attractive profitability profile of IEL on account of its strong logistics advantage we expect superiorreturns with ROEROCE of ~3626 in FY16E
Exhibit 5 Payback for full expansion by FY17E Exhibit 6 Return ratios of IEL to be strong
(Rs mn)Phase 1
(spent byFY14)
Phase 2 (tobe spent
in FY15E)
Phase 3(likely tobe spentin FY16-
17E)
Total(by FY17E)
Capex 410 60 130 600
FY14 FY15E FY16E FY17E
EBITDA 102 130 204 257
Cumulative EBITDA 102 232 435 693
Cumulative capex 410 470 600 600
Payback achieved (x) 02 05 07 12
Source Company Centrum Research Estimates Source Company Centrum Research Estimates
90
399
518
755
953
-17
102 130204
257
256 250 270 270
(30)
(20)
(10)
0
10
20
30
40
(100)
100
300
500
700
900
1100
FY13 FY14 FY15E FY16E FY17E
( R s m n )
Sales EBITDA Margin - RHS
179
252
358337
141
179
265 287
10
15
20
25
30
35
40
FY14 FY15E FY16E FY17E
ROE - ROCE -
Margins at IEL are ~25well above IFGLrsquos otheroperations
Payback for IEL to beachieved before end ofFY17E
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5IFGL Refractories Ltd
Orissa plant to capture domestic demand and reduce export share in sales
We expect IFGLrsquos flagship plant at Orissa (standalone operations) to capture increasing domesticdemand and gradually reduce the share of exports in total sales as export sales will continue to getshifted to IEL in coming years We see share of exports coming down to 42 in FY17E from 56 inFY14 and domestic sales increasing to 58 for standalone operations IFGL has shown smart revenueCAGR of ~17 at its standalone operations during FY10-14 led by better pricing weak rupeebenefitting exports revenue and improvement in capacity utilization but we expect revenue CAGR of67 during FY14-17E on account of limited room for higher volumes (particularly in continuouscasting refractories segment which is almost completely utilized) reduced share of exports goingforward and low pricing power due to increased competition
Exhibit 7
Exports share in total standalone sales to reduce from FY15E
Source Company Centrum Research Estimates
Higher utilization and lower exports to provide margin uptick at Orissa
Though IFGL is currently running at near full utilization levels for continuous casting refractories at its
Orissa plant it has an opportunity to increase its utilization in other shaped products like slide gaterefractories purge plugs and cast products Also utilization in unshaped refractories is expected toimprove Lower share of exports would result in savings on freight and coupled with higher utilizationlead to lower fixed costs We see IFGLrsquos standalone margins improving by 150bps YoY to 153 inFY15E We expect margins to further improve to 158 by FY17E led by lower exports We note thatmargins have remained very volatile in the standalone operations due to pressure on raw materialcosts high dependence on exports and hence currency fluctuations and lacklustre demandenvironment We expect margin trajectory to remain more stable going ahead with rationalization ofsales in exports and domestic markets as well as overall improvement in demand environment
Exhibit 8 Capacity utilization at Orissa to improve Exhibit 9 Standalone margins expected to expand
Source Company Centrum Research Estimates Source Company Centrum Research Estimates
4847
50
44
50
54
5852
53
50
56
50
46
42
30
35
40
45
50
55
60
500
700
900
1100
1300
1500
1700
1900
2100
2300
2500
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( R s m n )
Domestic Sales Export Sales
Domestic - share Exports - share
68
87
78
72
7780 82 84
34
49
65 64
58 6064 66
30
40
50
60
70
80
90
FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E
Shaped Refractories Unshaped Refractories
291
196
348 342
450
534575
630
166
94
127
112
138
153 154 158
8
10
12
14
16
18
0
100
200
300
400
500
600
700
FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E
EBITDA (Rs mn) Margin - RHS
IFGLrsquos flagship plant tofocus more on domesticmarkets and see marginimprovement
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6IFGL Refractories Ltd
European demand expected to be better on improving macros
Demand for refractories from European steel mills is expected to be better going forward due togradual pick up in steel production and improving macro situation (as is visible from the pick-up inGDP numbers) Since Europe (including UK) accounts for ~70 of IFGLrsquos exports from domesticoperations and ~50 of revenues on a consolidated basis (including overseas subsidiariesrsquo net sales)we expect IFGL to benefit from improving demand situation in Europe
Exhibit 10
Europe steel production picking up Exhibit 11
GDP in EU amp UK improving
Source Company Centrum Research Estimates CY14 nos annualised for 5MYTD Source Company Centrum Research
Expansions by integrated steel mills provide domestic demand visibility
We see good demand visibility in the domestic market as steel production is expected to pick up ledmainly by higher volumes from large steel mills We expect the share of large integrated steel mills torise to ~60 by FY17E from ~51 in FY14 led mainly by expansions and wide product range We haveconsidered a basket of players (SAIL Tata Steel JSW steel JSPL Essar RINL JSW Ispat) in large steelmills and see volume CAGR of ~12 from them as compared to 6 for the steel industry during FY14-17E IFGL derives ~65 of its domestic revenue from large steel mills and is expected to be a keybeneficiary of the gradual shift in domestic steel production to large steel mills from small mills
Exhibit 12 Steel production growth to pick up Exhibit 13 Led by higher volumes from large steel mills
Source Company Centrum Research Estimates Source Company Centrum Research Estimates
Exhibit 14 Large mills share in steel production to rise Exhibit 15 Large mills to grow faster
Source Company Centrum Research Estimates Source Company Centrum Research Estimates
2099 1969
1375
1732 1775
1412
16561759
100
120
140
160
180
200
220
CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14
EU Production (MT)
(8)
(6)
(4)
(2)
0
2
4
M a r - 0 8
J u l - 0 8
N o v - 0
8
M a r - 0 9
J u l - 0 9
N o v - 0
9
M a r - 1 0
J u l - 1 0
N o v - 1
0
M a r - 1 1
J u l - 1 1
N o v - 1
1
M a r - 1 2
J u l - 1 2
N o v - 1
2
M a r - 1 3
J u l - 1 3
N o v - 1
3
M a r - 1 4
UK GDP EU GDP
686 757 817 850 893 946 1012
132
103
79
4050
6070
0
2
4
6
8
10
12
14
40
50
60
70
80
90
100
110
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( M T )
Steel Production - India YoY Growth
339 372 389
433482
539
610
0
10
20
30
40
50
60
70
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( M T )
SAIL Tata Steel JSW Steel JSPL Essar Steel RINL Ispat Inds
69 76
82 85 89 95
101
34 37 39 43 48 54 61
4949
48
51
54
57 60
40
45
50
55
60
65
0
20
40
60
80
100
120
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( )
( M T )
Steel Production Large Integrated steel mills
share of integrated mills - RHS
74
60
86
121
00
20
40
60
80
100
120
140
CAGR (FY11-14) CAGR (FY14-17E)
Steel Production Large Integrated steel mills
Domestic steel production shifting tolarge steel mills therebyimproving demandoutlook for organisedrefractory producers
Steel productionand GDP improvingin Europe
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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7IFGL Refractories Ltd
Steady growth seen from overseas operations after turnaround
Several strategic acquisitions in last decade for expanding reach and product basket
IFGL has made several overseas acquisitions in the last decade mainly aimed at achieving inorganicgrowth through entry into new markets expanding its product basket and getting access to newtechnologies
IFGL acquired Monocon group in 2005 at a cost of 95mn pounds (Rs560mn) with its plantslocated in Brazil Taiwan China UK and USA Monocon group provided IFGL with wide rangeproduct basket (from Lances Darts Monolithics amp Castables) and also gave access to key largesteel plants in Europe of steelmakers like Corus amp Arcelor Mittal
IFGL acquired Goricon group in 2006 at a cost of 11mn pounds (Rs70mn) and later merged it withMonocon as the companies had similar products and were competitors of each other
Hoffman ceramics was acquired in 2008 at a cost of 7mn euros for getting entry into foundries for
supply of consumables
IFGL acquired EI Ceramics in 2010 which has similar product basket as IFGLrsquos domestic operationsbut provided access to key markets in Americas Company acquired EI Ceramics with an eye on
future expansion as it had space to increase capacity by ~3x IFGL also acquired CUSCinternational in US (later merged with EI) which was providing ancillary services to EI includingprocessing of raw materials warehousing and packaging
Exhibit 16
Snapshot of overseas acquisitions
CompanyAcquired
Year ofacquisition
PurchaseCost
(Rs mn)
PlantLocations
Products Markets Comments
MonoconGroup
2005 560UK USChina
Refractory dartslances monolithics
UK EuropeChina
Services key customers in Europelike Corus Arcelor Brazil plantclosed and Taiwan plant shiftedto China
GoriconGroup
2006 70 UK USDarts lances and ladlepowder
Europe Merged into Monocon
HoffmanCeramics 2008 470 Germany
Refractory ceramicslike filters feeders etc Europe
Czech plant closed suppliesconsumables to foundries
EI Ceramics 2010 590 Ohio USContinuous castingrefractories
US CanadaMexico
Acquired to gain traction inAmerica market
Source Company Centrum Research
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8IFGL Refractories Ltd
Overseas operations have been consolidated and profitability has improved
IFGL has faced several challenges in managing the profitability and operations of its overseasacquisitions due to global economic crisis in CY08 which impacted steel production in US amp Europevery severely Both Monocon and Hoffman group had EBITDA loss in FY09 but management effortsinto consolidation of key group entities (Goricon was merged with Monocon) and closure of certainunviable facilities (Taiwan Brazil plants of Monocon were closed Czech plant of Hoffman was closed)coupled with recovery in demand has led to gradual improvement in profitability of companyrsquossubsidiaries We note that Monocon grouprsquos profitability has improved substantially during FY11-14with EBITDA CAGR of ~16 and improvement in marginsROE to 8512 in FY14 Hoffman grouphas also returned to profits although margins remain low IFGLrsquos acquisition in US of EI Ceramics in2010 has been rewarding and the company has performed consistently well post acquisition andachieved revenueEBITDA CAGR of ~3338 during FY11-14
Exhibit 17
Revenue trend for overseas subs Exhibit 18
EBITDA trend for overseas subs
Source Company Centrum Research Source Company Centrum Research
Exhibit 19 EBITDA margin has shown improvement Exhibit 20 ROE has moved up especially for EI Ceramics
Source Company Centrum Research Estimates Source Company Centrum Research Estimates
0
500
1000
1500
2000
2500
3000
3500
FY11 FY12 FY13 FY14
( R s
m n )
Monocon EI Ceramics Hoffman
FY11-14 - CAGR
Monocon - 107EI Ceramics - 328
0
50
100
150
200
250
300
FY11 FY12 FY13 FY14
( R s
m n )
Monocon EI Ceramics Hoffman
FY11-14 - CAGR
Monocon - 16EI Ceramics - 376
70
89
59
85
139
159
137
161
7080
51 5030
50
70
90
110
130
150
170
FY11 FY12 FY13 FY14
( )
Monocon EI Ceramics Hoffman
119 120 87 120
112
191
158 162
7135
4336
30
50
70
90
110
130
150170
190
210
FY11 FY12 FY13 FY14
( )
Monocon EI Ceramics Hoffman
EBITDA has shownimprovement across alloverseas subsidiariesduring FY11-14
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9IFGL Refractories Ltd
EI Ceramics doubling capacity to maintain growth
EI Ceramics is doubling its capacity as utilizations on current capacity reached ~100 in FY14 EICeramics has been IFGLrsquos best overseas acquisition achieving revenueEBITDA CAGR of ~3338since acquisition (FY11-14) We expect revenueEBITDA CAGR of 23227 during FY14-17E asexpansion would be on-stream by Q1FY16E IFGL had spent ~Rs590mn for the purchase of EI and isexpected to achieve full payback in FY15E (less than 5 years) The capex for expansion of additional 80kpcsyear in EI is limited to Rs80mn and would be funded easily through internal accruals We note thatadditional capex would have the potential to generate ~Rs1000mn in revenues on completestabilisation (by FY17E) an asset turnover of more than 10x
Exhibit 21 EI Ceramics to double capacity by Q1FY16 Exhibit 22 Strong revenue and EBITDA CAGR ahead
Source Company Centrum Research Source Company Centrum Research Estimates
Share of higher margin EI Ceramics to keep increasing in IFGLrsquos overseas earnings
We expect EI Ceramics to lead the growth in earnings from IFGLrsquos overseas subsidiaries basket We expectrevenue contribution of EI Ceramics in total overseas subs to increase to ~26 in FY17E from ~20 inFY14 while EBITDA contribution is expected to increase to 41 in FY17E from ~34 in FY14 Since EICeramics enjoys the best margins (~16) among IFGLrsquos overseas subsidiaries increase in share ofearnings from EI Ceramics is expected to lead to margin improvement for IFGL at a consolidated level
Exhibit 23
Overseas subs revenue share ndash FY14 Exhibit 24
Overseas subs revenue share ndash FY17E
Source Company Centrum Research Source Company Centrum Research Estimates
Exhibit 25
Overseas subs EBITDA share ndash FY14 Exhibit 26
Overseas subs EBITDA share ndash FY17E
Source Company Centrum Research Source Company Centrum Research Estimates
80000
80000
160000
0
20000
40000
60000
80000
100000
120000
140000
160000
180000
Phase 1 Phase 2 Total
( p c s y r )
Currently Installed FY16E
8631012
1113
1447
1881
118 163 178 231 301
0
500
1000
1500
2000
FY13 FY14 FY15E FY16E FY17E
Revenue (Rs mn) EBITDA (Rs mn)
FY14-17E - CAGR
Revenue - 23EBITDA - 227
Monocon641
EI Ceramics
197
Hoffman161
Monocon607
EI Ceramics
261
Hoffman133
Monocon577
EI Ceramics
338
Hoffman 85
Monocon530
EI Ceramics
405
Hoffman 64
Capacity at EI Ceramicsto increase to 160k pcsyear by FY15-end
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10IFGL Refractories Ltd
Balance sheet strengthened free cash flow generation strong
Strong free cash flow generation ahead with limited capex
IFGL has turned free cash flow positive at a consolidated level in FY14 as operating cash flow improvedsharply (up 240 YoY) led by higher profitability across operations We see strong free cash flowgeneration ahead on the back of limited capex (~Rs250mn annually over FY15-16E) and continued
traction in operating cash flow on the back of higher capacities and better utilizations
Exhibit 27 Free cash flow generation expected to be strong going ahead
Source Company Centrum Research Estimates
Free cash flow yield to improve significantly
We see free cash flow yield improving to ~12 and free cash flowEBITDA going up to 04x in FY16EBalance sheet remains strong and we expect the company to be debt free at a consolidated level inthe next three years if there is no new acquisition or major capex
Exhibit 28
Free cash flow yield attractive Exhibit 29
Debt free status in next two years
Source Company Centrum Research Estimates Source Company Centrum Research Estimates
-527
-99 -39
211
445549
657
(1000)
(800)
(600)
(400)
(200)
0
200
400
600
800
1000
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( R s m n )
OCF Capex Free Cash Flow
019
037 039
040
45
95
117
141
00
40
80
120
160
00
01
02
03
04
05
FY14 FY15E FY16E FY17E
Free Cash FlowEBITDA (x) Free Cash Flow Yield -
(02)
00
02
04
06
08
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( x )
Debt-equity Net debt-equity
Free cash flow yieldexpected to go up from45 in FY14 to 117 inFY16E
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11IFGL Refractories Ltd
ROE shows improvement beats most peers at a global level
IFGL has shown sharp improvement in its ROE in FY14 as overseas subsidiariesrsquo profitability hasimproved and domestic profitability is on an upswing post start of IEL We expect ROE of IFGL to be thebest in the industry at a global level in the next few years
Exhibit 30
IFGL ROE well above that of global peers
Source Company Bloomberg Centrum Research Estimates CY07 = FY08
(10)
(5)
0
5
10
15
20
25
3035
CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14E CY15E
( )
Vesuvius India IFGL Refractories (FY) Vesuvius PLC
Puyang Refractories Cie de St-Gobain Magnesita Refractarios
Chosun Refractories Krosaki Harima (FY) Shinagawa (FY)
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12IFGL Refractories Ltd
Financials
Revenue growth to be led by IEL and overseas operations
We expect consolidated net sales CAGR of 112 for IFGL during FY14-17E This is expected to be ledby ~33 CAGR from IEL and 12 CAGR from overseas subsidiaries while standalone operations CAGRis expected to slow down to 67
Exhibit 31
Net sales CAGR of 112 during FY14-17E
Source Company Centrum Research Estimates
Margins and return ratios to remain healthy FY14-17E EBITDA CAGR of 141
Backed by better margins from IEL and recovery in demand we expect EBITDA CAGR of 141 duringFY14-17E Margins are expected to improve gradually as revenues from high margin subsidiary IELpicks up Expansion at EI Ceramics is also expected to help in EBITDA growth and margins Returnratios are expected to remain healthy on account of operating efficiency and high asset turnover ratiosfrom new expansions
Exhibit 32
EBITDA margin to remain stable Exhibit 33
Healthy return ratios
Source Company Centrum Research Estimates Source Company Centrum Research Estimates
Exhibit 34
Du Pont analysis
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
PATSales (x) 005 007 004 008 008 008 009
SalesAssets (x) 154 174 179 187 189 192 191
AssetsEquity (x) 174 156 152 138 124 115 109
ROE - 138 180 115 212 190 185 181
Source Company Centrum Research Estimates
4689
6039 6712
77768484
9554 10697
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( R s m n )
Standalone (IFGL) IFGL Exports (IEL) Overseas Subs Total
411 739 582 1096 1210 1414 1630
88
122
87
141 143 148
152
60
80
100
120
140
160
0
200
400
600
800
1000
1200
1400
1600
1800
FY11 FY12 FY13 FY14 FY15E FY16E FY17EEBITDA-Cons (Rs mn) OPM - RHS
50
100
150
200
250
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( )
ROE ROCE (post tax) ROIC (post tax)
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13IFGL Refractories Ltd
Key Assumptions and Sensitivity
Exhibit 35 Key Assumptions
Revenue (Rs mn) FY12 FY13 FY14 FY15E FY16E FY17E
Indian Operations
Domestic sales 1305 1495 1391 1744 2014 2304
Exports 1443 1567 1883 1744 1716 1669
Total standalone operations 2748 3061 3274 3487 3730 3973
IFGL Exports Ltd 0 90 399 518 755 953
Total Indian operations 2748 3152 3673 4005 4485 4926
Overseas Operations
Monocon Group 2410 2801 3288 3617 3979 4376
EI Ceramics 716 863 1012 1113 1447 1881
Hoffman Group 758 692 827 868 911 957
Less Intersegment revenues 596 790 1023 1120 1267 1443
Total Overseas operations 3287 3566 4103 4478 5069 5771
Total Consolidated operations 6035 6717 7776 8484 9554 10697
Source Company Centrum Research Estimates
Exhibit 36
EPS sensitivity to shaped refractory segment
EPS - FY16E (Rs) -Cons
Realizations
-10 -5 Base 5 10
V o l u m e s
-10 177 192 206 221 236
-5 187 203 218 234 250
Base 197 214 231 247 264
5 208 225 243 260 277
10 218 236 255 273 291
Source Company Centrum Research Estimates
Exhibit 37
EPS sensitivity to unshaped refractory segment
EPS - FY16E (Rs) - ConsRealizations
-10 -5 Base 5 10
V o l u m e s
-10 230 233 235 237 239
-5 228 230 233 235 237
Base 226 228 231 233 235
5 223 226 228 231 234
10 221 223 226 229 232
Source Company Centrum Research Estimates
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14IFGL Refractories Ltd
Valuation ndash poised for rerating
IFGLrsquos mean EVEBITDA stands at 47x with standard deviation of 26x and we note that the stock pricehas been volatile in last 6-7 years due to sharp fluctuations in earnings which explains the highstandard deviation However we believe that earnings would be more linear going forward asoverseas operations have been stabilised and growth would be driven by expansions at higher marginsubsidiaries of IEL and EI Ceramics At the CMP of Rs142 the stock trades at attractive valuations of 62xFY16E PE and 36x FY16E EVEBITDA and we believe that sharp improvement in free cash flow canlead to rerating in the stock We assign an EVEBITDA of 55x on Marrsquo16E earnings to arrive at a fairvalue of Rs220 and initiate with a Buy The multiple assigned by us remains below mean+05sd andthus provides comfort on historical valuations even though we expect much better earnings trajectoryfor the company going forward
Exhibit 38
EVEBITDA Valuation
(Rs mn) FY16E
EBITDA 1414
Ascribed EVEBITDA (x) 55
EV 7776
Add Net Cash (123)
Fair value mkt cap 7653
No of shares (mn) 346
Fair Valueshare (Rs) 220
Source Company Centrum Research Estimates
Exhibit 39
1-year forward EVEBITDA chart Exhibit 40
1-year forward PE chart
Source Bloomberg Company Centrum Research Estimates Source Bloomberg Company Centrum Research Estimates
Steep valuation discount exists for IFGL compared to global peersComparison of IFGLrsquos valuations with global peers shows that the company is trading at a steepdiscount despite strong fundamentals which we feel is unwarranted We expect re-rating in the stockwith improvement in outlook and stability in earnings
Exhibit 41 Valuationndash Peer comparison
CompanyMkt Cap(US$ mn)
CAGR CY13-CY15E () EBITDA Margin () PE (x) EVEBITDA (x) RoE () Div Yield ()
Rev EBITDA PAT CY13 CY14E CY15E CY13 CY14E CY15E CY13 CY14E CY15E CY13 CY14E CY15E CY13 CY14E CY15E
IFGL Refractories 82 108 136 116 141 143 148 77 72 62 53 46 36 212 190 185 12 14 16
Vesuvius India Ltd 220 110 115 126 184 178 186 203 192 161 110 100 82 164 152 158 07 08 09
Global Peers
RHI AG 1322 29 (02) 318 137 122 129 153 103 89 59 65 57 131 177 180 31 31 35
Vesuvius PLC 2140 04 53 80 117 123 128 149 141 127 86 82 74 93 1 02 108 31 34 36
Magnesita SA 574 122 129 344 156 149 158 157 180 101 60 63 55 21 17 35 15 11 21
Cie de St(Gobain 32544 20 91 32 3 100 107 114 218 181 133 76 68 60 58 76 94 29 30 33
Source Bloomberg Estimates Centrum Research Estimates CY13=FY14 for IFGL and so on
0
2
4
6
810
12
14
J u n - 0 7
O c t - 0 7
F e b - 0 8
J u n - 0 8
O c t - 0 8
F e b - 0 9
J u n - 0 9
O c t - 0 9
F e b - 1 0
J u n - 1 0
O c t - 1 0
F e b - 1 1
J u n - 1 1
O c t - 1 1
F e b - 1 2
J u n - 1 2
O c t - 1 2
F e b - 1 3
J u n - 1 3
O c t - 1 3
F e b - 1 4
J u n - 1 4
EVEBITDA MeanMean + Std Dev Mean - Std Dev
0
5
10
15
20
25
J u n - 0 7
O c t - 0 7
F e b - 0 8
J u n - 0 8
O c t - 0 8
F e b - 0 9
J u n - 0 9
O c t - 0 9
F e b - 1 0
J u n - 1 0
O c t - 1 0
F e b - 1 1
J u n - 1 1
O c t - 1 1
F e b - 1 2
J u n - 1 2
O c t - 1 2
F e b - 1 3
J u n - 1 3
O c t - 1 3
F e b - 1 4
J u n - 1 4
PE MeanMean + Std Dev Mean - Std Dev
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15IFGL Refractories Ltd
IFGL trading at a higher discount to Vesuvius than historical average
IFGL has historically (based on average during JanrsquoCY09-JunersquoCY14) traded at a discount of ~35 toVesuvius India Ltd (VIL) on EVEBITDA basis However currently IFGL is trading at a discount of ~60 toVIL which is unwarranted as the profitability of IFGL is on an uptrend post stabilisation of overseasoperations and IEL The historical discount has seen an increase in the past 3 years due to volatility inearnings of IFGL but with operations having stabilised we see the discount narrowing We also expectIFGL to be above its peers (incl VIL) in terms of ROE for the next few years and see a high cash flowyield of ~12 in FY16E The multiple assigned by us implies ~35 discount to VILrsquos current valuationswhich is in line with the historical average even though IFGL is expected to generate better returnsand free cash flow going forward
Exhibit 42
EVEBITDA ndash IFGL vs Vesuvius India Exhibit 43
Discount of IFGL EVEBITDA vs Vesuvius
Source Bloomberg Company Centrum Research Source Bloomberg Company Centrum Research
0
2
4
6
8
10
12
F e b - 0
9
J u n - 0
9
O c t - 0 9
F e b - 1
0
J u n - 1
0
O c t - 1 0
F e b - 1
1
J u n - 1
1
O c t - 1 1
F e b - 1
2
J u n - 1
2
O c t - 1 2
F e b - 1
3
J u n - 1
3
O c t - 1 3
F e b - 1
4
J u n - 1
4
( x )
EVEBITDA IFGL EVEBITDA Vesuvius
(90)
(60)
(30)
0
30
60
F e b - 0
9
J u n - 0
9
O c t - 0 9
F e b - 1
0
J u n - 1
0
O c t - 1 0
F e b - 1
1
J u n - 1
1
O c t - 1 1
F e b - 1
2
J u n - 1
2
O c t - 1 2
F e b - 1
3
J u n - 1
3
O c t - 1 3
F e b - 1
4
J u n - 1
4
( )
EVEBITDA discount of IFGL vs Vesuvius
Avg discount of IFGL vs Vesuvius
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16IFGL Refractories Ltd
Key risks to our thesis
Dependent on raw material sourcing through imports The industry is dependent on importsof key raw materials like high grade alumina bauxite magnesia silicon carbide etc China is themajor supplier of imports and has imposed heavy taxes on export of raw materials of refractories This has resulted in sharp increase in imported raw material costs IFGL sources ~52 of its raw
materials through imports and remains exposed to increase in costs which can impact its margins Low pricing power due to excess domestic supply and import pressure The industry suffers
from low capacity utilization of ~60 with excess installed capacities (~22 MTPA) and as a resultpricing power is low for refractory makers who are squeezed between raw material suppliers andsteel makers Cheap refractory imports from China have also kept prices in check IFGL does notenjoy as much pricing power as VIL does as customers prefer VIL for its strong brand name andproven track record of providing quality products and services Further increase in competitiveintensity can lead to lower pricing for IFGL in both domestic and export markets
Sharp slowdown in steel industry leading to lower volumes Like any other refractorycompany IFGLrsquos fortunes depend on the steel industry and any slowdown in global economy mayhamper the steel industryrsquos growth and IFGLrsquos volume growth would be more vulnerable as itdoes not have strong relationships like VIL has Sharp slowdown in the steel industry (vs
expectations of recovery) in coming years could lead to lower capacity utilization and lower thanexpected volumes
Currency Fluctuation We believe that steady weakening of rupee over the past couple of yearshas been favourable to the industry as well as for IFGL due to better import substitution andhigher realizations on exports negated only to a partial extent by higher import costs for rawmaterials IFGL has 80 of its revenues coming from overseas on a consolidated basis On astandalone basis approximately 58 of the revenues (FY14) came from exports Companyrsquosrevenues remain exposed to sharp appreciation of rupee against foreign currencies
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17IFGL Refractories Ltd
Exhibit 44
Shareholding pattern ()
Q4FY14 Q3FY14 Q2FY14 Q1FY14
Promoter 713 713 713 713
FIIs 00 00 00 00
DIIs 11 22 22 22
Others 277 265 265 265
Source BSE
Company Background
IFGL Refractories Ltd is a manufacturer of specialisedrefractories and requisite operating systems for the steelIndustry IFGL offers its customers total solution for refractoryfor flow control in steel teeming and continuous casting ofSteel IFGL has 8 manufacturing plants strategically located
across the globe in India China Europe and Americas Thecompany has a presence in over 50 of the global markets Itacquired the Monocon group UK in 2005 (06 Hofmanngroup Germany in 2008 and EI Ceramics USA in 2010 Theseoverseas acquisitions have brought along access to newproducts amp technologies new markets and new customers The company has also set up a subsidiary IFGL exports atKandla Gujarat which also has technical collaboration withKrosaki Harima Corporation Japan Apart from this IFGL alsoplans to expand its capacities in India and abroad over thecoming years
Exhibit 45 Key management personnel
Name Position Profile
Mr S K Bajoria Chairman
Promoter of S K Bajoria Group based at Kolkata engaged in diversified business activitiesHas been honorary vice consul of Denmark in Kolkata president of the Indian chamber ofcommerce director of West Bengal industrial development corporation Ltd and industrialpromotion amp investment corporation of Orissa Ltd
Mr Pradeep Bajoria Managing Director
Associated with IFGL from the very early days of Indo Flogates even before thecommencement of production in 1984 Has been director amp chief executive of erstwhileIndo Flogates Ltd More than 30 years of experience of refractory industry and has beeninvolved in various capacities in Indian refractories makers association
Mr Gian Carlo Cozzani Directorr Monocon UK
Associated with IFGL since Oct 2009 Former president and CEO of Vesuvius (now Vesuviusplc) Instrumental in steering Vesuvius from US$ 100 million to over US$ 1 billion Based inEurope he is a member of IFGLrsquos Core group and a director of Monocon InternationalRefractories Limited UK
Source Company
Exhibit 46
IFGL refractories holding structure
Source Company
10051
983113983110983111983116 983127983151983154983148983140983159983145983140983141 983112983151983148983140983145983150983143 983116983145983149983145983156983141983140
983113983110983111983116 983109983160983152983151983154983156983155 983116983156983140
983117983151983150983151983139983151983150 983111983154983151983157983152 983109983113 983107983141983154983137983149983145983139983155 983112983151983142983149983137983150983150
983107983141983154983137983149983145983139
983124983141983139983144983150983145983139983137983148 983137983150983140 983110983145983150983137983150983139983145983137983148
983107983151983148983148983137983138983151983154983137983156983145983151983150 983151983142
983115983154983151983155983137983147983145 983112983137983154983145983149983137
983107983151983154983152983151983154983137983156983145983151983150983084 983114983137983152983137983150983084
983080983123983157983138983155983145983140983145983137983154983161 983151983142 983118983145983152983152983151983150
983123983156983141983141983148 983107983151983154983152983151983154983137983156983145983151983150983084
983114983137983152983137983150983081
983125983123983105 983125983115 983087 983125983123983105 983087 983107983144983145983150983137
983115983137983150983140983148983137 983123983109983130983084 983111983157983146983137983154983137983156983084 983113983150983140983145983137
983111983141983154983149983137983150983161
983113983110983111983116 983122983141983142983154983137983139983156983151983154983145983141983155 983116983145983149983145983156983141983140
983112983119 983085 983115983151983148983147983137983156983137983084 983113983150983140983145983137
983127983151983154983147983155 983085 983115983137983148983157983150983143983137983084 983119983154983145983155983155983137983084 983113983150983140983145983137
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18IFGL Refractories Ltd
Exhibit 47 Quarterly financials (cons)
YE Mar (Rs mn) Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14
Net sales 1725 1657 1690 1641 1811 2014 1947 2003
Other Operating Income 5 4 0 0 3 0 0 0
Total Income 1729 1662 1690 1641 1814 2014 1947 2003
Accretion to Stocks in trade amp work in progress (29) (10) 4 46 (65) (54) (25) 9
Cost of Raw Materials consumed 840 898 835 581 911 908 817 808
Purchase of traded goods 66 28 42 223 46 73 182 168
Staff Cost 239 234 250 264 247 275 294 281
Other Operational expenses 407 400 375 439 430 513 407 455
Operating Profit (Core EBITDA) 206 112 183 89 246 299 272 282
Depreciation 32 34 35 33 32 34 46 43
EBIT 174 78 149 56 214 265 226 239
Interest 21 22 21 15 17 18 19 16
Other RevenueIncome 16 5 7 8 5 9 6 12
Profit Before Tax 169 61 134 49 202 255 213 236
Tax 50 31 48 31 54 57 68 70
Profit After Tax 119 31 86 18 148 199 145 166
Minority Interest (7) (9) (8) (4) (1) 8 3 8
Profit after minority interest 126 40 95 22 149 191 143 158
Growth (YoY )
Revenue 371 36 61 36 50 216 153 221
EBITDA 129 (457) (125) (477) 195 1672 485 2164
PAT 174 (666) (111) (669) 189 3765 503 6292
Margin ()
EBITDA 119 67 109 54 136 148 140 141
EBIT 100 47 88 34 118 131 116 120
PAT 73 24 56 13 82 95 73 79
Segment Revenue (Net Sales Income from ops)
India 764 749 810 829 872 926 936 941
Asia (excl India) 142 175 160 167 188 213 163 156
Europe 593 545 542 543 612 744 689 764
Americas 405 370 363 344 384 399 427 386
Segment EBIT
India 83 32 84 63 92 103 129 139
Asia (excl India) 8 11 6 9 12 10 5 7
Europe 55 44 51 (4 45 76 74 81Americas 22 13 23 39 38 45 55 36
Source Company Centrum Research
Comments on recent quarterly results
Q4FY14 witnessed a healthy growth with revenue up 221 YoY EBITDA and PAT jumpedsubstantially YoY Margins showed good improvement EBITDA margin expanded by 860 bps YoYOther operating expenses as a proportion of sales reduced to 227 from 267 in Q4FY13 this had apositive impact on margins
Revenue grew 28 QoQ EBITDA amp PAT margins showed signs of consistency further improving fromQ3FY14 European business looks to be on a growth trajectory as revenues have jumped 140 YoYand 11 QoQ Revenue from American segment saw growth of 124 YoY but declined QoQ
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19IFGL Refractories Ltd
Annexure ndash Refractory Industry
About refractories ndash consumables for manufacturing processes with high temperatures
Refractories are inorganic non-metallic and heterogeneous materials having very high melting pointswhich make them suitable to be used as heat-resisting barriers consumed within various productionprocesses providing heat chemical and mechanical resistance Refractories are mainly of two types ndash
shaped and unshaped (monolithics) and are used mainly by the steel industry as a consumableproduct in the internal linings of furnaces kilns reactors and other vessels for holding andtransporting metal and slag
Shaped refractories are those which have fixed shapes with most common form being rectangularbrick Brick shapes may be divided into two standard shapes and special shapes Standard shapeshave dimensions that are conformed to by most refractory manufacturers and are generally applicableto kilns and furnaces of the same type Special shapes are specifically made for particular kilns andfurnaces Shaped refractories are almost always machine-pressed and possess high uniformity inproperties are expected
Unshaped refractories are without definite form and are only given shape upon application It forms joint less lining and are better known as monolithic refractories They are manufactured in powderform as granular material and known as plastic refractories ramming mixes castables gunning mixesfettling mixes and mortars
The raw materials used to manufacture refractories are broadly classified into clay and non-clay Clayrefractories consist of naturally occurring alumina silicate like fireclay flint clay flint brick and highalumina and are used to produce bricks and insulating refractories Non-clay refractories are madefrom non-clay materials and are further classified into basic (made in the form of bricks from magnesiadolomite chrome etc) extra high alumina mullite (made from kyanite bauxite alumina) siliconcarbide and zircon
Exhibit 48
Refractory share by form Exhibit 49
Refractory share by raw material
Source Industry data Centrum Research Source Industry data Centrum Research
Unshaped45Shaped 55
Clay 65
Non Clay35
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20IFGL Refractories Ltd
Applications of refractories ndash largely used in steel industry for furnace linings
Steel industry accounts for ~60 of refractory consumption globally and ~75 in the domesticmarket In non-metallurgical industries (cement glass lime) the refractories are mostly installed onfired heaters hydrogen reformers cracking furnaces incinerators utility boilers air heaters ductingstacks etc The different areas of the steel manufacturing processes are exposed to differenttemperatures slag and sulphur gases Refractory selection for the lining of a furnace is invariably builtupon a combination of material qualities and brick size to maximize performance Steel industry usesrefractory for diverse applications in blast furnaces coke ovens torpedo ladles and secondary refiningladles
In cement industry refractories are used in the kiln the preheating system and the cooler whichoperate in a very high temperature to protect against heat abrasion and chemical attack Commonrefractory materials used are Dolomite Magnesia-Chrome Spinel Magnesia-Alumina Spinel Fireclayand High Alumina The cement kiln clinker area is usually provided with Dolomite refractories
Non(-errous industries like copper and aluminium require high performance refractories in severalequipments like anode baking furnaces induction furnaces reduction pots slag cleaning surfaces etcGlass industry also requires refractories in refiner regenerator dog-house and ports of furnace
Exhibit 50
Refractories consumption in steel making process
Source Magnesita ppt
Exhibit 51
Refractories consumption in steel making process
Source Vesuvius PLC ppt
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21IFGL Refractories Ltd
Steel industry accounts for ~60 of refractory consumption globally and ~75 in the domesticmarket In non-metallurgical industries (cement glass lime) refractories are mostly installed on firedheaters hydrogen reformers cracking furnaces incinerators utility boilers air heaters ducting stacksetc
Exhibit 52
Sector wise refractories demand - Global Exhibit 53
Sector wise refractories demand - India
Source Industry data Centrum Research Source Industry data Centrum Research
Refractory application consumption and replacement dynamics are shown in the table belowSteelmaking requires maximum amount of refractories (10-15kgstonne) with replacement required ina time period of 20 minutes to 2months Cement industry is the next biggest user with annualreplacement requirement while non-ferrous and glass industries have longer replacement cycles
Exhibit 54
Refractory consumption dynamics across user industries
Key Industry Application Replacement Per tonne consumption Refractory requirements
Steel
BF(BOF EAFCasting LadlesInduction FurnacesPellet rotary Kilns
20 minutes to 2months
Global avg - 10-15KgsIndia avg - 15 Kgs
Consumable product ( Systems and solutions for completerefractory management
Cement Kilns annually 1 KgsInvestment goods ( Longer replacement cycles Customizedsolutions based on the specific requirements of various industrialproduction processes complete lining concepts
Glass Glass Furnace upto 10 years 4 Kgs
Non(Ferrous Converters 1(10 yearsAluminium - 6 KgsCopper - 3 Kgs
Source RHI ppt Centrum Research
Global refractory market size at ~US$25bn expected to grow at ~35 CAGR
According to various industry studies global refractoriesrsquo market size is ~US$25bn with production of415MT in CY12 According to industry estimates the global refractories industry is expected to witnessCAGR of 35 during CY13-16E and grow to 46MT with a market value of US$29bn China accountedfor ~70 of the market by volume and ~60 by value in CY12 whereas India accounts for ~3 of theglobal refractories market by volume
Exhibit 55
Global refractory market size at ~US$25bn Exhibit 56
China accounts for ~70 of the market
CY12 Production (MT) Value (US$ bn)
World 415 25
China 295 143
EU 41 39
North America 14 14
India 13 09
Source Industry Centrum Research Source Industry Centrum Research
6015
15
10 Steel
Non-Metallic (Cement GlassLime)
Non-Ferrous (AluminiumCopper Zinc Silver)
Others (paper ceramicspetrochemicals)
75
12
6 3
4
Steel
Cement
Non-Ferrous
Glass
Others
415
463
25
29
0
10
20
30
40
50
CY12 CY16
Volume (MT) Mkt Value ($ bn)
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22IFGL Refractories Ltd
Domestic refractory demand-supply indicates low industry growth amp import pressure
Demand supply analysis of domestic refractory industry shows that it has been witnessing mutedconsumption growth (due to a fall in per tonne consumption for steel making due to technologicaladvances) and faces strong import pressure with one fourth of the market being serviced by netimports (mainly from cheap supplies from China which accounts for two thirds of refractory imports inIndia) Capacity utilization for the industry remains at ~60 on installed capacity of ~22MT and marketsize is ~US$1bn Domestic refractory consumption in steel has grown at a CAGR of ~2 during FY08-14 We expect industry growth to pick up due to scope for higher steel production (backed by higherinfra spend and expansion in per capita steel consumption) The industry has seen consolidation andacquisitions by global majors in the last five years and organised sector (split between (6 players)accounts for ~65 of the market
Exhibit 57 Refractory demand from domestic steel industry
(In tonne) FY08 FY09 FY10 FY11 FY12 FY13 FY14E FY15E FY16E FY17E
Steel Production (MT) 561 572 606 686 757 817 850 893 946 1012
Growth 20 59 132 103 79 40 50 60 70
Avg Refractory consumption(kgt of crude steel)
188 173 168 16 15 145 140 140 140 140
Refractory consumption (steel) 1054680 989560 1018080 1097600 1135500 1184650 1190000 1249500 1324470 1417183
Growth (62) 29 78 35 43 05 50 60 70
Source Ministry of Steel (MoS) Centrum Research Estimates
Exhibit 58
Organised sector accounts for ~65 of domestic refractory industry
Company RevenueMarket
Share ()
Supply toIntegratedsteel mills
Comments
Vesuvius India Ltd 6017 100 95+Leading supplier with wide product basket strongcustomer relationships with large steel mills
Orient Refractories (RHI) 4035 67 10-15 Has developed a niche with mini steel mills
IFGL Refractories (incl IEL) 3674 61 85+Mainly into flow control shaped refractories goodrelationship with large mills
Tata Refractories 9800 163 Not available Largely into bricks supplies (commodity refractories)
Calderys 6250 104 Not available
Supplies largely to non-ferrous producers strong in
bricks and monolithics
OCL 4056 68 Not available
Total Organized Sector 39332 656
Source Company Centrum Research Estimates
Exhibit 59
Net imports accounts for one fourth of market Exhibit 60
China accounts for two thirds of imports
Source MoS Industry Centrum Research Source MoS Industry Centrum Research
(800000)
(600000)
(400000)
(200000)
0
200000
400000
FY07 FY08 FY09 FY10 FY11 FY12
( T o n n e )
Imports Exports Net Imports
167259
380
167228
647594
551
696 685
10
20
30
40
50
60
70
80
FY07 FY08 FY09 FY10 FY11
Net Imports - share China share in imports
Domestic refractory production growth hasbeen largely flat andcapacity utilization is~60
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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23IFGL Refractories Ltd
Financials (Cons)
Exhibit 61
Income Statement
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
Revenues from Operations 6712 7776 8484 9554 10697
Raw Materials consumed 3201 3444 3725 4208 4716
of net sales 477 443 439 440 441
Employee expenses 987 1097 1185 1279 1382
of net sales 147 141 140 134 129
Other operational expenses 1621 1805 2013 2243 2486
of net sales 241 232 237 235 232
Total expenses 6130 6680 7273 8140 9068
of net sales 913 859 857 852 848
EBITDA 582 1096 1210 1414 1630
EBITDA Margin () 87 141 143 148 152
Depreciation amp Amortisation 134 155 174 189 204
EBIT 448 942 1036 1225 1425
Interest expenses 80 70 51 29 6
Other Income 45 34 40 44 484
EBT 413 906 1025 1240 1467
Provision for tax 159 248 307 372 440
Effective tax rate () 386 274 300 300 300Net Profit 254 658 717 868 1027
Less Minority interest (28) 18 32 70 99
Net Profit after MI 282 640 686 798 928
Source Company data Centrum Research Estimates
Exhibit 62 Key Ratios
YE Mar FY13 FY14 FY15E FY16E FY17E
Growth Ratio ()
Revenue 112 159 91 126 120
EBITDA (213) 884 104 168 153
PAT (292) 1269 71 163 163
Margin Ratios ()
PBIT Margin 67 121 122 128 133
PBT Margin 62 116 121 130 137
PAT Margin 42 82 81 84 87
Return Ratios ()
ROE 115 212 190 185 181
ROCE 84 177 175 189 198
ROIC 87 179 178 200 224
Turnover Ratios (days)
Asset turnover ratio (x) 18 19 19 19 19
Debtors 78 78 80 80 80
Inventory 46 49 50 50 50
Creditors 43 45 45 45 45
Net Working capital 74 76 80 80 80
Gearing Ratio (x)
Debt-equity 05 03 02 01 00
Net debt-equity 04 03 02 00 (01)
Current ratio 25 23 24 25 27
Dividend
Dividend per share 15 18 20 23 23
Dividend Payout () 251 124 130 125 107
Dividend Yield () 11 13 15 17 17
Per share Ratios (Rs)
Basic EPS 82 185 198 231 268
Fully diluted EPS 82 185 198 231 268
Book value 709 871 1044 1245 1485
Cash earnings per share 120 230 249 285 327
Valuation (x)
PE 174 77 72 62 53
PBV 20 16 14 11 10
EVEBITDA 102 53 46 36 27
EVSales 07 06 06 05 04
M-CapSales 07 06 06 05 05
Source Company data Centrum Research Estimates
Exhibit 63
Balance Sheet
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
Equity share capital 491 491 491 491 491
Reserves amp surplus 1964 2525 3121 3819 4648
Shareholders fund 2455 3016 3612 4310 5139
Total debt 1142 982 682 382 82
Deferred tax liabilities 65 74 74 74 74
Total Liabilities 3741 4167 4495 4963 5591
Gross block 2474 2656 2906 3156 3406
Less acc depreciation 1276 1430 1605 1794 1998
Net block 1198 1225 1301 1362 1407
Capital work in progress 20 20 20 20 20
Goodwill 1105 1342 1342 1342 1342
Investments 5 5 5 5 5
Inventories 848 1034 1162 1309 1465
Trade Receivables 1427 1658 1859 2094 2345
Cash amp cash equivalents 113 33 69 259 609
Loans amp advances 51 107 116 131 147
Trade payables 799 962 1046 1178 1319
Other current liabilities 166 210 232 262 293Provisions 94 124 139 157 176
Total Assets 3741 4167 4495 4963 5591
Source Company data Centrum Research Estimates
Exhibit 64 Cash Flow
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
PBT 413 906 1025 1240 1467
Interest 72 70 51 29 6
Depreciation 134 155 174 189 204
Increase in debtors (330) (231) (201) (235) (251)
Increase in inventories 7 (186) (128) (147) (157)
Increase in trade payables 46 163 84 132 141
Tax 197 248 307 372 440
Cash flow from operations 183 629 695 799 907
Change in fixed assets (194) (418) (250) (250) (250)
Cash flow from investments (172) (418) (250) (250) (250)
Change in debt 19 (160 (300) (300) (300)
Dividends paid (71) (79) (89) (100) (100)
Interest paid (80) (70) (51) (29) (6)
Cash flow from financing (94) (291) (409) (358) (306)
Net cash flow (81) (81) 36 191 350
Opening cash balance 195 113 33 69 259
Closing cash balance 113 33 69 259 609
Source Company data Centrum Research Estimates
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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24IFGL Refractories Ltd
Financials (Cons) - Historical
Exhibit 65
Income Statement
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
Revenues from Operations 3780 3982 4152 4689 6039
Raw Materials consumed 1743 1907 2058 2389 3024
of net sales 461 479 496 509 501
Employee expenses 487 589 539 661 843
of net sales 129 148 130 141 140
Other operational expenses 918 1036 951 1148 1418
of net sales 243 260 229 245 235
Total expenses 3244 3708 3575 4279 5299
of net sales 858 931 861 912 878
EBITDA 536 274 578 411 739
EBITDA Margin () 142 69 139 88 122
Depreciation amp Amortisation 63 74 70 71 123
EBIT 473 200 508 339 617
Interest expenses 82 95 45 56 68
Other Income 18 24 34 43 33
EBT 409 128 497 327 582
Provision for tax 123 67 155 84 183
Effective tax rate () 301 523 311 258 315Net Profit 286 61 343 243 398
Less Minority interest 1 0 0 0 0
Net Profit after MI 285 61 343 243 399
Source Company data Centrum Research Estimates
Exhibit 66 Key Ratios
YE Mar FY08 FY09 FY10 FY11 FY12
Growth Ratio ()
Revenue 171 53 43 129 288
EBITDA 98 (489) 1111 (289) 800
PAT 85 (785) 4586 (292) 642
Margin Ratios ()
PBIT Margin 125 50 122 72 102
PBT Margin 108 32 120 70 96
PAT Margin 75 15 83 52 66
Return Ratios ()
ROE 294 54 250 138 180
ROCE 182 49 169 93 128
ROIC 195 53 183 98 141
Turnover Ratios (days)
Asset turnover ratio (x) 20 18 19 15 17
Debtors 97 55 79 85 69
Inventory 46 47 52 55 52
Creditors 49 23 41 50 44
Net Working capital 105 81 89 93 67
Gearing Ratio (x)
Debt-equity 09 09 06 07 05
Net debt-equity 08 08 05 07 04
Current ratio 29 36 26 25 24
Dividend
Dividend per share 20 00 10 05 15
Dividend Payout () 284 00 118 103 63
Dividend Yield () 15 00 07 04 11
Per share Ratios (Rs)
Basic EPS 82 18 99 70 115
Fully diluted EPS 82 18 99 70 115
Book value 280 328 396 508 641
Cash earnings per share 101 39 119 91 151
Valuation (x)
PE 164 762 136 193 117
PBV 48 41 34 27 21
EVEBITDA 102 203 93 142 76
EVSales 12 12 11 10 08
M-CapSales 12 12 11 10 08
Source Company data Centrum Research Estimates
Exhibit 67
Balance Sheet
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
Equity share capital 346 346 346 491 491
Reserves amp surplus 623 789 1026 1266 1728
Shareholders fund 969 1135 1372 1757 2219
Total debt 869 1003 793 1253 1128
Deferred tax liabilities 41 38 38 40 48
Total Liabilities 1879 2185 2206 3054 3465
Gross block 1456 1948 1966 2738 2238
Less acc depreciation 687 827 864 960 1122
Net block 769 1121 1102 1778 1117
Capital work in progress 46 53 28 21 45
Goodwill 347 594 559 1032 1094
Investments 0 0 4 14 5
Inventories 474 513 592 702 855
Trade Receivables 1001 596 895 1096 1134
Cash amp cash equivalents 77 129 120 100 195
Loans amp advances 152 121 133 152 38
Trade payables 507 256 471 637 729
Other current liabilities 32 90 137 112 194Provisions 102 2 60 60 151
Total Assets 1879 2185 2206 3054 3465
Source Company data Centrum Research Estimates
Exhibit 68 Cash Flow
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
PBT 409 128 497 327 582
Interest 81 96 45 56 59
Depreciation 63 74 75 87 129
Increase in debtors (196) 559 (330) (184) 25
Increase in inventories (72) 35 (79) (77) (135)
Increase in trade payables 82 (304 266 115 67
Tax 119 90 138 70 135
Cash flow from operations 285 814 359 237 520
Change in fixed assets (94) (99) (120) (157) (49)
Cash flow from investments (62 (536 (119 (677 (98
Change in debt (88) 15 (276) 245 (242)
Dividends paid (76) (80) (6) (46) (25)
Interest paid (87) (98) (47) (60) (68)
Cash flow from financing (261) (245) (241) 408 (339)
Net cash flow (43) 24 (8) (29) 94
Opening cash balance 120 77 129 120 100
Closing cash balance 77 129 120 100 195
Source Company data Centrum Research Estimates
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25IFGL Refractories Ltd
Appendix A
Disclaimer
Centrum Broking Limited (ldquoCentrumrdquo) is a full(service Stock Broking Company and a member of The Stock Exchange Mumbai (BSE) and National StockExchange of India Ltd (NSE) Our holding company Centrum Capital Ltd is an investment banker and an underwriter of securities As a group Centrumhas Investment Banking Advisory and other business relationships with a significant percentage of the companies covered by our Research Group Ourresearch professionals provide important inputs into the Groups Investment Banking and other business selection processes
Recipients of this report should assume that our Group is seeking or may seek or will seek Investment Banking advisory project finance or otherbusinesses and may receive commission brokerage fees or other compensation from the company or companies that are the subject of thismaterialreport Our Company and Group companies and their officers directors and employees including the analysts and others involved in thepreparation or issuance of this material and their dependants may on the date of this report or from time to time have long or short positions in actas principal in and buy or sell the securities or derivatives thereof of companies mentioned herein Centrum or its affiliates do not own 1 or more in theequity of this company Our sales people dealers traders and other professionals may provide oral or written market commentary or trading strategies toour clients that reflect opinions that are contrary to the opinions expressed herein and our proprietary trading and investing businesses may makeinvestment decisions that are inconsistent with the recommendations expressed herein We may have earlier issued or may issue in future reports on thecompanies covered herein with recommendations information inconsistent or different those made in this report In reviewing this document youshould be aware that any or all of the foregoing among other things may give rise to or potential conflicts of interest We and our Group may rely oninformation barriers such as Chinese Walls to control the flow of information contained in one or more areas within us or other areas units groups oraffiliates of Centrum Centrum or its affiliates do not make a market in the security of the company for which this report or any report was writtenFurther Centrum or its affiliates did not make a market in the subject companyrsquos securities at the time that the research report was published
This report is for information purposes only and this documentmaterial should not be construed as an offer to sell or the solicitation of an offer to buypurchase or subscribe to any securities and neither this document nor anything contained herein shall form the basis of or be relied upon in connection
with any contract or commitment whatsoever This document does not solicit any action based on the material contained herein It is for the generalinformation of the clients of Centrum Though disseminated to clients simultaneously not all clients may receive this report at the same time Centrumwill not treat recipients as clients by virtue of their receiving this report It does not constitute a personal recommendation or take into account theparticular investment objectives financial situations or needs of individual clients Similarly this document does not have regard to the specificinvestment objectives financial situationcircumstances and the particular needs of any specific person who may receive this document The securitiesdiscussed in this report may not be suitable for all investors The securities described herein may not be eligible for sale in all jurisdictions or to allcategories of investors The countries in which the companies mentioned in this report are organized may have restrictions on investments voting rightsor dealings in securities by nationals of other countries The appropriateness of a particular investment or strategy will depend on an investorsindividual circumstances and objectives Persons who may receive this document should consider and independently evaluate whether it is suitable forhis hertheir particular circumstances and if necessary seek professionalfinancial advice Any such person shall be responsible for conductinghishertheir own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risks involvedin the securities forming the subject matter of this document
The projections and forecasts described in this report were based upon a number of estimates and assumptions and are inherently subject to significantuncertainties and contingencies Projections and forecasts are necessarily speculative in nature and it can be expected that one or more of the estimateson which the projections and forecasts were based will not materialize or will vary significantly from actual results and such variances will likely increase
over time All projections and forecasts described in this report have been prepared solely by the authors of this report independently of the Company These projections and forecasts were not prepared with a view toward compliance with published guidelines or generally accented accountingprinciples No independent accountants have expressed an opinion or any other form of assurance on these projections or forecasts You should notregard the inclusion of the projections and forecasts described herein as a representation or warranty by or on behalf of the Company Centrum theauthors of this report or any other person that these projections or forecasts or their underlying assumptions will be achieved For these reasons youshould only consider the projections and forecasts described in this report after carefully evaluating all of the information in this report including theassumptions underlying such projections and forecasts
The price and value of the investments referred to in this documentmaterial and the income from them may go down as well as up and investors mayrealize losses on any investments Past performance is not a guide for future performance Future returns are not guaranteed and a loss of original capitalmay occur Actual results may differ materially from those set forth in projections Forward (looking statements are not predictions and may be subject tochange without notice Centrum does not provide tax advice to its clients and all investors are strongly advised to consult regarding any potentialinvestment Centrum and its affiliates accept no liabilities for any loss or damage of any kind arising out of the use of this report Foreign currenciesdenominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derived fromthe investment In addition investors in securities such as ADRs the value of which are influenced by foreign currencies effectively assume currency riskCertain transactions including those involving futures options and other derivatives as well as non(investment(grade securities give rise to substantial
risk and are not suitable for all investors Please ensure that you have read and understood the current risk disclosure documents before entering into anyderivative transactions
This reportdocument has been prepared by Centrum based upon information available to the public and sources believed to be reliable Norepresentation or warranty express or implied is made that it is accurate or complete Centrum has reviewed the report and in so far as it includescurrent or historical information it is believed to be reliable although its accuracy and completeness cannot be guaranteed The opinions expressed inthis documentmaterial are subject to change without notice and have no obligation to tell you when opinions or information in this report change
This report or recommendations or information contained herein dodoes not constitute or purport to constitute investment advice in publicly accessiblemedia and should not be reproduced transmitted or published by the recipient The report is for the use and consumption of the recipient only Thispublication may not be distributed to the public used by the public media without the express written consent of Centrum This report or any portionhereof may not be printed sold or distributed without the written consent of Centrum
The distribution of this document in other jurisdictions may be restricted by law and persons into whose possession this document comes should informthemselves about and observe any such restrictions Neither Centrum nor its directors employees agents or representatives shall be liable for anydamages whether direct or indirect incidental special or consequential including lost revenue or lost profits that may arise from or in connection withthe use of the information
This document does not constitute an offer or invitation to subscribe for or purchase or deal in any securities and neither this document nor anythingcontained herein shall form the basis of any contract or commitment whatsoever This document is strictly confidential and is being furnished to yousolely for your information may not be distributed to the press or other media and may not be reproduced or redistributed to any other person Thedistribution of this report in other jurisdictions may be restricted by law and persons into whose possession this report comes should inform themselvesabout and observe any such restrictions By accepting this report you agree to be bound by the fore going limitations No representation is made thatthis report is accurate or complete
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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The opinions and projections expressed herein are entirely those of the author and are given as part of the normal research activity of Centrum Brokingand are given as of this date and are subject to change without notice Any opinion estimate or projection herein constitutes a view as of the date of thisreport and there can be no assurance that future results or events will be consistent with any such opinions estimate or projection
This document has not been prepared by or in conjunction with or on behalf of or at the instigation of or by arrangement with the company or any of itsdirectors or any other person Information in this document must not be relied upon as having been authorized or approved by the company or itsdirectors or any other person Any opinions and projections contained herein are entirely those of the authors None of the company or its directors orany other person accepts any liability whatsoever for any loss arising from any use of this document or its contents or otherwise arising in connectiontherewith
Centrum and its affiliates have not managed or co(managed a public offering for the subject company in the preceding twelve months Centrum andaffiliates have not received compensation from the companies mentioned in the report during the period preceding twelve months from the date of thisreport for service in respect of public offerings corporate finance debt restructuring investment banking or other advisory services in amergeracquisition or some other sort of specific transaction
As per the declarations given by them Mr Abhisar Jain research analyst and andor any of his family members do not serve as an officer director or anyway connected to the companycompanies mentioned in this report Further as declared by him he has not received any compensation from the abovecompanies in the preceding twelve months He does not hold any shares by him or through his relatives or in case if holds the shares then will not to doany transactions in the said scrip for 30 days from the date of release such report Our entire research professionals are our employees and are paid asalary They do not have any other material conflict of interest of the research analyst or member of which the research analyst knows of has reason toknow at the time of publication of the research report or at the time of the public appearance
While we would endeavour to update the information herein on a reasonable basis Centrum its associated companies their directors and employees areunder no obligation to update or keep the information current Also there may be regulatory compliance or other reasons that may prevent Centrumfrom doing so
Non(rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable
regulations andor Centrum policies in circumstances where Centrum is acting in an advisory capacity to this company or any certain othercircumstances
This report is not directed to or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality statecountry or other jurisdiction where such distribution publication availability or use would be contrary to law or regulation or which would subjectCentrum Broking Limited or its group companies to any registration or licensing requirement within such jurisdiction Specifically this document doesnot constitute an offer to or solicitation to any US person for the purchase or sale of any financial instrument or as an official confirmation of anytransaction to any US person unless otherwise stated this message should not be construed as official confirmation of any transaction No part of thisdocument may be distributed in Canada or used by private customers in United Kingdom
The information contained herein is not intended for publication or distribution or circulation in any manner whatsoever and any unauthorized readingdissemination distribution or copying of this communication is prohibited unless otherwise expressly authorized Please ensure that you have read ldquoRiskDisclosure Document for Capital Market and Derivatives Segmentsrdquo as prescribed by Securities and Exchange Board of India before investing in IndianSecurities Market
Rating Criteria
Rating Market cap lt Rs20bn Market cap gt Rs20bn but lt 100bn Market cap gt Rs100bn Buy Upside gt 25 Upside gt 20 Upside gt 15
Hold Upside between (25 to +25 Upside between (20 to +20 Upside between (15 to +15
Sell Downside gt 25 Downside gt 20 Downside gt 15
Member (NSE BSE MCX(SX) Depository Participant (CDSL) and SEBI registered Portfolio Manager
Registration Nos
CAPITAL MARKET SEBI REGN NO BSE INB011454239 NSE INB231454233
DERIVATIVES SEBI REGN NO NSE INF231454233 (TRADING amp SELF CLEARING MEMBER)
CDSL DP ID 12200 SEBI REGISTRATION NO IN(DP(CDSL(661(2012
PMS REGISTRATION NO INP000004383
MCX ndash SX (Currency Derivative segment) REGN NO INE261454230
Website wwwcentrumcoin
Investor Grievance Email ID investorgrievancescentrumcoin
Compliance Officer Details
Tel (022) 4215 9413 Email ID compliancecentrumcoin
Centrum Broking Limited
Registered Office Address
Bombay Mutual Building
2nd Floor
Dr D N Road
Fort Mumbai ( 400 001
Correspondence Address
Centrum House
6th Floor CST Road Near Vidya Nagari Marg Kalina
Santacruz (E) Mumbai 400 098
Tel (022) 4215 9000
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5IFGL Refractories Ltd
Orissa plant to capture domestic demand and reduce export share in sales
We expect IFGLrsquos flagship plant at Orissa (standalone operations) to capture increasing domesticdemand and gradually reduce the share of exports in total sales as export sales will continue to getshifted to IEL in coming years We see share of exports coming down to 42 in FY17E from 56 inFY14 and domestic sales increasing to 58 for standalone operations IFGL has shown smart revenueCAGR of ~17 at its standalone operations during FY10-14 led by better pricing weak rupeebenefitting exports revenue and improvement in capacity utilization but we expect revenue CAGR of67 during FY14-17E on account of limited room for higher volumes (particularly in continuouscasting refractories segment which is almost completely utilized) reduced share of exports goingforward and low pricing power due to increased competition
Exhibit 7
Exports share in total standalone sales to reduce from FY15E
Source Company Centrum Research Estimates
Higher utilization and lower exports to provide margin uptick at Orissa
Though IFGL is currently running at near full utilization levels for continuous casting refractories at its
Orissa plant it has an opportunity to increase its utilization in other shaped products like slide gaterefractories purge plugs and cast products Also utilization in unshaped refractories is expected toimprove Lower share of exports would result in savings on freight and coupled with higher utilizationlead to lower fixed costs We see IFGLrsquos standalone margins improving by 150bps YoY to 153 inFY15E We expect margins to further improve to 158 by FY17E led by lower exports We note thatmargins have remained very volatile in the standalone operations due to pressure on raw materialcosts high dependence on exports and hence currency fluctuations and lacklustre demandenvironment We expect margin trajectory to remain more stable going ahead with rationalization ofsales in exports and domestic markets as well as overall improvement in demand environment
Exhibit 8 Capacity utilization at Orissa to improve Exhibit 9 Standalone margins expected to expand
Source Company Centrum Research Estimates Source Company Centrum Research Estimates
4847
50
44
50
54
5852
53
50
56
50
46
42
30
35
40
45
50
55
60
500
700
900
1100
1300
1500
1700
1900
2100
2300
2500
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( R s m n )
Domestic Sales Export Sales
Domestic - share Exports - share
68
87
78
72
7780 82 84
34
49
65 64
58 6064 66
30
40
50
60
70
80
90
FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E
Shaped Refractories Unshaped Refractories
291
196
348 342
450
534575
630
166
94
127
112
138
153 154 158
8
10
12
14
16
18
0
100
200
300
400
500
600
700
FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E
EBITDA (Rs mn) Margin - RHS
IFGLrsquos flagship plant tofocus more on domesticmarkets and see marginimprovement
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6IFGL Refractories Ltd
European demand expected to be better on improving macros
Demand for refractories from European steel mills is expected to be better going forward due togradual pick up in steel production and improving macro situation (as is visible from the pick-up inGDP numbers) Since Europe (including UK) accounts for ~70 of IFGLrsquos exports from domesticoperations and ~50 of revenues on a consolidated basis (including overseas subsidiariesrsquo net sales)we expect IFGL to benefit from improving demand situation in Europe
Exhibit 10
Europe steel production picking up Exhibit 11
GDP in EU amp UK improving
Source Company Centrum Research Estimates CY14 nos annualised for 5MYTD Source Company Centrum Research
Expansions by integrated steel mills provide domestic demand visibility
We see good demand visibility in the domestic market as steel production is expected to pick up ledmainly by higher volumes from large steel mills We expect the share of large integrated steel mills torise to ~60 by FY17E from ~51 in FY14 led mainly by expansions and wide product range We haveconsidered a basket of players (SAIL Tata Steel JSW steel JSPL Essar RINL JSW Ispat) in large steelmills and see volume CAGR of ~12 from them as compared to 6 for the steel industry during FY14-17E IFGL derives ~65 of its domestic revenue from large steel mills and is expected to be a keybeneficiary of the gradual shift in domestic steel production to large steel mills from small mills
Exhibit 12 Steel production growth to pick up Exhibit 13 Led by higher volumes from large steel mills
Source Company Centrum Research Estimates Source Company Centrum Research Estimates
Exhibit 14 Large mills share in steel production to rise Exhibit 15 Large mills to grow faster
Source Company Centrum Research Estimates Source Company Centrum Research Estimates
2099 1969
1375
1732 1775
1412
16561759
100
120
140
160
180
200
220
CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14
EU Production (MT)
(8)
(6)
(4)
(2)
0
2
4
M a r - 0 8
J u l - 0 8
N o v - 0
8
M a r - 0 9
J u l - 0 9
N o v - 0
9
M a r - 1 0
J u l - 1 0
N o v - 1
0
M a r - 1 1
J u l - 1 1
N o v - 1
1
M a r - 1 2
J u l - 1 2
N o v - 1
2
M a r - 1 3
J u l - 1 3
N o v - 1
3
M a r - 1 4
UK GDP EU GDP
686 757 817 850 893 946 1012
132
103
79
4050
6070
0
2
4
6
8
10
12
14
40
50
60
70
80
90
100
110
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( M T )
Steel Production - India YoY Growth
339 372 389
433482
539
610
0
10
20
30
40
50
60
70
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( M T )
SAIL Tata Steel JSW Steel JSPL Essar Steel RINL Ispat Inds
69 76
82 85 89 95
101
34 37 39 43 48 54 61
4949
48
51
54
57 60
40
45
50
55
60
65
0
20
40
60
80
100
120
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( )
( M T )
Steel Production Large Integrated steel mills
share of integrated mills - RHS
74
60
86
121
00
20
40
60
80
100
120
140
CAGR (FY11-14) CAGR (FY14-17E)
Steel Production Large Integrated steel mills
Domestic steel production shifting tolarge steel mills therebyimproving demandoutlook for organisedrefractory producers
Steel productionand GDP improvingin Europe
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7IFGL Refractories Ltd
Steady growth seen from overseas operations after turnaround
Several strategic acquisitions in last decade for expanding reach and product basket
IFGL has made several overseas acquisitions in the last decade mainly aimed at achieving inorganicgrowth through entry into new markets expanding its product basket and getting access to newtechnologies
IFGL acquired Monocon group in 2005 at a cost of 95mn pounds (Rs560mn) with its plantslocated in Brazil Taiwan China UK and USA Monocon group provided IFGL with wide rangeproduct basket (from Lances Darts Monolithics amp Castables) and also gave access to key largesteel plants in Europe of steelmakers like Corus amp Arcelor Mittal
IFGL acquired Goricon group in 2006 at a cost of 11mn pounds (Rs70mn) and later merged it withMonocon as the companies had similar products and were competitors of each other
Hoffman ceramics was acquired in 2008 at a cost of 7mn euros for getting entry into foundries for
supply of consumables
IFGL acquired EI Ceramics in 2010 which has similar product basket as IFGLrsquos domestic operationsbut provided access to key markets in Americas Company acquired EI Ceramics with an eye on
future expansion as it had space to increase capacity by ~3x IFGL also acquired CUSCinternational in US (later merged with EI) which was providing ancillary services to EI includingprocessing of raw materials warehousing and packaging
Exhibit 16
Snapshot of overseas acquisitions
CompanyAcquired
Year ofacquisition
PurchaseCost
(Rs mn)
PlantLocations
Products Markets Comments
MonoconGroup
2005 560UK USChina
Refractory dartslances monolithics
UK EuropeChina
Services key customers in Europelike Corus Arcelor Brazil plantclosed and Taiwan plant shiftedto China
GoriconGroup
2006 70 UK USDarts lances and ladlepowder
Europe Merged into Monocon
HoffmanCeramics 2008 470 Germany
Refractory ceramicslike filters feeders etc Europe
Czech plant closed suppliesconsumables to foundries
EI Ceramics 2010 590 Ohio USContinuous castingrefractories
US CanadaMexico
Acquired to gain traction inAmerica market
Source Company Centrum Research
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8IFGL Refractories Ltd
Overseas operations have been consolidated and profitability has improved
IFGL has faced several challenges in managing the profitability and operations of its overseasacquisitions due to global economic crisis in CY08 which impacted steel production in US amp Europevery severely Both Monocon and Hoffman group had EBITDA loss in FY09 but management effortsinto consolidation of key group entities (Goricon was merged with Monocon) and closure of certainunviable facilities (Taiwan Brazil plants of Monocon were closed Czech plant of Hoffman was closed)coupled with recovery in demand has led to gradual improvement in profitability of companyrsquossubsidiaries We note that Monocon grouprsquos profitability has improved substantially during FY11-14with EBITDA CAGR of ~16 and improvement in marginsROE to 8512 in FY14 Hoffman grouphas also returned to profits although margins remain low IFGLrsquos acquisition in US of EI Ceramics in2010 has been rewarding and the company has performed consistently well post acquisition andachieved revenueEBITDA CAGR of ~3338 during FY11-14
Exhibit 17
Revenue trend for overseas subs Exhibit 18
EBITDA trend for overseas subs
Source Company Centrum Research Source Company Centrum Research
Exhibit 19 EBITDA margin has shown improvement Exhibit 20 ROE has moved up especially for EI Ceramics
Source Company Centrum Research Estimates Source Company Centrum Research Estimates
0
500
1000
1500
2000
2500
3000
3500
FY11 FY12 FY13 FY14
( R s
m n )
Monocon EI Ceramics Hoffman
FY11-14 - CAGR
Monocon - 107EI Ceramics - 328
0
50
100
150
200
250
300
FY11 FY12 FY13 FY14
( R s
m n )
Monocon EI Ceramics Hoffman
FY11-14 - CAGR
Monocon - 16EI Ceramics - 376
70
89
59
85
139
159
137
161
7080
51 5030
50
70
90
110
130
150
170
FY11 FY12 FY13 FY14
( )
Monocon EI Ceramics Hoffman
119 120 87 120
112
191
158 162
7135
4336
30
50
70
90
110
130
150170
190
210
FY11 FY12 FY13 FY14
( )
Monocon EI Ceramics Hoffman
EBITDA has shownimprovement across alloverseas subsidiariesduring FY11-14
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9IFGL Refractories Ltd
EI Ceramics doubling capacity to maintain growth
EI Ceramics is doubling its capacity as utilizations on current capacity reached ~100 in FY14 EICeramics has been IFGLrsquos best overseas acquisition achieving revenueEBITDA CAGR of ~3338since acquisition (FY11-14) We expect revenueEBITDA CAGR of 23227 during FY14-17E asexpansion would be on-stream by Q1FY16E IFGL had spent ~Rs590mn for the purchase of EI and isexpected to achieve full payback in FY15E (less than 5 years) The capex for expansion of additional 80kpcsyear in EI is limited to Rs80mn and would be funded easily through internal accruals We note thatadditional capex would have the potential to generate ~Rs1000mn in revenues on completestabilisation (by FY17E) an asset turnover of more than 10x
Exhibit 21 EI Ceramics to double capacity by Q1FY16 Exhibit 22 Strong revenue and EBITDA CAGR ahead
Source Company Centrum Research Source Company Centrum Research Estimates
Share of higher margin EI Ceramics to keep increasing in IFGLrsquos overseas earnings
We expect EI Ceramics to lead the growth in earnings from IFGLrsquos overseas subsidiaries basket We expectrevenue contribution of EI Ceramics in total overseas subs to increase to ~26 in FY17E from ~20 inFY14 while EBITDA contribution is expected to increase to 41 in FY17E from ~34 in FY14 Since EICeramics enjoys the best margins (~16) among IFGLrsquos overseas subsidiaries increase in share ofearnings from EI Ceramics is expected to lead to margin improvement for IFGL at a consolidated level
Exhibit 23
Overseas subs revenue share ndash FY14 Exhibit 24
Overseas subs revenue share ndash FY17E
Source Company Centrum Research Source Company Centrum Research Estimates
Exhibit 25
Overseas subs EBITDA share ndash FY14 Exhibit 26
Overseas subs EBITDA share ndash FY17E
Source Company Centrum Research Source Company Centrum Research Estimates
80000
80000
160000
0
20000
40000
60000
80000
100000
120000
140000
160000
180000
Phase 1 Phase 2 Total
( p c s y r )
Currently Installed FY16E
8631012
1113
1447
1881
118 163 178 231 301
0
500
1000
1500
2000
FY13 FY14 FY15E FY16E FY17E
Revenue (Rs mn) EBITDA (Rs mn)
FY14-17E - CAGR
Revenue - 23EBITDA - 227
Monocon641
EI Ceramics
197
Hoffman161
Monocon607
EI Ceramics
261
Hoffman133
Monocon577
EI Ceramics
338
Hoffman 85
Monocon530
EI Ceramics
405
Hoffman 64
Capacity at EI Ceramicsto increase to 160k pcsyear by FY15-end
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10IFGL Refractories Ltd
Balance sheet strengthened free cash flow generation strong
Strong free cash flow generation ahead with limited capex
IFGL has turned free cash flow positive at a consolidated level in FY14 as operating cash flow improvedsharply (up 240 YoY) led by higher profitability across operations We see strong free cash flowgeneration ahead on the back of limited capex (~Rs250mn annually over FY15-16E) and continued
traction in operating cash flow on the back of higher capacities and better utilizations
Exhibit 27 Free cash flow generation expected to be strong going ahead
Source Company Centrum Research Estimates
Free cash flow yield to improve significantly
We see free cash flow yield improving to ~12 and free cash flowEBITDA going up to 04x in FY16EBalance sheet remains strong and we expect the company to be debt free at a consolidated level inthe next three years if there is no new acquisition or major capex
Exhibit 28
Free cash flow yield attractive Exhibit 29
Debt free status in next two years
Source Company Centrum Research Estimates Source Company Centrum Research Estimates
-527
-99 -39
211
445549
657
(1000)
(800)
(600)
(400)
(200)
0
200
400
600
800
1000
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( R s m n )
OCF Capex Free Cash Flow
019
037 039
040
45
95
117
141
00
40
80
120
160
00
01
02
03
04
05
FY14 FY15E FY16E FY17E
Free Cash FlowEBITDA (x) Free Cash Flow Yield -
(02)
00
02
04
06
08
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( x )
Debt-equity Net debt-equity
Free cash flow yieldexpected to go up from45 in FY14 to 117 inFY16E
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11IFGL Refractories Ltd
ROE shows improvement beats most peers at a global level
IFGL has shown sharp improvement in its ROE in FY14 as overseas subsidiariesrsquo profitability hasimproved and domestic profitability is on an upswing post start of IEL We expect ROE of IFGL to be thebest in the industry at a global level in the next few years
Exhibit 30
IFGL ROE well above that of global peers
Source Company Bloomberg Centrum Research Estimates CY07 = FY08
(10)
(5)
0
5
10
15
20
25
3035
CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14E CY15E
( )
Vesuvius India IFGL Refractories (FY) Vesuvius PLC
Puyang Refractories Cie de St-Gobain Magnesita Refractarios
Chosun Refractories Krosaki Harima (FY) Shinagawa (FY)
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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12IFGL Refractories Ltd
Financials
Revenue growth to be led by IEL and overseas operations
We expect consolidated net sales CAGR of 112 for IFGL during FY14-17E This is expected to be ledby ~33 CAGR from IEL and 12 CAGR from overseas subsidiaries while standalone operations CAGRis expected to slow down to 67
Exhibit 31
Net sales CAGR of 112 during FY14-17E
Source Company Centrum Research Estimates
Margins and return ratios to remain healthy FY14-17E EBITDA CAGR of 141
Backed by better margins from IEL and recovery in demand we expect EBITDA CAGR of 141 duringFY14-17E Margins are expected to improve gradually as revenues from high margin subsidiary IELpicks up Expansion at EI Ceramics is also expected to help in EBITDA growth and margins Returnratios are expected to remain healthy on account of operating efficiency and high asset turnover ratiosfrom new expansions
Exhibit 32
EBITDA margin to remain stable Exhibit 33
Healthy return ratios
Source Company Centrum Research Estimates Source Company Centrum Research Estimates
Exhibit 34
Du Pont analysis
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
PATSales (x) 005 007 004 008 008 008 009
SalesAssets (x) 154 174 179 187 189 192 191
AssetsEquity (x) 174 156 152 138 124 115 109
ROE - 138 180 115 212 190 185 181
Source Company Centrum Research Estimates
4689
6039 6712
77768484
9554 10697
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( R s m n )
Standalone (IFGL) IFGL Exports (IEL) Overseas Subs Total
411 739 582 1096 1210 1414 1630
88
122
87
141 143 148
152
60
80
100
120
140
160
0
200
400
600
800
1000
1200
1400
1600
1800
FY11 FY12 FY13 FY14 FY15E FY16E FY17EEBITDA-Cons (Rs mn) OPM - RHS
50
100
150
200
250
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( )
ROE ROCE (post tax) ROIC (post tax)
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13IFGL Refractories Ltd
Key Assumptions and Sensitivity
Exhibit 35 Key Assumptions
Revenue (Rs mn) FY12 FY13 FY14 FY15E FY16E FY17E
Indian Operations
Domestic sales 1305 1495 1391 1744 2014 2304
Exports 1443 1567 1883 1744 1716 1669
Total standalone operations 2748 3061 3274 3487 3730 3973
IFGL Exports Ltd 0 90 399 518 755 953
Total Indian operations 2748 3152 3673 4005 4485 4926
Overseas Operations
Monocon Group 2410 2801 3288 3617 3979 4376
EI Ceramics 716 863 1012 1113 1447 1881
Hoffman Group 758 692 827 868 911 957
Less Intersegment revenues 596 790 1023 1120 1267 1443
Total Overseas operations 3287 3566 4103 4478 5069 5771
Total Consolidated operations 6035 6717 7776 8484 9554 10697
Source Company Centrum Research Estimates
Exhibit 36
EPS sensitivity to shaped refractory segment
EPS - FY16E (Rs) -Cons
Realizations
-10 -5 Base 5 10
V o l u m e s
-10 177 192 206 221 236
-5 187 203 218 234 250
Base 197 214 231 247 264
5 208 225 243 260 277
10 218 236 255 273 291
Source Company Centrum Research Estimates
Exhibit 37
EPS sensitivity to unshaped refractory segment
EPS - FY16E (Rs) - ConsRealizations
-10 -5 Base 5 10
V o l u m e s
-10 230 233 235 237 239
-5 228 230 233 235 237
Base 226 228 231 233 235
5 223 226 228 231 234
10 221 223 226 229 232
Source Company Centrum Research Estimates
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14IFGL Refractories Ltd
Valuation ndash poised for rerating
IFGLrsquos mean EVEBITDA stands at 47x with standard deviation of 26x and we note that the stock pricehas been volatile in last 6-7 years due to sharp fluctuations in earnings which explains the highstandard deviation However we believe that earnings would be more linear going forward asoverseas operations have been stabilised and growth would be driven by expansions at higher marginsubsidiaries of IEL and EI Ceramics At the CMP of Rs142 the stock trades at attractive valuations of 62xFY16E PE and 36x FY16E EVEBITDA and we believe that sharp improvement in free cash flow canlead to rerating in the stock We assign an EVEBITDA of 55x on Marrsquo16E earnings to arrive at a fairvalue of Rs220 and initiate with a Buy The multiple assigned by us remains below mean+05sd andthus provides comfort on historical valuations even though we expect much better earnings trajectoryfor the company going forward
Exhibit 38
EVEBITDA Valuation
(Rs mn) FY16E
EBITDA 1414
Ascribed EVEBITDA (x) 55
EV 7776
Add Net Cash (123)
Fair value mkt cap 7653
No of shares (mn) 346
Fair Valueshare (Rs) 220
Source Company Centrum Research Estimates
Exhibit 39
1-year forward EVEBITDA chart Exhibit 40
1-year forward PE chart
Source Bloomberg Company Centrum Research Estimates Source Bloomberg Company Centrum Research Estimates
Steep valuation discount exists for IFGL compared to global peersComparison of IFGLrsquos valuations with global peers shows that the company is trading at a steepdiscount despite strong fundamentals which we feel is unwarranted We expect re-rating in the stockwith improvement in outlook and stability in earnings
Exhibit 41 Valuationndash Peer comparison
CompanyMkt Cap(US$ mn)
CAGR CY13-CY15E () EBITDA Margin () PE (x) EVEBITDA (x) RoE () Div Yield ()
Rev EBITDA PAT CY13 CY14E CY15E CY13 CY14E CY15E CY13 CY14E CY15E CY13 CY14E CY15E CY13 CY14E CY15E
IFGL Refractories 82 108 136 116 141 143 148 77 72 62 53 46 36 212 190 185 12 14 16
Vesuvius India Ltd 220 110 115 126 184 178 186 203 192 161 110 100 82 164 152 158 07 08 09
Global Peers
RHI AG 1322 29 (02) 318 137 122 129 153 103 89 59 65 57 131 177 180 31 31 35
Vesuvius PLC 2140 04 53 80 117 123 128 149 141 127 86 82 74 93 1 02 108 31 34 36
Magnesita SA 574 122 129 344 156 149 158 157 180 101 60 63 55 21 17 35 15 11 21
Cie de St(Gobain 32544 20 91 32 3 100 107 114 218 181 133 76 68 60 58 76 94 29 30 33
Source Bloomberg Estimates Centrum Research Estimates CY13=FY14 for IFGL and so on
0
2
4
6
810
12
14
J u n - 0 7
O c t - 0 7
F e b - 0 8
J u n - 0 8
O c t - 0 8
F e b - 0 9
J u n - 0 9
O c t - 0 9
F e b - 1 0
J u n - 1 0
O c t - 1 0
F e b - 1 1
J u n - 1 1
O c t - 1 1
F e b - 1 2
J u n - 1 2
O c t - 1 2
F e b - 1 3
J u n - 1 3
O c t - 1 3
F e b - 1 4
J u n - 1 4
EVEBITDA MeanMean + Std Dev Mean - Std Dev
0
5
10
15
20
25
J u n - 0 7
O c t - 0 7
F e b - 0 8
J u n - 0 8
O c t - 0 8
F e b - 0 9
J u n - 0 9
O c t - 0 9
F e b - 1 0
J u n - 1 0
O c t - 1 0
F e b - 1 1
J u n - 1 1
O c t - 1 1
F e b - 1 2
J u n - 1 2
O c t - 1 2
F e b - 1 3
J u n - 1 3
O c t - 1 3
F e b - 1 4
J u n - 1 4
PE MeanMean + Std Dev Mean - Std Dev
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15IFGL Refractories Ltd
IFGL trading at a higher discount to Vesuvius than historical average
IFGL has historically (based on average during JanrsquoCY09-JunersquoCY14) traded at a discount of ~35 toVesuvius India Ltd (VIL) on EVEBITDA basis However currently IFGL is trading at a discount of ~60 toVIL which is unwarranted as the profitability of IFGL is on an uptrend post stabilisation of overseasoperations and IEL The historical discount has seen an increase in the past 3 years due to volatility inearnings of IFGL but with operations having stabilised we see the discount narrowing We also expectIFGL to be above its peers (incl VIL) in terms of ROE for the next few years and see a high cash flowyield of ~12 in FY16E The multiple assigned by us implies ~35 discount to VILrsquos current valuationswhich is in line with the historical average even though IFGL is expected to generate better returnsand free cash flow going forward
Exhibit 42
EVEBITDA ndash IFGL vs Vesuvius India Exhibit 43
Discount of IFGL EVEBITDA vs Vesuvius
Source Bloomberg Company Centrum Research Source Bloomberg Company Centrum Research
0
2
4
6
8
10
12
F e b - 0
9
J u n - 0
9
O c t - 0 9
F e b - 1
0
J u n - 1
0
O c t - 1 0
F e b - 1
1
J u n - 1
1
O c t - 1 1
F e b - 1
2
J u n - 1
2
O c t - 1 2
F e b - 1
3
J u n - 1
3
O c t - 1 3
F e b - 1
4
J u n - 1
4
( x )
EVEBITDA IFGL EVEBITDA Vesuvius
(90)
(60)
(30)
0
30
60
F e b - 0
9
J u n - 0
9
O c t - 0 9
F e b - 1
0
J u n - 1
0
O c t - 1 0
F e b - 1
1
J u n - 1
1
O c t - 1 1
F e b - 1
2
J u n - 1
2
O c t - 1 2
F e b - 1
3
J u n - 1
3
O c t - 1 3
F e b - 1
4
J u n - 1
4
( )
EVEBITDA discount of IFGL vs Vesuvius
Avg discount of IFGL vs Vesuvius
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16IFGL Refractories Ltd
Key risks to our thesis
Dependent on raw material sourcing through imports The industry is dependent on importsof key raw materials like high grade alumina bauxite magnesia silicon carbide etc China is themajor supplier of imports and has imposed heavy taxes on export of raw materials of refractories This has resulted in sharp increase in imported raw material costs IFGL sources ~52 of its raw
materials through imports and remains exposed to increase in costs which can impact its margins Low pricing power due to excess domestic supply and import pressure The industry suffers
from low capacity utilization of ~60 with excess installed capacities (~22 MTPA) and as a resultpricing power is low for refractory makers who are squeezed between raw material suppliers andsteel makers Cheap refractory imports from China have also kept prices in check IFGL does notenjoy as much pricing power as VIL does as customers prefer VIL for its strong brand name andproven track record of providing quality products and services Further increase in competitiveintensity can lead to lower pricing for IFGL in both domestic and export markets
Sharp slowdown in steel industry leading to lower volumes Like any other refractorycompany IFGLrsquos fortunes depend on the steel industry and any slowdown in global economy mayhamper the steel industryrsquos growth and IFGLrsquos volume growth would be more vulnerable as itdoes not have strong relationships like VIL has Sharp slowdown in the steel industry (vs
expectations of recovery) in coming years could lead to lower capacity utilization and lower thanexpected volumes
Currency Fluctuation We believe that steady weakening of rupee over the past couple of yearshas been favourable to the industry as well as for IFGL due to better import substitution andhigher realizations on exports negated only to a partial extent by higher import costs for rawmaterials IFGL has 80 of its revenues coming from overseas on a consolidated basis On astandalone basis approximately 58 of the revenues (FY14) came from exports Companyrsquosrevenues remain exposed to sharp appreciation of rupee against foreign currencies
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17IFGL Refractories Ltd
Exhibit 44
Shareholding pattern ()
Q4FY14 Q3FY14 Q2FY14 Q1FY14
Promoter 713 713 713 713
FIIs 00 00 00 00
DIIs 11 22 22 22
Others 277 265 265 265
Source BSE
Company Background
IFGL Refractories Ltd is a manufacturer of specialisedrefractories and requisite operating systems for the steelIndustry IFGL offers its customers total solution for refractoryfor flow control in steel teeming and continuous casting ofSteel IFGL has 8 manufacturing plants strategically located
across the globe in India China Europe and Americas Thecompany has a presence in over 50 of the global markets Itacquired the Monocon group UK in 2005 (06 Hofmanngroup Germany in 2008 and EI Ceramics USA in 2010 Theseoverseas acquisitions have brought along access to newproducts amp technologies new markets and new customers The company has also set up a subsidiary IFGL exports atKandla Gujarat which also has technical collaboration withKrosaki Harima Corporation Japan Apart from this IFGL alsoplans to expand its capacities in India and abroad over thecoming years
Exhibit 45 Key management personnel
Name Position Profile
Mr S K Bajoria Chairman
Promoter of S K Bajoria Group based at Kolkata engaged in diversified business activitiesHas been honorary vice consul of Denmark in Kolkata president of the Indian chamber ofcommerce director of West Bengal industrial development corporation Ltd and industrialpromotion amp investment corporation of Orissa Ltd
Mr Pradeep Bajoria Managing Director
Associated with IFGL from the very early days of Indo Flogates even before thecommencement of production in 1984 Has been director amp chief executive of erstwhileIndo Flogates Ltd More than 30 years of experience of refractory industry and has beeninvolved in various capacities in Indian refractories makers association
Mr Gian Carlo Cozzani Directorr Monocon UK
Associated with IFGL since Oct 2009 Former president and CEO of Vesuvius (now Vesuviusplc) Instrumental in steering Vesuvius from US$ 100 million to over US$ 1 billion Based inEurope he is a member of IFGLrsquos Core group and a director of Monocon InternationalRefractories Limited UK
Source Company
Exhibit 46
IFGL refractories holding structure
Source Company
10051
983113983110983111983116 983127983151983154983148983140983159983145983140983141 983112983151983148983140983145983150983143 983116983145983149983145983156983141983140
983113983110983111983116 983109983160983152983151983154983156983155 983116983156983140
983117983151983150983151983139983151983150 983111983154983151983157983152 983109983113 983107983141983154983137983149983145983139983155 983112983151983142983149983137983150983150
983107983141983154983137983149983145983139
983124983141983139983144983150983145983139983137983148 983137983150983140 983110983145983150983137983150983139983145983137983148
983107983151983148983148983137983138983151983154983137983156983145983151983150 983151983142
983115983154983151983155983137983147983145 983112983137983154983145983149983137
983107983151983154983152983151983154983137983156983145983151983150983084 983114983137983152983137983150983084
983080983123983157983138983155983145983140983145983137983154983161 983151983142 983118983145983152983152983151983150
983123983156983141983141983148 983107983151983154983152983151983154983137983156983145983151983150983084
983114983137983152983137983150983081
983125983123983105 983125983115 983087 983125983123983105 983087 983107983144983145983150983137
983115983137983150983140983148983137 983123983109983130983084 983111983157983146983137983154983137983156983084 983113983150983140983145983137
983111983141983154983149983137983150983161
983113983110983111983116 983122983141983142983154983137983139983156983151983154983145983141983155 983116983145983149983145983156983141983140
983112983119 983085 983115983151983148983147983137983156983137983084 983113983150983140983145983137
983127983151983154983147983155 983085 983115983137983148983157983150983143983137983084 983119983154983145983155983155983137983084 983113983150983140983145983137
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18IFGL Refractories Ltd
Exhibit 47 Quarterly financials (cons)
YE Mar (Rs mn) Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14
Net sales 1725 1657 1690 1641 1811 2014 1947 2003
Other Operating Income 5 4 0 0 3 0 0 0
Total Income 1729 1662 1690 1641 1814 2014 1947 2003
Accretion to Stocks in trade amp work in progress (29) (10) 4 46 (65) (54) (25) 9
Cost of Raw Materials consumed 840 898 835 581 911 908 817 808
Purchase of traded goods 66 28 42 223 46 73 182 168
Staff Cost 239 234 250 264 247 275 294 281
Other Operational expenses 407 400 375 439 430 513 407 455
Operating Profit (Core EBITDA) 206 112 183 89 246 299 272 282
Depreciation 32 34 35 33 32 34 46 43
EBIT 174 78 149 56 214 265 226 239
Interest 21 22 21 15 17 18 19 16
Other RevenueIncome 16 5 7 8 5 9 6 12
Profit Before Tax 169 61 134 49 202 255 213 236
Tax 50 31 48 31 54 57 68 70
Profit After Tax 119 31 86 18 148 199 145 166
Minority Interest (7) (9) (8) (4) (1) 8 3 8
Profit after minority interest 126 40 95 22 149 191 143 158
Growth (YoY )
Revenue 371 36 61 36 50 216 153 221
EBITDA 129 (457) (125) (477) 195 1672 485 2164
PAT 174 (666) (111) (669) 189 3765 503 6292
Margin ()
EBITDA 119 67 109 54 136 148 140 141
EBIT 100 47 88 34 118 131 116 120
PAT 73 24 56 13 82 95 73 79
Segment Revenue (Net Sales Income from ops)
India 764 749 810 829 872 926 936 941
Asia (excl India) 142 175 160 167 188 213 163 156
Europe 593 545 542 543 612 744 689 764
Americas 405 370 363 344 384 399 427 386
Segment EBIT
India 83 32 84 63 92 103 129 139
Asia (excl India) 8 11 6 9 12 10 5 7
Europe 55 44 51 (4 45 76 74 81Americas 22 13 23 39 38 45 55 36
Source Company Centrum Research
Comments on recent quarterly results
Q4FY14 witnessed a healthy growth with revenue up 221 YoY EBITDA and PAT jumpedsubstantially YoY Margins showed good improvement EBITDA margin expanded by 860 bps YoYOther operating expenses as a proportion of sales reduced to 227 from 267 in Q4FY13 this had apositive impact on margins
Revenue grew 28 QoQ EBITDA amp PAT margins showed signs of consistency further improving fromQ3FY14 European business looks to be on a growth trajectory as revenues have jumped 140 YoYand 11 QoQ Revenue from American segment saw growth of 124 YoY but declined QoQ
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19IFGL Refractories Ltd
Annexure ndash Refractory Industry
About refractories ndash consumables for manufacturing processes with high temperatures
Refractories are inorganic non-metallic and heterogeneous materials having very high melting pointswhich make them suitable to be used as heat-resisting barriers consumed within various productionprocesses providing heat chemical and mechanical resistance Refractories are mainly of two types ndash
shaped and unshaped (monolithics) and are used mainly by the steel industry as a consumableproduct in the internal linings of furnaces kilns reactors and other vessels for holding andtransporting metal and slag
Shaped refractories are those which have fixed shapes with most common form being rectangularbrick Brick shapes may be divided into two standard shapes and special shapes Standard shapeshave dimensions that are conformed to by most refractory manufacturers and are generally applicableto kilns and furnaces of the same type Special shapes are specifically made for particular kilns andfurnaces Shaped refractories are almost always machine-pressed and possess high uniformity inproperties are expected
Unshaped refractories are without definite form and are only given shape upon application It forms joint less lining and are better known as monolithic refractories They are manufactured in powderform as granular material and known as plastic refractories ramming mixes castables gunning mixesfettling mixes and mortars
The raw materials used to manufacture refractories are broadly classified into clay and non-clay Clayrefractories consist of naturally occurring alumina silicate like fireclay flint clay flint brick and highalumina and are used to produce bricks and insulating refractories Non-clay refractories are madefrom non-clay materials and are further classified into basic (made in the form of bricks from magnesiadolomite chrome etc) extra high alumina mullite (made from kyanite bauxite alumina) siliconcarbide and zircon
Exhibit 48
Refractory share by form Exhibit 49
Refractory share by raw material
Source Industry data Centrum Research Source Industry data Centrum Research
Unshaped45Shaped 55
Clay 65
Non Clay35
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20IFGL Refractories Ltd
Applications of refractories ndash largely used in steel industry for furnace linings
Steel industry accounts for ~60 of refractory consumption globally and ~75 in the domesticmarket In non-metallurgical industries (cement glass lime) the refractories are mostly installed onfired heaters hydrogen reformers cracking furnaces incinerators utility boilers air heaters ductingstacks etc The different areas of the steel manufacturing processes are exposed to differenttemperatures slag and sulphur gases Refractory selection for the lining of a furnace is invariably builtupon a combination of material qualities and brick size to maximize performance Steel industry usesrefractory for diverse applications in blast furnaces coke ovens torpedo ladles and secondary refiningladles
In cement industry refractories are used in the kiln the preheating system and the cooler whichoperate in a very high temperature to protect against heat abrasion and chemical attack Commonrefractory materials used are Dolomite Magnesia-Chrome Spinel Magnesia-Alumina Spinel Fireclayand High Alumina The cement kiln clinker area is usually provided with Dolomite refractories
Non(-errous industries like copper and aluminium require high performance refractories in severalequipments like anode baking furnaces induction furnaces reduction pots slag cleaning surfaces etcGlass industry also requires refractories in refiner regenerator dog-house and ports of furnace
Exhibit 50
Refractories consumption in steel making process
Source Magnesita ppt
Exhibit 51
Refractories consumption in steel making process
Source Vesuvius PLC ppt
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21IFGL Refractories Ltd
Steel industry accounts for ~60 of refractory consumption globally and ~75 in the domesticmarket In non-metallurgical industries (cement glass lime) refractories are mostly installed on firedheaters hydrogen reformers cracking furnaces incinerators utility boilers air heaters ducting stacksetc
Exhibit 52
Sector wise refractories demand - Global Exhibit 53
Sector wise refractories demand - India
Source Industry data Centrum Research Source Industry data Centrum Research
Refractory application consumption and replacement dynamics are shown in the table belowSteelmaking requires maximum amount of refractories (10-15kgstonne) with replacement required ina time period of 20 minutes to 2months Cement industry is the next biggest user with annualreplacement requirement while non-ferrous and glass industries have longer replacement cycles
Exhibit 54
Refractory consumption dynamics across user industries
Key Industry Application Replacement Per tonne consumption Refractory requirements
Steel
BF(BOF EAFCasting LadlesInduction FurnacesPellet rotary Kilns
20 minutes to 2months
Global avg - 10-15KgsIndia avg - 15 Kgs
Consumable product ( Systems and solutions for completerefractory management
Cement Kilns annually 1 KgsInvestment goods ( Longer replacement cycles Customizedsolutions based on the specific requirements of various industrialproduction processes complete lining concepts
Glass Glass Furnace upto 10 years 4 Kgs
Non(Ferrous Converters 1(10 yearsAluminium - 6 KgsCopper - 3 Kgs
Source RHI ppt Centrum Research
Global refractory market size at ~US$25bn expected to grow at ~35 CAGR
According to various industry studies global refractoriesrsquo market size is ~US$25bn with production of415MT in CY12 According to industry estimates the global refractories industry is expected to witnessCAGR of 35 during CY13-16E and grow to 46MT with a market value of US$29bn China accountedfor ~70 of the market by volume and ~60 by value in CY12 whereas India accounts for ~3 of theglobal refractories market by volume
Exhibit 55
Global refractory market size at ~US$25bn Exhibit 56
China accounts for ~70 of the market
CY12 Production (MT) Value (US$ bn)
World 415 25
China 295 143
EU 41 39
North America 14 14
India 13 09
Source Industry Centrum Research Source Industry Centrum Research
6015
15
10 Steel
Non-Metallic (Cement GlassLime)
Non-Ferrous (AluminiumCopper Zinc Silver)
Others (paper ceramicspetrochemicals)
75
12
6 3
4
Steel
Cement
Non-Ferrous
Glass
Others
415
463
25
29
0
10
20
30
40
50
CY12 CY16
Volume (MT) Mkt Value ($ bn)
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22IFGL Refractories Ltd
Domestic refractory demand-supply indicates low industry growth amp import pressure
Demand supply analysis of domestic refractory industry shows that it has been witnessing mutedconsumption growth (due to a fall in per tonne consumption for steel making due to technologicaladvances) and faces strong import pressure with one fourth of the market being serviced by netimports (mainly from cheap supplies from China which accounts for two thirds of refractory imports inIndia) Capacity utilization for the industry remains at ~60 on installed capacity of ~22MT and marketsize is ~US$1bn Domestic refractory consumption in steel has grown at a CAGR of ~2 during FY08-14 We expect industry growth to pick up due to scope for higher steel production (backed by higherinfra spend and expansion in per capita steel consumption) The industry has seen consolidation andacquisitions by global majors in the last five years and organised sector (split between (6 players)accounts for ~65 of the market
Exhibit 57 Refractory demand from domestic steel industry
(In tonne) FY08 FY09 FY10 FY11 FY12 FY13 FY14E FY15E FY16E FY17E
Steel Production (MT) 561 572 606 686 757 817 850 893 946 1012
Growth 20 59 132 103 79 40 50 60 70
Avg Refractory consumption(kgt of crude steel)
188 173 168 16 15 145 140 140 140 140
Refractory consumption (steel) 1054680 989560 1018080 1097600 1135500 1184650 1190000 1249500 1324470 1417183
Growth (62) 29 78 35 43 05 50 60 70
Source Ministry of Steel (MoS) Centrum Research Estimates
Exhibit 58
Organised sector accounts for ~65 of domestic refractory industry
Company RevenueMarket
Share ()
Supply toIntegratedsteel mills
Comments
Vesuvius India Ltd 6017 100 95+Leading supplier with wide product basket strongcustomer relationships with large steel mills
Orient Refractories (RHI) 4035 67 10-15 Has developed a niche with mini steel mills
IFGL Refractories (incl IEL) 3674 61 85+Mainly into flow control shaped refractories goodrelationship with large mills
Tata Refractories 9800 163 Not available Largely into bricks supplies (commodity refractories)
Calderys 6250 104 Not available
Supplies largely to non-ferrous producers strong in
bricks and monolithics
OCL 4056 68 Not available
Total Organized Sector 39332 656
Source Company Centrum Research Estimates
Exhibit 59
Net imports accounts for one fourth of market Exhibit 60
China accounts for two thirds of imports
Source MoS Industry Centrum Research Source MoS Industry Centrum Research
(800000)
(600000)
(400000)
(200000)
0
200000
400000
FY07 FY08 FY09 FY10 FY11 FY12
( T o n n e )
Imports Exports Net Imports
167259
380
167228
647594
551
696 685
10
20
30
40
50
60
70
80
FY07 FY08 FY09 FY10 FY11
Net Imports - share China share in imports
Domestic refractory production growth hasbeen largely flat andcapacity utilization is~60
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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23IFGL Refractories Ltd
Financials (Cons)
Exhibit 61
Income Statement
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
Revenues from Operations 6712 7776 8484 9554 10697
Raw Materials consumed 3201 3444 3725 4208 4716
of net sales 477 443 439 440 441
Employee expenses 987 1097 1185 1279 1382
of net sales 147 141 140 134 129
Other operational expenses 1621 1805 2013 2243 2486
of net sales 241 232 237 235 232
Total expenses 6130 6680 7273 8140 9068
of net sales 913 859 857 852 848
EBITDA 582 1096 1210 1414 1630
EBITDA Margin () 87 141 143 148 152
Depreciation amp Amortisation 134 155 174 189 204
EBIT 448 942 1036 1225 1425
Interest expenses 80 70 51 29 6
Other Income 45 34 40 44 484
EBT 413 906 1025 1240 1467
Provision for tax 159 248 307 372 440
Effective tax rate () 386 274 300 300 300Net Profit 254 658 717 868 1027
Less Minority interest (28) 18 32 70 99
Net Profit after MI 282 640 686 798 928
Source Company data Centrum Research Estimates
Exhibit 62 Key Ratios
YE Mar FY13 FY14 FY15E FY16E FY17E
Growth Ratio ()
Revenue 112 159 91 126 120
EBITDA (213) 884 104 168 153
PAT (292) 1269 71 163 163
Margin Ratios ()
PBIT Margin 67 121 122 128 133
PBT Margin 62 116 121 130 137
PAT Margin 42 82 81 84 87
Return Ratios ()
ROE 115 212 190 185 181
ROCE 84 177 175 189 198
ROIC 87 179 178 200 224
Turnover Ratios (days)
Asset turnover ratio (x) 18 19 19 19 19
Debtors 78 78 80 80 80
Inventory 46 49 50 50 50
Creditors 43 45 45 45 45
Net Working capital 74 76 80 80 80
Gearing Ratio (x)
Debt-equity 05 03 02 01 00
Net debt-equity 04 03 02 00 (01)
Current ratio 25 23 24 25 27
Dividend
Dividend per share 15 18 20 23 23
Dividend Payout () 251 124 130 125 107
Dividend Yield () 11 13 15 17 17
Per share Ratios (Rs)
Basic EPS 82 185 198 231 268
Fully diluted EPS 82 185 198 231 268
Book value 709 871 1044 1245 1485
Cash earnings per share 120 230 249 285 327
Valuation (x)
PE 174 77 72 62 53
PBV 20 16 14 11 10
EVEBITDA 102 53 46 36 27
EVSales 07 06 06 05 04
M-CapSales 07 06 06 05 05
Source Company data Centrum Research Estimates
Exhibit 63
Balance Sheet
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
Equity share capital 491 491 491 491 491
Reserves amp surplus 1964 2525 3121 3819 4648
Shareholders fund 2455 3016 3612 4310 5139
Total debt 1142 982 682 382 82
Deferred tax liabilities 65 74 74 74 74
Total Liabilities 3741 4167 4495 4963 5591
Gross block 2474 2656 2906 3156 3406
Less acc depreciation 1276 1430 1605 1794 1998
Net block 1198 1225 1301 1362 1407
Capital work in progress 20 20 20 20 20
Goodwill 1105 1342 1342 1342 1342
Investments 5 5 5 5 5
Inventories 848 1034 1162 1309 1465
Trade Receivables 1427 1658 1859 2094 2345
Cash amp cash equivalents 113 33 69 259 609
Loans amp advances 51 107 116 131 147
Trade payables 799 962 1046 1178 1319
Other current liabilities 166 210 232 262 293Provisions 94 124 139 157 176
Total Assets 3741 4167 4495 4963 5591
Source Company data Centrum Research Estimates
Exhibit 64 Cash Flow
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
PBT 413 906 1025 1240 1467
Interest 72 70 51 29 6
Depreciation 134 155 174 189 204
Increase in debtors (330) (231) (201) (235) (251)
Increase in inventories 7 (186) (128) (147) (157)
Increase in trade payables 46 163 84 132 141
Tax 197 248 307 372 440
Cash flow from operations 183 629 695 799 907
Change in fixed assets (194) (418) (250) (250) (250)
Cash flow from investments (172) (418) (250) (250) (250)
Change in debt 19 (160 (300) (300) (300)
Dividends paid (71) (79) (89) (100) (100)
Interest paid (80) (70) (51) (29) (6)
Cash flow from financing (94) (291) (409) (358) (306)
Net cash flow (81) (81) 36 191 350
Opening cash balance 195 113 33 69 259
Closing cash balance 113 33 69 259 609
Source Company data Centrum Research Estimates
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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24IFGL Refractories Ltd
Financials (Cons) - Historical
Exhibit 65
Income Statement
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
Revenues from Operations 3780 3982 4152 4689 6039
Raw Materials consumed 1743 1907 2058 2389 3024
of net sales 461 479 496 509 501
Employee expenses 487 589 539 661 843
of net sales 129 148 130 141 140
Other operational expenses 918 1036 951 1148 1418
of net sales 243 260 229 245 235
Total expenses 3244 3708 3575 4279 5299
of net sales 858 931 861 912 878
EBITDA 536 274 578 411 739
EBITDA Margin () 142 69 139 88 122
Depreciation amp Amortisation 63 74 70 71 123
EBIT 473 200 508 339 617
Interest expenses 82 95 45 56 68
Other Income 18 24 34 43 33
EBT 409 128 497 327 582
Provision for tax 123 67 155 84 183
Effective tax rate () 301 523 311 258 315Net Profit 286 61 343 243 398
Less Minority interest 1 0 0 0 0
Net Profit after MI 285 61 343 243 399
Source Company data Centrum Research Estimates
Exhibit 66 Key Ratios
YE Mar FY08 FY09 FY10 FY11 FY12
Growth Ratio ()
Revenue 171 53 43 129 288
EBITDA 98 (489) 1111 (289) 800
PAT 85 (785) 4586 (292) 642
Margin Ratios ()
PBIT Margin 125 50 122 72 102
PBT Margin 108 32 120 70 96
PAT Margin 75 15 83 52 66
Return Ratios ()
ROE 294 54 250 138 180
ROCE 182 49 169 93 128
ROIC 195 53 183 98 141
Turnover Ratios (days)
Asset turnover ratio (x) 20 18 19 15 17
Debtors 97 55 79 85 69
Inventory 46 47 52 55 52
Creditors 49 23 41 50 44
Net Working capital 105 81 89 93 67
Gearing Ratio (x)
Debt-equity 09 09 06 07 05
Net debt-equity 08 08 05 07 04
Current ratio 29 36 26 25 24
Dividend
Dividend per share 20 00 10 05 15
Dividend Payout () 284 00 118 103 63
Dividend Yield () 15 00 07 04 11
Per share Ratios (Rs)
Basic EPS 82 18 99 70 115
Fully diluted EPS 82 18 99 70 115
Book value 280 328 396 508 641
Cash earnings per share 101 39 119 91 151
Valuation (x)
PE 164 762 136 193 117
PBV 48 41 34 27 21
EVEBITDA 102 203 93 142 76
EVSales 12 12 11 10 08
M-CapSales 12 12 11 10 08
Source Company data Centrum Research Estimates
Exhibit 67
Balance Sheet
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
Equity share capital 346 346 346 491 491
Reserves amp surplus 623 789 1026 1266 1728
Shareholders fund 969 1135 1372 1757 2219
Total debt 869 1003 793 1253 1128
Deferred tax liabilities 41 38 38 40 48
Total Liabilities 1879 2185 2206 3054 3465
Gross block 1456 1948 1966 2738 2238
Less acc depreciation 687 827 864 960 1122
Net block 769 1121 1102 1778 1117
Capital work in progress 46 53 28 21 45
Goodwill 347 594 559 1032 1094
Investments 0 0 4 14 5
Inventories 474 513 592 702 855
Trade Receivables 1001 596 895 1096 1134
Cash amp cash equivalents 77 129 120 100 195
Loans amp advances 152 121 133 152 38
Trade payables 507 256 471 637 729
Other current liabilities 32 90 137 112 194Provisions 102 2 60 60 151
Total Assets 1879 2185 2206 3054 3465
Source Company data Centrum Research Estimates
Exhibit 68 Cash Flow
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
PBT 409 128 497 327 582
Interest 81 96 45 56 59
Depreciation 63 74 75 87 129
Increase in debtors (196) 559 (330) (184) 25
Increase in inventories (72) 35 (79) (77) (135)
Increase in trade payables 82 (304 266 115 67
Tax 119 90 138 70 135
Cash flow from operations 285 814 359 237 520
Change in fixed assets (94) (99) (120) (157) (49)
Cash flow from investments (62 (536 (119 (677 (98
Change in debt (88) 15 (276) 245 (242)
Dividends paid (76) (80) (6) (46) (25)
Interest paid (87) (98) (47) (60) (68)
Cash flow from financing (261) (245) (241) 408 (339)
Net cash flow (43) 24 (8) (29) 94
Opening cash balance 120 77 129 120 100
Closing cash balance 77 129 120 100 195
Source Company data Centrum Research Estimates
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25IFGL Refractories Ltd
Appendix A
Disclaimer
Centrum Broking Limited (ldquoCentrumrdquo) is a full(service Stock Broking Company and a member of The Stock Exchange Mumbai (BSE) and National StockExchange of India Ltd (NSE) Our holding company Centrum Capital Ltd is an investment banker and an underwriter of securities As a group Centrumhas Investment Banking Advisory and other business relationships with a significant percentage of the companies covered by our Research Group Ourresearch professionals provide important inputs into the Groups Investment Banking and other business selection processes
Recipients of this report should assume that our Group is seeking or may seek or will seek Investment Banking advisory project finance or otherbusinesses and may receive commission brokerage fees or other compensation from the company or companies that are the subject of thismaterialreport Our Company and Group companies and their officers directors and employees including the analysts and others involved in thepreparation or issuance of this material and their dependants may on the date of this report or from time to time have long or short positions in actas principal in and buy or sell the securities or derivatives thereof of companies mentioned herein Centrum or its affiliates do not own 1 or more in theequity of this company Our sales people dealers traders and other professionals may provide oral or written market commentary or trading strategies toour clients that reflect opinions that are contrary to the opinions expressed herein and our proprietary trading and investing businesses may makeinvestment decisions that are inconsistent with the recommendations expressed herein We may have earlier issued or may issue in future reports on thecompanies covered herein with recommendations information inconsistent or different those made in this report In reviewing this document youshould be aware that any or all of the foregoing among other things may give rise to or potential conflicts of interest We and our Group may rely oninformation barriers such as Chinese Walls to control the flow of information contained in one or more areas within us or other areas units groups oraffiliates of Centrum Centrum or its affiliates do not make a market in the security of the company for which this report or any report was writtenFurther Centrum or its affiliates did not make a market in the subject companyrsquos securities at the time that the research report was published
This report is for information purposes only and this documentmaterial should not be construed as an offer to sell or the solicitation of an offer to buypurchase or subscribe to any securities and neither this document nor anything contained herein shall form the basis of or be relied upon in connection
with any contract or commitment whatsoever This document does not solicit any action based on the material contained herein It is for the generalinformation of the clients of Centrum Though disseminated to clients simultaneously not all clients may receive this report at the same time Centrumwill not treat recipients as clients by virtue of their receiving this report It does not constitute a personal recommendation or take into account theparticular investment objectives financial situations or needs of individual clients Similarly this document does not have regard to the specificinvestment objectives financial situationcircumstances and the particular needs of any specific person who may receive this document The securitiesdiscussed in this report may not be suitable for all investors The securities described herein may not be eligible for sale in all jurisdictions or to allcategories of investors The countries in which the companies mentioned in this report are organized may have restrictions on investments voting rightsor dealings in securities by nationals of other countries The appropriateness of a particular investment or strategy will depend on an investorsindividual circumstances and objectives Persons who may receive this document should consider and independently evaluate whether it is suitable forhis hertheir particular circumstances and if necessary seek professionalfinancial advice Any such person shall be responsible for conductinghishertheir own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risks involvedin the securities forming the subject matter of this document
The projections and forecasts described in this report were based upon a number of estimates and assumptions and are inherently subject to significantuncertainties and contingencies Projections and forecasts are necessarily speculative in nature and it can be expected that one or more of the estimateson which the projections and forecasts were based will not materialize or will vary significantly from actual results and such variances will likely increase
over time All projections and forecasts described in this report have been prepared solely by the authors of this report independently of the Company These projections and forecasts were not prepared with a view toward compliance with published guidelines or generally accented accountingprinciples No independent accountants have expressed an opinion or any other form of assurance on these projections or forecasts You should notregard the inclusion of the projections and forecasts described herein as a representation or warranty by or on behalf of the Company Centrum theauthors of this report or any other person that these projections or forecasts or their underlying assumptions will be achieved For these reasons youshould only consider the projections and forecasts described in this report after carefully evaluating all of the information in this report including theassumptions underlying such projections and forecasts
The price and value of the investments referred to in this documentmaterial and the income from them may go down as well as up and investors mayrealize losses on any investments Past performance is not a guide for future performance Future returns are not guaranteed and a loss of original capitalmay occur Actual results may differ materially from those set forth in projections Forward (looking statements are not predictions and may be subject tochange without notice Centrum does not provide tax advice to its clients and all investors are strongly advised to consult regarding any potentialinvestment Centrum and its affiliates accept no liabilities for any loss or damage of any kind arising out of the use of this report Foreign currenciesdenominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derived fromthe investment In addition investors in securities such as ADRs the value of which are influenced by foreign currencies effectively assume currency riskCertain transactions including those involving futures options and other derivatives as well as non(investment(grade securities give rise to substantial
risk and are not suitable for all investors Please ensure that you have read and understood the current risk disclosure documents before entering into anyderivative transactions
This reportdocument has been prepared by Centrum based upon information available to the public and sources believed to be reliable Norepresentation or warranty express or implied is made that it is accurate or complete Centrum has reviewed the report and in so far as it includescurrent or historical information it is believed to be reliable although its accuracy and completeness cannot be guaranteed The opinions expressed inthis documentmaterial are subject to change without notice and have no obligation to tell you when opinions or information in this report change
This report or recommendations or information contained herein dodoes not constitute or purport to constitute investment advice in publicly accessiblemedia and should not be reproduced transmitted or published by the recipient The report is for the use and consumption of the recipient only Thispublication may not be distributed to the public used by the public media without the express written consent of Centrum This report or any portionhereof may not be printed sold or distributed without the written consent of Centrum
The distribution of this document in other jurisdictions may be restricted by law and persons into whose possession this document comes should informthemselves about and observe any such restrictions Neither Centrum nor its directors employees agents or representatives shall be liable for anydamages whether direct or indirect incidental special or consequential including lost revenue or lost profits that may arise from or in connection withthe use of the information
This document does not constitute an offer or invitation to subscribe for or purchase or deal in any securities and neither this document nor anythingcontained herein shall form the basis of any contract or commitment whatsoever This document is strictly confidential and is being furnished to yousolely for your information may not be distributed to the press or other media and may not be reproduced or redistributed to any other person Thedistribution of this report in other jurisdictions may be restricted by law and persons into whose possession this report comes should inform themselvesabout and observe any such restrictions By accepting this report you agree to be bound by the fore going limitations No representation is made thatthis report is accurate or complete
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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The opinions and projections expressed herein are entirely those of the author and are given as part of the normal research activity of Centrum Brokingand are given as of this date and are subject to change without notice Any opinion estimate or projection herein constitutes a view as of the date of thisreport and there can be no assurance that future results or events will be consistent with any such opinions estimate or projection
This document has not been prepared by or in conjunction with or on behalf of or at the instigation of or by arrangement with the company or any of itsdirectors or any other person Information in this document must not be relied upon as having been authorized or approved by the company or itsdirectors or any other person Any opinions and projections contained herein are entirely those of the authors None of the company or its directors orany other person accepts any liability whatsoever for any loss arising from any use of this document or its contents or otherwise arising in connectiontherewith
Centrum and its affiliates have not managed or co(managed a public offering for the subject company in the preceding twelve months Centrum andaffiliates have not received compensation from the companies mentioned in the report during the period preceding twelve months from the date of thisreport for service in respect of public offerings corporate finance debt restructuring investment banking or other advisory services in amergeracquisition or some other sort of specific transaction
As per the declarations given by them Mr Abhisar Jain research analyst and andor any of his family members do not serve as an officer director or anyway connected to the companycompanies mentioned in this report Further as declared by him he has not received any compensation from the abovecompanies in the preceding twelve months He does not hold any shares by him or through his relatives or in case if holds the shares then will not to doany transactions in the said scrip for 30 days from the date of release such report Our entire research professionals are our employees and are paid asalary They do not have any other material conflict of interest of the research analyst or member of which the research analyst knows of has reason toknow at the time of publication of the research report or at the time of the public appearance
While we would endeavour to update the information herein on a reasonable basis Centrum its associated companies their directors and employees areunder no obligation to update or keep the information current Also there may be regulatory compliance or other reasons that may prevent Centrumfrom doing so
Non(rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable
regulations andor Centrum policies in circumstances where Centrum is acting in an advisory capacity to this company or any certain othercircumstances
This report is not directed to or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality statecountry or other jurisdiction where such distribution publication availability or use would be contrary to law or regulation or which would subjectCentrum Broking Limited or its group companies to any registration or licensing requirement within such jurisdiction Specifically this document doesnot constitute an offer to or solicitation to any US person for the purchase or sale of any financial instrument or as an official confirmation of anytransaction to any US person unless otherwise stated this message should not be construed as official confirmation of any transaction No part of thisdocument may be distributed in Canada or used by private customers in United Kingdom
The information contained herein is not intended for publication or distribution or circulation in any manner whatsoever and any unauthorized readingdissemination distribution or copying of this communication is prohibited unless otherwise expressly authorized Please ensure that you have read ldquoRiskDisclosure Document for Capital Market and Derivatives Segmentsrdquo as prescribed by Securities and Exchange Board of India before investing in IndianSecurities Market
Rating Criteria
Rating Market cap lt Rs20bn Market cap gt Rs20bn but lt 100bn Market cap gt Rs100bn Buy Upside gt 25 Upside gt 20 Upside gt 15
Hold Upside between (25 to +25 Upside between (20 to +20 Upside between (15 to +15
Sell Downside gt 25 Downside gt 20 Downside gt 15
Member (NSE BSE MCX(SX) Depository Participant (CDSL) and SEBI registered Portfolio Manager
Registration Nos
CAPITAL MARKET SEBI REGN NO BSE INB011454239 NSE INB231454233
DERIVATIVES SEBI REGN NO NSE INF231454233 (TRADING amp SELF CLEARING MEMBER)
CDSL DP ID 12200 SEBI REGISTRATION NO IN(DP(CDSL(661(2012
PMS REGISTRATION NO INP000004383
MCX ndash SX (Currency Derivative segment) REGN NO INE261454230
Website wwwcentrumcoin
Investor Grievance Email ID investorgrievancescentrumcoin
Compliance Officer Details
Tel (022) 4215 9413 Email ID compliancecentrumcoin
Centrum Broking Limited
Registered Office Address
Bombay Mutual Building
2nd Floor
Dr D N Road
Fort Mumbai ( 400 001
Correspondence Address
Centrum House
6th Floor CST Road Near Vidya Nagari Marg Kalina
Santacruz (E) Mumbai 400 098
Tel (022) 4215 9000
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6IFGL Refractories Ltd
European demand expected to be better on improving macros
Demand for refractories from European steel mills is expected to be better going forward due togradual pick up in steel production and improving macro situation (as is visible from the pick-up inGDP numbers) Since Europe (including UK) accounts for ~70 of IFGLrsquos exports from domesticoperations and ~50 of revenues on a consolidated basis (including overseas subsidiariesrsquo net sales)we expect IFGL to benefit from improving demand situation in Europe
Exhibit 10
Europe steel production picking up Exhibit 11
GDP in EU amp UK improving
Source Company Centrum Research Estimates CY14 nos annualised for 5MYTD Source Company Centrum Research
Expansions by integrated steel mills provide domestic demand visibility
We see good demand visibility in the domestic market as steel production is expected to pick up ledmainly by higher volumes from large steel mills We expect the share of large integrated steel mills torise to ~60 by FY17E from ~51 in FY14 led mainly by expansions and wide product range We haveconsidered a basket of players (SAIL Tata Steel JSW steel JSPL Essar RINL JSW Ispat) in large steelmills and see volume CAGR of ~12 from them as compared to 6 for the steel industry during FY14-17E IFGL derives ~65 of its domestic revenue from large steel mills and is expected to be a keybeneficiary of the gradual shift in domestic steel production to large steel mills from small mills
Exhibit 12 Steel production growth to pick up Exhibit 13 Led by higher volumes from large steel mills
Source Company Centrum Research Estimates Source Company Centrum Research Estimates
Exhibit 14 Large mills share in steel production to rise Exhibit 15 Large mills to grow faster
Source Company Centrum Research Estimates Source Company Centrum Research Estimates
2099 1969
1375
1732 1775
1412
16561759
100
120
140
160
180
200
220
CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14
EU Production (MT)
(8)
(6)
(4)
(2)
0
2
4
M a r - 0 8
J u l - 0 8
N o v - 0
8
M a r - 0 9
J u l - 0 9
N o v - 0
9
M a r - 1 0
J u l - 1 0
N o v - 1
0
M a r - 1 1
J u l - 1 1
N o v - 1
1
M a r - 1 2
J u l - 1 2
N o v - 1
2
M a r - 1 3
J u l - 1 3
N o v - 1
3
M a r - 1 4
UK GDP EU GDP
686 757 817 850 893 946 1012
132
103
79
4050
6070
0
2
4
6
8
10
12
14
40
50
60
70
80
90
100
110
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( M T )
Steel Production - India YoY Growth
339 372 389
433482
539
610
0
10
20
30
40
50
60
70
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( M T )
SAIL Tata Steel JSW Steel JSPL Essar Steel RINL Ispat Inds
69 76
82 85 89 95
101
34 37 39 43 48 54 61
4949
48
51
54
57 60
40
45
50
55
60
65
0
20
40
60
80
100
120
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( )
( M T )
Steel Production Large Integrated steel mills
share of integrated mills - RHS
74
60
86
121
00
20
40
60
80
100
120
140
CAGR (FY11-14) CAGR (FY14-17E)
Steel Production Large Integrated steel mills
Domestic steel production shifting tolarge steel mills therebyimproving demandoutlook for organisedrefractory producers
Steel productionand GDP improvingin Europe
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7IFGL Refractories Ltd
Steady growth seen from overseas operations after turnaround
Several strategic acquisitions in last decade for expanding reach and product basket
IFGL has made several overseas acquisitions in the last decade mainly aimed at achieving inorganicgrowth through entry into new markets expanding its product basket and getting access to newtechnologies
IFGL acquired Monocon group in 2005 at a cost of 95mn pounds (Rs560mn) with its plantslocated in Brazil Taiwan China UK and USA Monocon group provided IFGL with wide rangeproduct basket (from Lances Darts Monolithics amp Castables) and also gave access to key largesteel plants in Europe of steelmakers like Corus amp Arcelor Mittal
IFGL acquired Goricon group in 2006 at a cost of 11mn pounds (Rs70mn) and later merged it withMonocon as the companies had similar products and were competitors of each other
Hoffman ceramics was acquired in 2008 at a cost of 7mn euros for getting entry into foundries for
supply of consumables
IFGL acquired EI Ceramics in 2010 which has similar product basket as IFGLrsquos domestic operationsbut provided access to key markets in Americas Company acquired EI Ceramics with an eye on
future expansion as it had space to increase capacity by ~3x IFGL also acquired CUSCinternational in US (later merged with EI) which was providing ancillary services to EI includingprocessing of raw materials warehousing and packaging
Exhibit 16
Snapshot of overseas acquisitions
CompanyAcquired
Year ofacquisition
PurchaseCost
(Rs mn)
PlantLocations
Products Markets Comments
MonoconGroup
2005 560UK USChina
Refractory dartslances monolithics
UK EuropeChina
Services key customers in Europelike Corus Arcelor Brazil plantclosed and Taiwan plant shiftedto China
GoriconGroup
2006 70 UK USDarts lances and ladlepowder
Europe Merged into Monocon
HoffmanCeramics 2008 470 Germany
Refractory ceramicslike filters feeders etc Europe
Czech plant closed suppliesconsumables to foundries
EI Ceramics 2010 590 Ohio USContinuous castingrefractories
US CanadaMexico
Acquired to gain traction inAmerica market
Source Company Centrum Research
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8IFGL Refractories Ltd
Overseas operations have been consolidated and profitability has improved
IFGL has faced several challenges in managing the profitability and operations of its overseasacquisitions due to global economic crisis in CY08 which impacted steel production in US amp Europevery severely Both Monocon and Hoffman group had EBITDA loss in FY09 but management effortsinto consolidation of key group entities (Goricon was merged with Monocon) and closure of certainunviable facilities (Taiwan Brazil plants of Monocon were closed Czech plant of Hoffman was closed)coupled with recovery in demand has led to gradual improvement in profitability of companyrsquossubsidiaries We note that Monocon grouprsquos profitability has improved substantially during FY11-14with EBITDA CAGR of ~16 and improvement in marginsROE to 8512 in FY14 Hoffman grouphas also returned to profits although margins remain low IFGLrsquos acquisition in US of EI Ceramics in2010 has been rewarding and the company has performed consistently well post acquisition andachieved revenueEBITDA CAGR of ~3338 during FY11-14
Exhibit 17
Revenue trend for overseas subs Exhibit 18
EBITDA trend for overseas subs
Source Company Centrum Research Source Company Centrum Research
Exhibit 19 EBITDA margin has shown improvement Exhibit 20 ROE has moved up especially for EI Ceramics
Source Company Centrum Research Estimates Source Company Centrum Research Estimates
0
500
1000
1500
2000
2500
3000
3500
FY11 FY12 FY13 FY14
( R s
m n )
Monocon EI Ceramics Hoffman
FY11-14 - CAGR
Monocon - 107EI Ceramics - 328
0
50
100
150
200
250
300
FY11 FY12 FY13 FY14
( R s
m n )
Monocon EI Ceramics Hoffman
FY11-14 - CAGR
Monocon - 16EI Ceramics - 376
70
89
59
85
139
159
137
161
7080
51 5030
50
70
90
110
130
150
170
FY11 FY12 FY13 FY14
( )
Monocon EI Ceramics Hoffman
119 120 87 120
112
191
158 162
7135
4336
30
50
70
90
110
130
150170
190
210
FY11 FY12 FY13 FY14
( )
Monocon EI Ceramics Hoffman
EBITDA has shownimprovement across alloverseas subsidiariesduring FY11-14
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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9IFGL Refractories Ltd
EI Ceramics doubling capacity to maintain growth
EI Ceramics is doubling its capacity as utilizations on current capacity reached ~100 in FY14 EICeramics has been IFGLrsquos best overseas acquisition achieving revenueEBITDA CAGR of ~3338since acquisition (FY11-14) We expect revenueEBITDA CAGR of 23227 during FY14-17E asexpansion would be on-stream by Q1FY16E IFGL had spent ~Rs590mn for the purchase of EI and isexpected to achieve full payback in FY15E (less than 5 years) The capex for expansion of additional 80kpcsyear in EI is limited to Rs80mn and would be funded easily through internal accruals We note thatadditional capex would have the potential to generate ~Rs1000mn in revenues on completestabilisation (by FY17E) an asset turnover of more than 10x
Exhibit 21 EI Ceramics to double capacity by Q1FY16 Exhibit 22 Strong revenue and EBITDA CAGR ahead
Source Company Centrum Research Source Company Centrum Research Estimates
Share of higher margin EI Ceramics to keep increasing in IFGLrsquos overseas earnings
We expect EI Ceramics to lead the growth in earnings from IFGLrsquos overseas subsidiaries basket We expectrevenue contribution of EI Ceramics in total overseas subs to increase to ~26 in FY17E from ~20 inFY14 while EBITDA contribution is expected to increase to 41 in FY17E from ~34 in FY14 Since EICeramics enjoys the best margins (~16) among IFGLrsquos overseas subsidiaries increase in share ofearnings from EI Ceramics is expected to lead to margin improvement for IFGL at a consolidated level
Exhibit 23
Overseas subs revenue share ndash FY14 Exhibit 24
Overseas subs revenue share ndash FY17E
Source Company Centrum Research Source Company Centrum Research Estimates
Exhibit 25
Overseas subs EBITDA share ndash FY14 Exhibit 26
Overseas subs EBITDA share ndash FY17E
Source Company Centrum Research Source Company Centrum Research Estimates
80000
80000
160000
0
20000
40000
60000
80000
100000
120000
140000
160000
180000
Phase 1 Phase 2 Total
( p c s y r )
Currently Installed FY16E
8631012
1113
1447
1881
118 163 178 231 301
0
500
1000
1500
2000
FY13 FY14 FY15E FY16E FY17E
Revenue (Rs mn) EBITDA (Rs mn)
FY14-17E - CAGR
Revenue - 23EBITDA - 227
Monocon641
EI Ceramics
197
Hoffman161
Monocon607
EI Ceramics
261
Hoffman133
Monocon577
EI Ceramics
338
Hoffman 85
Monocon530
EI Ceramics
405
Hoffman 64
Capacity at EI Ceramicsto increase to 160k pcsyear by FY15-end
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10IFGL Refractories Ltd
Balance sheet strengthened free cash flow generation strong
Strong free cash flow generation ahead with limited capex
IFGL has turned free cash flow positive at a consolidated level in FY14 as operating cash flow improvedsharply (up 240 YoY) led by higher profitability across operations We see strong free cash flowgeneration ahead on the back of limited capex (~Rs250mn annually over FY15-16E) and continued
traction in operating cash flow on the back of higher capacities and better utilizations
Exhibit 27 Free cash flow generation expected to be strong going ahead
Source Company Centrum Research Estimates
Free cash flow yield to improve significantly
We see free cash flow yield improving to ~12 and free cash flowEBITDA going up to 04x in FY16EBalance sheet remains strong and we expect the company to be debt free at a consolidated level inthe next three years if there is no new acquisition or major capex
Exhibit 28
Free cash flow yield attractive Exhibit 29
Debt free status in next two years
Source Company Centrum Research Estimates Source Company Centrum Research Estimates
-527
-99 -39
211
445549
657
(1000)
(800)
(600)
(400)
(200)
0
200
400
600
800
1000
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( R s m n )
OCF Capex Free Cash Flow
019
037 039
040
45
95
117
141
00
40
80
120
160
00
01
02
03
04
05
FY14 FY15E FY16E FY17E
Free Cash FlowEBITDA (x) Free Cash Flow Yield -
(02)
00
02
04
06
08
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( x )
Debt-equity Net debt-equity
Free cash flow yieldexpected to go up from45 in FY14 to 117 inFY16E
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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11IFGL Refractories Ltd
ROE shows improvement beats most peers at a global level
IFGL has shown sharp improvement in its ROE in FY14 as overseas subsidiariesrsquo profitability hasimproved and domestic profitability is on an upswing post start of IEL We expect ROE of IFGL to be thebest in the industry at a global level in the next few years
Exhibit 30
IFGL ROE well above that of global peers
Source Company Bloomberg Centrum Research Estimates CY07 = FY08
(10)
(5)
0
5
10
15
20
25
3035
CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14E CY15E
( )
Vesuvius India IFGL Refractories (FY) Vesuvius PLC
Puyang Refractories Cie de St-Gobain Magnesita Refractarios
Chosun Refractories Krosaki Harima (FY) Shinagawa (FY)
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12IFGL Refractories Ltd
Financials
Revenue growth to be led by IEL and overseas operations
We expect consolidated net sales CAGR of 112 for IFGL during FY14-17E This is expected to be ledby ~33 CAGR from IEL and 12 CAGR from overseas subsidiaries while standalone operations CAGRis expected to slow down to 67
Exhibit 31
Net sales CAGR of 112 during FY14-17E
Source Company Centrum Research Estimates
Margins and return ratios to remain healthy FY14-17E EBITDA CAGR of 141
Backed by better margins from IEL and recovery in demand we expect EBITDA CAGR of 141 duringFY14-17E Margins are expected to improve gradually as revenues from high margin subsidiary IELpicks up Expansion at EI Ceramics is also expected to help in EBITDA growth and margins Returnratios are expected to remain healthy on account of operating efficiency and high asset turnover ratiosfrom new expansions
Exhibit 32
EBITDA margin to remain stable Exhibit 33
Healthy return ratios
Source Company Centrum Research Estimates Source Company Centrum Research Estimates
Exhibit 34
Du Pont analysis
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
PATSales (x) 005 007 004 008 008 008 009
SalesAssets (x) 154 174 179 187 189 192 191
AssetsEquity (x) 174 156 152 138 124 115 109
ROE - 138 180 115 212 190 185 181
Source Company Centrum Research Estimates
4689
6039 6712
77768484
9554 10697
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( R s m n )
Standalone (IFGL) IFGL Exports (IEL) Overseas Subs Total
411 739 582 1096 1210 1414 1630
88
122
87
141 143 148
152
60
80
100
120
140
160
0
200
400
600
800
1000
1200
1400
1600
1800
FY11 FY12 FY13 FY14 FY15E FY16E FY17EEBITDA-Cons (Rs mn) OPM - RHS
50
100
150
200
250
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( )
ROE ROCE (post tax) ROIC (post tax)
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13IFGL Refractories Ltd
Key Assumptions and Sensitivity
Exhibit 35 Key Assumptions
Revenue (Rs mn) FY12 FY13 FY14 FY15E FY16E FY17E
Indian Operations
Domestic sales 1305 1495 1391 1744 2014 2304
Exports 1443 1567 1883 1744 1716 1669
Total standalone operations 2748 3061 3274 3487 3730 3973
IFGL Exports Ltd 0 90 399 518 755 953
Total Indian operations 2748 3152 3673 4005 4485 4926
Overseas Operations
Monocon Group 2410 2801 3288 3617 3979 4376
EI Ceramics 716 863 1012 1113 1447 1881
Hoffman Group 758 692 827 868 911 957
Less Intersegment revenues 596 790 1023 1120 1267 1443
Total Overseas operations 3287 3566 4103 4478 5069 5771
Total Consolidated operations 6035 6717 7776 8484 9554 10697
Source Company Centrum Research Estimates
Exhibit 36
EPS sensitivity to shaped refractory segment
EPS - FY16E (Rs) -Cons
Realizations
-10 -5 Base 5 10
V o l u m e s
-10 177 192 206 221 236
-5 187 203 218 234 250
Base 197 214 231 247 264
5 208 225 243 260 277
10 218 236 255 273 291
Source Company Centrum Research Estimates
Exhibit 37
EPS sensitivity to unshaped refractory segment
EPS - FY16E (Rs) - ConsRealizations
-10 -5 Base 5 10
V o l u m e s
-10 230 233 235 237 239
-5 228 230 233 235 237
Base 226 228 231 233 235
5 223 226 228 231 234
10 221 223 226 229 232
Source Company Centrum Research Estimates
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14IFGL Refractories Ltd
Valuation ndash poised for rerating
IFGLrsquos mean EVEBITDA stands at 47x with standard deviation of 26x and we note that the stock pricehas been volatile in last 6-7 years due to sharp fluctuations in earnings which explains the highstandard deviation However we believe that earnings would be more linear going forward asoverseas operations have been stabilised and growth would be driven by expansions at higher marginsubsidiaries of IEL and EI Ceramics At the CMP of Rs142 the stock trades at attractive valuations of 62xFY16E PE and 36x FY16E EVEBITDA and we believe that sharp improvement in free cash flow canlead to rerating in the stock We assign an EVEBITDA of 55x on Marrsquo16E earnings to arrive at a fairvalue of Rs220 and initiate with a Buy The multiple assigned by us remains below mean+05sd andthus provides comfort on historical valuations even though we expect much better earnings trajectoryfor the company going forward
Exhibit 38
EVEBITDA Valuation
(Rs mn) FY16E
EBITDA 1414
Ascribed EVEBITDA (x) 55
EV 7776
Add Net Cash (123)
Fair value mkt cap 7653
No of shares (mn) 346
Fair Valueshare (Rs) 220
Source Company Centrum Research Estimates
Exhibit 39
1-year forward EVEBITDA chart Exhibit 40
1-year forward PE chart
Source Bloomberg Company Centrum Research Estimates Source Bloomberg Company Centrum Research Estimates
Steep valuation discount exists for IFGL compared to global peersComparison of IFGLrsquos valuations with global peers shows that the company is trading at a steepdiscount despite strong fundamentals which we feel is unwarranted We expect re-rating in the stockwith improvement in outlook and stability in earnings
Exhibit 41 Valuationndash Peer comparison
CompanyMkt Cap(US$ mn)
CAGR CY13-CY15E () EBITDA Margin () PE (x) EVEBITDA (x) RoE () Div Yield ()
Rev EBITDA PAT CY13 CY14E CY15E CY13 CY14E CY15E CY13 CY14E CY15E CY13 CY14E CY15E CY13 CY14E CY15E
IFGL Refractories 82 108 136 116 141 143 148 77 72 62 53 46 36 212 190 185 12 14 16
Vesuvius India Ltd 220 110 115 126 184 178 186 203 192 161 110 100 82 164 152 158 07 08 09
Global Peers
RHI AG 1322 29 (02) 318 137 122 129 153 103 89 59 65 57 131 177 180 31 31 35
Vesuvius PLC 2140 04 53 80 117 123 128 149 141 127 86 82 74 93 1 02 108 31 34 36
Magnesita SA 574 122 129 344 156 149 158 157 180 101 60 63 55 21 17 35 15 11 21
Cie de St(Gobain 32544 20 91 32 3 100 107 114 218 181 133 76 68 60 58 76 94 29 30 33
Source Bloomberg Estimates Centrum Research Estimates CY13=FY14 for IFGL and so on
0
2
4
6
810
12
14
J u n - 0 7
O c t - 0 7
F e b - 0 8
J u n - 0 8
O c t - 0 8
F e b - 0 9
J u n - 0 9
O c t - 0 9
F e b - 1 0
J u n - 1 0
O c t - 1 0
F e b - 1 1
J u n - 1 1
O c t - 1 1
F e b - 1 2
J u n - 1 2
O c t - 1 2
F e b - 1 3
J u n - 1 3
O c t - 1 3
F e b - 1 4
J u n - 1 4
EVEBITDA MeanMean + Std Dev Mean - Std Dev
0
5
10
15
20
25
J u n - 0 7
O c t - 0 7
F e b - 0 8
J u n - 0 8
O c t - 0 8
F e b - 0 9
J u n - 0 9
O c t - 0 9
F e b - 1 0
J u n - 1 0
O c t - 1 0
F e b - 1 1
J u n - 1 1
O c t - 1 1
F e b - 1 2
J u n - 1 2
O c t - 1 2
F e b - 1 3
J u n - 1 3
O c t - 1 3
F e b - 1 4
J u n - 1 4
PE MeanMean + Std Dev Mean - Std Dev
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15IFGL Refractories Ltd
IFGL trading at a higher discount to Vesuvius than historical average
IFGL has historically (based on average during JanrsquoCY09-JunersquoCY14) traded at a discount of ~35 toVesuvius India Ltd (VIL) on EVEBITDA basis However currently IFGL is trading at a discount of ~60 toVIL which is unwarranted as the profitability of IFGL is on an uptrend post stabilisation of overseasoperations and IEL The historical discount has seen an increase in the past 3 years due to volatility inearnings of IFGL but with operations having stabilised we see the discount narrowing We also expectIFGL to be above its peers (incl VIL) in terms of ROE for the next few years and see a high cash flowyield of ~12 in FY16E The multiple assigned by us implies ~35 discount to VILrsquos current valuationswhich is in line with the historical average even though IFGL is expected to generate better returnsand free cash flow going forward
Exhibit 42
EVEBITDA ndash IFGL vs Vesuvius India Exhibit 43
Discount of IFGL EVEBITDA vs Vesuvius
Source Bloomberg Company Centrum Research Source Bloomberg Company Centrum Research
0
2
4
6
8
10
12
F e b - 0
9
J u n - 0
9
O c t - 0 9
F e b - 1
0
J u n - 1
0
O c t - 1 0
F e b - 1
1
J u n - 1
1
O c t - 1 1
F e b - 1
2
J u n - 1
2
O c t - 1 2
F e b - 1
3
J u n - 1
3
O c t - 1 3
F e b - 1
4
J u n - 1
4
( x )
EVEBITDA IFGL EVEBITDA Vesuvius
(90)
(60)
(30)
0
30
60
F e b - 0
9
J u n - 0
9
O c t - 0 9
F e b - 1
0
J u n - 1
0
O c t - 1 0
F e b - 1
1
J u n - 1
1
O c t - 1 1
F e b - 1
2
J u n - 1
2
O c t - 1 2
F e b - 1
3
J u n - 1
3
O c t - 1 3
F e b - 1
4
J u n - 1
4
( )
EVEBITDA discount of IFGL vs Vesuvius
Avg discount of IFGL vs Vesuvius
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16IFGL Refractories Ltd
Key risks to our thesis
Dependent on raw material sourcing through imports The industry is dependent on importsof key raw materials like high grade alumina bauxite magnesia silicon carbide etc China is themajor supplier of imports and has imposed heavy taxes on export of raw materials of refractories This has resulted in sharp increase in imported raw material costs IFGL sources ~52 of its raw
materials through imports and remains exposed to increase in costs which can impact its margins Low pricing power due to excess domestic supply and import pressure The industry suffers
from low capacity utilization of ~60 with excess installed capacities (~22 MTPA) and as a resultpricing power is low for refractory makers who are squeezed between raw material suppliers andsteel makers Cheap refractory imports from China have also kept prices in check IFGL does notenjoy as much pricing power as VIL does as customers prefer VIL for its strong brand name andproven track record of providing quality products and services Further increase in competitiveintensity can lead to lower pricing for IFGL in both domestic and export markets
Sharp slowdown in steel industry leading to lower volumes Like any other refractorycompany IFGLrsquos fortunes depend on the steel industry and any slowdown in global economy mayhamper the steel industryrsquos growth and IFGLrsquos volume growth would be more vulnerable as itdoes not have strong relationships like VIL has Sharp slowdown in the steel industry (vs
expectations of recovery) in coming years could lead to lower capacity utilization and lower thanexpected volumes
Currency Fluctuation We believe that steady weakening of rupee over the past couple of yearshas been favourable to the industry as well as for IFGL due to better import substitution andhigher realizations on exports negated only to a partial extent by higher import costs for rawmaterials IFGL has 80 of its revenues coming from overseas on a consolidated basis On astandalone basis approximately 58 of the revenues (FY14) came from exports Companyrsquosrevenues remain exposed to sharp appreciation of rupee against foreign currencies
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17IFGL Refractories Ltd
Exhibit 44
Shareholding pattern ()
Q4FY14 Q3FY14 Q2FY14 Q1FY14
Promoter 713 713 713 713
FIIs 00 00 00 00
DIIs 11 22 22 22
Others 277 265 265 265
Source BSE
Company Background
IFGL Refractories Ltd is a manufacturer of specialisedrefractories and requisite operating systems for the steelIndustry IFGL offers its customers total solution for refractoryfor flow control in steel teeming and continuous casting ofSteel IFGL has 8 manufacturing plants strategically located
across the globe in India China Europe and Americas Thecompany has a presence in over 50 of the global markets Itacquired the Monocon group UK in 2005 (06 Hofmanngroup Germany in 2008 and EI Ceramics USA in 2010 Theseoverseas acquisitions have brought along access to newproducts amp technologies new markets and new customers The company has also set up a subsidiary IFGL exports atKandla Gujarat which also has technical collaboration withKrosaki Harima Corporation Japan Apart from this IFGL alsoplans to expand its capacities in India and abroad over thecoming years
Exhibit 45 Key management personnel
Name Position Profile
Mr S K Bajoria Chairman
Promoter of S K Bajoria Group based at Kolkata engaged in diversified business activitiesHas been honorary vice consul of Denmark in Kolkata president of the Indian chamber ofcommerce director of West Bengal industrial development corporation Ltd and industrialpromotion amp investment corporation of Orissa Ltd
Mr Pradeep Bajoria Managing Director
Associated with IFGL from the very early days of Indo Flogates even before thecommencement of production in 1984 Has been director amp chief executive of erstwhileIndo Flogates Ltd More than 30 years of experience of refractory industry and has beeninvolved in various capacities in Indian refractories makers association
Mr Gian Carlo Cozzani Directorr Monocon UK
Associated with IFGL since Oct 2009 Former president and CEO of Vesuvius (now Vesuviusplc) Instrumental in steering Vesuvius from US$ 100 million to over US$ 1 billion Based inEurope he is a member of IFGLrsquos Core group and a director of Monocon InternationalRefractories Limited UK
Source Company
Exhibit 46
IFGL refractories holding structure
Source Company
10051
983113983110983111983116 983127983151983154983148983140983159983145983140983141 983112983151983148983140983145983150983143 983116983145983149983145983156983141983140
983113983110983111983116 983109983160983152983151983154983156983155 983116983156983140
983117983151983150983151983139983151983150 983111983154983151983157983152 983109983113 983107983141983154983137983149983145983139983155 983112983151983142983149983137983150983150
983107983141983154983137983149983145983139
983124983141983139983144983150983145983139983137983148 983137983150983140 983110983145983150983137983150983139983145983137983148
983107983151983148983148983137983138983151983154983137983156983145983151983150 983151983142
983115983154983151983155983137983147983145 983112983137983154983145983149983137
983107983151983154983152983151983154983137983156983145983151983150983084 983114983137983152983137983150983084
983080983123983157983138983155983145983140983145983137983154983161 983151983142 983118983145983152983152983151983150
983123983156983141983141983148 983107983151983154983152983151983154983137983156983145983151983150983084
983114983137983152983137983150983081
983125983123983105 983125983115 983087 983125983123983105 983087 983107983144983145983150983137
983115983137983150983140983148983137 983123983109983130983084 983111983157983146983137983154983137983156983084 983113983150983140983145983137
983111983141983154983149983137983150983161
983113983110983111983116 983122983141983142983154983137983139983156983151983154983145983141983155 983116983145983149983145983156983141983140
983112983119 983085 983115983151983148983147983137983156983137983084 983113983150983140983145983137
983127983151983154983147983155 983085 983115983137983148983157983150983143983137983084 983119983154983145983155983155983137983084 983113983150983140983145983137
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18IFGL Refractories Ltd
Exhibit 47 Quarterly financials (cons)
YE Mar (Rs mn) Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14
Net sales 1725 1657 1690 1641 1811 2014 1947 2003
Other Operating Income 5 4 0 0 3 0 0 0
Total Income 1729 1662 1690 1641 1814 2014 1947 2003
Accretion to Stocks in trade amp work in progress (29) (10) 4 46 (65) (54) (25) 9
Cost of Raw Materials consumed 840 898 835 581 911 908 817 808
Purchase of traded goods 66 28 42 223 46 73 182 168
Staff Cost 239 234 250 264 247 275 294 281
Other Operational expenses 407 400 375 439 430 513 407 455
Operating Profit (Core EBITDA) 206 112 183 89 246 299 272 282
Depreciation 32 34 35 33 32 34 46 43
EBIT 174 78 149 56 214 265 226 239
Interest 21 22 21 15 17 18 19 16
Other RevenueIncome 16 5 7 8 5 9 6 12
Profit Before Tax 169 61 134 49 202 255 213 236
Tax 50 31 48 31 54 57 68 70
Profit After Tax 119 31 86 18 148 199 145 166
Minority Interest (7) (9) (8) (4) (1) 8 3 8
Profit after minority interest 126 40 95 22 149 191 143 158
Growth (YoY )
Revenue 371 36 61 36 50 216 153 221
EBITDA 129 (457) (125) (477) 195 1672 485 2164
PAT 174 (666) (111) (669) 189 3765 503 6292
Margin ()
EBITDA 119 67 109 54 136 148 140 141
EBIT 100 47 88 34 118 131 116 120
PAT 73 24 56 13 82 95 73 79
Segment Revenue (Net Sales Income from ops)
India 764 749 810 829 872 926 936 941
Asia (excl India) 142 175 160 167 188 213 163 156
Europe 593 545 542 543 612 744 689 764
Americas 405 370 363 344 384 399 427 386
Segment EBIT
India 83 32 84 63 92 103 129 139
Asia (excl India) 8 11 6 9 12 10 5 7
Europe 55 44 51 (4 45 76 74 81Americas 22 13 23 39 38 45 55 36
Source Company Centrum Research
Comments on recent quarterly results
Q4FY14 witnessed a healthy growth with revenue up 221 YoY EBITDA and PAT jumpedsubstantially YoY Margins showed good improvement EBITDA margin expanded by 860 bps YoYOther operating expenses as a proportion of sales reduced to 227 from 267 in Q4FY13 this had apositive impact on margins
Revenue grew 28 QoQ EBITDA amp PAT margins showed signs of consistency further improving fromQ3FY14 European business looks to be on a growth trajectory as revenues have jumped 140 YoYand 11 QoQ Revenue from American segment saw growth of 124 YoY but declined QoQ
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19IFGL Refractories Ltd
Annexure ndash Refractory Industry
About refractories ndash consumables for manufacturing processes with high temperatures
Refractories are inorganic non-metallic and heterogeneous materials having very high melting pointswhich make them suitable to be used as heat-resisting barriers consumed within various productionprocesses providing heat chemical and mechanical resistance Refractories are mainly of two types ndash
shaped and unshaped (monolithics) and are used mainly by the steel industry as a consumableproduct in the internal linings of furnaces kilns reactors and other vessels for holding andtransporting metal and slag
Shaped refractories are those which have fixed shapes with most common form being rectangularbrick Brick shapes may be divided into two standard shapes and special shapes Standard shapeshave dimensions that are conformed to by most refractory manufacturers and are generally applicableto kilns and furnaces of the same type Special shapes are specifically made for particular kilns andfurnaces Shaped refractories are almost always machine-pressed and possess high uniformity inproperties are expected
Unshaped refractories are without definite form and are only given shape upon application It forms joint less lining and are better known as monolithic refractories They are manufactured in powderform as granular material and known as plastic refractories ramming mixes castables gunning mixesfettling mixes and mortars
The raw materials used to manufacture refractories are broadly classified into clay and non-clay Clayrefractories consist of naturally occurring alumina silicate like fireclay flint clay flint brick and highalumina and are used to produce bricks and insulating refractories Non-clay refractories are madefrom non-clay materials and are further classified into basic (made in the form of bricks from magnesiadolomite chrome etc) extra high alumina mullite (made from kyanite bauxite alumina) siliconcarbide and zircon
Exhibit 48
Refractory share by form Exhibit 49
Refractory share by raw material
Source Industry data Centrum Research Source Industry data Centrum Research
Unshaped45Shaped 55
Clay 65
Non Clay35
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20IFGL Refractories Ltd
Applications of refractories ndash largely used in steel industry for furnace linings
Steel industry accounts for ~60 of refractory consumption globally and ~75 in the domesticmarket In non-metallurgical industries (cement glass lime) the refractories are mostly installed onfired heaters hydrogen reformers cracking furnaces incinerators utility boilers air heaters ductingstacks etc The different areas of the steel manufacturing processes are exposed to differenttemperatures slag and sulphur gases Refractory selection for the lining of a furnace is invariably builtupon a combination of material qualities and brick size to maximize performance Steel industry usesrefractory for diverse applications in blast furnaces coke ovens torpedo ladles and secondary refiningladles
In cement industry refractories are used in the kiln the preheating system and the cooler whichoperate in a very high temperature to protect against heat abrasion and chemical attack Commonrefractory materials used are Dolomite Magnesia-Chrome Spinel Magnesia-Alumina Spinel Fireclayand High Alumina The cement kiln clinker area is usually provided with Dolomite refractories
Non(-errous industries like copper and aluminium require high performance refractories in severalequipments like anode baking furnaces induction furnaces reduction pots slag cleaning surfaces etcGlass industry also requires refractories in refiner regenerator dog-house and ports of furnace
Exhibit 50
Refractories consumption in steel making process
Source Magnesita ppt
Exhibit 51
Refractories consumption in steel making process
Source Vesuvius PLC ppt
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21IFGL Refractories Ltd
Steel industry accounts for ~60 of refractory consumption globally and ~75 in the domesticmarket In non-metallurgical industries (cement glass lime) refractories are mostly installed on firedheaters hydrogen reformers cracking furnaces incinerators utility boilers air heaters ducting stacksetc
Exhibit 52
Sector wise refractories demand - Global Exhibit 53
Sector wise refractories demand - India
Source Industry data Centrum Research Source Industry data Centrum Research
Refractory application consumption and replacement dynamics are shown in the table belowSteelmaking requires maximum amount of refractories (10-15kgstonne) with replacement required ina time period of 20 minutes to 2months Cement industry is the next biggest user with annualreplacement requirement while non-ferrous and glass industries have longer replacement cycles
Exhibit 54
Refractory consumption dynamics across user industries
Key Industry Application Replacement Per tonne consumption Refractory requirements
Steel
BF(BOF EAFCasting LadlesInduction FurnacesPellet rotary Kilns
20 minutes to 2months
Global avg - 10-15KgsIndia avg - 15 Kgs
Consumable product ( Systems and solutions for completerefractory management
Cement Kilns annually 1 KgsInvestment goods ( Longer replacement cycles Customizedsolutions based on the specific requirements of various industrialproduction processes complete lining concepts
Glass Glass Furnace upto 10 years 4 Kgs
Non(Ferrous Converters 1(10 yearsAluminium - 6 KgsCopper - 3 Kgs
Source RHI ppt Centrum Research
Global refractory market size at ~US$25bn expected to grow at ~35 CAGR
According to various industry studies global refractoriesrsquo market size is ~US$25bn with production of415MT in CY12 According to industry estimates the global refractories industry is expected to witnessCAGR of 35 during CY13-16E and grow to 46MT with a market value of US$29bn China accountedfor ~70 of the market by volume and ~60 by value in CY12 whereas India accounts for ~3 of theglobal refractories market by volume
Exhibit 55
Global refractory market size at ~US$25bn Exhibit 56
China accounts for ~70 of the market
CY12 Production (MT) Value (US$ bn)
World 415 25
China 295 143
EU 41 39
North America 14 14
India 13 09
Source Industry Centrum Research Source Industry Centrum Research
6015
15
10 Steel
Non-Metallic (Cement GlassLime)
Non-Ferrous (AluminiumCopper Zinc Silver)
Others (paper ceramicspetrochemicals)
75
12
6 3
4
Steel
Cement
Non-Ferrous
Glass
Others
415
463
25
29
0
10
20
30
40
50
CY12 CY16
Volume (MT) Mkt Value ($ bn)
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22IFGL Refractories Ltd
Domestic refractory demand-supply indicates low industry growth amp import pressure
Demand supply analysis of domestic refractory industry shows that it has been witnessing mutedconsumption growth (due to a fall in per tonne consumption for steel making due to technologicaladvances) and faces strong import pressure with one fourth of the market being serviced by netimports (mainly from cheap supplies from China which accounts for two thirds of refractory imports inIndia) Capacity utilization for the industry remains at ~60 on installed capacity of ~22MT and marketsize is ~US$1bn Domestic refractory consumption in steel has grown at a CAGR of ~2 during FY08-14 We expect industry growth to pick up due to scope for higher steel production (backed by higherinfra spend and expansion in per capita steel consumption) The industry has seen consolidation andacquisitions by global majors in the last five years and organised sector (split between (6 players)accounts for ~65 of the market
Exhibit 57 Refractory demand from domestic steel industry
(In tonne) FY08 FY09 FY10 FY11 FY12 FY13 FY14E FY15E FY16E FY17E
Steel Production (MT) 561 572 606 686 757 817 850 893 946 1012
Growth 20 59 132 103 79 40 50 60 70
Avg Refractory consumption(kgt of crude steel)
188 173 168 16 15 145 140 140 140 140
Refractory consumption (steel) 1054680 989560 1018080 1097600 1135500 1184650 1190000 1249500 1324470 1417183
Growth (62) 29 78 35 43 05 50 60 70
Source Ministry of Steel (MoS) Centrum Research Estimates
Exhibit 58
Organised sector accounts for ~65 of domestic refractory industry
Company RevenueMarket
Share ()
Supply toIntegratedsteel mills
Comments
Vesuvius India Ltd 6017 100 95+Leading supplier with wide product basket strongcustomer relationships with large steel mills
Orient Refractories (RHI) 4035 67 10-15 Has developed a niche with mini steel mills
IFGL Refractories (incl IEL) 3674 61 85+Mainly into flow control shaped refractories goodrelationship with large mills
Tata Refractories 9800 163 Not available Largely into bricks supplies (commodity refractories)
Calderys 6250 104 Not available
Supplies largely to non-ferrous producers strong in
bricks and monolithics
OCL 4056 68 Not available
Total Organized Sector 39332 656
Source Company Centrum Research Estimates
Exhibit 59
Net imports accounts for one fourth of market Exhibit 60
China accounts for two thirds of imports
Source MoS Industry Centrum Research Source MoS Industry Centrum Research
(800000)
(600000)
(400000)
(200000)
0
200000
400000
FY07 FY08 FY09 FY10 FY11 FY12
( T o n n e )
Imports Exports Net Imports
167259
380
167228
647594
551
696 685
10
20
30
40
50
60
70
80
FY07 FY08 FY09 FY10 FY11
Net Imports - share China share in imports
Domestic refractory production growth hasbeen largely flat andcapacity utilization is~60
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23IFGL Refractories Ltd
Financials (Cons)
Exhibit 61
Income Statement
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
Revenues from Operations 6712 7776 8484 9554 10697
Raw Materials consumed 3201 3444 3725 4208 4716
of net sales 477 443 439 440 441
Employee expenses 987 1097 1185 1279 1382
of net sales 147 141 140 134 129
Other operational expenses 1621 1805 2013 2243 2486
of net sales 241 232 237 235 232
Total expenses 6130 6680 7273 8140 9068
of net sales 913 859 857 852 848
EBITDA 582 1096 1210 1414 1630
EBITDA Margin () 87 141 143 148 152
Depreciation amp Amortisation 134 155 174 189 204
EBIT 448 942 1036 1225 1425
Interest expenses 80 70 51 29 6
Other Income 45 34 40 44 484
EBT 413 906 1025 1240 1467
Provision for tax 159 248 307 372 440
Effective tax rate () 386 274 300 300 300Net Profit 254 658 717 868 1027
Less Minority interest (28) 18 32 70 99
Net Profit after MI 282 640 686 798 928
Source Company data Centrum Research Estimates
Exhibit 62 Key Ratios
YE Mar FY13 FY14 FY15E FY16E FY17E
Growth Ratio ()
Revenue 112 159 91 126 120
EBITDA (213) 884 104 168 153
PAT (292) 1269 71 163 163
Margin Ratios ()
PBIT Margin 67 121 122 128 133
PBT Margin 62 116 121 130 137
PAT Margin 42 82 81 84 87
Return Ratios ()
ROE 115 212 190 185 181
ROCE 84 177 175 189 198
ROIC 87 179 178 200 224
Turnover Ratios (days)
Asset turnover ratio (x) 18 19 19 19 19
Debtors 78 78 80 80 80
Inventory 46 49 50 50 50
Creditors 43 45 45 45 45
Net Working capital 74 76 80 80 80
Gearing Ratio (x)
Debt-equity 05 03 02 01 00
Net debt-equity 04 03 02 00 (01)
Current ratio 25 23 24 25 27
Dividend
Dividend per share 15 18 20 23 23
Dividend Payout () 251 124 130 125 107
Dividend Yield () 11 13 15 17 17
Per share Ratios (Rs)
Basic EPS 82 185 198 231 268
Fully diluted EPS 82 185 198 231 268
Book value 709 871 1044 1245 1485
Cash earnings per share 120 230 249 285 327
Valuation (x)
PE 174 77 72 62 53
PBV 20 16 14 11 10
EVEBITDA 102 53 46 36 27
EVSales 07 06 06 05 04
M-CapSales 07 06 06 05 05
Source Company data Centrum Research Estimates
Exhibit 63
Balance Sheet
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
Equity share capital 491 491 491 491 491
Reserves amp surplus 1964 2525 3121 3819 4648
Shareholders fund 2455 3016 3612 4310 5139
Total debt 1142 982 682 382 82
Deferred tax liabilities 65 74 74 74 74
Total Liabilities 3741 4167 4495 4963 5591
Gross block 2474 2656 2906 3156 3406
Less acc depreciation 1276 1430 1605 1794 1998
Net block 1198 1225 1301 1362 1407
Capital work in progress 20 20 20 20 20
Goodwill 1105 1342 1342 1342 1342
Investments 5 5 5 5 5
Inventories 848 1034 1162 1309 1465
Trade Receivables 1427 1658 1859 2094 2345
Cash amp cash equivalents 113 33 69 259 609
Loans amp advances 51 107 116 131 147
Trade payables 799 962 1046 1178 1319
Other current liabilities 166 210 232 262 293Provisions 94 124 139 157 176
Total Assets 3741 4167 4495 4963 5591
Source Company data Centrum Research Estimates
Exhibit 64 Cash Flow
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
PBT 413 906 1025 1240 1467
Interest 72 70 51 29 6
Depreciation 134 155 174 189 204
Increase in debtors (330) (231) (201) (235) (251)
Increase in inventories 7 (186) (128) (147) (157)
Increase in trade payables 46 163 84 132 141
Tax 197 248 307 372 440
Cash flow from operations 183 629 695 799 907
Change in fixed assets (194) (418) (250) (250) (250)
Cash flow from investments (172) (418) (250) (250) (250)
Change in debt 19 (160 (300) (300) (300)
Dividends paid (71) (79) (89) (100) (100)
Interest paid (80) (70) (51) (29) (6)
Cash flow from financing (94) (291) (409) (358) (306)
Net cash flow (81) (81) 36 191 350
Opening cash balance 195 113 33 69 259
Closing cash balance 113 33 69 259 609
Source Company data Centrum Research Estimates
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24IFGL Refractories Ltd
Financials (Cons) - Historical
Exhibit 65
Income Statement
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
Revenues from Operations 3780 3982 4152 4689 6039
Raw Materials consumed 1743 1907 2058 2389 3024
of net sales 461 479 496 509 501
Employee expenses 487 589 539 661 843
of net sales 129 148 130 141 140
Other operational expenses 918 1036 951 1148 1418
of net sales 243 260 229 245 235
Total expenses 3244 3708 3575 4279 5299
of net sales 858 931 861 912 878
EBITDA 536 274 578 411 739
EBITDA Margin () 142 69 139 88 122
Depreciation amp Amortisation 63 74 70 71 123
EBIT 473 200 508 339 617
Interest expenses 82 95 45 56 68
Other Income 18 24 34 43 33
EBT 409 128 497 327 582
Provision for tax 123 67 155 84 183
Effective tax rate () 301 523 311 258 315Net Profit 286 61 343 243 398
Less Minority interest 1 0 0 0 0
Net Profit after MI 285 61 343 243 399
Source Company data Centrum Research Estimates
Exhibit 66 Key Ratios
YE Mar FY08 FY09 FY10 FY11 FY12
Growth Ratio ()
Revenue 171 53 43 129 288
EBITDA 98 (489) 1111 (289) 800
PAT 85 (785) 4586 (292) 642
Margin Ratios ()
PBIT Margin 125 50 122 72 102
PBT Margin 108 32 120 70 96
PAT Margin 75 15 83 52 66
Return Ratios ()
ROE 294 54 250 138 180
ROCE 182 49 169 93 128
ROIC 195 53 183 98 141
Turnover Ratios (days)
Asset turnover ratio (x) 20 18 19 15 17
Debtors 97 55 79 85 69
Inventory 46 47 52 55 52
Creditors 49 23 41 50 44
Net Working capital 105 81 89 93 67
Gearing Ratio (x)
Debt-equity 09 09 06 07 05
Net debt-equity 08 08 05 07 04
Current ratio 29 36 26 25 24
Dividend
Dividend per share 20 00 10 05 15
Dividend Payout () 284 00 118 103 63
Dividend Yield () 15 00 07 04 11
Per share Ratios (Rs)
Basic EPS 82 18 99 70 115
Fully diluted EPS 82 18 99 70 115
Book value 280 328 396 508 641
Cash earnings per share 101 39 119 91 151
Valuation (x)
PE 164 762 136 193 117
PBV 48 41 34 27 21
EVEBITDA 102 203 93 142 76
EVSales 12 12 11 10 08
M-CapSales 12 12 11 10 08
Source Company data Centrum Research Estimates
Exhibit 67
Balance Sheet
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
Equity share capital 346 346 346 491 491
Reserves amp surplus 623 789 1026 1266 1728
Shareholders fund 969 1135 1372 1757 2219
Total debt 869 1003 793 1253 1128
Deferred tax liabilities 41 38 38 40 48
Total Liabilities 1879 2185 2206 3054 3465
Gross block 1456 1948 1966 2738 2238
Less acc depreciation 687 827 864 960 1122
Net block 769 1121 1102 1778 1117
Capital work in progress 46 53 28 21 45
Goodwill 347 594 559 1032 1094
Investments 0 0 4 14 5
Inventories 474 513 592 702 855
Trade Receivables 1001 596 895 1096 1134
Cash amp cash equivalents 77 129 120 100 195
Loans amp advances 152 121 133 152 38
Trade payables 507 256 471 637 729
Other current liabilities 32 90 137 112 194Provisions 102 2 60 60 151
Total Assets 1879 2185 2206 3054 3465
Source Company data Centrum Research Estimates
Exhibit 68 Cash Flow
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
PBT 409 128 497 327 582
Interest 81 96 45 56 59
Depreciation 63 74 75 87 129
Increase in debtors (196) 559 (330) (184) 25
Increase in inventories (72) 35 (79) (77) (135)
Increase in trade payables 82 (304 266 115 67
Tax 119 90 138 70 135
Cash flow from operations 285 814 359 237 520
Change in fixed assets (94) (99) (120) (157) (49)
Cash flow from investments (62 (536 (119 (677 (98
Change in debt (88) 15 (276) 245 (242)
Dividends paid (76) (80) (6) (46) (25)
Interest paid (87) (98) (47) (60) (68)
Cash flow from financing (261) (245) (241) 408 (339)
Net cash flow (43) 24 (8) (29) 94
Opening cash balance 120 77 129 120 100
Closing cash balance 77 129 120 100 195
Source Company data Centrum Research Estimates
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25IFGL Refractories Ltd
Appendix A
Disclaimer
Centrum Broking Limited (ldquoCentrumrdquo) is a full(service Stock Broking Company and a member of The Stock Exchange Mumbai (BSE) and National StockExchange of India Ltd (NSE) Our holding company Centrum Capital Ltd is an investment banker and an underwriter of securities As a group Centrumhas Investment Banking Advisory and other business relationships with a significant percentage of the companies covered by our Research Group Ourresearch professionals provide important inputs into the Groups Investment Banking and other business selection processes
Recipients of this report should assume that our Group is seeking or may seek or will seek Investment Banking advisory project finance or otherbusinesses and may receive commission brokerage fees or other compensation from the company or companies that are the subject of thismaterialreport Our Company and Group companies and their officers directors and employees including the analysts and others involved in thepreparation or issuance of this material and their dependants may on the date of this report or from time to time have long or short positions in actas principal in and buy or sell the securities or derivatives thereof of companies mentioned herein Centrum or its affiliates do not own 1 or more in theequity of this company Our sales people dealers traders and other professionals may provide oral or written market commentary or trading strategies toour clients that reflect opinions that are contrary to the opinions expressed herein and our proprietary trading and investing businesses may makeinvestment decisions that are inconsistent with the recommendations expressed herein We may have earlier issued or may issue in future reports on thecompanies covered herein with recommendations information inconsistent or different those made in this report In reviewing this document youshould be aware that any or all of the foregoing among other things may give rise to or potential conflicts of interest We and our Group may rely oninformation barriers such as Chinese Walls to control the flow of information contained in one or more areas within us or other areas units groups oraffiliates of Centrum Centrum or its affiliates do not make a market in the security of the company for which this report or any report was writtenFurther Centrum or its affiliates did not make a market in the subject companyrsquos securities at the time that the research report was published
This report is for information purposes only and this documentmaterial should not be construed as an offer to sell or the solicitation of an offer to buypurchase or subscribe to any securities and neither this document nor anything contained herein shall form the basis of or be relied upon in connection
with any contract or commitment whatsoever This document does not solicit any action based on the material contained herein It is for the generalinformation of the clients of Centrum Though disseminated to clients simultaneously not all clients may receive this report at the same time Centrumwill not treat recipients as clients by virtue of their receiving this report It does not constitute a personal recommendation or take into account theparticular investment objectives financial situations or needs of individual clients Similarly this document does not have regard to the specificinvestment objectives financial situationcircumstances and the particular needs of any specific person who may receive this document The securitiesdiscussed in this report may not be suitable for all investors The securities described herein may not be eligible for sale in all jurisdictions or to allcategories of investors The countries in which the companies mentioned in this report are organized may have restrictions on investments voting rightsor dealings in securities by nationals of other countries The appropriateness of a particular investment or strategy will depend on an investorsindividual circumstances and objectives Persons who may receive this document should consider and independently evaluate whether it is suitable forhis hertheir particular circumstances and if necessary seek professionalfinancial advice Any such person shall be responsible for conductinghishertheir own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risks involvedin the securities forming the subject matter of this document
The projections and forecasts described in this report were based upon a number of estimates and assumptions and are inherently subject to significantuncertainties and contingencies Projections and forecasts are necessarily speculative in nature and it can be expected that one or more of the estimateson which the projections and forecasts were based will not materialize or will vary significantly from actual results and such variances will likely increase
over time All projections and forecasts described in this report have been prepared solely by the authors of this report independently of the Company These projections and forecasts were not prepared with a view toward compliance with published guidelines or generally accented accountingprinciples No independent accountants have expressed an opinion or any other form of assurance on these projections or forecasts You should notregard the inclusion of the projections and forecasts described herein as a representation or warranty by or on behalf of the Company Centrum theauthors of this report or any other person that these projections or forecasts or their underlying assumptions will be achieved For these reasons youshould only consider the projections and forecasts described in this report after carefully evaluating all of the information in this report including theassumptions underlying such projections and forecasts
The price and value of the investments referred to in this documentmaterial and the income from them may go down as well as up and investors mayrealize losses on any investments Past performance is not a guide for future performance Future returns are not guaranteed and a loss of original capitalmay occur Actual results may differ materially from those set forth in projections Forward (looking statements are not predictions and may be subject tochange without notice Centrum does not provide tax advice to its clients and all investors are strongly advised to consult regarding any potentialinvestment Centrum and its affiliates accept no liabilities for any loss or damage of any kind arising out of the use of this report Foreign currenciesdenominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derived fromthe investment In addition investors in securities such as ADRs the value of which are influenced by foreign currencies effectively assume currency riskCertain transactions including those involving futures options and other derivatives as well as non(investment(grade securities give rise to substantial
risk and are not suitable for all investors Please ensure that you have read and understood the current risk disclosure documents before entering into anyderivative transactions
This reportdocument has been prepared by Centrum based upon information available to the public and sources believed to be reliable Norepresentation or warranty express or implied is made that it is accurate or complete Centrum has reviewed the report and in so far as it includescurrent or historical information it is believed to be reliable although its accuracy and completeness cannot be guaranteed The opinions expressed inthis documentmaterial are subject to change without notice and have no obligation to tell you when opinions or information in this report change
This report or recommendations or information contained herein dodoes not constitute or purport to constitute investment advice in publicly accessiblemedia and should not be reproduced transmitted or published by the recipient The report is for the use and consumption of the recipient only Thispublication may not be distributed to the public used by the public media without the express written consent of Centrum This report or any portionhereof may not be printed sold or distributed without the written consent of Centrum
The distribution of this document in other jurisdictions may be restricted by law and persons into whose possession this document comes should informthemselves about and observe any such restrictions Neither Centrum nor its directors employees agents or representatives shall be liable for anydamages whether direct or indirect incidental special or consequential including lost revenue or lost profits that may arise from or in connection withthe use of the information
This document does not constitute an offer or invitation to subscribe for or purchase or deal in any securities and neither this document nor anythingcontained herein shall form the basis of any contract or commitment whatsoever This document is strictly confidential and is being furnished to yousolely for your information may not be distributed to the press or other media and may not be reproduced or redistributed to any other person Thedistribution of this report in other jurisdictions may be restricted by law and persons into whose possession this report comes should inform themselvesabout and observe any such restrictions By accepting this report you agree to be bound by the fore going limitations No representation is made thatthis report is accurate or complete
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The opinions and projections expressed herein are entirely those of the author and are given as part of the normal research activity of Centrum Brokingand are given as of this date and are subject to change without notice Any opinion estimate or projection herein constitutes a view as of the date of thisreport and there can be no assurance that future results or events will be consistent with any such opinions estimate or projection
This document has not been prepared by or in conjunction with or on behalf of or at the instigation of or by arrangement with the company or any of itsdirectors or any other person Information in this document must not be relied upon as having been authorized or approved by the company or itsdirectors or any other person Any opinions and projections contained herein are entirely those of the authors None of the company or its directors orany other person accepts any liability whatsoever for any loss arising from any use of this document or its contents or otherwise arising in connectiontherewith
Centrum and its affiliates have not managed or co(managed a public offering for the subject company in the preceding twelve months Centrum andaffiliates have not received compensation from the companies mentioned in the report during the period preceding twelve months from the date of thisreport for service in respect of public offerings corporate finance debt restructuring investment banking or other advisory services in amergeracquisition or some other sort of specific transaction
As per the declarations given by them Mr Abhisar Jain research analyst and andor any of his family members do not serve as an officer director or anyway connected to the companycompanies mentioned in this report Further as declared by him he has not received any compensation from the abovecompanies in the preceding twelve months He does not hold any shares by him or through his relatives or in case if holds the shares then will not to doany transactions in the said scrip for 30 days from the date of release such report Our entire research professionals are our employees and are paid asalary They do not have any other material conflict of interest of the research analyst or member of which the research analyst knows of has reason toknow at the time of publication of the research report or at the time of the public appearance
While we would endeavour to update the information herein on a reasonable basis Centrum its associated companies their directors and employees areunder no obligation to update or keep the information current Also there may be regulatory compliance or other reasons that may prevent Centrumfrom doing so
Non(rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable
regulations andor Centrum policies in circumstances where Centrum is acting in an advisory capacity to this company or any certain othercircumstances
This report is not directed to or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality statecountry or other jurisdiction where such distribution publication availability or use would be contrary to law or regulation or which would subjectCentrum Broking Limited or its group companies to any registration or licensing requirement within such jurisdiction Specifically this document doesnot constitute an offer to or solicitation to any US person for the purchase or sale of any financial instrument or as an official confirmation of anytransaction to any US person unless otherwise stated this message should not be construed as official confirmation of any transaction No part of thisdocument may be distributed in Canada or used by private customers in United Kingdom
The information contained herein is not intended for publication or distribution or circulation in any manner whatsoever and any unauthorized readingdissemination distribution or copying of this communication is prohibited unless otherwise expressly authorized Please ensure that you have read ldquoRiskDisclosure Document for Capital Market and Derivatives Segmentsrdquo as prescribed by Securities and Exchange Board of India before investing in IndianSecurities Market
Rating Criteria
Rating Market cap lt Rs20bn Market cap gt Rs20bn but lt 100bn Market cap gt Rs100bn Buy Upside gt 25 Upside gt 20 Upside gt 15
Hold Upside between (25 to +25 Upside between (20 to +20 Upside between (15 to +15
Sell Downside gt 25 Downside gt 20 Downside gt 15
Member (NSE BSE MCX(SX) Depository Participant (CDSL) and SEBI registered Portfolio Manager
Registration Nos
CAPITAL MARKET SEBI REGN NO BSE INB011454239 NSE INB231454233
DERIVATIVES SEBI REGN NO NSE INF231454233 (TRADING amp SELF CLEARING MEMBER)
CDSL DP ID 12200 SEBI REGISTRATION NO IN(DP(CDSL(661(2012
PMS REGISTRATION NO INP000004383
MCX ndash SX (Currency Derivative segment) REGN NO INE261454230
Website wwwcentrumcoin
Investor Grievance Email ID investorgrievancescentrumcoin
Compliance Officer Details
Tel (022) 4215 9413 Email ID compliancecentrumcoin
Centrum Broking Limited
Registered Office Address
Bombay Mutual Building
2nd Floor
Dr D N Road
Fort Mumbai ( 400 001
Correspondence Address
Centrum House
6th Floor CST Road Near Vidya Nagari Marg Kalina
Santacruz (E) Mumbai 400 098
Tel (022) 4215 9000
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7IFGL Refractories Ltd
Steady growth seen from overseas operations after turnaround
Several strategic acquisitions in last decade for expanding reach and product basket
IFGL has made several overseas acquisitions in the last decade mainly aimed at achieving inorganicgrowth through entry into new markets expanding its product basket and getting access to newtechnologies
IFGL acquired Monocon group in 2005 at a cost of 95mn pounds (Rs560mn) with its plantslocated in Brazil Taiwan China UK and USA Monocon group provided IFGL with wide rangeproduct basket (from Lances Darts Monolithics amp Castables) and also gave access to key largesteel plants in Europe of steelmakers like Corus amp Arcelor Mittal
IFGL acquired Goricon group in 2006 at a cost of 11mn pounds (Rs70mn) and later merged it withMonocon as the companies had similar products and were competitors of each other
Hoffman ceramics was acquired in 2008 at a cost of 7mn euros for getting entry into foundries for
supply of consumables
IFGL acquired EI Ceramics in 2010 which has similar product basket as IFGLrsquos domestic operationsbut provided access to key markets in Americas Company acquired EI Ceramics with an eye on
future expansion as it had space to increase capacity by ~3x IFGL also acquired CUSCinternational in US (later merged with EI) which was providing ancillary services to EI includingprocessing of raw materials warehousing and packaging
Exhibit 16
Snapshot of overseas acquisitions
CompanyAcquired
Year ofacquisition
PurchaseCost
(Rs mn)
PlantLocations
Products Markets Comments
MonoconGroup
2005 560UK USChina
Refractory dartslances monolithics
UK EuropeChina
Services key customers in Europelike Corus Arcelor Brazil plantclosed and Taiwan plant shiftedto China
GoriconGroup
2006 70 UK USDarts lances and ladlepowder
Europe Merged into Monocon
HoffmanCeramics 2008 470 Germany
Refractory ceramicslike filters feeders etc Europe
Czech plant closed suppliesconsumables to foundries
EI Ceramics 2010 590 Ohio USContinuous castingrefractories
US CanadaMexico
Acquired to gain traction inAmerica market
Source Company Centrum Research
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8IFGL Refractories Ltd
Overseas operations have been consolidated and profitability has improved
IFGL has faced several challenges in managing the profitability and operations of its overseasacquisitions due to global economic crisis in CY08 which impacted steel production in US amp Europevery severely Both Monocon and Hoffman group had EBITDA loss in FY09 but management effortsinto consolidation of key group entities (Goricon was merged with Monocon) and closure of certainunviable facilities (Taiwan Brazil plants of Monocon were closed Czech plant of Hoffman was closed)coupled with recovery in demand has led to gradual improvement in profitability of companyrsquossubsidiaries We note that Monocon grouprsquos profitability has improved substantially during FY11-14with EBITDA CAGR of ~16 and improvement in marginsROE to 8512 in FY14 Hoffman grouphas also returned to profits although margins remain low IFGLrsquos acquisition in US of EI Ceramics in2010 has been rewarding and the company has performed consistently well post acquisition andachieved revenueEBITDA CAGR of ~3338 during FY11-14
Exhibit 17
Revenue trend for overseas subs Exhibit 18
EBITDA trend for overseas subs
Source Company Centrum Research Source Company Centrum Research
Exhibit 19 EBITDA margin has shown improvement Exhibit 20 ROE has moved up especially for EI Ceramics
Source Company Centrum Research Estimates Source Company Centrum Research Estimates
0
500
1000
1500
2000
2500
3000
3500
FY11 FY12 FY13 FY14
( R s
m n )
Monocon EI Ceramics Hoffman
FY11-14 - CAGR
Monocon - 107EI Ceramics - 328
0
50
100
150
200
250
300
FY11 FY12 FY13 FY14
( R s
m n )
Monocon EI Ceramics Hoffman
FY11-14 - CAGR
Monocon - 16EI Ceramics - 376
70
89
59
85
139
159
137
161
7080
51 5030
50
70
90
110
130
150
170
FY11 FY12 FY13 FY14
( )
Monocon EI Ceramics Hoffman
119 120 87 120
112
191
158 162
7135
4336
30
50
70
90
110
130
150170
190
210
FY11 FY12 FY13 FY14
( )
Monocon EI Ceramics Hoffman
EBITDA has shownimprovement across alloverseas subsidiariesduring FY11-14
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9IFGL Refractories Ltd
EI Ceramics doubling capacity to maintain growth
EI Ceramics is doubling its capacity as utilizations on current capacity reached ~100 in FY14 EICeramics has been IFGLrsquos best overseas acquisition achieving revenueEBITDA CAGR of ~3338since acquisition (FY11-14) We expect revenueEBITDA CAGR of 23227 during FY14-17E asexpansion would be on-stream by Q1FY16E IFGL had spent ~Rs590mn for the purchase of EI and isexpected to achieve full payback in FY15E (less than 5 years) The capex for expansion of additional 80kpcsyear in EI is limited to Rs80mn and would be funded easily through internal accruals We note thatadditional capex would have the potential to generate ~Rs1000mn in revenues on completestabilisation (by FY17E) an asset turnover of more than 10x
Exhibit 21 EI Ceramics to double capacity by Q1FY16 Exhibit 22 Strong revenue and EBITDA CAGR ahead
Source Company Centrum Research Source Company Centrum Research Estimates
Share of higher margin EI Ceramics to keep increasing in IFGLrsquos overseas earnings
We expect EI Ceramics to lead the growth in earnings from IFGLrsquos overseas subsidiaries basket We expectrevenue contribution of EI Ceramics in total overseas subs to increase to ~26 in FY17E from ~20 inFY14 while EBITDA contribution is expected to increase to 41 in FY17E from ~34 in FY14 Since EICeramics enjoys the best margins (~16) among IFGLrsquos overseas subsidiaries increase in share ofearnings from EI Ceramics is expected to lead to margin improvement for IFGL at a consolidated level
Exhibit 23
Overseas subs revenue share ndash FY14 Exhibit 24
Overseas subs revenue share ndash FY17E
Source Company Centrum Research Source Company Centrum Research Estimates
Exhibit 25
Overseas subs EBITDA share ndash FY14 Exhibit 26
Overseas subs EBITDA share ndash FY17E
Source Company Centrum Research Source Company Centrum Research Estimates
80000
80000
160000
0
20000
40000
60000
80000
100000
120000
140000
160000
180000
Phase 1 Phase 2 Total
( p c s y r )
Currently Installed FY16E
8631012
1113
1447
1881
118 163 178 231 301
0
500
1000
1500
2000
FY13 FY14 FY15E FY16E FY17E
Revenue (Rs mn) EBITDA (Rs mn)
FY14-17E - CAGR
Revenue - 23EBITDA - 227
Monocon641
EI Ceramics
197
Hoffman161
Monocon607
EI Ceramics
261
Hoffman133
Monocon577
EI Ceramics
338
Hoffman 85
Monocon530
EI Ceramics
405
Hoffman 64
Capacity at EI Ceramicsto increase to 160k pcsyear by FY15-end
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10IFGL Refractories Ltd
Balance sheet strengthened free cash flow generation strong
Strong free cash flow generation ahead with limited capex
IFGL has turned free cash flow positive at a consolidated level in FY14 as operating cash flow improvedsharply (up 240 YoY) led by higher profitability across operations We see strong free cash flowgeneration ahead on the back of limited capex (~Rs250mn annually over FY15-16E) and continued
traction in operating cash flow on the back of higher capacities and better utilizations
Exhibit 27 Free cash flow generation expected to be strong going ahead
Source Company Centrum Research Estimates
Free cash flow yield to improve significantly
We see free cash flow yield improving to ~12 and free cash flowEBITDA going up to 04x in FY16EBalance sheet remains strong and we expect the company to be debt free at a consolidated level inthe next three years if there is no new acquisition or major capex
Exhibit 28
Free cash flow yield attractive Exhibit 29
Debt free status in next two years
Source Company Centrum Research Estimates Source Company Centrum Research Estimates
-527
-99 -39
211
445549
657
(1000)
(800)
(600)
(400)
(200)
0
200
400
600
800
1000
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( R s m n )
OCF Capex Free Cash Flow
019
037 039
040
45
95
117
141
00
40
80
120
160
00
01
02
03
04
05
FY14 FY15E FY16E FY17E
Free Cash FlowEBITDA (x) Free Cash Flow Yield -
(02)
00
02
04
06
08
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( x )
Debt-equity Net debt-equity
Free cash flow yieldexpected to go up from45 in FY14 to 117 inFY16E
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11IFGL Refractories Ltd
ROE shows improvement beats most peers at a global level
IFGL has shown sharp improvement in its ROE in FY14 as overseas subsidiariesrsquo profitability hasimproved and domestic profitability is on an upswing post start of IEL We expect ROE of IFGL to be thebest in the industry at a global level in the next few years
Exhibit 30
IFGL ROE well above that of global peers
Source Company Bloomberg Centrum Research Estimates CY07 = FY08
(10)
(5)
0
5
10
15
20
25
3035
CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14E CY15E
( )
Vesuvius India IFGL Refractories (FY) Vesuvius PLC
Puyang Refractories Cie de St-Gobain Magnesita Refractarios
Chosun Refractories Krosaki Harima (FY) Shinagawa (FY)
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12IFGL Refractories Ltd
Financials
Revenue growth to be led by IEL and overseas operations
We expect consolidated net sales CAGR of 112 for IFGL during FY14-17E This is expected to be ledby ~33 CAGR from IEL and 12 CAGR from overseas subsidiaries while standalone operations CAGRis expected to slow down to 67
Exhibit 31
Net sales CAGR of 112 during FY14-17E
Source Company Centrum Research Estimates
Margins and return ratios to remain healthy FY14-17E EBITDA CAGR of 141
Backed by better margins from IEL and recovery in demand we expect EBITDA CAGR of 141 duringFY14-17E Margins are expected to improve gradually as revenues from high margin subsidiary IELpicks up Expansion at EI Ceramics is also expected to help in EBITDA growth and margins Returnratios are expected to remain healthy on account of operating efficiency and high asset turnover ratiosfrom new expansions
Exhibit 32
EBITDA margin to remain stable Exhibit 33
Healthy return ratios
Source Company Centrum Research Estimates Source Company Centrum Research Estimates
Exhibit 34
Du Pont analysis
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
PATSales (x) 005 007 004 008 008 008 009
SalesAssets (x) 154 174 179 187 189 192 191
AssetsEquity (x) 174 156 152 138 124 115 109
ROE - 138 180 115 212 190 185 181
Source Company Centrum Research Estimates
4689
6039 6712
77768484
9554 10697
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( R s m n )
Standalone (IFGL) IFGL Exports (IEL) Overseas Subs Total
411 739 582 1096 1210 1414 1630
88
122
87
141 143 148
152
60
80
100
120
140
160
0
200
400
600
800
1000
1200
1400
1600
1800
FY11 FY12 FY13 FY14 FY15E FY16E FY17EEBITDA-Cons (Rs mn) OPM - RHS
50
100
150
200
250
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( )
ROE ROCE (post tax) ROIC (post tax)
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13IFGL Refractories Ltd
Key Assumptions and Sensitivity
Exhibit 35 Key Assumptions
Revenue (Rs mn) FY12 FY13 FY14 FY15E FY16E FY17E
Indian Operations
Domestic sales 1305 1495 1391 1744 2014 2304
Exports 1443 1567 1883 1744 1716 1669
Total standalone operations 2748 3061 3274 3487 3730 3973
IFGL Exports Ltd 0 90 399 518 755 953
Total Indian operations 2748 3152 3673 4005 4485 4926
Overseas Operations
Monocon Group 2410 2801 3288 3617 3979 4376
EI Ceramics 716 863 1012 1113 1447 1881
Hoffman Group 758 692 827 868 911 957
Less Intersegment revenues 596 790 1023 1120 1267 1443
Total Overseas operations 3287 3566 4103 4478 5069 5771
Total Consolidated operations 6035 6717 7776 8484 9554 10697
Source Company Centrum Research Estimates
Exhibit 36
EPS sensitivity to shaped refractory segment
EPS - FY16E (Rs) -Cons
Realizations
-10 -5 Base 5 10
V o l u m e s
-10 177 192 206 221 236
-5 187 203 218 234 250
Base 197 214 231 247 264
5 208 225 243 260 277
10 218 236 255 273 291
Source Company Centrum Research Estimates
Exhibit 37
EPS sensitivity to unshaped refractory segment
EPS - FY16E (Rs) - ConsRealizations
-10 -5 Base 5 10
V o l u m e s
-10 230 233 235 237 239
-5 228 230 233 235 237
Base 226 228 231 233 235
5 223 226 228 231 234
10 221 223 226 229 232
Source Company Centrum Research Estimates
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14IFGL Refractories Ltd
Valuation ndash poised for rerating
IFGLrsquos mean EVEBITDA stands at 47x with standard deviation of 26x and we note that the stock pricehas been volatile in last 6-7 years due to sharp fluctuations in earnings which explains the highstandard deviation However we believe that earnings would be more linear going forward asoverseas operations have been stabilised and growth would be driven by expansions at higher marginsubsidiaries of IEL and EI Ceramics At the CMP of Rs142 the stock trades at attractive valuations of 62xFY16E PE and 36x FY16E EVEBITDA and we believe that sharp improvement in free cash flow canlead to rerating in the stock We assign an EVEBITDA of 55x on Marrsquo16E earnings to arrive at a fairvalue of Rs220 and initiate with a Buy The multiple assigned by us remains below mean+05sd andthus provides comfort on historical valuations even though we expect much better earnings trajectoryfor the company going forward
Exhibit 38
EVEBITDA Valuation
(Rs mn) FY16E
EBITDA 1414
Ascribed EVEBITDA (x) 55
EV 7776
Add Net Cash (123)
Fair value mkt cap 7653
No of shares (mn) 346
Fair Valueshare (Rs) 220
Source Company Centrum Research Estimates
Exhibit 39
1-year forward EVEBITDA chart Exhibit 40
1-year forward PE chart
Source Bloomberg Company Centrum Research Estimates Source Bloomberg Company Centrum Research Estimates
Steep valuation discount exists for IFGL compared to global peersComparison of IFGLrsquos valuations with global peers shows that the company is trading at a steepdiscount despite strong fundamentals which we feel is unwarranted We expect re-rating in the stockwith improvement in outlook and stability in earnings
Exhibit 41 Valuationndash Peer comparison
CompanyMkt Cap(US$ mn)
CAGR CY13-CY15E () EBITDA Margin () PE (x) EVEBITDA (x) RoE () Div Yield ()
Rev EBITDA PAT CY13 CY14E CY15E CY13 CY14E CY15E CY13 CY14E CY15E CY13 CY14E CY15E CY13 CY14E CY15E
IFGL Refractories 82 108 136 116 141 143 148 77 72 62 53 46 36 212 190 185 12 14 16
Vesuvius India Ltd 220 110 115 126 184 178 186 203 192 161 110 100 82 164 152 158 07 08 09
Global Peers
RHI AG 1322 29 (02) 318 137 122 129 153 103 89 59 65 57 131 177 180 31 31 35
Vesuvius PLC 2140 04 53 80 117 123 128 149 141 127 86 82 74 93 1 02 108 31 34 36
Magnesita SA 574 122 129 344 156 149 158 157 180 101 60 63 55 21 17 35 15 11 21
Cie de St(Gobain 32544 20 91 32 3 100 107 114 218 181 133 76 68 60 58 76 94 29 30 33
Source Bloomberg Estimates Centrum Research Estimates CY13=FY14 for IFGL and so on
0
2
4
6
810
12
14
J u n - 0 7
O c t - 0 7
F e b - 0 8
J u n - 0 8
O c t - 0 8
F e b - 0 9
J u n - 0 9
O c t - 0 9
F e b - 1 0
J u n - 1 0
O c t - 1 0
F e b - 1 1
J u n - 1 1
O c t - 1 1
F e b - 1 2
J u n - 1 2
O c t - 1 2
F e b - 1 3
J u n - 1 3
O c t - 1 3
F e b - 1 4
J u n - 1 4
EVEBITDA MeanMean + Std Dev Mean - Std Dev
0
5
10
15
20
25
J u n - 0 7
O c t - 0 7
F e b - 0 8
J u n - 0 8
O c t - 0 8
F e b - 0 9
J u n - 0 9
O c t - 0 9
F e b - 1 0
J u n - 1 0
O c t - 1 0
F e b - 1 1
J u n - 1 1
O c t - 1 1
F e b - 1 2
J u n - 1 2
O c t - 1 2
F e b - 1 3
J u n - 1 3
O c t - 1 3
F e b - 1 4
J u n - 1 4
PE MeanMean + Std Dev Mean - Std Dev
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15IFGL Refractories Ltd
IFGL trading at a higher discount to Vesuvius than historical average
IFGL has historically (based on average during JanrsquoCY09-JunersquoCY14) traded at a discount of ~35 toVesuvius India Ltd (VIL) on EVEBITDA basis However currently IFGL is trading at a discount of ~60 toVIL which is unwarranted as the profitability of IFGL is on an uptrend post stabilisation of overseasoperations and IEL The historical discount has seen an increase in the past 3 years due to volatility inearnings of IFGL but with operations having stabilised we see the discount narrowing We also expectIFGL to be above its peers (incl VIL) in terms of ROE for the next few years and see a high cash flowyield of ~12 in FY16E The multiple assigned by us implies ~35 discount to VILrsquos current valuationswhich is in line with the historical average even though IFGL is expected to generate better returnsand free cash flow going forward
Exhibit 42
EVEBITDA ndash IFGL vs Vesuvius India Exhibit 43
Discount of IFGL EVEBITDA vs Vesuvius
Source Bloomberg Company Centrum Research Source Bloomberg Company Centrum Research
0
2
4
6
8
10
12
F e b - 0
9
J u n - 0
9
O c t - 0 9
F e b - 1
0
J u n - 1
0
O c t - 1 0
F e b - 1
1
J u n - 1
1
O c t - 1 1
F e b - 1
2
J u n - 1
2
O c t - 1 2
F e b - 1
3
J u n - 1
3
O c t - 1 3
F e b - 1
4
J u n - 1
4
( x )
EVEBITDA IFGL EVEBITDA Vesuvius
(90)
(60)
(30)
0
30
60
F e b - 0
9
J u n - 0
9
O c t - 0 9
F e b - 1
0
J u n - 1
0
O c t - 1 0
F e b - 1
1
J u n - 1
1
O c t - 1 1
F e b - 1
2
J u n - 1
2
O c t - 1 2
F e b - 1
3
J u n - 1
3
O c t - 1 3
F e b - 1
4
J u n - 1
4
( )
EVEBITDA discount of IFGL vs Vesuvius
Avg discount of IFGL vs Vesuvius
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16IFGL Refractories Ltd
Key risks to our thesis
Dependent on raw material sourcing through imports The industry is dependent on importsof key raw materials like high grade alumina bauxite magnesia silicon carbide etc China is themajor supplier of imports and has imposed heavy taxes on export of raw materials of refractories This has resulted in sharp increase in imported raw material costs IFGL sources ~52 of its raw
materials through imports and remains exposed to increase in costs which can impact its margins Low pricing power due to excess domestic supply and import pressure The industry suffers
from low capacity utilization of ~60 with excess installed capacities (~22 MTPA) and as a resultpricing power is low for refractory makers who are squeezed between raw material suppliers andsteel makers Cheap refractory imports from China have also kept prices in check IFGL does notenjoy as much pricing power as VIL does as customers prefer VIL for its strong brand name andproven track record of providing quality products and services Further increase in competitiveintensity can lead to lower pricing for IFGL in both domestic and export markets
Sharp slowdown in steel industry leading to lower volumes Like any other refractorycompany IFGLrsquos fortunes depend on the steel industry and any slowdown in global economy mayhamper the steel industryrsquos growth and IFGLrsquos volume growth would be more vulnerable as itdoes not have strong relationships like VIL has Sharp slowdown in the steel industry (vs
expectations of recovery) in coming years could lead to lower capacity utilization and lower thanexpected volumes
Currency Fluctuation We believe that steady weakening of rupee over the past couple of yearshas been favourable to the industry as well as for IFGL due to better import substitution andhigher realizations on exports negated only to a partial extent by higher import costs for rawmaterials IFGL has 80 of its revenues coming from overseas on a consolidated basis On astandalone basis approximately 58 of the revenues (FY14) came from exports Companyrsquosrevenues remain exposed to sharp appreciation of rupee against foreign currencies
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17IFGL Refractories Ltd
Exhibit 44
Shareholding pattern ()
Q4FY14 Q3FY14 Q2FY14 Q1FY14
Promoter 713 713 713 713
FIIs 00 00 00 00
DIIs 11 22 22 22
Others 277 265 265 265
Source BSE
Company Background
IFGL Refractories Ltd is a manufacturer of specialisedrefractories and requisite operating systems for the steelIndustry IFGL offers its customers total solution for refractoryfor flow control in steel teeming and continuous casting ofSteel IFGL has 8 manufacturing plants strategically located
across the globe in India China Europe and Americas Thecompany has a presence in over 50 of the global markets Itacquired the Monocon group UK in 2005 (06 Hofmanngroup Germany in 2008 and EI Ceramics USA in 2010 Theseoverseas acquisitions have brought along access to newproducts amp technologies new markets and new customers The company has also set up a subsidiary IFGL exports atKandla Gujarat which also has technical collaboration withKrosaki Harima Corporation Japan Apart from this IFGL alsoplans to expand its capacities in India and abroad over thecoming years
Exhibit 45 Key management personnel
Name Position Profile
Mr S K Bajoria Chairman
Promoter of S K Bajoria Group based at Kolkata engaged in diversified business activitiesHas been honorary vice consul of Denmark in Kolkata president of the Indian chamber ofcommerce director of West Bengal industrial development corporation Ltd and industrialpromotion amp investment corporation of Orissa Ltd
Mr Pradeep Bajoria Managing Director
Associated with IFGL from the very early days of Indo Flogates even before thecommencement of production in 1984 Has been director amp chief executive of erstwhileIndo Flogates Ltd More than 30 years of experience of refractory industry and has beeninvolved in various capacities in Indian refractories makers association
Mr Gian Carlo Cozzani Directorr Monocon UK
Associated with IFGL since Oct 2009 Former president and CEO of Vesuvius (now Vesuviusplc) Instrumental in steering Vesuvius from US$ 100 million to over US$ 1 billion Based inEurope he is a member of IFGLrsquos Core group and a director of Monocon InternationalRefractories Limited UK
Source Company
Exhibit 46
IFGL refractories holding structure
Source Company
10051
983113983110983111983116 983127983151983154983148983140983159983145983140983141 983112983151983148983140983145983150983143 983116983145983149983145983156983141983140
983113983110983111983116 983109983160983152983151983154983156983155 983116983156983140
983117983151983150983151983139983151983150 983111983154983151983157983152 983109983113 983107983141983154983137983149983145983139983155 983112983151983142983149983137983150983150
983107983141983154983137983149983145983139
983124983141983139983144983150983145983139983137983148 983137983150983140 983110983145983150983137983150983139983145983137983148
983107983151983148983148983137983138983151983154983137983156983145983151983150 983151983142
983115983154983151983155983137983147983145 983112983137983154983145983149983137
983107983151983154983152983151983154983137983156983145983151983150983084 983114983137983152983137983150983084
983080983123983157983138983155983145983140983145983137983154983161 983151983142 983118983145983152983152983151983150
983123983156983141983141983148 983107983151983154983152983151983154983137983156983145983151983150983084
983114983137983152983137983150983081
983125983123983105 983125983115 983087 983125983123983105 983087 983107983144983145983150983137
983115983137983150983140983148983137 983123983109983130983084 983111983157983146983137983154983137983156983084 983113983150983140983145983137
983111983141983154983149983137983150983161
983113983110983111983116 983122983141983142983154983137983139983156983151983154983145983141983155 983116983145983149983145983156983141983140
983112983119 983085 983115983151983148983147983137983156983137983084 983113983150983140983145983137
983127983151983154983147983155 983085 983115983137983148983157983150983143983137983084 983119983154983145983155983155983137983084 983113983150983140983145983137
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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18IFGL Refractories Ltd
Exhibit 47 Quarterly financials (cons)
YE Mar (Rs mn) Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14
Net sales 1725 1657 1690 1641 1811 2014 1947 2003
Other Operating Income 5 4 0 0 3 0 0 0
Total Income 1729 1662 1690 1641 1814 2014 1947 2003
Accretion to Stocks in trade amp work in progress (29) (10) 4 46 (65) (54) (25) 9
Cost of Raw Materials consumed 840 898 835 581 911 908 817 808
Purchase of traded goods 66 28 42 223 46 73 182 168
Staff Cost 239 234 250 264 247 275 294 281
Other Operational expenses 407 400 375 439 430 513 407 455
Operating Profit (Core EBITDA) 206 112 183 89 246 299 272 282
Depreciation 32 34 35 33 32 34 46 43
EBIT 174 78 149 56 214 265 226 239
Interest 21 22 21 15 17 18 19 16
Other RevenueIncome 16 5 7 8 5 9 6 12
Profit Before Tax 169 61 134 49 202 255 213 236
Tax 50 31 48 31 54 57 68 70
Profit After Tax 119 31 86 18 148 199 145 166
Minority Interest (7) (9) (8) (4) (1) 8 3 8
Profit after minority interest 126 40 95 22 149 191 143 158
Growth (YoY )
Revenue 371 36 61 36 50 216 153 221
EBITDA 129 (457) (125) (477) 195 1672 485 2164
PAT 174 (666) (111) (669) 189 3765 503 6292
Margin ()
EBITDA 119 67 109 54 136 148 140 141
EBIT 100 47 88 34 118 131 116 120
PAT 73 24 56 13 82 95 73 79
Segment Revenue (Net Sales Income from ops)
India 764 749 810 829 872 926 936 941
Asia (excl India) 142 175 160 167 188 213 163 156
Europe 593 545 542 543 612 744 689 764
Americas 405 370 363 344 384 399 427 386
Segment EBIT
India 83 32 84 63 92 103 129 139
Asia (excl India) 8 11 6 9 12 10 5 7
Europe 55 44 51 (4 45 76 74 81Americas 22 13 23 39 38 45 55 36
Source Company Centrum Research
Comments on recent quarterly results
Q4FY14 witnessed a healthy growth with revenue up 221 YoY EBITDA and PAT jumpedsubstantially YoY Margins showed good improvement EBITDA margin expanded by 860 bps YoYOther operating expenses as a proportion of sales reduced to 227 from 267 in Q4FY13 this had apositive impact on margins
Revenue grew 28 QoQ EBITDA amp PAT margins showed signs of consistency further improving fromQ3FY14 European business looks to be on a growth trajectory as revenues have jumped 140 YoYand 11 QoQ Revenue from American segment saw growth of 124 YoY but declined QoQ
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19IFGL Refractories Ltd
Annexure ndash Refractory Industry
About refractories ndash consumables for manufacturing processes with high temperatures
Refractories are inorganic non-metallic and heterogeneous materials having very high melting pointswhich make them suitable to be used as heat-resisting barriers consumed within various productionprocesses providing heat chemical and mechanical resistance Refractories are mainly of two types ndash
shaped and unshaped (monolithics) and are used mainly by the steel industry as a consumableproduct in the internal linings of furnaces kilns reactors and other vessels for holding andtransporting metal and slag
Shaped refractories are those which have fixed shapes with most common form being rectangularbrick Brick shapes may be divided into two standard shapes and special shapes Standard shapeshave dimensions that are conformed to by most refractory manufacturers and are generally applicableto kilns and furnaces of the same type Special shapes are specifically made for particular kilns andfurnaces Shaped refractories are almost always machine-pressed and possess high uniformity inproperties are expected
Unshaped refractories are without definite form and are only given shape upon application It forms joint less lining and are better known as monolithic refractories They are manufactured in powderform as granular material and known as plastic refractories ramming mixes castables gunning mixesfettling mixes and mortars
The raw materials used to manufacture refractories are broadly classified into clay and non-clay Clayrefractories consist of naturally occurring alumina silicate like fireclay flint clay flint brick and highalumina and are used to produce bricks and insulating refractories Non-clay refractories are madefrom non-clay materials and are further classified into basic (made in the form of bricks from magnesiadolomite chrome etc) extra high alumina mullite (made from kyanite bauxite alumina) siliconcarbide and zircon
Exhibit 48
Refractory share by form Exhibit 49
Refractory share by raw material
Source Industry data Centrum Research Source Industry data Centrum Research
Unshaped45Shaped 55
Clay 65
Non Clay35
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20IFGL Refractories Ltd
Applications of refractories ndash largely used in steel industry for furnace linings
Steel industry accounts for ~60 of refractory consumption globally and ~75 in the domesticmarket In non-metallurgical industries (cement glass lime) the refractories are mostly installed onfired heaters hydrogen reformers cracking furnaces incinerators utility boilers air heaters ductingstacks etc The different areas of the steel manufacturing processes are exposed to differenttemperatures slag and sulphur gases Refractory selection for the lining of a furnace is invariably builtupon a combination of material qualities and brick size to maximize performance Steel industry usesrefractory for diverse applications in blast furnaces coke ovens torpedo ladles and secondary refiningladles
In cement industry refractories are used in the kiln the preheating system and the cooler whichoperate in a very high temperature to protect against heat abrasion and chemical attack Commonrefractory materials used are Dolomite Magnesia-Chrome Spinel Magnesia-Alumina Spinel Fireclayand High Alumina The cement kiln clinker area is usually provided with Dolomite refractories
Non(-errous industries like copper and aluminium require high performance refractories in severalequipments like anode baking furnaces induction furnaces reduction pots slag cleaning surfaces etcGlass industry also requires refractories in refiner regenerator dog-house and ports of furnace
Exhibit 50
Refractories consumption in steel making process
Source Magnesita ppt
Exhibit 51
Refractories consumption in steel making process
Source Vesuvius PLC ppt
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21IFGL Refractories Ltd
Steel industry accounts for ~60 of refractory consumption globally and ~75 in the domesticmarket In non-metallurgical industries (cement glass lime) refractories are mostly installed on firedheaters hydrogen reformers cracking furnaces incinerators utility boilers air heaters ducting stacksetc
Exhibit 52
Sector wise refractories demand - Global Exhibit 53
Sector wise refractories demand - India
Source Industry data Centrum Research Source Industry data Centrum Research
Refractory application consumption and replacement dynamics are shown in the table belowSteelmaking requires maximum amount of refractories (10-15kgstonne) with replacement required ina time period of 20 minutes to 2months Cement industry is the next biggest user with annualreplacement requirement while non-ferrous and glass industries have longer replacement cycles
Exhibit 54
Refractory consumption dynamics across user industries
Key Industry Application Replacement Per tonne consumption Refractory requirements
Steel
BF(BOF EAFCasting LadlesInduction FurnacesPellet rotary Kilns
20 minutes to 2months
Global avg - 10-15KgsIndia avg - 15 Kgs
Consumable product ( Systems and solutions for completerefractory management
Cement Kilns annually 1 KgsInvestment goods ( Longer replacement cycles Customizedsolutions based on the specific requirements of various industrialproduction processes complete lining concepts
Glass Glass Furnace upto 10 years 4 Kgs
Non(Ferrous Converters 1(10 yearsAluminium - 6 KgsCopper - 3 Kgs
Source RHI ppt Centrum Research
Global refractory market size at ~US$25bn expected to grow at ~35 CAGR
According to various industry studies global refractoriesrsquo market size is ~US$25bn with production of415MT in CY12 According to industry estimates the global refractories industry is expected to witnessCAGR of 35 during CY13-16E and grow to 46MT with a market value of US$29bn China accountedfor ~70 of the market by volume and ~60 by value in CY12 whereas India accounts for ~3 of theglobal refractories market by volume
Exhibit 55
Global refractory market size at ~US$25bn Exhibit 56
China accounts for ~70 of the market
CY12 Production (MT) Value (US$ bn)
World 415 25
China 295 143
EU 41 39
North America 14 14
India 13 09
Source Industry Centrum Research Source Industry Centrum Research
6015
15
10 Steel
Non-Metallic (Cement GlassLime)
Non-Ferrous (AluminiumCopper Zinc Silver)
Others (paper ceramicspetrochemicals)
75
12
6 3
4
Steel
Cement
Non-Ferrous
Glass
Others
415
463
25
29
0
10
20
30
40
50
CY12 CY16
Volume (MT) Mkt Value ($ bn)
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22IFGL Refractories Ltd
Domestic refractory demand-supply indicates low industry growth amp import pressure
Demand supply analysis of domestic refractory industry shows that it has been witnessing mutedconsumption growth (due to a fall in per tonne consumption for steel making due to technologicaladvances) and faces strong import pressure with one fourth of the market being serviced by netimports (mainly from cheap supplies from China which accounts for two thirds of refractory imports inIndia) Capacity utilization for the industry remains at ~60 on installed capacity of ~22MT and marketsize is ~US$1bn Domestic refractory consumption in steel has grown at a CAGR of ~2 during FY08-14 We expect industry growth to pick up due to scope for higher steel production (backed by higherinfra spend and expansion in per capita steel consumption) The industry has seen consolidation andacquisitions by global majors in the last five years and organised sector (split between (6 players)accounts for ~65 of the market
Exhibit 57 Refractory demand from domestic steel industry
(In tonne) FY08 FY09 FY10 FY11 FY12 FY13 FY14E FY15E FY16E FY17E
Steel Production (MT) 561 572 606 686 757 817 850 893 946 1012
Growth 20 59 132 103 79 40 50 60 70
Avg Refractory consumption(kgt of crude steel)
188 173 168 16 15 145 140 140 140 140
Refractory consumption (steel) 1054680 989560 1018080 1097600 1135500 1184650 1190000 1249500 1324470 1417183
Growth (62) 29 78 35 43 05 50 60 70
Source Ministry of Steel (MoS) Centrum Research Estimates
Exhibit 58
Organised sector accounts for ~65 of domestic refractory industry
Company RevenueMarket
Share ()
Supply toIntegratedsteel mills
Comments
Vesuvius India Ltd 6017 100 95+Leading supplier with wide product basket strongcustomer relationships with large steel mills
Orient Refractories (RHI) 4035 67 10-15 Has developed a niche with mini steel mills
IFGL Refractories (incl IEL) 3674 61 85+Mainly into flow control shaped refractories goodrelationship with large mills
Tata Refractories 9800 163 Not available Largely into bricks supplies (commodity refractories)
Calderys 6250 104 Not available
Supplies largely to non-ferrous producers strong in
bricks and monolithics
OCL 4056 68 Not available
Total Organized Sector 39332 656
Source Company Centrum Research Estimates
Exhibit 59
Net imports accounts for one fourth of market Exhibit 60
China accounts for two thirds of imports
Source MoS Industry Centrum Research Source MoS Industry Centrum Research
(800000)
(600000)
(400000)
(200000)
0
200000
400000
FY07 FY08 FY09 FY10 FY11 FY12
( T o n n e )
Imports Exports Net Imports
167259
380
167228
647594
551
696 685
10
20
30
40
50
60
70
80
FY07 FY08 FY09 FY10 FY11
Net Imports - share China share in imports
Domestic refractory production growth hasbeen largely flat andcapacity utilization is~60
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23IFGL Refractories Ltd
Financials (Cons)
Exhibit 61
Income Statement
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
Revenues from Operations 6712 7776 8484 9554 10697
Raw Materials consumed 3201 3444 3725 4208 4716
of net sales 477 443 439 440 441
Employee expenses 987 1097 1185 1279 1382
of net sales 147 141 140 134 129
Other operational expenses 1621 1805 2013 2243 2486
of net sales 241 232 237 235 232
Total expenses 6130 6680 7273 8140 9068
of net sales 913 859 857 852 848
EBITDA 582 1096 1210 1414 1630
EBITDA Margin () 87 141 143 148 152
Depreciation amp Amortisation 134 155 174 189 204
EBIT 448 942 1036 1225 1425
Interest expenses 80 70 51 29 6
Other Income 45 34 40 44 484
EBT 413 906 1025 1240 1467
Provision for tax 159 248 307 372 440
Effective tax rate () 386 274 300 300 300Net Profit 254 658 717 868 1027
Less Minority interest (28) 18 32 70 99
Net Profit after MI 282 640 686 798 928
Source Company data Centrum Research Estimates
Exhibit 62 Key Ratios
YE Mar FY13 FY14 FY15E FY16E FY17E
Growth Ratio ()
Revenue 112 159 91 126 120
EBITDA (213) 884 104 168 153
PAT (292) 1269 71 163 163
Margin Ratios ()
PBIT Margin 67 121 122 128 133
PBT Margin 62 116 121 130 137
PAT Margin 42 82 81 84 87
Return Ratios ()
ROE 115 212 190 185 181
ROCE 84 177 175 189 198
ROIC 87 179 178 200 224
Turnover Ratios (days)
Asset turnover ratio (x) 18 19 19 19 19
Debtors 78 78 80 80 80
Inventory 46 49 50 50 50
Creditors 43 45 45 45 45
Net Working capital 74 76 80 80 80
Gearing Ratio (x)
Debt-equity 05 03 02 01 00
Net debt-equity 04 03 02 00 (01)
Current ratio 25 23 24 25 27
Dividend
Dividend per share 15 18 20 23 23
Dividend Payout () 251 124 130 125 107
Dividend Yield () 11 13 15 17 17
Per share Ratios (Rs)
Basic EPS 82 185 198 231 268
Fully diluted EPS 82 185 198 231 268
Book value 709 871 1044 1245 1485
Cash earnings per share 120 230 249 285 327
Valuation (x)
PE 174 77 72 62 53
PBV 20 16 14 11 10
EVEBITDA 102 53 46 36 27
EVSales 07 06 06 05 04
M-CapSales 07 06 06 05 05
Source Company data Centrum Research Estimates
Exhibit 63
Balance Sheet
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
Equity share capital 491 491 491 491 491
Reserves amp surplus 1964 2525 3121 3819 4648
Shareholders fund 2455 3016 3612 4310 5139
Total debt 1142 982 682 382 82
Deferred tax liabilities 65 74 74 74 74
Total Liabilities 3741 4167 4495 4963 5591
Gross block 2474 2656 2906 3156 3406
Less acc depreciation 1276 1430 1605 1794 1998
Net block 1198 1225 1301 1362 1407
Capital work in progress 20 20 20 20 20
Goodwill 1105 1342 1342 1342 1342
Investments 5 5 5 5 5
Inventories 848 1034 1162 1309 1465
Trade Receivables 1427 1658 1859 2094 2345
Cash amp cash equivalents 113 33 69 259 609
Loans amp advances 51 107 116 131 147
Trade payables 799 962 1046 1178 1319
Other current liabilities 166 210 232 262 293Provisions 94 124 139 157 176
Total Assets 3741 4167 4495 4963 5591
Source Company data Centrum Research Estimates
Exhibit 64 Cash Flow
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
PBT 413 906 1025 1240 1467
Interest 72 70 51 29 6
Depreciation 134 155 174 189 204
Increase in debtors (330) (231) (201) (235) (251)
Increase in inventories 7 (186) (128) (147) (157)
Increase in trade payables 46 163 84 132 141
Tax 197 248 307 372 440
Cash flow from operations 183 629 695 799 907
Change in fixed assets (194) (418) (250) (250) (250)
Cash flow from investments (172) (418) (250) (250) (250)
Change in debt 19 (160 (300) (300) (300)
Dividends paid (71) (79) (89) (100) (100)
Interest paid (80) (70) (51) (29) (6)
Cash flow from financing (94) (291) (409) (358) (306)
Net cash flow (81) (81) 36 191 350
Opening cash balance 195 113 33 69 259
Closing cash balance 113 33 69 259 609
Source Company data Centrum Research Estimates
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24IFGL Refractories Ltd
Financials (Cons) - Historical
Exhibit 65
Income Statement
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
Revenues from Operations 3780 3982 4152 4689 6039
Raw Materials consumed 1743 1907 2058 2389 3024
of net sales 461 479 496 509 501
Employee expenses 487 589 539 661 843
of net sales 129 148 130 141 140
Other operational expenses 918 1036 951 1148 1418
of net sales 243 260 229 245 235
Total expenses 3244 3708 3575 4279 5299
of net sales 858 931 861 912 878
EBITDA 536 274 578 411 739
EBITDA Margin () 142 69 139 88 122
Depreciation amp Amortisation 63 74 70 71 123
EBIT 473 200 508 339 617
Interest expenses 82 95 45 56 68
Other Income 18 24 34 43 33
EBT 409 128 497 327 582
Provision for tax 123 67 155 84 183
Effective tax rate () 301 523 311 258 315Net Profit 286 61 343 243 398
Less Minority interest 1 0 0 0 0
Net Profit after MI 285 61 343 243 399
Source Company data Centrum Research Estimates
Exhibit 66 Key Ratios
YE Mar FY08 FY09 FY10 FY11 FY12
Growth Ratio ()
Revenue 171 53 43 129 288
EBITDA 98 (489) 1111 (289) 800
PAT 85 (785) 4586 (292) 642
Margin Ratios ()
PBIT Margin 125 50 122 72 102
PBT Margin 108 32 120 70 96
PAT Margin 75 15 83 52 66
Return Ratios ()
ROE 294 54 250 138 180
ROCE 182 49 169 93 128
ROIC 195 53 183 98 141
Turnover Ratios (days)
Asset turnover ratio (x) 20 18 19 15 17
Debtors 97 55 79 85 69
Inventory 46 47 52 55 52
Creditors 49 23 41 50 44
Net Working capital 105 81 89 93 67
Gearing Ratio (x)
Debt-equity 09 09 06 07 05
Net debt-equity 08 08 05 07 04
Current ratio 29 36 26 25 24
Dividend
Dividend per share 20 00 10 05 15
Dividend Payout () 284 00 118 103 63
Dividend Yield () 15 00 07 04 11
Per share Ratios (Rs)
Basic EPS 82 18 99 70 115
Fully diluted EPS 82 18 99 70 115
Book value 280 328 396 508 641
Cash earnings per share 101 39 119 91 151
Valuation (x)
PE 164 762 136 193 117
PBV 48 41 34 27 21
EVEBITDA 102 203 93 142 76
EVSales 12 12 11 10 08
M-CapSales 12 12 11 10 08
Source Company data Centrum Research Estimates
Exhibit 67
Balance Sheet
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
Equity share capital 346 346 346 491 491
Reserves amp surplus 623 789 1026 1266 1728
Shareholders fund 969 1135 1372 1757 2219
Total debt 869 1003 793 1253 1128
Deferred tax liabilities 41 38 38 40 48
Total Liabilities 1879 2185 2206 3054 3465
Gross block 1456 1948 1966 2738 2238
Less acc depreciation 687 827 864 960 1122
Net block 769 1121 1102 1778 1117
Capital work in progress 46 53 28 21 45
Goodwill 347 594 559 1032 1094
Investments 0 0 4 14 5
Inventories 474 513 592 702 855
Trade Receivables 1001 596 895 1096 1134
Cash amp cash equivalents 77 129 120 100 195
Loans amp advances 152 121 133 152 38
Trade payables 507 256 471 637 729
Other current liabilities 32 90 137 112 194Provisions 102 2 60 60 151
Total Assets 1879 2185 2206 3054 3465
Source Company data Centrum Research Estimates
Exhibit 68 Cash Flow
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
PBT 409 128 497 327 582
Interest 81 96 45 56 59
Depreciation 63 74 75 87 129
Increase in debtors (196) 559 (330) (184) 25
Increase in inventories (72) 35 (79) (77) (135)
Increase in trade payables 82 (304 266 115 67
Tax 119 90 138 70 135
Cash flow from operations 285 814 359 237 520
Change in fixed assets (94) (99) (120) (157) (49)
Cash flow from investments (62 (536 (119 (677 (98
Change in debt (88) 15 (276) 245 (242)
Dividends paid (76) (80) (6) (46) (25)
Interest paid (87) (98) (47) (60) (68)
Cash flow from financing (261) (245) (241) 408 (339)
Net cash flow (43) 24 (8) (29) 94
Opening cash balance 120 77 129 120 100
Closing cash balance 77 129 120 100 195
Source Company data Centrum Research Estimates
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25IFGL Refractories Ltd
Appendix A
Disclaimer
Centrum Broking Limited (ldquoCentrumrdquo) is a full(service Stock Broking Company and a member of The Stock Exchange Mumbai (BSE) and National StockExchange of India Ltd (NSE) Our holding company Centrum Capital Ltd is an investment banker and an underwriter of securities As a group Centrumhas Investment Banking Advisory and other business relationships with a significant percentage of the companies covered by our Research Group Ourresearch professionals provide important inputs into the Groups Investment Banking and other business selection processes
Recipients of this report should assume that our Group is seeking or may seek or will seek Investment Banking advisory project finance or otherbusinesses and may receive commission brokerage fees or other compensation from the company or companies that are the subject of thismaterialreport Our Company and Group companies and their officers directors and employees including the analysts and others involved in thepreparation or issuance of this material and their dependants may on the date of this report or from time to time have long or short positions in actas principal in and buy or sell the securities or derivatives thereof of companies mentioned herein Centrum or its affiliates do not own 1 or more in theequity of this company Our sales people dealers traders and other professionals may provide oral or written market commentary or trading strategies toour clients that reflect opinions that are contrary to the opinions expressed herein and our proprietary trading and investing businesses may makeinvestment decisions that are inconsistent with the recommendations expressed herein We may have earlier issued or may issue in future reports on thecompanies covered herein with recommendations information inconsistent or different those made in this report In reviewing this document youshould be aware that any or all of the foregoing among other things may give rise to or potential conflicts of interest We and our Group may rely oninformation barriers such as Chinese Walls to control the flow of information contained in one or more areas within us or other areas units groups oraffiliates of Centrum Centrum or its affiliates do not make a market in the security of the company for which this report or any report was writtenFurther Centrum or its affiliates did not make a market in the subject companyrsquos securities at the time that the research report was published
This report is for information purposes only and this documentmaterial should not be construed as an offer to sell or the solicitation of an offer to buypurchase or subscribe to any securities and neither this document nor anything contained herein shall form the basis of or be relied upon in connection
with any contract or commitment whatsoever This document does not solicit any action based on the material contained herein It is for the generalinformation of the clients of Centrum Though disseminated to clients simultaneously not all clients may receive this report at the same time Centrumwill not treat recipients as clients by virtue of their receiving this report It does not constitute a personal recommendation or take into account theparticular investment objectives financial situations or needs of individual clients Similarly this document does not have regard to the specificinvestment objectives financial situationcircumstances and the particular needs of any specific person who may receive this document The securitiesdiscussed in this report may not be suitable for all investors The securities described herein may not be eligible for sale in all jurisdictions or to allcategories of investors The countries in which the companies mentioned in this report are organized may have restrictions on investments voting rightsor dealings in securities by nationals of other countries The appropriateness of a particular investment or strategy will depend on an investorsindividual circumstances and objectives Persons who may receive this document should consider and independently evaluate whether it is suitable forhis hertheir particular circumstances and if necessary seek professionalfinancial advice Any such person shall be responsible for conductinghishertheir own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risks involvedin the securities forming the subject matter of this document
The projections and forecasts described in this report were based upon a number of estimates and assumptions and are inherently subject to significantuncertainties and contingencies Projections and forecasts are necessarily speculative in nature and it can be expected that one or more of the estimateson which the projections and forecasts were based will not materialize or will vary significantly from actual results and such variances will likely increase
over time All projections and forecasts described in this report have been prepared solely by the authors of this report independently of the Company These projections and forecasts were not prepared with a view toward compliance with published guidelines or generally accented accountingprinciples No independent accountants have expressed an opinion or any other form of assurance on these projections or forecasts You should notregard the inclusion of the projections and forecasts described herein as a representation or warranty by or on behalf of the Company Centrum theauthors of this report or any other person that these projections or forecasts or their underlying assumptions will be achieved For these reasons youshould only consider the projections and forecasts described in this report after carefully evaluating all of the information in this report including theassumptions underlying such projections and forecasts
The price and value of the investments referred to in this documentmaterial and the income from them may go down as well as up and investors mayrealize losses on any investments Past performance is not a guide for future performance Future returns are not guaranteed and a loss of original capitalmay occur Actual results may differ materially from those set forth in projections Forward (looking statements are not predictions and may be subject tochange without notice Centrum does not provide tax advice to its clients and all investors are strongly advised to consult regarding any potentialinvestment Centrum and its affiliates accept no liabilities for any loss or damage of any kind arising out of the use of this report Foreign currenciesdenominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derived fromthe investment In addition investors in securities such as ADRs the value of which are influenced by foreign currencies effectively assume currency riskCertain transactions including those involving futures options and other derivatives as well as non(investment(grade securities give rise to substantial
risk and are not suitable for all investors Please ensure that you have read and understood the current risk disclosure documents before entering into anyderivative transactions
This reportdocument has been prepared by Centrum based upon information available to the public and sources believed to be reliable Norepresentation or warranty express or implied is made that it is accurate or complete Centrum has reviewed the report and in so far as it includescurrent or historical information it is believed to be reliable although its accuracy and completeness cannot be guaranteed The opinions expressed inthis documentmaterial are subject to change without notice and have no obligation to tell you when opinions or information in this report change
This report or recommendations or information contained herein dodoes not constitute or purport to constitute investment advice in publicly accessiblemedia and should not be reproduced transmitted or published by the recipient The report is for the use and consumption of the recipient only Thispublication may not be distributed to the public used by the public media without the express written consent of Centrum This report or any portionhereof may not be printed sold or distributed without the written consent of Centrum
The distribution of this document in other jurisdictions may be restricted by law and persons into whose possession this document comes should informthemselves about and observe any such restrictions Neither Centrum nor its directors employees agents or representatives shall be liable for anydamages whether direct or indirect incidental special or consequential including lost revenue or lost profits that may arise from or in connection withthe use of the information
This document does not constitute an offer or invitation to subscribe for or purchase or deal in any securities and neither this document nor anythingcontained herein shall form the basis of any contract or commitment whatsoever This document is strictly confidential and is being furnished to yousolely for your information may not be distributed to the press or other media and may not be reproduced or redistributed to any other person Thedistribution of this report in other jurisdictions may be restricted by law and persons into whose possession this report comes should inform themselvesabout and observe any such restrictions By accepting this report you agree to be bound by the fore going limitations No representation is made thatthis report is accurate or complete
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The opinions and projections expressed herein are entirely those of the author and are given as part of the normal research activity of Centrum Brokingand are given as of this date and are subject to change without notice Any opinion estimate or projection herein constitutes a view as of the date of thisreport and there can be no assurance that future results or events will be consistent with any such opinions estimate or projection
This document has not been prepared by or in conjunction with or on behalf of or at the instigation of or by arrangement with the company or any of itsdirectors or any other person Information in this document must not be relied upon as having been authorized or approved by the company or itsdirectors or any other person Any opinions and projections contained herein are entirely those of the authors None of the company or its directors orany other person accepts any liability whatsoever for any loss arising from any use of this document or its contents or otherwise arising in connectiontherewith
Centrum and its affiliates have not managed or co(managed a public offering for the subject company in the preceding twelve months Centrum andaffiliates have not received compensation from the companies mentioned in the report during the period preceding twelve months from the date of thisreport for service in respect of public offerings corporate finance debt restructuring investment banking or other advisory services in amergeracquisition or some other sort of specific transaction
As per the declarations given by them Mr Abhisar Jain research analyst and andor any of his family members do not serve as an officer director or anyway connected to the companycompanies mentioned in this report Further as declared by him he has not received any compensation from the abovecompanies in the preceding twelve months He does not hold any shares by him or through his relatives or in case if holds the shares then will not to doany transactions in the said scrip for 30 days from the date of release such report Our entire research professionals are our employees and are paid asalary They do not have any other material conflict of interest of the research analyst or member of which the research analyst knows of has reason toknow at the time of publication of the research report or at the time of the public appearance
While we would endeavour to update the information herein on a reasonable basis Centrum its associated companies their directors and employees areunder no obligation to update or keep the information current Also there may be regulatory compliance or other reasons that may prevent Centrumfrom doing so
Non(rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable
regulations andor Centrum policies in circumstances where Centrum is acting in an advisory capacity to this company or any certain othercircumstances
This report is not directed to or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality statecountry or other jurisdiction where such distribution publication availability or use would be contrary to law or regulation or which would subjectCentrum Broking Limited or its group companies to any registration or licensing requirement within such jurisdiction Specifically this document doesnot constitute an offer to or solicitation to any US person for the purchase or sale of any financial instrument or as an official confirmation of anytransaction to any US person unless otherwise stated this message should not be construed as official confirmation of any transaction No part of thisdocument may be distributed in Canada or used by private customers in United Kingdom
The information contained herein is not intended for publication or distribution or circulation in any manner whatsoever and any unauthorized readingdissemination distribution or copying of this communication is prohibited unless otherwise expressly authorized Please ensure that you have read ldquoRiskDisclosure Document for Capital Market and Derivatives Segmentsrdquo as prescribed by Securities and Exchange Board of India before investing in IndianSecurities Market
Rating Criteria
Rating Market cap lt Rs20bn Market cap gt Rs20bn but lt 100bn Market cap gt Rs100bn Buy Upside gt 25 Upside gt 20 Upside gt 15
Hold Upside between (25 to +25 Upside between (20 to +20 Upside between (15 to +15
Sell Downside gt 25 Downside gt 20 Downside gt 15
Member (NSE BSE MCX(SX) Depository Participant (CDSL) and SEBI registered Portfolio Manager
Registration Nos
CAPITAL MARKET SEBI REGN NO BSE INB011454239 NSE INB231454233
DERIVATIVES SEBI REGN NO NSE INF231454233 (TRADING amp SELF CLEARING MEMBER)
CDSL DP ID 12200 SEBI REGISTRATION NO IN(DP(CDSL(661(2012
PMS REGISTRATION NO INP000004383
MCX ndash SX (Currency Derivative segment) REGN NO INE261454230
Website wwwcentrumcoin
Investor Grievance Email ID investorgrievancescentrumcoin
Compliance Officer Details
Tel (022) 4215 9413 Email ID compliancecentrumcoin
Centrum Broking Limited
Registered Office Address
Bombay Mutual Building
2nd Floor
Dr D N Road
Fort Mumbai ( 400 001
Correspondence Address
Centrum House
6th Floor CST Road Near Vidya Nagari Marg Kalina
Santacruz (E) Mumbai 400 098
Tel (022) 4215 9000
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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8IFGL Refractories Ltd
Overseas operations have been consolidated and profitability has improved
IFGL has faced several challenges in managing the profitability and operations of its overseasacquisitions due to global economic crisis in CY08 which impacted steel production in US amp Europevery severely Both Monocon and Hoffman group had EBITDA loss in FY09 but management effortsinto consolidation of key group entities (Goricon was merged with Monocon) and closure of certainunviable facilities (Taiwan Brazil plants of Monocon were closed Czech plant of Hoffman was closed)coupled with recovery in demand has led to gradual improvement in profitability of companyrsquossubsidiaries We note that Monocon grouprsquos profitability has improved substantially during FY11-14with EBITDA CAGR of ~16 and improvement in marginsROE to 8512 in FY14 Hoffman grouphas also returned to profits although margins remain low IFGLrsquos acquisition in US of EI Ceramics in2010 has been rewarding and the company has performed consistently well post acquisition andachieved revenueEBITDA CAGR of ~3338 during FY11-14
Exhibit 17
Revenue trend for overseas subs Exhibit 18
EBITDA trend for overseas subs
Source Company Centrum Research Source Company Centrum Research
Exhibit 19 EBITDA margin has shown improvement Exhibit 20 ROE has moved up especially for EI Ceramics
Source Company Centrum Research Estimates Source Company Centrum Research Estimates
0
500
1000
1500
2000
2500
3000
3500
FY11 FY12 FY13 FY14
( R s
m n )
Monocon EI Ceramics Hoffman
FY11-14 - CAGR
Monocon - 107EI Ceramics - 328
0
50
100
150
200
250
300
FY11 FY12 FY13 FY14
( R s
m n )
Monocon EI Ceramics Hoffman
FY11-14 - CAGR
Monocon - 16EI Ceramics - 376
70
89
59
85
139
159
137
161
7080
51 5030
50
70
90
110
130
150
170
FY11 FY12 FY13 FY14
( )
Monocon EI Ceramics Hoffman
119 120 87 120
112
191
158 162
7135
4336
30
50
70
90
110
130
150170
190
210
FY11 FY12 FY13 FY14
( )
Monocon EI Ceramics Hoffman
EBITDA has shownimprovement across alloverseas subsidiariesduring FY11-14
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9IFGL Refractories Ltd
EI Ceramics doubling capacity to maintain growth
EI Ceramics is doubling its capacity as utilizations on current capacity reached ~100 in FY14 EICeramics has been IFGLrsquos best overseas acquisition achieving revenueEBITDA CAGR of ~3338since acquisition (FY11-14) We expect revenueEBITDA CAGR of 23227 during FY14-17E asexpansion would be on-stream by Q1FY16E IFGL had spent ~Rs590mn for the purchase of EI and isexpected to achieve full payback in FY15E (less than 5 years) The capex for expansion of additional 80kpcsyear in EI is limited to Rs80mn and would be funded easily through internal accruals We note thatadditional capex would have the potential to generate ~Rs1000mn in revenues on completestabilisation (by FY17E) an asset turnover of more than 10x
Exhibit 21 EI Ceramics to double capacity by Q1FY16 Exhibit 22 Strong revenue and EBITDA CAGR ahead
Source Company Centrum Research Source Company Centrum Research Estimates
Share of higher margin EI Ceramics to keep increasing in IFGLrsquos overseas earnings
We expect EI Ceramics to lead the growth in earnings from IFGLrsquos overseas subsidiaries basket We expectrevenue contribution of EI Ceramics in total overseas subs to increase to ~26 in FY17E from ~20 inFY14 while EBITDA contribution is expected to increase to 41 in FY17E from ~34 in FY14 Since EICeramics enjoys the best margins (~16) among IFGLrsquos overseas subsidiaries increase in share ofearnings from EI Ceramics is expected to lead to margin improvement for IFGL at a consolidated level
Exhibit 23
Overseas subs revenue share ndash FY14 Exhibit 24
Overseas subs revenue share ndash FY17E
Source Company Centrum Research Source Company Centrum Research Estimates
Exhibit 25
Overseas subs EBITDA share ndash FY14 Exhibit 26
Overseas subs EBITDA share ndash FY17E
Source Company Centrum Research Source Company Centrum Research Estimates
80000
80000
160000
0
20000
40000
60000
80000
100000
120000
140000
160000
180000
Phase 1 Phase 2 Total
( p c s y r )
Currently Installed FY16E
8631012
1113
1447
1881
118 163 178 231 301
0
500
1000
1500
2000
FY13 FY14 FY15E FY16E FY17E
Revenue (Rs mn) EBITDA (Rs mn)
FY14-17E - CAGR
Revenue - 23EBITDA - 227
Monocon641
EI Ceramics
197
Hoffman161
Monocon607
EI Ceramics
261
Hoffman133
Monocon577
EI Ceramics
338
Hoffman 85
Monocon530
EI Ceramics
405
Hoffman 64
Capacity at EI Ceramicsto increase to 160k pcsyear by FY15-end
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10IFGL Refractories Ltd
Balance sheet strengthened free cash flow generation strong
Strong free cash flow generation ahead with limited capex
IFGL has turned free cash flow positive at a consolidated level in FY14 as operating cash flow improvedsharply (up 240 YoY) led by higher profitability across operations We see strong free cash flowgeneration ahead on the back of limited capex (~Rs250mn annually over FY15-16E) and continued
traction in operating cash flow on the back of higher capacities and better utilizations
Exhibit 27 Free cash flow generation expected to be strong going ahead
Source Company Centrum Research Estimates
Free cash flow yield to improve significantly
We see free cash flow yield improving to ~12 and free cash flowEBITDA going up to 04x in FY16EBalance sheet remains strong and we expect the company to be debt free at a consolidated level inthe next three years if there is no new acquisition or major capex
Exhibit 28
Free cash flow yield attractive Exhibit 29
Debt free status in next two years
Source Company Centrum Research Estimates Source Company Centrum Research Estimates
-527
-99 -39
211
445549
657
(1000)
(800)
(600)
(400)
(200)
0
200
400
600
800
1000
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( R s m n )
OCF Capex Free Cash Flow
019
037 039
040
45
95
117
141
00
40
80
120
160
00
01
02
03
04
05
FY14 FY15E FY16E FY17E
Free Cash FlowEBITDA (x) Free Cash Flow Yield -
(02)
00
02
04
06
08
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( x )
Debt-equity Net debt-equity
Free cash flow yieldexpected to go up from45 in FY14 to 117 inFY16E
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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11IFGL Refractories Ltd
ROE shows improvement beats most peers at a global level
IFGL has shown sharp improvement in its ROE in FY14 as overseas subsidiariesrsquo profitability hasimproved and domestic profitability is on an upswing post start of IEL We expect ROE of IFGL to be thebest in the industry at a global level in the next few years
Exhibit 30
IFGL ROE well above that of global peers
Source Company Bloomberg Centrum Research Estimates CY07 = FY08
(10)
(5)
0
5
10
15
20
25
3035
CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14E CY15E
( )
Vesuvius India IFGL Refractories (FY) Vesuvius PLC
Puyang Refractories Cie de St-Gobain Magnesita Refractarios
Chosun Refractories Krosaki Harima (FY) Shinagawa (FY)
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12IFGL Refractories Ltd
Financials
Revenue growth to be led by IEL and overseas operations
We expect consolidated net sales CAGR of 112 for IFGL during FY14-17E This is expected to be ledby ~33 CAGR from IEL and 12 CAGR from overseas subsidiaries while standalone operations CAGRis expected to slow down to 67
Exhibit 31
Net sales CAGR of 112 during FY14-17E
Source Company Centrum Research Estimates
Margins and return ratios to remain healthy FY14-17E EBITDA CAGR of 141
Backed by better margins from IEL and recovery in demand we expect EBITDA CAGR of 141 duringFY14-17E Margins are expected to improve gradually as revenues from high margin subsidiary IELpicks up Expansion at EI Ceramics is also expected to help in EBITDA growth and margins Returnratios are expected to remain healthy on account of operating efficiency and high asset turnover ratiosfrom new expansions
Exhibit 32
EBITDA margin to remain stable Exhibit 33
Healthy return ratios
Source Company Centrum Research Estimates Source Company Centrum Research Estimates
Exhibit 34
Du Pont analysis
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
PATSales (x) 005 007 004 008 008 008 009
SalesAssets (x) 154 174 179 187 189 192 191
AssetsEquity (x) 174 156 152 138 124 115 109
ROE - 138 180 115 212 190 185 181
Source Company Centrum Research Estimates
4689
6039 6712
77768484
9554 10697
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( R s m n )
Standalone (IFGL) IFGL Exports (IEL) Overseas Subs Total
411 739 582 1096 1210 1414 1630
88
122
87
141 143 148
152
60
80
100
120
140
160
0
200
400
600
800
1000
1200
1400
1600
1800
FY11 FY12 FY13 FY14 FY15E FY16E FY17EEBITDA-Cons (Rs mn) OPM - RHS
50
100
150
200
250
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( )
ROE ROCE (post tax) ROIC (post tax)
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13IFGL Refractories Ltd
Key Assumptions and Sensitivity
Exhibit 35 Key Assumptions
Revenue (Rs mn) FY12 FY13 FY14 FY15E FY16E FY17E
Indian Operations
Domestic sales 1305 1495 1391 1744 2014 2304
Exports 1443 1567 1883 1744 1716 1669
Total standalone operations 2748 3061 3274 3487 3730 3973
IFGL Exports Ltd 0 90 399 518 755 953
Total Indian operations 2748 3152 3673 4005 4485 4926
Overseas Operations
Monocon Group 2410 2801 3288 3617 3979 4376
EI Ceramics 716 863 1012 1113 1447 1881
Hoffman Group 758 692 827 868 911 957
Less Intersegment revenues 596 790 1023 1120 1267 1443
Total Overseas operations 3287 3566 4103 4478 5069 5771
Total Consolidated operations 6035 6717 7776 8484 9554 10697
Source Company Centrum Research Estimates
Exhibit 36
EPS sensitivity to shaped refractory segment
EPS - FY16E (Rs) -Cons
Realizations
-10 -5 Base 5 10
V o l u m e s
-10 177 192 206 221 236
-5 187 203 218 234 250
Base 197 214 231 247 264
5 208 225 243 260 277
10 218 236 255 273 291
Source Company Centrum Research Estimates
Exhibit 37
EPS sensitivity to unshaped refractory segment
EPS - FY16E (Rs) - ConsRealizations
-10 -5 Base 5 10
V o l u m e s
-10 230 233 235 237 239
-5 228 230 233 235 237
Base 226 228 231 233 235
5 223 226 228 231 234
10 221 223 226 229 232
Source Company Centrum Research Estimates
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14IFGL Refractories Ltd
Valuation ndash poised for rerating
IFGLrsquos mean EVEBITDA stands at 47x with standard deviation of 26x and we note that the stock pricehas been volatile in last 6-7 years due to sharp fluctuations in earnings which explains the highstandard deviation However we believe that earnings would be more linear going forward asoverseas operations have been stabilised and growth would be driven by expansions at higher marginsubsidiaries of IEL and EI Ceramics At the CMP of Rs142 the stock trades at attractive valuations of 62xFY16E PE and 36x FY16E EVEBITDA and we believe that sharp improvement in free cash flow canlead to rerating in the stock We assign an EVEBITDA of 55x on Marrsquo16E earnings to arrive at a fairvalue of Rs220 and initiate with a Buy The multiple assigned by us remains below mean+05sd andthus provides comfort on historical valuations even though we expect much better earnings trajectoryfor the company going forward
Exhibit 38
EVEBITDA Valuation
(Rs mn) FY16E
EBITDA 1414
Ascribed EVEBITDA (x) 55
EV 7776
Add Net Cash (123)
Fair value mkt cap 7653
No of shares (mn) 346
Fair Valueshare (Rs) 220
Source Company Centrum Research Estimates
Exhibit 39
1-year forward EVEBITDA chart Exhibit 40
1-year forward PE chart
Source Bloomberg Company Centrum Research Estimates Source Bloomberg Company Centrum Research Estimates
Steep valuation discount exists for IFGL compared to global peersComparison of IFGLrsquos valuations with global peers shows that the company is trading at a steepdiscount despite strong fundamentals which we feel is unwarranted We expect re-rating in the stockwith improvement in outlook and stability in earnings
Exhibit 41 Valuationndash Peer comparison
CompanyMkt Cap(US$ mn)
CAGR CY13-CY15E () EBITDA Margin () PE (x) EVEBITDA (x) RoE () Div Yield ()
Rev EBITDA PAT CY13 CY14E CY15E CY13 CY14E CY15E CY13 CY14E CY15E CY13 CY14E CY15E CY13 CY14E CY15E
IFGL Refractories 82 108 136 116 141 143 148 77 72 62 53 46 36 212 190 185 12 14 16
Vesuvius India Ltd 220 110 115 126 184 178 186 203 192 161 110 100 82 164 152 158 07 08 09
Global Peers
RHI AG 1322 29 (02) 318 137 122 129 153 103 89 59 65 57 131 177 180 31 31 35
Vesuvius PLC 2140 04 53 80 117 123 128 149 141 127 86 82 74 93 1 02 108 31 34 36
Magnesita SA 574 122 129 344 156 149 158 157 180 101 60 63 55 21 17 35 15 11 21
Cie de St(Gobain 32544 20 91 32 3 100 107 114 218 181 133 76 68 60 58 76 94 29 30 33
Source Bloomberg Estimates Centrum Research Estimates CY13=FY14 for IFGL and so on
0
2
4
6
810
12
14
J u n - 0 7
O c t - 0 7
F e b - 0 8
J u n - 0 8
O c t - 0 8
F e b - 0 9
J u n - 0 9
O c t - 0 9
F e b - 1 0
J u n - 1 0
O c t - 1 0
F e b - 1 1
J u n - 1 1
O c t - 1 1
F e b - 1 2
J u n - 1 2
O c t - 1 2
F e b - 1 3
J u n - 1 3
O c t - 1 3
F e b - 1 4
J u n - 1 4
EVEBITDA MeanMean + Std Dev Mean - Std Dev
0
5
10
15
20
25
J u n - 0 7
O c t - 0 7
F e b - 0 8
J u n - 0 8
O c t - 0 8
F e b - 0 9
J u n - 0 9
O c t - 0 9
F e b - 1 0
J u n - 1 0
O c t - 1 0
F e b - 1 1
J u n - 1 1
O c t - 1 1
F e b - 1 2
J u n - 1 2
O c t - 1 2
F e b - 1 3
J u n - 1 3
O c t - 1 3
F e b - 1 4
J u n - 1 4
PE MeanMean + Std Dev Mean - Std Dev
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15IFGL Refractories Ltd
IFGL trading at a higher discount to Vesuvius than historical average
IFGL has historically (based on average during JanrsquoCY09-JunersquoCY14) traded at a discount of ~35 toVesuvius India Ltd (VIL) on EVEBITDA basis However currently IFGL is trading at a discount of ~60 toVIL which is unwarranted as the profitability of IFGL is on an uptrend post stabilisation of overseasoperations and IEL The historical discount has seen an increase in the past 3 years due to volatility inearnings of IFGL but with operations having stabilised we see the discount narrowing We also expectIFGL to be above its peers (incl VIL) in terms of ROE for the next few years and see a high cash flowyield of ~12 in FY16E The multiple assigned by us implies ~35 discount to VILrsquos current valuationswhich is in line with the historical average even though IFGL is expected to generate better returnsand free cash flow going forward
Exhibit 42
EVEBITDA ndash IFGL vs Vesuvius India Exhibit 43
Discount of IFGL EVEBITDA vs Vesuvius
Source Bloomberg Company Centrum Research Source Bloomberg Company Centrum Research
0
2
4
6
8
10
12
F e b - 0
9
J u n - 0
9
O c t - 0 9
F e b - 1
0
J u n - 1
0
O c t - 1 0
F e b - 1
1
J u n - 1
1
O c t - 1 1
F e b - 1
2
J u n - 1
2
O c t - 1 2
F e b - 1
3
J u n - 1
3
O c t - 1 3
F e b - 1
4
J u n - 1
4
( x )
EVEBITDA IFGL EVEBITDA Vesuvius
(90)
(60)
(30)
0
30
60
F e b - 0
9
J u n - 0
9
O c t - 0 9
F e b - 1
0
J u n - 1
0
O c t - 1 0
F e b - 1
1
J u n - 1
1
O c t - 1 1
F e b - 1
2
J u n - 1
2
O c t - 1 2
F e b - 1
3
J u n - 1
3
O c t - 1 3
F e b - 1
4
J u n - 1
4
( )
EVEBITDA discount of IFGL vs Vesuvius
Avg discount of IFGL vs Vesuvius
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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16IFGL Refractories Ltd
Key risks to our thesis
Dependent on raw material sourcing through imports The industry is dependent on importsof key raw materials like high grade alumina bauxite magnesia silicon carbide etc China is themajor supplier of imports and has imposed heavy taxes on export of raw materials of refractories This has resulted in sharp increase in imported raw material costs IFGL sources ~52 of its raw
materials through imports and remains exposed to increase in costs which can impact its margins Low pricing power due to excess domestic supply and import pressure The industry suffers
from low capacity utilization of ~60 with excess installed capacities (~22 MTPA) and as a resultpricing power is low for refractory makers who are squeezed between raw material suppliers andsteel makers Cheap refractory imports from China have also kept prices in check IFGL does notenjoy as much pricing power as VIL does as customers prefer VIL for its strong brand name andproven track record of providing quality products and services Further increase in competitiveintensity can lead to lower pricing for IFGL in both domestic and export markets
Sharp slowdown in steel industry leading to lower volumes Like any other refractorycompany IFGLrsquos fortunes depend on the steel industry and any slowdown in global economy mayhamper the steel industryrsquos growth and IFGLrsquos volume growth would be more vulnerable as itdoes not have strong relationships like VIL has Sharp slowdown in the steel industry (vs
expectations of recovery) in coming years could lead to lower capacity utilization and lower thanexpected volumes
Currency Fluctuation We believe that steady weakening of rupee over the past couple of yearshas been favourable to the industry as well as for IFGL due to better import substitution andhigher realizations on exports negated only to a partial extent by higher import costs for rawmaterials IFGL has 80 of its revenues coming from overseas on a consolidated basis On astandalone basis approximately 58 of the revenues (FY14) came from exports Companyrsquosrevenues remain exposed to sharp appreciation of rupee against foreign currencies
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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17IFGL Refractories Ltd
Exhibit 44
Shareholding pattern ()
Q4FY14 Q3FY14 Q2FY14 Q1FY14
Promoter 713 713 713 713
FIIs 00 00 00 00
DIIs 11 22 22 22
Others 277 265 265 265
Source BSE
Company Background
IFGL Refractories Ltd is a manufacturer of specialisedrefractories and requisite operating systems for the steelIndustry IFGL offers its customers total solution for refractoryfor flow control in steel teeming and continuous casting ofSteel IFGL has 8 manufacturing plants strategically located
across the globe in India China Europe and Americas Thecompany has a presence in over 50 of the global markets Itacquired the Monocon group UK in 2005 (06 Hofmanngroup Germany in 2008 and EI Ceramics USA in 2010 Theseoverseas acquisitions have brought along access to newproducts amp technologies new markets and new customers The company has also set up a subsidiary IFGL exports atKandla Gujarat which also has technical collaboration withKrosaki Harima Corporation Japan Apart from this IFGL alsoplans to expand its capacities in India and abroad over thecoming years
Exhibit 45 Key management personnel
Name Position Profile
Mr S K Bajoria Chairman
Promoter of S K Bajoria Group based at Kolkata engaged in diversified business activitiesHas been honorary vice consul of Denmark in Kolkata president of the Indian chamber ofcommerce director of West Bengal industrial development corporation Ltd and industrialpromotion amp investment corporation of Orissa Ltd
Mr Pradeep Bajoria Managing Director
Associated with IFGL from the very early days of Indo Flogates even before thecommencement of production in 1984 Has been director amp chief executive of erstwhileIndo Flogates Ltd More than 30 years of experience of refractory industry and has beeninvolved in various capacities in Indian refractories makers association
Mr Gian Carlo Cozzani Directorr Monocon UK
Associated with IFGL since Oct 2009 Former president and CEO of Vesuvius (now Vesuviusplc) Instrumental in steering Vesuvius from US$ 100 million to over US$ 1 billion Based inEurope he is a member of IFGLrsquos Core group and a director of Monocon InternationalRefractories Limited UK
Source Company
Exhibit 46
IFGL refractories holding structure
Source Company
10051
983113983110983111983116 983127983151983154983148983140983159983145983140983141 983112983151983148983140983145983150983143 983116983145983149983145983156983141983140
983113983110983111983116 983109983160983152983151983154983156983155 983116983156983140
983117983151983150983151983139983151983150 983111983154983151983157983152 983109983113 983107983141983154983137983149983145983139983155 983112983151983142983149983137983150983150
983107983141983154983137983149983145983139
983124983141983139983144983150983145983139983137983148 983137983150983140 983110983145983150983137983150983139983145983137983148
983107983151983148983148983137983138983151983154983137983156983145983151983150 983151983142
983115983154983151983155983137983147983145 983112983137983154983145983149983137
983107983151983154983152983151983154983137983156983145983151983150983084 983114983137983152983137983150983084
983080983123983157983138983155983145983140983145983137983154983161 983151983142 983118983145983152983152983151983150
983123983156983141983141983148 983107983151983154983152983151983154983137983156983145983151983150983084
983114983137983152983137983150983081
983125983123983105 983125983115 983087 983125983123983105 983087 983107983144983145983150983137
983115983137983150983140983148983137 983123983109983130983084 983111983157983146983137983154983137983156983084 983113983150983140983145983137
983111983141983154983149983137983150983161
983113983110983111983116 983122983141983142983154983137983139983156983151983154983145983141983155 983116983145983149983145983156983141983140
983112983119 983085 983115983151983148983147983137983156983137983084 983113983150983140983145983137
983127983151983154983147983155 983085 983115983137983148983157983150983143983137983084 983119983154983145983155983155983137983084 983113983150983140983145983137
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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18IFGL Refractories Ltd
Exhibit 47 Quarterly financials (cons)
YE Mar (Rs mn) Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14
Net sales 1725 1657 1690 1641 1811 2014 1947 2003
Other Operating Income 5 4 0 0 3 0 0 0
Total Income 1729 1662 1690 1641 1814 2014 1947 2003
Accretion to Stocks in trade amp work in progress (29) (10) 4 46 (65) (54) (25) 9
Cost of Raw Materials consumed 840 898 835 581 911 908 817 808
Purchase of traded goods 66 28 42 223 46 73 182 168
Staff Cost 239 234 250 264 247 275 294 281
Other Operational expenses 407 400 375 439 430 513 407 455
Operating Profit (Core EBITDA) 206 112 183 89 246 299 272 282
Depreciation 32 34 35 33 32 34 46 43
EBIT 174 78 149 56 214 265 226 239
Interest 21 22 21 15 17 18 19 16
Other RevenueIncome 16 5 7 8 5 9 6 12
Profit Before Tax 169 61 134 49 202 255 213 236
Tax 50 31 48 31 54 57 68 70
Profit After Tax 119 31 86 18 148 199 145 166
Minority Interest (7) (9) (8) (4) (1) 8 3 8
Profit after minority interest 126 40 95 22 149 191 143 158
Growth (YoY )
Revenue 371 36 61 36 50 216 153 221
EBITDA 129 (457) (125) (477) 195 1672 485 2164
PAT 174 (666) (111) (669) 189 3765 503 6292
Margin ()
EBITDA 119 67 109 54 136 148 140 141
EBIT 100 47 88 34 118 131 116 120
PAT 73 24 56 13 82 95 73 79
Segment Revenue (Net Sales Income from ops)
India 764 749 810 829 872 926 936 941
Asia (excl India) 142 175 160 167 188 213 163 156
Europe 593 545 542 543 612 744 689 764
Americas 405 370 363 344 384 399 427 386
Segment EBIT
India 83 32 84 63 92 103 129 139
Asia (excl India) 8 11 6 9 12 10 5 7
Europe 55 44 51 (4 45 76 74 81Americas 22 13 23 39 38 45 55 36
Source Company Centrum Research
Comments on recent quarterly results
Q4FY14 witnessed a healthy growth with revenue up 221 YoY EBITDA and PAT jumpedsubstantially YoY Margins showed good improvement EBITDA margin expanded by 860 bps YoYOther operating expenses as a proportion of sales reduced to 227 from 267 in Q4FY13 this had apositive impact on margins
Revenue grew 28 QoQ EBITDA amp PAT margins showed signs of consistency further improving fromQ3FY14 European business looks to be on a growth trajectory as revenues have jumped 140 YoYand 11 QoQ Revenue from American segment saw growth of 124 YoY but declined QoQ
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19IFGL Refractories Ltd
Annexure ndash Refractory Industry
About refractories ndash consumables for manufacturing processes with high temperatures
Refractories are inorganic non-metallic and heterogeneous materials having very high melting pointswhich make them suitable to be used as heat-resisting barriers consumed within various productionprocesses providing heat chemical and mechanical resistance Refractories are mainly of two types ndash
shaped and unshaped (monolithics) and are used mainly by the steel industry as a consumableproduct in the internal linings of furnaces kilns reactors and other vessels for holding andtransporting metal and slag
Shaped refractories are those which have fixed shapes with most common form being rectangularbrick Brick shapes may be divided into two standard shapes and special shapes Standard shapeshave dimensions that are conformed to by most refractory manufacturers and are generally applicableto kilns and furnaces of the same type Special shapes are specifically made for particular kilns andfurnaces Shaped refractories are almost always machine-pressed and possess high uniformity inproperties are expected
Unshaped refractories are without definite form and are only given shape upon application It forms joint less lining and are better known as monolithic refractories They are manufactured in powderform as granular material and known as plastic refractories ramming mixes castables gunning mixesfettling mixes and mortars
The raw materials used to manufacture refractories are broadly classified into clay and non-clay Clayrefractories consist of naturally occurring alumina silicate like fireclay flint clay flint brick and highalumina and are used to produce bricks and insulating refractories Non-clay refractories are madefrom non-clay materials and are further classified into basic (made in the form of bricks from magnesiadolomite chrome etc) extra high alumina mullite (made from kyanite bauxite alumina) siliconcarbide and zircon
Exhibit 48
Refractory share by form Exhibit 49
Refractory share by raw material
Source Industry data Centrum Research Source Industry data Centrum Research
Unshaped45Shaped 55
Clay 65
Non Clay35
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20IFGL Refractories Ltd
Applications of refractories ndash largely used in steel industry for furnace linings
Steel industry accounts for ~60 of refractory consumption globally and ~75 in the domesticmarket In non-metallurgical industries (cement glass lime) the refractories are mostly installed onfired heaters hydrogen reformers cracking furnaces incinerators utility boilers air heaters ductingstacks etc The different areas of the steel manufacturing processes are exposed to differenttemperatures slag and sulphur gases Refractory selection for the lining of a furnace is invariably builtupon a combination of material qualities and brick size to maximize performance Steel industry usesrefractory for diverse applications in blast furnaces coke ovens torpedo ladles and secondary refiningladles
In cement industry refractories are used in the kiln the preheating system and the cooler whichoperate in a very high temperature to protect against heat abrasion and chemical attack Commonrefractory materials used are Dolomite Magnesia-Chrome Spinel Magnesia-Alumina Spinel Fireclayand High Alumina The cement kiln clinker area is usually provided with Dolomite refractories
Non(-errous industries like copper and aluminium require high performance refractories in severalequipments like anode baking furnaces induction furnaces reduction pots slag cleaning surfaces etcGlass industry also requires refractories in refiner regenerator dog-house and ports of furnace
Exhibit 50
Refractories consumption in steel making process
Source Magnesita ppt
Exhibit 51
Refractories consumption in steel making process
Source Vesuvius PLC ppt
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21IFGL Refractories Ltd
Steel industry accounts for ~60 of refractory consumption globally and ~75 in the domesticmarket In non-metallurgical industries (cement glass lime) refractories are mostly installed on firedheaters hydrogen reformers cracking furnaces incinerators utility boilers air heaters ducting stacksetc
Exhibit 52
Sector wise refractories demand - Global Exhibit 53
Sector wise refractories demand - India
Source Industry data Centrum Research Source Industry data Centrum Research
Refractory application consumption and replacement dynamics are shown in the table belowSteelmaking requires maximum amount of refractories (10-15kgstonne) with replacement required ina time period of 20 minutes to 2months Cement industry is the next biggest user with annualreplacement requirement while non-ferrous and glass industries have longer replacement cycles
Exhibit 54
Refractory consumption dynamics across user industries
Key Industry Application Replacement Per tonne consumption Refractory requirements
Steel
BF(BOF EAFCasting LadlesInduction FurnacesPellet rotary Kilns
20 minutes to 2months
Global avg - 10-15KgsIndia avg - 15 Kgs
Consumable product ( Systems and solutions for completerefractory management
Cement Kilns annually 1 KgsInvestment goods ( Longer replacement cycles Customizedsolutions based on the specific requirements of various industrialproduction processes complete lining concepts
Glass Glass Furnace upto 10 years 4 Kgs
Non(Ferrous Converters 1(10 yearsAluminium - 6 KgsCopper - 3 Kgs
Source RHI ppt Centrum Research
Global refractory market size at ~US$25bn expected to grow at ~35 CAGR
According to various industry studies global refractoriesrsquo market size is ~US$25bn with production of415MT in CY12 According to industry estimates the global refractories industry is expected to witnessCAGR of 35 during CY13-16E and grow to 46MT with a market value of US$29bn China accountedfor ~70 of the market by volume and ~60 by value in CY12 whereas India accounts for ~3 of theglobal refractories market by volume
Exhibit 55
Global refractory market size at ~US$25bn Exhibit 56
China accounts for ~70 of the market
CY12 Production (MT) Value (US$ bn)
World 415 25
China 295 143
EU 41 39
North America 14 14
India 13 09
Source Industry Centrum Research Source Industry Centrum Research
6015
15
10 Steel
Non-Metallic (Cement GlassLime)
Non-Ferrous (AluminiumCopper Zinc Silver)
Others (paper ceramicspetrochemicals)
75
12
6 3
4
Steel
Cement
Non-Ferrous
Glass
Others
415
463
25
29
0
10
20
30
40
50
CY12 CY16
Volume (MT) Mkt Value ($ bn)
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22IFGL Refractories Ltd
Domestic refractory demand-supply indicates low industry growth amp import pressure
Demand supply analysis of domestic refractory industry shows that it has been witnessing mutedconsumption growth (due to a fall in per tonne consumption for steel making due to technologicaladvances) and faces strong import pressure with one fourth of the market being serviced by netimports (mainly from cheap supplies from China which accounts for two thirds of refractory imports inIndia) Capacity utilization for the industry remains at ~60 on installed capacity of ~22MT and marketsize is ~US$1bn Domestic refractory consumption in steel has grown at a CAGR of ~2 during FY08-14 We expect industry growth to pick up due to scope for higher steel production (backed by higherinfra spend and expansion in per capita steel consumption) The industry has seen consolidation andacquisitions by global majors in the last five years and organised sector (split between (6 players)accounts for ~65 of the market
Exhibit 57 Refractory demand from domestic steel industry
(In tonne) FY08 FY09 FY10 FY11 FY12 FY13 FY14E FY15E FY16E FY17E
Steel Production (MT) 561 572 606 686 757 817 850 893 946 1012
Growth 20 59 132 103 79 40 50 60 70
Avg Refractory consumption(kgt of crude steel)
188 173 168 16 15 145 140 140 140 140
Refractory consumption (steel) 1054680 989560 1018080 1097600 1135500 1184650 1190000 1249500 1324470 1417183
Growth (62) 29 78 35 43 05 50 60 70
Source Ministry of Steel (MoS) Centrum Research Estimates
Exhibit 58
Organised sector accounts for ~65 of domestic refractory industry
Company RevenueMarket
Share ()
Supply toIntegratedsteel mills
Comments
Vesuvius India Ltd 6017 100 95+Leading supplier with wide product basket strongcustomer relationships with large steel mills
Orient Refractories (RHI) 4035 67 10-15 Has developed a niche with mini steel mills
IFGL Refractories (incl IEL) 3674 61 85+Mainly into flow control shaped refractories goodrelationship with large mills
Tata Refractories 9800 163 Not available Largely into bricks supplies (commodity refractories)
Calderys 6250 104 Not available
Supplies largely to non-ferrous producers strong in
bricks and monolithics
OCL 4056 68 Not available
Total Organized Sector 39332 656
Source Company Centrum Research Estimates
Exhibit 59
Net imports accounts for one fourth of market Exhibit 60
China accounts for two thirds of imports
Source MoS Industry Centrum Research Source MoS Industry Centrum Research
(800000)
(600000)
(400000)
(200000)
0
200000
400000
FY07 FY08 FY09 FY10 FY11 FY12
( T o n n e )
Imports Exports Net Imports
167259
380
167228
647594
551
696 685
10
20
30
40
50
60
70
80
FY07 FY08 FY09 FY10 FY11
Net Imports - share China share in imports
Domestic refractory production growth hasbeen largely flat andcapacity utilization is~60
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23IFGL Refractories Ltd
Financials (Cons)
Exhibit 61
Income Statement
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
Revenues from Operations 6712 7776 8484 9554 10697
Raw Materials consumed 3201 3444 3725 4208 4716
of net sales 477 443 439 440 441
Employee expenses 987 1097 1185 1279 1382
of net sales 147 141 140 134 129
Other operational expenses 1621 1805 2013 2243 2486
of net sales 241 232 237 235 232
Total expenses 6130 6680 7273 8140 9068
of net sales 913 859 857 852 848
EBITDA 582 1096 1210 1414 1630
EBITDA Margin () 87 141 143 148 152
Depreciation amp Amortisation 134 155 174 189 204
EBIT 448 942 1036 1225 1425
Interest expenses 80 70 51 29 6
Other Income 45 34 40 44 484
EBT 413 906 1025 1240 1467
Provision for tax 159 248 307 372 440
Effective tax rate () 386 274 300 300 300Net Profit 254 658 717 868 1027
Less Minority interest (28) 18 32 70 99
Net Profit after MI 282 640 686 798 928
Source Company data Centrum Research Estimates
Exhibit 62 Key Ratios
YE Mar FY13 FY14 FY15E FY16E FY17E
Growth Ratio ()
Revenue 112 159 91 126 120
EBITDA (213) 884 104 168 153
PAT (292) 1269 71 163 163
Margin Ratios ()
PBIT Margin 67 121 122 128 133
PBT Margin 62 116 121 130 137
PAT Margin 42 82 81 84 87
Return Ratios ()
ROE 115 212 190 185 181
ROCE 84 177 175 189 198
ROIC 87 179 178 200 224
Turnover Ratios (days)
Asset turnover ratio (x) 18 19 19 19 19
Debtors 78 78 80 80 80
Inventory 46 49 50 50 50
Creditors 43 45 45 45 45
Net Working capital 74 76 80 80 80
Gearing Ratio (x)
Debt-equity 05 03 02 01 00
Net debt-equity 04 03 02 00 (01)
Current ratio 25 23 24 25 27
Dividend
Dividend per share 15 18 20 23 23
Dividend Payout () 251 124 130 125 107
Dividend Yield () 11 13 15 17 17
Per share Ratios (Rs)
Basic EPS 82 185 198 231 268
Fully diluted EPS 82 185 198 231 268
Book value 709 871 1044 1245 1485
Cash earnings per share 120 230 249 285 327
Valuation (x)
PE 174 77 72 62 53
PBV 20 16 14 11 10
EVEBITDA 102 53 46 36 27
EVSales 07 06 06 05 04
M-CapSales 07 06 06 05 05
Source Company data Centrum Research Estimates
Exhibit 63
Balance Sheet
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
Equity share capital 491 491 491 491 491
Reserves amp surplus 1964 2525 3121 3819 4648
Shareholders fund 2455 3016 3612 4310 5139
Total debt 1142 982 682 382 82
Deferred tax liabilities 65 74 74 74 74
Total Liabilities 3741 4167 4495 4963 5591
Gross block 2474 2656 2906 3156 3406
Less acc depreciation 1276 1430 1605 1794 1998
Net block 1198 1225 1301 1362 1407
Capital work in progress 20 20 20 20 20
Goodwill 1105 1342 1342 1342 1342
Investments 5 5 5 5 5
Inventories 848 1034 1162 1309 1465
Trade Receivables 1427 1658 1859 2094 2345
Cash amp cash equivalents 113 33 69 259 609
Loans amp advances 51 107 116 131 147
Trade payables 799 962 1046 1178 1319
Other current liabilities 166 210 232 262 293Provisions 94 124 139 157 176
Total Assets 3741 4167 4495 4963 5591
Source Company data Centrum Research Estimates
Exhibit 64 Cash Flow
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
PBT 413 906 1025 1240 1467
Interest 72 70 51 29 6
Depreciation 134 155 174 189 204
Increase in debtors (330) (231) (201) (235) (251)
Increase in inventories 7 (186) (128) (147) (157)
Increase in trade payables 46 163 84 132 141
Tax 197 248 307 372 440
Cash flow from operations 183 629 695 799 907
Change in fixed assets (194) (418) (250) (250) (250)
Cash flow from investments (172) (418) (250) (250) (250)
Change in debt 19 (160 (300) (300) (300)
Dividends paid (71) (79) (89) (100) (100)
Interest paid (80) (70) (51) (29) (6)
Cash flow from financing (94) (291) (409) (358) (306)
Net cash flow (81) (81) 36 191 350
Opening cash balance 195 113 33 69 259
Closing cash balance 113 33 69 259 609
Source Company data Centrum Research Estimates
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24IFGL Refractories Ltd
Financials (Cons) - Historical
Exhibit 65
Income Statement
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
Revenues from Operations 3780 3982 4152 4689 6039
Raw Materials consumed 1743 1907 2058 2389 3024
of net sales 461 479 496 509 501
Employee expenses 487 589 539 661 843
of net sales 129 148 130 141 140
Other operational expenses 918 1036 951 1148 1418
of net sales 243 260 229 245 235
Total expenses 3244 3708 3575 4279 5299
of net sales 858 931 861 912 878
EBITDA 536 274 578 411 739
EBITDA Margin () 142 69 139 88 122
Depreciation amp Amortisation 63 74 70 71 123
EBIT 473 200 508 339 617
Interest expenses 82 95 45 56 68
Other Income 18 24 34 43 33
EBT 409 128 497 327 582
Provision for tax 123 67 155 84 183
Effective tax rate () 301 523 311 258 315Net Profit 286 61 343 243 398
Less Minority interest 1 0 0 0 0
Net Profit after MI 285 61 343 243 399
Source Company data Centrum Research Estimates
Exhibit 66 Key Ratios
YE Mar FY08 FY09 FY10 FY11 FY12
Growth Ratio ()
Revenue 171 53 43 129 288
EBITDA 98 (489) 1111 (289) 800
PAT 85 (785) 4586 (292) 642
Margin Ratios ()
PBIT Margin 125 50 122 72 102
PBT Margin 108 32 120 70 96
PAT Margin 75 15 83 52 66
Return Ratios ()
ROE 294 54 250 138 180
ROCE 182 49 169 93 128
ROIC 195 53 183 98 141
Turnover Ratios (days)
Asset turnover ratio (x) 20 18 19 15 17
Debtors 97 55 79 85 69
Inventory 46 47 52 55 52
Creditors 49 23 41 50 44
Net Working capital 105 81 89 93 67
Gearing Ratio (x)
Debt-equity 09 09 06 07 05
Net debt-equity 08 08 05 07 04
Current ratio 29 36 26 25 24
Dividend
Dividend per share 20 00 10 05 15
Dividend Payout () 284 00 118 103 63
Dividend Yield () 15 00 07 04 11
Per share Ratios (Rs)
Basic EPS 82 18 99 70 115
Fully diluted EPS 82 18 99 70 115
Book value 280 328 396 508 641
Cash earnings per share 101 39 119 91 151
Valuation (x)
PE 164 762 136 193 117
PBV 48 41 34 27 21
EVEBITDA 102 203 93 142 76
EVSales 12 12 11 10 08
M-CapSales 12 12 11 10 08
Source Company data Centrum Research Estimates
Exhibit 67
Balance Sheet
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
Equity share capital 346 346 346 491 491
Reserves amp surplus 623 789 1026 1266 1728
Shareholders fund 969 1135 1372 1757 2219
Total debt 869 1003 793 1253 1128
Deferred tax liabilities 41 38 38 40 48
Total Liabilities 1879 2185 2206 3054 3465
Gross block 1456 1948 1966 2738 2238
Less acc depreciation 687 827 864 960 1122
Net block 769 1121 1102 1778 1117
Capital work in progress 46 53 28 21 45
Goodwill 347 594 559 1032 1094
Investments 0 0 4 14 5
Inventories 474 513 592 702 855
Trade Receivables 1001 596 895 1096 1134
Cash amp cash equivalents 77 129 120 100 195
Loans amp advances 152 121 133 152 38
Trade payables 507 256 471 637 729
Other current liabilities 32 90 137 112 194Provisions 102 2 60 60 151
Total Assets 1879 2185 2206 3054 3465
Source Company data Centrum Research Estimates
Exhibit 68 Cash Flow
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
PBT 409 128 497 327 582
Interest 81 96 45 56 59
Depreciation 63 74 75 87 129
Increase in debtors (196) 559 (330) (184) 25
Increase in inventories (72) 35 (79) (77) (135)
Increase in trade payables 82 (304 266 115 67
Tax 119 90 138 70 135
Cash flow from operations 285 814 359 237 520
Change in fixed assets (94) (99) (120) (157) (49)
Cash flow from investments (62 (536 (119 (677 (98
Change in debt (88) 15 (276) 245 (242)
Dividends paid (76) (80) (6) (46) (25)
Interest paid (87) (98) (47) (60) (68)
Cash flow from financing (261) (245) (241) 408 (339)
Net cash flow (43) 24 (8) (29) 94
Opening cash balance 120 77 129 120 100
Closing cash balance 77 129 120 100 195
Source Company data Centrum Research Estimates
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25IFGL Refractories Ltd
Appendix A
Disclaimer
Centrum Broking Limited (ldquoCentrumrdquo) is a full(service Stock Broking Company and a member of The Stock Exchange Mumbai (BSE) and National StockExchange of India Ltd (NSE) Our holding company Centrum Capital Ltd is an investment banker and an underwriter of securities As a group Centrumhas Investment Banking Advisory and other business relationships with a significant percentage of the companies covered by our Research Group Ourresearch professionals provide important inputs into the Groups Investment Banking and other business selection processes
Recipients of this report should assume that our Group is seeking or may seek or will seek Investment Banking advisory project finance or otherbusinesses and may receive commission brokerage fees or other compensation from the company or companies that are the subject of thismaterialreport Our Company and Group companies and their officers directors and employees including the analysts and others involved in thepreparation or issuance of this material and their dependants may on the date of this report or from time to time have long or short positions in actas principal in and buy or sell the securities or derivatives thereof of companies mentioned herein Centrum or its affiliates do not own 1 or more in theequity of this company Our sales people dealers traders and other professionals may provide oral or written market commentary or trading strategies toour clients that reflect opinions that are contrary to the opinions expressed herein and our proprietary trading and investing businesses may makeinvestment decisions that are inconsistent with the recommendations expressed herein We may have earlier issued or may issue in future reports on thecompanies covered herein with recommendations information inconsistent or different those made in this report In reviewing this document youshould be aware that any or all of the foregoing among other things may give rise to or potential conflicts of interest We and our Group may rely oninformation barriers such as Chinese Walls to control the flow of information contained in one or more areas within us or other areas units groups oraffiliates of Centrum Centrum or its affiliates do not make a market in the security of the company for which this report or any report was writtenFurther Centrum or its affiliates did not make a market in the subject companyrsquos securities at the time that the research report was published
This report is for information purposes only and this documentmaterial should not be construed as an offer to sell or the solicitation of an offer to buypurchase or subscribe to any securities and neither this document nor anything contained herein shall form the basis of or be relied upon in connection
with any contract or commitment whatsoever This document does not solicit any action based on the material contained herein It is for the generalinformation of the clients of Centrum Though disseminated to clients simultaneously not all clients may receive this report at the same time Centrumwill not treat recipients as clients by virtue of their receiving this report It does not constitute a personal recommendation or take into account theparticular investment objectives financial situations or needs of individual clients Similarly this document does not have regard to the specificinvestment objectives financial situationcircumstances and the particular needs of any specific person who may receive this document The securitiesdiscussed in this report may not be suitable for all investors The securities described herein may not be eligible for sale in all jurisdictions or to allcategories of investors The countries in which the companies mentioned in this report are organized may have restrictions on investments voting rightsor dealings in securities by nationals of other countries The appropriateness of a particular investment or strategy will depend on an investorsindividual circumstances and objectives Persons who may receive this document should consider and independently evaluate whether it is suitable forhis hertheir particular circumstances and if necessary seek professionalfinancial advice Any such person shall be responsible for conductinghishertheir own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risks involvedin the securities forming the subject matter of this document
The projections and forecasts described in this report were based upon a number of estimates and assumptions and are inherently subject to significantuncertainties and contingencies Projections and forecasts are necessarily speculative in nature and it can be expected that one or more of the estimateson which the projections and forecasts were based will not materialize or will vary significantly from actual results and such variances will likely increase
over time All projections and forecasts described in this report have been prepared solely by the authors of this report independently of the Company These projections and forecasts were not prepared with a view toward compliance with published guidelines or generally accented accountingprinciples No independent accountants have expressed an opinion or any other form of assurance on these projections or forecasts You should notregard the inclusion of the projections and forecasts described herein as a representation or warranty by or on behalf of the Company Centrum theauthors of this report or any other person that these projections or forecasts or their underlying assumptions will be achieved For these reasons youshould only consider the projections and forecasts described in this report after carefully evaluating all of the information in this report including theassumptions underlying such projections and forecasts
The price and value of the investments referred to in this documentmaterial and the income from them may go down as well as up and investors mayrealize losses on any investments Past performance is not a guide for future performance Future returns are not guaranteed and a loss of original capitalmay occur Actual results may differ materially from those set forth in projections Forward (looking statements are not predictions and may be subject tochange without notice Centrum does not provide tax advice to its clients and all investors are strongly advised to consult regarding any potentialinvestment Centrum and its affiliates accept no liabilities for any loss or damage of any kind arising out of the use of this report Foreign currenciesdenominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derived fromthe investment In addition investors in securities such as ADRs the value of which are influenced by foreign currencies effectively assume currency riskCertain transactions including those involving futures options and other derivatives as well as non(investment(grade securities give rise to substantial
risk and are not suitable for all investors Please ensure that you have read and understood the current risk disclosure documents before entering into anyderivative transactions
This reportdocument has been prepared by Centrum based upon information available to the public and sources believed to be reliable Norepresentation or warranty express or implied is made that it is accurate or complete Centrum has reviewed the report and in so far as it includescurrent or historical information it is believed to be reliable although its accuracy and completeness cannot be guaranteed The opinions expressed inthis documentmaterial are subject to change without notice and have no obligation to tell you when opinions or information in this report change
This report or recommendations or information contained herein dodoes not constitute or purport to constitute investment advice in publicly accessiblemedia and should not be reproduced transmitted or published by the recipient The report is for the use and consumption of the recipient only Thispublication may not be distributed to the public used by the public media without the express written consent of Centrum This report or any portionhereof may not be printed sold or distributed without the written consent of Centrum
The distribution of this document in other jurisdictions may be restricted by law and persons into whose possession this document comes should informthemselves about and observe any such restrictions Neither Centrum nor its directors employees agents or representatives shall be liable for anydamages whether direct or indirect incidental special or consequential including lost revenue or lost profits that may arise from or in connection withthe use of the information
This document does not constitute an offer or invitation to subscribe for or purchase or deal in any securities and neither this document nor anythingcontained herein shall form the basis of any contract or commitment whatsoever This document is strictly confidential and is being furnished to yousolely for your information may not be distributed to the press or other media and may not be reproduced or redistributed to any other person Thedistribution of this report in other jurisdictions may be restricted by law and persons into whose possession this report comes should inform themselvesabout and observe any such restrictions By accepting this report you agree to be bound by the fore going limitations No representation is made thatthis report is accurate or complete
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The opinions and projections expressed herein are entirely those of the author and are given as part of the normal research activity of Centrum Brokingand are given as of this date and are subject to change without notice Any opinion estimate or projection herein constitutes a view as of the date of thisreport and there can be no assurance that future results or events will be consistent with any such opinions estimate or projection
This document has not been prepared by or in conjunction with or on behalf of or at the instigation of or by arrangement with the company or any of itsdirectors or any other person Information in this document must not be relied upon as having been authorized or approved by the company or itsdirectors or any other person Any opinions and projections contained herein are entirely those of the authors None of the company or its directors orany other person accepts any liability whatsoever for any loss arising from any use of this document or its contents or otherwise arising in connectiontherewith
Centrum and its affiliates have not managed or co(managed a public offering for the subject company in the preceding twelve months Centrum andaffiliates have not received compensation from the companies mentioned in the report during the period preceding twelve months from the date of thisreport for service in respect of public offerings corporate finance debt restructuring investment banking or other advisory services in amergeracquisition or some other sort of specific transaction
As per the declarations given by them Mr Abhisar Jain research analyst and andor any of his family members do not serve as an officer director or anyway connected to the companycompanies mentioned in this report Further as declared by him he has not received any compensation from the abovecompanies in the preceding twelve months He does not hold any shares by him or through his relatives or in case if holds the shares then will not to doany transactions in the said scrip for 30 days from the date of release such report Our entire research professionals are our employees and are paid asalary They do not have any other material conflict of interest of the research analyst or member of which the research analyst knows of has reason toknow at the time of publication of the research report or at the time of the public appearance
While we would endeavour to update the information herein on a reasonable basis Centrum its associated companies their directors and employees areunder no obligation to update or keep the information current Also there may be regulatory compliance or other reasons that may prevent Centrumfrom doing so
Non(rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable
regulations andor Centrum policies in circumstances where Centrum is acting in an advisory capacity to this company or any certain othercircumstances
This report is not directed to or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality statecountry or other jurisdiction where such distribution publication availability or use would be contrary to law or regulation or which would subjectCentrum Broking Limited or its group companies to any registration or licensing requirement within such jurisdiction Specifically this document doesnot constitute an offer to or solicitation to any US person for the purchase or sale of any financial instrument or as an official confirmation of anytransaction to any US person unless otherwise stated this message should not be construed as official confirmation of any transaction No part of thisdocument may be distributed in Canada or used by private customers in United Kingdom
The information contained herein is not intended for publication or distribution or circulation in any manner whatsoever and any unauthorized readingdissemination distribution or copying of this communication is prohibited unless otherwise expressly authorized Please ensure that you have read ldquoRiskDisclosure Document for Capital Market and Derivatives Segmentsrdquo as prescribed by Securities and Exchange Board of India before investing in IndianSecurities Market
Rating Criteria
Rating Market cap lt Rs20bn Market cap gt Rs20bn but lt 100bn Market cap gt Rs100bn Buy Upside gt 25 Upside gt 20 Upside gt 15
Hold Upside between (25 to +25 Upside between (20 to +20 Upside between (15 to +15
Sell Downside gt 25 Downside gt 20 Downside gt 15
Member (NSE BSE MCX(SX) Depository Participant (CDSL) and SEBI registered Portfolio Manager
Registration Nos
CAPITAL MARKET SEBI REGN NO BSE INB011454239 NSE INB231454233
DERIVATIVES SEBI REGN NO NSE INF231454233 (TRADING amp SELF CLEARING MEMBER)
CDSL DP ID 12200 SEBI REGISTRATION NO IN(DP(CDSL(661(2012
PMS REGISTRATION NO INP000004383
MCX ndash SX (Currency Derivative segment) REGN NO INE261454230
Website wwwcentrumcoin
Investor Grievance Email ID investorgrievancescentrumcoin
Compliance Officer Details
Tel (022) 4215 9413 Email ID compliancecentrumcoin
Centrum Broking Limited
Registered Office Address
Bombay Mutual Building
2nd Floor
Dr D N Road
Fort Mumbai ( 400 001
Correspondence Address
Centrum House
6th Floor CST Road Near Vidya Nagari Marg Kalina
Santacruz (E) Mumbai 400 098
Tel (022) 4215 9000
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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9IFGL Refractories Ltd
EI Ceramics doubling capacity to maintain growth
EI Ceramics is doubling its capacity as utilizations on current capacity reached ~100 in FY14 EICeramics has been IFGLrsquos best overseas acquisition achieving revenueEBITDA CAGR of ~3338since acquisition (FY11-14) We expect revenueEBITDA CAGR of 23227 during FY14-17E asexpansion would be on-stream by Q1FY16E IFGL had spent ~Rs590mn for the purchase of EI and isexpected to achieve full payback in FY15E (less than 5 years) The capex for expansion of additional 80kpcsyear in EI is limited to Rs80mn and would be funded easily through internal accruals We note thatadditional capex would have the potential to generate ~Rs1000mn in revenues on completestabilisation (by FY17E) an asset turnover of more than 10x
Exhibit 21 EI Ceramics to double capacity by Q1FY16 Exhibit 22 Strong revenue and EBITDA CAGR ahead
Source Company Centrum Research Source Company Centrum Research Estimates
Share of higher margin EI Ceramics to keep increasing in IFGLrsquos overseas earnings
We expect EI Ceramics to lead the growth in earnings from IFGLrsquos overseas subsidiaries basket We expectrevenue contribution of EI Ceramics in total overseas subs to increase to ~26 in FY17E from ~20 inFY14 while EBITDA contribution is expected to increase to 41 in FY17E from ~34 in FY14 Since EICeramics enjoys the best margins (~16) among IFGLrsquos overseas subsidiaries increase in share ofearnings from EI Ceramics is expected to lead to margin improvement for IFGL at a consolidated level
Exhibit 23
Overseas subs revenue share ndash FY14 Exhibit 24
Overseas subs revenue share ndash FY17E
Source Company Centrum Research Source Company Centrum Research Estimates
Exhibit 25
Overseas subs EBITDA share ndash FY14 Exhibit 26
Overseas subs EBITDA share ndash FY17E
Source Company Centrum Research Source Company Centrum Research Estimates
80000
80000
160000
0
20000
40000
60000
80000
100000
120000
140000
160000
180000
Phase 1 Phase 2 Total
( p c s y r )
Currently Installed FY16E
8631012
1113
1447
1881
118 163 178 231 301
0
500
1000
1500
2000
FY13 FY14 FY15E FY16E FY17E
Revenue (Rs mn) EBITDA (Rs mn)
FY14-17E - CAGR
Revenue - 23EBITDA - 227
Monocon641
EI Ceramics
197
Hoffman161
Monocon607
EI Ceramics
261
Hoffman133
Monocon577
EI Ceramics
338
Hoffman 85
Monocon530
EI Ceramics
405
Hoffman 64
Capacity at EI Ceramicsto increase to 160k pcsyear by FY15-end
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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10IFGL Refractories Ltd
Balance sheet strengthened free cash flow generation strong
Strong free cash flow generation ahead with limited capex
IFGL has turned free cash flow positive at a consolidated level in FY14 as operating cash flow improvedsharply (up 240 YoY) led by higher profitability across operations We see strong free cash flowgeneration ahead on the back of limited capex (~Rs250mn annually over FY15-16E) and continued
traction in operating cash flow on the back of higher capacities and better utilizations
Exhibit 27 Free cash flow generation expected to be strong going ahead
Source Company Centrum Research Estimates
Free cash flow yield to improve significantly
We see free cash flow yield improving to ~12 and free cash flowEBITDA going up to 04x in FY16EBalance sheet remains strong and we expect the company to be debt free at a consolidated level inthe next three years if there is no new acquisition or major capex
Exhibit 28
Free cash flow yield attractive Exhibit 29
Debt free status in next two years
Source Company Centrum Research Estimates Source Company Centrum Research Estimates
-527
-99 -39
211
445549
657
(1000)
(800)
(600)
(400)
(200)
0
200
400
600
800
1000
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( R s m n )
OCF Capex Free Cash Flow
019
037 039
040
45
95
117
141
00
40
80
120
160
00
01
02
03
04
05
FY14 FY15E FY16E FY17E
Free Cash FlowEBITDA (x) Free Cash Flow Yield -
(02)
00
02
04
06
08
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( x )
Debt-equity Net debt-equity
Free cash flow yieldexpected to go up from45 in FY14 to 117 inFY16E
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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11IFGL Refractories Ltd
ROE shows improvement beats most peers at a global level
IFGL has shown sharp improvement in its ROE in FY14 as overseas subsidiariesrsquo profitability hasimproved and domestic profitability is on an upswing post start of IEL We expect ROE of IFGL to be thebest in the industry at a global level in the next few years
Exhibit 30
IFGL ROE well above that of global peers
Source Company Bloomberg Centrum Research Estimates CY07 = FY08
(10)
(5)
0
5
10
15
20
25
3035
CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14E CY15E
( )
Vesuvius India IFGL Refractories (FY) Vesuvius PLC
Puyang Refractories Cie de St-Gobain Magnesita Refractarios
Chosun Refractories Krosaki Harima (FY) Shinagawa (FY)
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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12IFGL Refractories Ltd
Financials
Revenue growth to be led by IEL and overseas operations
We expect consolidated net sales CAGR of 112 for IFGL during FY14-17E This is expected to be ledby ~33 CAGR from IEL and 12 CAGR from overseas subsidiaries while standalone operations CAGRis expected to slow down to 67
Exhibit 31
Net sales CAGR of 112 during FY14-17E
Source Company Centrum Research Estimates
Margins and return ratios to remain healthy FY14-17E EBITDA CAGR of 141
Backed by better margins from IEL and recovery in demand we expect EBITDA CAGR of 141 duringFY14-17E Margins are expected to improve gradually as revenues from high margin subsidiary IELpicks up Expansion at EI Ceramics is also expected to help in EBITDA growth and margins Returnratios are expected to remain healthy on account of operating efficiency and high asset turnover ratiosfrom new expansions
Exhibit 32
EBITDA margin to remain stable Exhibit 33
Healthy return ratios
Source Company Centrum Research Estimates Source Company Centrum Research Estimates
Exhibit 34
Du Pont analysis
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
PATSales (x) 005 007 004 008 008 008 009
SalesAssets (x) 154 174 179 187 189 192 191
AssetsEquity (x) 174 156 152 138 124 115 109
ROE - 138 180 115 212 190 185 181
Source Company Centrum Research Estimates
4689
6039 6712
77768484
9554 10697
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( R s m n )
Standalone (IFGL) IFGL Exports (IEL) Overseas Subs Total
411 739 582 1096 1210 1414 1630
88
122
87
141 143 148
152
60
80
100
120
140
160
0
200
400
600
800
1000
1200
1400
1600
1800
FY11 FY12 FY13 FY14 FY15E FY16E FY17EEBITDA-Cons (Rs mn) OPM - RHS
50
100
150
200
250
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( )
ROE ROCE (post tax) ROIC (post tax)
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13IFGL Refractories Ltd
Key Assumptions and Sensitivity
Exhibit 35 Key Assumptions
Revenue (Rs mn) FY12 FY13 FY14 FY15E FY16E FY17E
Indian Operations
Domestic sales 1305 1495 1391 1744 2014 2304
Exports 1443 1567 1883 1744 1716 1669
Total standalone operations 2748 3061 3274 3487 3730 3973
IFGL Exports Ltd 0 90 399 518 755 953
Total Indian operations 2748 3152 3673 4005 4485 4926
Overseas Operations
Monocon Group 2410 2801 3288 3617 3979 4376
EI Ceramics 716 863 1012 1113 1447 1881
Hoffman Group 758 692 827 868 911 957
Less Intersegment revenues 596 790 1023 1120 1267 1443
Total Overseas operations 3287 3566 4103 4478 5069 5771
Total Consolidated operations 6035 6717 7776 8484 9554 10697
Source Company Centrum Research Estimates
Exhibit 36
EPS sensitivity to shaped refractory segment
EPS - FY16E (Rs) -Cons
Realizations
-10 -5 Base 5 10
V o l u m e s
-10 177 192 206 221 236
-5 187 203 218 234 250
Base 197 214 231 247 264
5 208 225 243 260 277
10 218 236 255 273 291
Source Company Centrum Research Estimates
Exhibit 37
EPS sensitivity to unshaped refractory segment
EPS - FY16E (Rs) - ConsRealizations
-10 -5 Base 5 10
V o l u m e s
-10 230 233 235 237 239
-5 228 230 233 235 237
Base 226 228 231 233 235
5 223 226 228 231 234
10 221 223 226 229 232
Source Company Centrum Research Estimates
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14IFGL Refractories Ltd
Valuation ndash poised for rerating
IFGLrsquos mean EVEBITDA stands at 47x with standard deviation of 26x and we note that the stock pricehas been volatile in last 6-7 years due to sharp fluctuations in earnings which explains the highstandard deviation However we believe that earnings would be more linear going forward asoverseas operations have been stabilised and growth would be driven by expansions at higher marginsubsidiaries of IEL and EI Ceramics At the CMP of Rs142 the stock trades at attractive valuations of 62xFY16E PE and 36x FY16E EVEBITDA and we believe that sharp improvement in free cash flow canlead to rerating in the stock We assign an EVEBITDA of 55x on Marrsquo16E earnings to arrive at a fairvalue of Rs220 and initiate with a Buy The multiple assigned by us remains below mean+05sd andthus provides comfort on historical valuations even though we expect much better earnings trajectoryfor the company going forward
Exhibit 38
EVEBITDA Valuation
(Rs mn) FY16E
EBITDA 1414
Ascribed EVEBITDA (x) 55
EV 7776
Add Net Cash (123)
Fair value mkt cap 7653
No of shares (mn) 346
Fair Valueshare (Rs) 220
Source Company Centrum Research Estimates
Exhibit 39
1-year forward EVEBITDA chart Exhibit 40
1-year forward PE chart
Source Bloomberg Company Centrum Research Estimates Source Bloomberg Company Centrum Research Estimates
Steep valuation discount exists for IFGL compared to global peersComparison of IFGLrsquos valuations with global peers shows that the company is trading at a steepdiscount despite strong fundamentals which we feel is unwarranted We expect re-rating in the stockwith improvement in outlook and stability in earnings
Exhibit 41 Valuationndash Peer comparison
CompanyMkt Cap(US$ mn)
CAGR CY13-CY15E () EBITDA Margin () PE (x) EVEBITDA (x) RoE () Div Yield ()
Rev EBITDA PAT CY13 CY14E CY15E CY13 CY14E CY15E CY13 CY14E CY15E CY13 CY14E CY15E CY13 CY14E CY15E
IFGL Refractories 82 108 136 116 141 143 148 77 72 62 53 46 36 212 190 185 12 14 16
Vesuvius India Ltd 220 110 115 126 184 178 186 203 192 161 110 100 82 164 152 158 07 08 09
Global Peers
RHI AG 1322 29 (02) 318 137 122 129 153 103 89 59 65 57 131 177 180 31 31 35
Vesuvius PLC 2140 04 53 80 117 123 128 149 141 127 86 82 74 93 1 02 108 31 34 36
Magnesita SA 574 122 129 344 156 149 158 157 180 101 60 63 55 21 17 35 15 11 21
Cie de St(Gobain 32544 20 91 32 3 100 107 114 218 181 133 76 68 60 58 76 94 29 30 33
Source Bloomberg Estimates Centrum Research Estimates CY13=FY14 for IFGL and so on
0
2
4
6
810
12
14
J u n - 0 7
O c t - 0 7
F e b - 0 8
J u n - 0 8
O c t - 0 8
F e b - 0 9
J u n - 0 9
O c t - 0 9
F e b - 1 0
J u n - 1 0
O c t - 1 0
F e b - 1 1
J u n - 1 1
O c t - 1 1
F e b - 1 2
J u n - 1 2
O c t - 1 2
F e b - 1 3
J u n - 1 3
O c t - 1 3
F e b - 1 4
J u n - 1 4
EVEBITDA MeanMean + Std Dev Mean - Std Dev
0
5
10
15
20
25
J u n - 0 7
O c t - 0 7
F e b - 0 8
J u n - 0 8
O c t - 0 8
F e b - 0 9
J u n - 0 9
O c t - 0 9
F e b - 1 0
J u n - 1 0
O c t - 1 0
F e b - 1 1
J u n - 1 1
O c t - 1 1
F e b - 1 2
J u n - 1 2
O c t - 1 2
F e b - 1 3
J u n - 1 3
O c t - 1 3
F e b - 1 4
J u n - 1 4
PE MeanMean + Std Dev Mean - Std Dev
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15IFGL Refractories Ltd
IFGL trading at a higher discount to Vesuvius than historical average
IFGL has historically (based on average during JanrsquoCY09-JunersquoCY14) traded at a discount of ~35 toVesuvius India Ltd (VIL) on EVEBITDA basis However currently IFGL is trading at a discount of ~60 toVIL which is unwarranted as the profitability of IFGL is on an uptrend post stabilisation of overseasoperations and IEL The historical discount has seen an increase in the past 3 years due to volatility inearnings of IFGL but with operations having stabilised we see the discount narrowing We also expectIFGL to be above its peers (incl VIL) in terms of ROE for the next few years and see a high cash flowyield of ~12 in FY16E The multiple assigned by us implies ~35 discount to VILrsquos current valuationswhich is in line with the historical average even though IFGL is expected to generate better returnsand free cash flow going forward
Exhibit 42
EVEBITDA ndash IFGL vs Vesuvius India Exhibit 43
Discount of IFGL EVEBITDA vs Vesuvius
Source Bloomberg Company Centrum Research Source Bloomberg Company Centrum Research
0
2
4
6
8
10
12
F e b - 0
9
J u n - 0
9
O c t - 0 9
F e b - 1
0
J u n - 1
0
O c t - 1 0
F e b - 1
1
J u n - 1
1
O c t - 1 1
F e b - 1
2
J u n - 1
2
O c t - 1 2
F e b - 1
3
J u n - 1
3
O c t - 1 3
F e b - 1
4
J u n - 1
4
( x )
EVEBITDA IFGL EVEBITDA Vesuvius
(90)
(60)
(30)
0
30
60
F e b - 0
9
J u n - 0
9
O c t - 0 9
F e b - 1
0
J u n - 1
0
O c t - 1 0
F e b - 1
1
J u n - 1
1
O c t - 1 1
F e b - 1
2
J u n - 1
2
O c t - 1 2
F e b - 1
3
J u n - 1
3
O c t - 1 3
F e b - 1
4
J u n - 1
4
( )
EVEBITDA discount of IFGL vs Vesuvius
Avg discount of IFGL vs Vesuvius
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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16IFGL Refractories Ltd
Key risks to our thesis
Dependent on raw material sourcing through imports The industry is dependent on importsof key raw materials like high grade alumina bauxite magnesia silicon carbide etc China is themajor supplier of imports and has imposed heavy taxes on export of raw materials of refractories This has resulted in sharp increase in imported raw material costs IFGL sources ~52 of its raw
materials through imports and remains exposed to increase in costs which can impact its margins Low pricing power due to excess domestic supply and import pressure The industry suffers
from low capacity utilization of ~60 with excess installed capacities (~22 MTPA) and as a resultpricing power is low for refractory makers who are squeezed between raw material suppliers andsteel makers Cheap refractory imports from China have also kept prices in check IFGL does notenjoy as much pricing power as VIL does as customers prefer VIL for its strong brand name andproven track record of providing quality products and services Further increase in competitiveintensity can lead to lower pricing for IFGL in both domestic and export markets
Sharp slowdown in steel industry leading to lower volumes Like any other refractorycompany IFGLrsquos fortunes depend on the steel industry and any slowdown in global economy mayhamper the steel industryrsquos growth and IFGLrsquos volume growth would be more vulnerable as itdoes not have strong relationships like VIL has Sharp slowdown in the steel industry (vs
expectations of recovery) in coming years could lead to lower capacity utilization and lower thanexpected volumes
Currency Fluctuation We believe that steady weakening of rupee over the past couple of yearshas been favourable to the industry as well as for IFGL due to better import substitution andhigher realizations on exports negated only to a partial extent by higher import costs for rawmaterials IFGL has 80 of its revenues coming from overseas on a consolidated basis On astandalone basis approximately 58 of the revenues (FY14) came from exports Companyrsquosrevenues remain exposed to sharp appreciation of rupee against foreign currencies
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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17IFGL Refractories Ltd
Exhibit 44
Shareholding pattern ()
Q4FY14 Q3FY14 Q2FY14 Q1FY14
Promoter 713 713 713 713
FIIs 00 00 00 00
DIIs 11 22 22 22
Others 277 265 265 265
Source BSE
Company Background
IFGL Refractories Ltd is a manufacturer of specialisedrefractories and requisite operating systems for the steelIndustry IFGL offers its customers total solution for refractoryfor flow control in steel teeming and continuous casting ofSteel IFGL has 8 manufacturing plants strategically located
across the globe in India China Europe and Americas Thecompany has a presence in over 50 of the global markets Itacquired the Monocon group UK in 2005 (06 Hofmanngroup Germany in 2008 and EI Ceramics USA in 2010 Theseoverseas acquisitions have brought along access to newproducts amp technologies new markets and new customers The company has also set up a subsidiary IFGL exports atKandla Gujarat which also has technical collaboration withKrosaki Harima Corporation Japan Apart from this IFGL alsoplans to expand its capacities in India and abroad over thecoming years
Exhibit 45 Key management personnel
Name Position Profile
Mr S K Bajoria Chairman
Promoter of S K Bajoria Group based at Kolkata engaged in diversified business activitiesHas been honorary vice consul of Denmark in Kolkata president of the Indian chamber ofcommerce director of West Bengal industrial development corporation Ltd and industrialpromotion amp investment corporation of Orissa Ltd
Mr Pradeep Bajoria Managing Director
Associated with IFGL from the very early days of Indo Flogates even before thecommencement of production in 1984 Has been director amp chief executive of erstwhileIndo Flogates Ltd More than 30 years of experience of refractory industry and has beeninvolved in various capacities in Indian refractories makers association
Mr Gian Carlo Cozzani Directorr Monocon UK
Associated with IFGL since Oct 2009 Former president and CEO of Vesuvius (now Vesuviusplc) Instrumental in steering Vesuvius from US$ 100 million to over US$ 1 billion Based inEurope he is a member of IFGLrsquos Core group and a director of Monocon InternationalRefractories Limited UK
Source Company
Exhibit 46
IFGL refractories holding structure
Source Company
10051
983113983110983111983116 983127983151983154983148983140983159983145983140983141 983112983151983148983140983145983150983143 983116983145983149983145983156983141983140
983113983110983111983116 983109983160983152983151983154983156983155 983116983156983140
983117983151983150983151983139983151983150 983111983154983151983157983152 983109983113 983107983141983154983137983149983145983139983155 983112983151983142983149983137983150983150
983107983141983154983137983149983145983139
983124983141983139983144983150983145983139983137983148 983137983150983140 983110983145983150983137983150983139983145983137983148
983107983151983148983148983137983138983151983154983137983156983145983151983150 983151983142
983115983154983151983155983137983147983145 983112983137983154983145983149983137
983107983151983154983152983151983154983137983156983145983151983150983084 983114983137983152983137983150983084
983080983123983157983138983155983145983140983145983137983154983161 983151983142 983118983145983152983152983151983150
983123983156983141983141983148 983107983151983154983152983151983154983137983156983145983151983150983084
983114983137983152983137983150983081
983125983123983105 983125983115 983087 983125983123983105 983087 983107983144983145983150983137
983115983137983150983140983148983137 983123983109983130983084 983111983157983146983137983154983137983156983084 983113983150983140983145983137
983111983141983154983149983137983150983161
983113983110983111983116 983122983141983142983154983137983139983156983151983154983145983141983155 983116983145983149983145983156983141983140
983112983119 983085 983115983151983148983147983137983156983137983084 983113983150983140983145983137
983127983151983154983147983155 983085 983115983137983148983157983150983143983137983084 983119983154983145983155983155983137983084 983113983150983140983145983137
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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18IFGL Refractories Ltd
Exhibit 47 Quarterly financials (cons)
YE Mar (Rs mn) Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14
Net sales 1725 1657 1690 1641 1811 2014 1947 2003
Other Operating Income 5 4 0 0 3 0 0 0
Total Income 1729 1662 1690 1641 1814 2014 1947 2003
Accretion to Stocks in trade amp work in progress (29) (10) 4 46 (65) (54) (25) 9
Cost of Raw Materials consumed 840 898 835 581 911 908 817 808
Purchase of traded goods 66 28 42 223 46 73 182 168
Staff Cost 239 234 250 264 247 275 294 281
Other Operational expenses 407 400 375 439 430 513 407 455
Operating Profit (Core EBITDA) 206 112 183 89 246 299 272 282
Depreciation 32 34 35 33 32 34 46 43
EBIT 174 78 149 56 214 265 226 239
Interest 21 22 21 15 17 18 19 16
Other RevenueIncome 16 5 7 8 5 9 6 12
Profit Before Tax 169 61 134 49 202 255 213 236
Tax 50 31 48 31 54 57 68 70
Profit After Tax 119 31 86 18 148 199 145 166
Minority Interest (7) (9) (8) (4) (1) 8 3 8
Profit after minority interest 126 40 95 22 149 191 143 158
Growth (YoY )
Revenue 371 36 61 36 50 216 153 221
EBITDA 129 (457) (125) (477) 195 1672 485 2164
PAT 174 (666) (111) (669) 189 3765 503 6292
Margin ()
EBITDA 119 67 109 54 136 148 140 141
EBIT 100 47 88 34 118 131 116 120
PAT 73 24 56 13 82 95 73 79
Segment Revenue (Net Sales Income from ops)
India 764 749 810 829 872 926 936 941
Asia (excl India) 142 175 160 167 188 213 163 156
Europe 593 545 542 543 612 744 689 764
Americas 405 370 363 344 384 399 427 386
Segment EBIT
India 83 32 84 63 92 103 129 139
Asia (excl India) 8 11 6 9 12 10 5 7
Europe 55 44 51 (4 45 76 74 81Americas 22 13 23 39 38 45 55 36
Source Company Centrum Research
Comments on recent quarterly results
Q4FY14 witnessed a healthy growth with revenue up 221 YoY EBITDA and PAT jumpedsubstantially YoY Margins showed good improvement EBITDA margin expanded by 860 bps YoYOther operating expenses as a proportion of sales reduced to 227 from 267 in Q4FY13 this had apositive impact on margins
Revenue grew 28 QoQ EBITDA amp PAT margins showed signs of consistency further improving fromQ3FY14 European business looks to be on a growth trajectory as revenues have jumped 140 YoYand 11 QoQ Revenue from American segment saw growth of 124 YoY but declined QoQ
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19IFGL Refractories Ltd
Annexure ndash Refractory Industry
About refractories ndash consumables for manufacturing processes with high temperatures
Refractories are inorganic non-metallic and heterogeneous materials having very high melting pointswhich make them suitable to be used as heat-resisting barriers consumed within various productionprocesses providing heat chemical and mechanical resistance Refractories are mainly of two types ndash
shaped and unshaped (monolithics) and are used mainly by the steel industry as a consumableproduct in the internal linings of furnaces kilns reactors and other vessels for holding andtransporting metal and slag
Shaped refractories are those which have fixed shapes with most common form being rectangularbrick Brick shapes may be divided into two standard shapes and special shapes Standard shapeshave dimensions that are conformed to by most refractory manufacturers and are generally applicableto kilns and furnaces of the same type Special shapes are specifically made for particular kilns andfurnaces Shaped refractories are almost always machine-pressed and possess high uniformity inproperties are expected
Unshaped refractories are without definite form and are only given shape upon application It forms joint less lining and are better known as monolithic refractories They are manufactured in powderform as granular material and known as plastic refractories ramming mixes castables gunning mixesfettling mixes and mortars
The raw materials used to manufacture refractories are broadly classified into clay and non-clay Clayrefractories consist of naturally occurring alumina silicate like fireclay flint clay flint brick and highalumina and are used to produce bricks and insulating refractories Non-clay refractories are madefrom non-clay materials and are further classified into basic (made in the form of bricks from magnesiadolomite chrome etc) extra high alumina mullite (made from kyanite bauxite alumina) siliconcarbide and zircon
Exhibit 48
Refractory share by form Exhibit 49
Refractory share by raw material
Source Industry data Centrum Research Source Industry data Centrum Research
Unshaped45Shaped 55
Clay 65
Non Clay35
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20IFGL Refractories Ltd
Applications of refractories ndash largely used in steel industry for furnace linings
Steel industry accounts for ~60 of refractory consumption globally and ~75 in the domesticmarket In non-metallurgical industries (cement glass lime) the refractories are mostly installed onfired heaters hydrogen reformers cracking furnaces incinerators utility boilers air heaters ductingstacks etc The different areas of the steel manufacturing processes are exposed to differenttemperatures slag and sulphur gases Refractory selection for the lining of a furnace is invariably builtupon a combination of material qualities and brick size to maximize performance Steel industry usesrefractory for diverse applications in blast furnaces coke ovens torpedo ladles and secondary refiningladles
In cement industry refractories are used in the kiln the preheating system and the cooler whichoperate in a very high temperature to protect against heat abrasion and chemical attack Commonrefractory materials used are Dolomite Magnesia-Chrome Spinel Magnesia-Alumina Spinel Fireclayand High Alumina The cement kiln clinker area is usually provided with Dolomite refractories
Non(-errous industries like copper and aluminium require high performance refractories in severalequipments like anode baking furnaces induction furnaces reduction pots slag cleaning surfaces etcGlass industry also requires refractories in refiner regenerator dog-house and ports of furnace
Exhibit 50
Refractories consumption in steel making process
Source Magnesita ppt
Exhibit 51
Refractories consumption in steel making process
Source Vesuvius PLC ppt
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21IFGL Refractories Ltd
Steel industry accounts for ~60 of refractory consumption globally and ~75 in the domesticmarket In non-metallurgical industries (cement glass lime) refractories are mostly installed on firedheaters hydrogen reformers cracking furnaces incinerators utility boilers air heaters ducting stacksetc
Exhibit 52
Sector wise refractories demand - Global Exhibit 53
Sector wise refractories demand - India
Source Industry data Centrum Research Source Industry data Centrum Research
Refractory application consumption and replacement dynamics are shown in the table belowSteelmaking requires maximum amount of refractories (10-15kgstonne) with replacement required ina time period of 20 minutes to 2months Cement industry is the next biggest user with annualreplacement requirement while non-ferrous and glass industries have longer replacement cycles
Exhibit 54
Refractory consumption dynamics across user industries
Key Industry Application Replacement Per tonne consumption Refractory requirements
Steel
BF(BOF EAFCasting LadlesInduction FurnacesPellet rotary Kilns
20 minutes to 2months
Global avg - 10-15KgsIndia avg - 15 Kgs
Consumable product ( Systems and solutions for completerefractory management
Cement Kilns annually 1 KgsInvestment goods ( Longer replacement cycles Customizedsolutions based on the specific requirements of various industrialproduction processes complete lining concepts
Glass Glass Furnace upto 10 years 4 Kgs
Non(Ferrous Converters 1(10 yearsAluminium - 6 KgsCopper - 3 Kgs
Source RHI ppt Centrum Research
Global refractory market size at ~US$25bn expected to grow at ~35 CAGR
According to various industry studies global refractoriesrsquo market size is ~US$25bn with production of415MT in CY12 According to industry estimates the global refractories industry is expected to witnessCAGR of 35 during CY13-16E and grow to 46MT with a market value of US$29bn China accountedfor ~70 of the market by volume and ~60 by value in CY12 whereas India accounts for ~3 of theglobal refractories market by volume
Exhibit 55
Global refractory market size at ~US$25bn Exhibit 56
China accounts for ~70 of the market
CY12 Production (MT) Value (US$ bn)
World 415 25
China 295 143
EU 41 39
North America 14 14
India 13 09
Source Industry Centrum Research Source Industry Centrum Research
6015
15
10 Steel
Non-Metallic (Cement GlassLime)
Non-Ferrous (AluminiumCopper Zinc Silver)
Others (paper ceramicspetrochemicals)
75
12
6 3
4
Steel
Cement
Non-Ferrous
Glass
Others
415
463
25
29
0
10
20
30
40
50
CY12 CY16
Volume (MT) Mkt Value ($ bn)
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22IFGL Refractories Ltd
Domestic refractory demand-supply indicates low industry growth amp import pressure
Demand supply analysis of domestic refractory industry shows that it has been witnessing mutedconsumption growth (due to a fall in per tonne consumption for steel making due to technologicaladvances) and faces strong import pressure with one fourth of the market being serviced by netimports (mainly from cheap supplies from China which accounts for two thirds of refractory imports inIndia) Capacity utilization for the industry remains at ~60 on installed capacity of ~22MT and marketsize is ~US$1bn Domestic refractory consumption in steel has grown at a CAGR of ~2 during FY08-14 We expect industry growth to pick up due to scope for higher steel production (backed by higherinfra spend and expansion in per capita steel consumption) The industry has seen consolidation andacquisitions by global majors in the last five years and organised sector (split between (6 players)accounts for ~65 of the market
Exhibit 57 Refractory demand from domestic steel industry
(In tonne) FY08 FY09 FY10 FY11 FY12 FY13 FY14E FY15E FY16E FY17E
Steel Production (MT) 561 572 606 686 757 817 850 893 946 1012
Growth 20 59 132 103 79 40 50 60 70
Avg Refractory consumption(kgt of crude steel)
188 173 168 16 15 145 140 140 140 140
Refractory consumption (steel) 1054680 989560 1018080 1097600 1135500 1184650 1190000 1249500 1324470 1417183
Growth (62) 29 78 35 43 05 50 60 70
Source Ministry of Steel (MoS) Centrum Research Estimates
Exhibit 58
Organised sector accounts for ~65 of domestic refractory industry
Company RevenueMarket
Share ()
Supply toIntegratedsteel mills
Comments
Vesuvius India Ltd 6017 100 95+Leading supplier with wide product basket strongcustomer relationships with large steel mills
Orient Refractories (RHI) 4035 67 10-15 Has developed a niche with mini steel mills
IFGL Refractories (incl IEL) 3674 61 85+Mainly into flow control shaped refractories goodrelationship with large mills
Tata Refractories 9800 163 Not available Largely into bricks supplies (commodity refractories)
Calderys 6250 104 Not available
Supplies largely to non-ferrous producers strong in
bricks and monolithics
OCL 4056 68 Not available
Total Organized Sector 39332 656
Source Company Centrum Research Estimates
Exhibit 59
Net imports accounts for one fourth of market Exhibit 60
China accounts for two thirds of imports
Source MoS Industry Centrum Research Source MoS Industry Centrum Research
(800000)
(600000)
(400000)
(200000)
0
200000
400000
FY07 FY08 FY09 FY10 FY11 FY12
( T o n n e )
Imports Exports Net Imports
167259
380
167228
647594
551
696 685
10
20
30
40
50
60
70
80
FY07 FY08 FY09 FY10 FY11
Net Imports - share China share in imports
Domestic refractory production growth hasbeen largely flat andcapacity utilization is~60
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23IFGL Refractories Ltd
Financials (Cons)
Exhibit 61
Income Statement
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
Revenues from Operations 6712 7776 8484 9554 10697
Raw Materials consumed 3201 3444 3725 4208 4716
of net sales 477 443 439 440 441
Employee expenses 987 1097 1185 1279 1382
of net sales 147 141 140 134 129
Other operational expenses 1621 1805 2013 2243 2486
of net sales 241 232 237 235 232
Total expenses 6130 6680 7273 8140 9068
of net sales 913 859 857 852 848
EBITDA 582 1096 1210 1414 1630
EBITDA Margin () 87 141 143 148 152
Depreciation amp Amortisation 134 155 174 189 204
EBIT 448 942 1036 1225 1425
Interest expenses 80 70 51 29 6
Other Income 45 34 40 44 484
EBT 413 906 1025 1240 1467
Provision for tax 159 248 307 372 440
Effective tax rate () 386 274 300 300 300Net Profit 254 658 717 868 1027
Less Minority interest (28) 18 32 70 99
Net Profit after MI 282 640 686 798 928
Source Company data Centrum Research Estimates
Exhibit 62 Key Ratios
YE Mar FY13 FY14 FY15E FY16E FY17E
Growth Ratio ()
Revenue 112 159 91 126 120
EBITDA (213) 884 104 168 153
PAT (292) 1269 71 163 163
Margin Ratios ()
PBIT Margin 67 121 122 128 133
PBT Margin 62 116 121 130 137
PAT Margin 42 82 81 84 87
Return Ratios ()
ROE 115 212 190 185 181
ROCE 84 177 175 189 198
ROIC 87 179 178 200 224
Turnover Ratios (days)
Asset turnover ratio (x) 18 19 19 19 19
Debtors 78 78 80 80 80
Inventory 46 49 50 50 50
Creditors 43 45 45 45 45
Net Working capital 74 76 80 80 80
Gearing Ratio (x)
Debt-equity 05 03 02 01 00
Net debt-equity 04 03 02 00 (01)
Current ratio 25 23 24 25 27
Dividend
Dividend per share 15 18 20 23 23
Dividend Payout () 251 124 130 125 107
Dividend Yield () 11 13 15 17 17
Per share Ratios (Rs)
Basic EPS 82 185 198 231 268
Fully diluted EPS 82 185 198 231 268
Book value 709 871 1044 1245 1485
Cash earnings per share 120 230 249 285 327
Valuation (x)
PE 174 77 72 62 53
PBV 20 16 14 11 10
EVEBITDA 102 53 46 36 27
EVSales 07 06 06 05 04
M-CapSales 07 06 06 05 05
Source Company data Centrum Research Estimates
Exhibit 63
Balance Sheet
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
Equity share capital 491 491 491 491 491
Reserves amp surplus 1964 2525 3121 3819 4648
Shareholders fund 2455 3016 3612 4310 5139
Total debt 1142 982 682 382 82
Deferred tax liabilities 65 74 74 74 74
Total Liabilities 3741 4167 4495 4963 5591
Gross block 2474 2656 2906 3156 3406
Less acc depreciation 1276 1430 1605 1794 1998
Net block 1198 1225 1301 1362 1407
Capital work in progress 20 20 20 20 20
Goodwill 1105 1342 1342 1342 1342
Investments 5 5 5 5 5
Inventories 848 1034 1162 1309 1465
Trade Receivables 1427 1658 1859 2094 2345
Cash amp cash equivalents 113 33 69 259 609
Loans amp advances 51 107 116 131 147
Trade payables 799 962 1046 1178 1319
Other current liabilities 166 210 232 262 293Provisions 94 124 139 157 176
Total Assets 3741 4167 4495 4963 5591
Source Company data Centrum Research Estimates
Exhibit 64 Cash Flow
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
PBT 413 906 1025 1240 1467
Interest 72 70 51 29 6
Depreciation 134 155 174 189 204
Increase in debtors (330) (231) (201) (235) (251)
Increase in inventories 7 (186) (128) (147) (157)
Increase in trade payables 46 163 84 132 141
Tax 197 248 307 372 440
Cash flow from operations 183 629 695 799 907
Change in fixed assets (194) (418) (250) (250) (250)
Cash flow from investments (172) (418) (250) (250) (250)
Change in debt 19 (160 (300) (300) (300)
Dividends paid (71) (79) (89) (100) (100)
Interest paid (80) (70) (51) (29) (6)
Cash flow from financing (94) (291) (409) (358) (306)
Net cash flow (81) (81) 36 191 350
Opening cash balance 195 113 33 69 259
Closing cash balance 113 33 69 259 609
Source Company data Centrum Research Estimates
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24IFGL Refractories Ltd
Financials (Cons) - Historical
Exhibit 65
Income Statement
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
Revenues from Operations 3780 3982 4152 4689 6039
Raw Materials consumed 1743 1907 2058 2389 3024
of net sales 461 479 496 509 501
Employee expenses 487 589 539 661 843
of net sales 129 148 130 141 140
Other operational expenses 918 1036 951 1148 1418
of net sales 243 260 229 245 235
Total expenses 3244 3708 3575 4279 5299
of net sales 858 931 861 912 878
EBITDA 536 274 578 411 739
EBITDA Margin () 142 69 139 88 122
Depreciation amp Amortisation 63 74 70 71 123
EBIT 473 200 508 339 617
Interest expenses 82 95 45 56 68
Other Income 18 24 34 43 33
EBT 409 128 497 327 582
Provision for tax 123 67 155 84 183
Effective tax rate () 301 523 311 258 315Net Profit 286 61 343 243 398
Less Minority interest 1 0 0 0 0
Net Profit after MI 285 61 343 243 399
Source Company data Centrum Research Estimates
Exhibit 66 Key Ratios
YE Mar FY08 FY09 FY10 FY11 FY12
Growth Ratio ()
Revenue 171 53 43 129 288
EBITDA 98 (489) 1111 (289) 800
PAT 85 (785) 4586 (292) 642
Margin Ratios ()
PBIT Margin 125 50 122 72 102
PBT Margin 108 32 120 70 96
PAT Margin 75 15 83 52 66
Return Ratios ()
ROE 294 54 250 138 180
ROCE 182 49 169 93 128
ROIC 195 53 183 98 141
Turnover Ratios (days)
Asset turnover ratio (x) 20 18 19 15 17
Debtors 97 55 79 85 69
Inventory 46 47 52 55 52
Creditors 49 23 41 50 44
Net Working capital 105 81 89 93 67
Gearing Ratio (x)
Debt-equity 09 09 06 07 05
Net debt-equity 08 08 05 07 04
Current ratio 29 36 26 25 24
Dividend
Dividend per share 20 00 10 05 15
Dividend Payout () 284 00 118 103 63
Dividend Yield () 15 00 07 04 11
Per share Ratios (Rs)
Basic EPS 82 18 99 70 115
Fully diluted EPS 82 18 99 70 115
Book value 280 328 396 508 641
Cash earnings per share 101 39 119 91 151
Valuation (x)
PE 164 762 136 193 117
PBV 48 41 34 27 21
EVEBITDA 102 203 93 142 76
EVSales 12 12 11 10 08
M-CapSales 12 12 11 10 08
Source Company data Centrum Research Estimates
Exhibit 67
Balance Sheet
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
Equity share capital 346 346 346 491 491
Reserves amp surplus 623 789 1026 1266 1728
Shareholders fund 969 1135 1372 1757 2219
Total debt 869 1003 793 1253 1128
Deferred tax liabilities 41 38 38 40 48
Total Liabilities 1879 2185 2206 3054 3465
Gross block 1456 1948 1966 2738 2238
Less acc depreciation 687 827 864 960 1122
Net block 769 1121 1102 1778 1117
Capital work in progress 46 53 28 21 45
Goodwill 347 594 559 1032 1094
Investments 0 0 4 14 5
Inventories 474 513 592 702 855
Trade Receivables 1001 596 895 1096 1134
Cash amp cash equivalents 77 129 120 100 195
Loans amp advances 152 121 133 152 38
Trade payables 507 256 471 637 729
Other current liabilities 32 90 137 112 194Provisions 102 2 60 60 151
Total Assets 1879 2185 2206 3054 3465
Source Company data Centrum Research Estimates
Exhibit 68 Cash Flow
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
PBT 409 128 497 327 582
Interest 81 96 45 56 59
Depreciation 63 74 75 87 129
Increase in debtors (196) 559 (330) (184) 25
Increase in inventories (72) 35 (79) (77) (135)
Increase in trade payables 82 (304 266 115 67
Tax 119 90 138 70 135
Cash flow from operations 285 814 359 237 520
Change in fixed assets (94) (99) (120) (157) (49)
Cash flow from investments (62 (536 (119 (677 (98
Change in debt (88) 15 (276) 245 (242)
Dividends paid (76) (80) (6) (46) (25)
Interest paid (87) (98) (47) (60) (68)
Cash flow from financing (261) (245) (241) 408 (339)
Net cash flow (43) 24 (8) (29) 94
Opening cash balance 120 77 129 120 100
Closing cash balance 77 129 120 100 195
Source Company data Centrum Research Estimates
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25IFGL Refractories Ltd
Appendix A
Disclaimer
Centrum Broking Limited (ldquoCentrumrdquo) is a full(service Stock Broking Company and a member of The Stock Exchange Mumbai (BSE) and National StockExchange of India Ltd (NSE) Our holding company Centrum Capital Ltd is an investment banker and an underwriter of securities As a group Centrumhas Investment Banking Advisory and other business relationships with a significant percentage of the companies covered by our Research Group Ourresearch professionals provide important inputs into the Groups Investment Banking and other business selection processes
Recipients of this report should assume that our Group is seeking or may seek or will seek Investment Banking advisory project finance or otherbusinesses and may receive commission brokerage fees or other compensation from the company or companies that are the subject of thismaterialreport Our Company and Group companies and their officers directors and employees including the analysts and others involved in thepreparation or issuance of this material and their dependants may on the date of this report or from time to time have long or short positions in actas principal in and buy or sell the securities or derivatives thereof of companies mentioned herein Centrum or its affiliates do not own 1 or more in theequity of this company Our sales people dealers traders and other professionals may provide oral or written market commentary or trading strategies toour clients that reflect opinions that are contrary to the opinions expressed herein and our proprietary trading and investing businesses may makeinvestment decisions that are inconsistent with the recommendations expressed herein We may have earlier issued or may issue in future reports on thecompanies covered herein with recommendations information inconsistent or different those made in this report In reviewing this document youshould be aware that any or all of the foregoing among other things may give rise to or potential conflicts of interest We and our Group may rely oninformation barriers such as Chinese Walls to control the flow of information contained in one or more areas within us or other areas units groups oraffiliates of Centrum Centrum or its affiliates do not make a market in the security of the company for which this report or any report was writtenFurther Centrum or its affiliates did not make a market in the subject companyrsquos securities at the time that the research report was published
This report is for information purposes only and this documentmaterial should not be construed as an offer to sell or the solicitation of an offer to buypurchase or subscribe to any securities and neither this document nor anything contained herein shall form the basis of or be relied upon in connection
with any contract or commitment whatsoever This document does not solicit any action based on the material contained herein It is for the generalinformation of the clients of Centrum Though disseminated to clients simultaneously not all clients may receive this report at the same time Centrumwill not treat recipients as clients by virtue of their receiving this report It does not constitute a personal recommendation or take into account theparticular investment objectives financial situations or needs of individual clients Similarly this document does not have regard to the specificinvestment objectives financial situationcircumstances and the particular needs of any specific person who may receive this document The securitiesdiscussed in this report may not be suitable for all investors The securities described herein may not be eligible for sale in all jurisdictions or to allcategories of investors The countries in which the companies mentioned in this report are organized may have restrictions on investments voting rightsor dealings in securities by nationals of other countries The appropriateness of a particular investment or strategy will depend on an investorsindividual circumstances and objectives Persons who may receive this document should consider and independently evaluate whether it is suitable forhis hertheir particular circumstances and if necessary seek professionalfinancial advice Any such person shall be responsible for conductinghishertheir own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risks involvedin the securities forming the subject matter of this document
The projections and forecasts described in this report were based upon a number of estimates and assumptions and are inherently subject to significantuncertainties and contingencies Projections and forecasts are necessarily speculative in nature and it can be expected that one or more of the estimateson which the projections and forecasts were based will not materialize or will vary significantly from actual results and such variances will likely increase
over time All projections and forecasts described in this report have been prepared solely by the authors of this report independently of the Company These projections and forecasts were not prepared with a view toward compliance with published guidelines or generally accented accountingprinciples No independent accountants have expressed an opinion or any other form of assurance on these projections or forecasts You should notregard the inclusion of the projections and forecasts described herein as a representation or warranty by or on behalf of the Company Centrum theauthors of this report or any other person that these projections or forecasts or their underlying assumptions will be achieved For these reasons youshould only consider the projections and forecasts described in this report after carefully evaluating all of the information in this report including theassumptions underlying such projections and forecasts
The price and value of the investments referred to in this documentmaterial and the income from them may go down as well as up and investors mayrealize losses on any investments Past performance is not a guide for future performance Future returns are not guaranteed and a loss of original capitalmay occur Actual results may differ materially from those set forth in projections Forward (looking statements are not predictions and may be subject tochange without notice Centrum does not provide tax advice to its clients and all investors are strongly advised to consult regarding any potentialinvestment Centrum and its affiliates accept no liabilities for any loss or damage of any kind arising out of the use of this report Foreign currenciesdenominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derived fromthe investment In addition investors in securities such as ADRs the value of which are influenced by foreign currencies effectively assume currency riskCertain transactions including those involving futures options and other derivatives as well as non(investment(grade securities give rise to substantial
risk and are not suitable for all investors Please ensure that you have read and understood the current risk disclosure documents before entering into anyderivative transactions
This reportdocument has been prepared by Centrum based upon information available to the public and sources believed to be reliable Norepresentation or warranty express or implied is made that it is accurate or complete Centrum has reviewed the report and in so far as it includescurrent or historical information it is believed to be reliable although its accuracy and completeness cannot be guaranteed The opinions expressed inthis documentmaterial are subject to change without notice and have no obligation to tell you when opinions or information in this report change
This report or recommendations or information contained herein dodoes not constitute or purport to constitute investment advice in publicly accessiblemedia and should not be reproduced transmitted or published by the recipient The report is for the use and consumption of the recipient only Thispublication may not be distributed to the public used by the public media without the express written consent of Centrum This report or any portionhereof may not be printed sold or distributed without the written consent of Centrum
The distribution of this document in other jurisdictions may be restricted by law and persons into whose possession this document comes should informthemselves about and observe any such restrictions Neither Centrum nor its directors employees agents or representatives shall be liable for anydamages whether direct or indirect incidental special or consequential including lost revenue or lost profits that may arise from or in connection withthe use of the information
This document does not constitute an offer or invitation to subscribe for or purchase or deal in any securities and neither this document nor anythingcontained herein shall form the basis of any contract or commitment whatsoever This document is strictly confidential and is being furnished to yousolely for your information may not be distributed to the press or other media and may not be reproduced or redistributed to any other person Thedistribution of this report in other jurisdictions may be restricted by law and persons into whose possession this report comes should inform themselvesabout and observe any such restrictions By accepting this report you agree to be bound by the fore going limitations No representation is made thatthis report is accurate or complete
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The opinions and projections expressed herein are entirely those of the author and are given as part of the normal research activity of Centrum Brokingand are given as of this date and are subject to change without notice Any opinion estimate or projection herein constitutes a view as of the date of thisreport and there can be no assurance that future results or events will be consistent with any such opinions estimate or projection
This document has not been prepared by or in conjunction with or on behalf of or at the instigation of or by arrangement with the company or any of itsdirectors or any other person Information in this document must not be relied upon as having been authorized or approved by the company or itsdirectors or any other person Any opinions and projections contained herein are entirely those of the authors None of the company or its directors orany other person accepts any liability whatsoever for any loss arising from any use of this document or its contents or otherwise arising in connectiontherewith
Centrum and its affiliates have not managed or co(managed a public offering for the subject company in the preceding twelve months Centrum andaffiliates have not received compensation from the companies mentioned in the report during the period preceding twelve months from the date of thisreport for service in respect of public offerings corporate finance debt restructuring investment banking or other advisory services in amergeracquisition or some other sort of specific transaction
As per the declarations given by them Mr Abhisar Jain research analyst and andor any of his family members do not serve as an officer director or anyway connected to the companycompanies mentioned in this report Further as declared by him he has not received any compensation from the abovecompanies in the preceding twelve months He does not hold any shares by him or through his relatives or in case if holds the shares then will not to doany transactions in the said scrip for 30 days from the date of release such report Our entire research professionals are our employees and are paid asalary They do not have any other material conflict of interest of the research analyst or member of which the research analyst knows of has reason toknow at the time of publication of the research report or at the time of the public appearance
While we would endeavour to update the information herein on a reasonable basis Centrum its associated companies their directors and employees areunder no obligation to update or keep the information current Also there may be regulatory compliance or other reasons that may prevent Centrumfrom doing so
Non(rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable
regulations andor Centrum policies in circumstances where Centrum is acting in an advisory capacity to this company or any certain othercircumstances
This report is not directed to or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality statecountry or other jurisdiction where such distribution publication availability or use would be contrary to law or regulation or which would subjectCentrum Broking Limited or its group companies to any registration or licensing requirement within such jurisdiction Specifically this document doesnot constitute an offer to or solicitation to any US person for the purchase or sale of any financial instrument or as an official confirmation of anytransaction to any US person unless otherwise stated this message should not be construed as official confirmation of any transaction No part of thisdocument may be distributed in Canada or used by private customers in United Kingdom
The information contained herein is not intended for publication or distribution or circulation in any manner whatsoever and any unauthorized readingdissemination distribution or copying of this communication is prohibited unless otherwise expressly authorized Please ensure that you have read ldquoRiskDisclosure Document for Capital Market and Derivatives Segmentsrdquo as prescribed by Securities and Exchange Board of India before investing in IndianSecurities Market
Rating Criteria
Rating Market cap lt Rs20bn Market cap gt Rs20bn but lt 100bn Market cap gt Rs100bn Buy Upside gt 25 Upside gt 20 Upside gt 15
Hold Upside between (25 to +25 Upside between (20 to +20 Upside between (15 to +15
Sell Downside gt 25 Downside gt 20 Downside gt 15
Member (NSE BSE MCX(SX) Depository Participant (CDSL) and SEBI registered Portfolio Manager
Registration Nos
CAPITAL MARKET SEBI REGN NO BSE INB011454239 NSE INB231454233
DERIVATIVES SEBI REGN NO NSE INF231454233 (TRADING amp SELF CLEARING MEMBER)
CDSL DP ID 12200 SEBI REGISTRATION NO IN(DP(CDSL(661(2012
PMS REGISTRATION NO INP000004383
MCX ndash SX (Currency Derivative segment) REGN NO INE261454230
Website wwwcentrumcoin
Investor Grievance Email ID investorgrievancescentrumcoin
Compliance Officer Details
Tel (022) 4215 9413 Email ID compliancecentrumcoin
Centrum Broking Limited
Registered Office Address
Bombay Mutual Building
2nd Floor
Dr D N Road
Fort Mumbai ( 400 001
Correspondence Address
Centrum House
6th Floor CST Road Near Vidya Nagari Marg Kalina
Santacruz (E) Mumbai 400 098
Tel (022) 4215 9000
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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10IFGL Refractories Ltd
Balance sheet strengthened free cash flow generation strong
Strong free cash flow generation ahead with limited capex
IFGL has turned free cash flow positive at a consolidated level in FY14 as operating cash flow improvedsharply (up 240 YoY) led by higher profitability across operations We see strong free cash flowgeneration ahead on the back of limited capex (~Rs250mn annually over FY15-16E) and continued
traction in operating cash flow on the back of higher capacities and better utilizations
Exhibit 27 Free cash flow generation expected to be strong going ahead
Source Company Centrum Research Estimates
Free cash flow yield to improve significantly
We see free cash flow yield improving to ~12 and free cash flowEBITDA going up to 04x in FY16EBalance sheet remains strong and we expect the company to be debt free at a consolidated level inthe next three years if there is no new acquisition or major capex
Exhibit 28
Free cash flow yield attractive Exhibit 29
Debt free status in next two years
Source Company Centrum Research Estimates Source Company Centrum Research Estimates
-527
-99 -39
211
445549
657
(1000)
(800)
(600)
(400)
(200)
0
200
400
600
800
1000
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( R s m n )
OCF Capex Free Cash Flow
019
037 039
040
45
95
117
141
00
40
80
120
160
00
01
02
03
04
05
FY14 FY15E FY16E FY17E
Free Cash FlowEBITDA (x) Free Cash Flow Yield -
(02)
00
02
04
06
08
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( x )
Debt-equity Net debt-equity
Free cash flow yieldexpected to go up from45 in FY14 to 117 inFY16E
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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11IFGL Refractories Ltd
ROE shows improvement beats most peers at a global level
IFGL has shown sharp improvement in its ROE in FY14 as overseas subsidiariesrsquo profitability hasimproved and domestic profitability is on an upswing post start of IEL We expect ROE of IFGL to be thebest in the industry at a global level in the next few years
Exhibit 30
IFGL ROE well above that of global peers
Source Company Bloomberg Centrum Research Estimates CY07 = FY08
(10)
(5)
0
5
10
15
20
25
3035
CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14E CY15E
( )
Vesuvius India IFGL Refractories (FY) Vesuvius PLC
Puyang Refractories Cie de St-Gobain Magnesita Refractarios
Chosun Refractories Krosaki Harima (FY) Shinagawa (FY)
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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12IFGL Refractories Ltd
Financials
Revenue growth to be led by IEL and overseas operations
We expect consolidated net sales CAGR of 112 for IFGL during FY14-17E This is expected to be ledby ~33 CAGR from IEL and 12 CAGR from overseas subsidiaries while standalone operations CAGRis expected to slow down to 67
Exhibit 31
Net sales CAGR of 112 during FY14-17E
Source Company Centrum Research Estimates
Margins and return ratios to remain healthy FY14-17E EBITDA CAGR of 141
Backed by better margins from IEL and recovery in demand we expect EBITDA CAGR of 141 duringFY14-17E Margins are expected to improve gradually as revenues from high margin subsidiary IELpicks up Expansion at EI Ceramics is also expected to help in EBITDA growth and margins Returnratios are expected to remain healthy on account of operating efficiency and high asset turnover ratiosfrom new expansions
Exhibit 32
EBITDA margin to remain stable Exhibit 33
Healthy return ratios
Source Company Centrum Research Estimates Source Company Centrum Research Estimates
Exhibit 34
Du Pont analysis
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
PATSales (x) 005 007 004 008 008 008 009
SalesAssets (x) 154 174 179 187 189 192 191
AssetsEquity (x) 174 156 152 138 124 115 109
ROE - 138 180 115 212 190 185 181
Source Company Centrum Research Estimates
4689
6039 6712
77768484
9554 10697
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( R s m n )
Standalone (IFGL) IFGL Exports (IEL) Overseas Subs Total
411 739 582 1096 1210 1414 1630
88
122
87
141 143 148
152
60
80
100
120
140
160
0
200
400
600
800
1000
1200
1400
1600
1800
FY11 FY12 FY13 FY14 FY15E FY16E FY17EEBITDA-Cons (Rs mn) OPM - RHS
50
100
150
200
250
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( )
ROE ROCE (post tax) ROIC (post tax)
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13IFGL Refractories Ltd
Key Assumptions and Sensitivity
Exhibit 35 Key Assumptions
Revenue (Rs mn) FY12 FY13 FY14 FY15E FY16E FY17E
Indian Operations
Domestic sales 1305 1495 1391 1744 2014 2304
Exports 1443 1567 1883 1744 1716 1669
Total standalone operations 2748 3061 3274 3487 3730 3973
IFGL Exports Ltd 0 90 399 518 755 953
Total Indian operations 2748 3152 3673 4005 4485 4926
Overseas Operations
Monocon Group 2410 2801 3288 3617 3979 4376
EI Ceramics 716 863 1012 1113 1447 1881
Hoffman Group 758 692 827 868 911 957
Less Intersegment revenues 596 790 1023 1120 1267 1443
Total Overseas operations 3287 3566 4103 4478 5069 5771
Total Consolidated operations 6035 6717 7776 8484 9554 10697
Source Company Centrum Research Estimates
Exhibit 36
EPS sensitivity to shaped refractory segment
EPS - FY16E (Rs) -Cons
Realizations
-10 -5 Base 5 10
V o l u m e s
-10 177 192 206 221 236
-5 187 203 218 234 250
Base 197 214 231 247 264
5 208 225 243 260 277
10 218 236 255 273 291
Source Company Centrum Research Estimates
Exhibit 37
EPS sensitivity to unshaped refractory segment
EPS - FY16E (Rs) - ConsRealizations
-10 -5 Base 5 10
V o l u m e s
-10 230 233 235 237 239
-5 228 230 233 235 237
Base 226 228 231 233 235
5 223 226 228 231 234
10 221 223 226 229 232
Source Company Centrum Research Estimates
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14IFGL Refractories Ltd
Valuation ndash poised for rerating
IFGLrsquos mean EVEBITDA stands at 47x with standard deviation of 26x and we note that the stock pricehas been volatile in last 6-7 years due to sharp fluctuations in earnings which explains the highstandard deviation However we believe that earnings would be more linear going forward asoverseas operations have been stabilised and growth would be driven by expansions at higher marginsubsidiaries of IEL and EI Ceramics At the CMP of Rs142 the stock trades at attractive valuations of 62xFY16E PE and 36x FY16E EVEBITDA and we believe that sharp improvement in free cash flow canlead to rerating in the stock We assign an EVEBITDA of 55x on Marrsquo16E earnings to arrive at a fairvalue of Rs220 and initiate with a Buy The multiple assigned by us remains below mean+05sd andthus provides comfort on historical valuations even though we expect much better earnings trajectoryfor the company going forward
Exhibit 38
EVEBITDA Valuation
(Rs mn) FY16E
EBITDA 1414
Ascribed EVEBITDA (x) 55
EV 7776
Add Net Cash (123)
Fair value mkt cap 7653
No of shares (mn) 346
Fair Valueshare (Rs) 220
Source Company Centrum Research Estimates
Exhibit 39
1-year forward EVEBITDA chart Exhibit 40
1-year forward PE chart
Source Bloomberg Company Centrum Research Estimates Source Bloomberg Company Centrum Research Estimates
Steep valuation discount exists for IFGL compared to global peersComparison of IFGLrsquos valuations with global peers shows that the company is trading at a steepdiscount despite strong fundamentals which we feel is unwarranted We expect re-rating in the stockwith improvement in outlook and stability in earnings
Exhibit 41 Valuationndash Peer comparison
CompanyMkt Cap(US$ mn)
CAGR CY13-CY15E () EBITDA Margin () PE (x) EVEBITDA (x) RoE () Div Yield ()
Rev EBITDA PAT CY13 CY14E CY15E CY13 CY14E CY15E CY13 CY14E CY15E CY13 CY14E CY15E CY13 CY14E CY15E
IFGL Refractories 82 108 136 116 141 143 148 77 72 62 53 46 36 212 190 185 12 14 16
Vesuvius India Ltd 220 110 115 126 184 178 186 203 192 161 110 100 82 164 152 158 07 08 09
Global Peers
RHI AG 1322 29 (02) 318 137 122 129 153 103 89 59 65 57 131 177 180 31 31 35
Vesuvius PLC 2140 04 53 80 117 123 128 149 141 127 86 82 74 93 1 02 108 31 34 36
Magnesita SA 574 122 129 344 156 149 158 157 180 101 60 63 55 21 17 35 15 11 21
Cie de St(Gobain 32544 20 91 32 3 100 107 114 218 181 133 76 68 60 58 76 94 29 30 33
Source Bloomberg Estimates Centrum Research Estimates CY13=FY14 for IFGL and so on
0
2
4
6
810
12
14
J u n - 0 7
O c t - 0 7
F e b - 0 8
J u n - 0 8
O c t - 0 8
F e b - 0 9
J u n - 0 9
O c t - 0 9
F e b - 1 0
J u n - 1 0
O c t - 1 0
F e b - 1 1
J u n - 1 1
O c t - 1 1
F e b - 1 2
J u n - 1 2
O c t - 1 2
F e b - 1 3
J u n - 1 3
O c t - 1 3
F e b - 1 4
J u n - 1 4
EVEBITDA MeanMean + Std Dev Mean - Std Dev
0
5
10
15
20
25
J u n - 0 7
O c t - 0 7
F e b - 0 8
J u n - 0 8
O c t - 0 8
F e b - 0 9
J u n - 0 9
O c t - 0 9
F e b - 1 0
J u n - 1 0
O c t - 1 0
F e b - 1 1
J u n - 1 1
O c t - 1 1
F e b - 1 2
J u n - 1 2
O c t - 1 2
F e b - 1 3
J u n - 1 3
O c t - 1 3
F e b - 1 4
J u n - 1 4
PE MeanMean + Std Dev Mean - Std Dev
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15IFGL Refractories Ltd
IFGL trading at a higher discount to Vesuvius than historical average
IFGL has historically (based on average during JanrsquoCY09-JunersquoCY14) traded at a discount of ~35 toVesuvius India Ltd (VIL) on EVEBITDA basis However currently IFGL is trading at a discount of ~60 toVIL which is unwarranted as the profitability of IFGL is on an uptrend post stabilisation of overseasoperations and IEL The historical discount has seen an increase in the past 3 years due to volatility inearnings of IFGL but with operations having stabilised we see the discount narrowing We also expectIFGL to be above its peers (incl VIL) in terms of ROE for the next few years and see a high cash flowyield of ~12 in FY16E The multiple assigned by us implies ~35 discount to VILrsquos current valuationswhich is in line with the historical average even though IFGL is expected to generate better returnsand free cash flow going forward
Exhibit 42
EVEBITDA ndash IFGL vs Vesuvius India Exhibit 43
Discount of IFGL EVEBITDA vs Vesuvius
Source Bloomberg Company Centrum Research Source Bloomberg Company Centrum Research
0
2
4
6
8
10
12
F e b - 0
9
J u n - 0
9
O c t - 0 9
F e b - 1
0
J u n - 1
0
O c t - 1 0
F e b - 1
1
J u n - 1
1
O c t - 1 1
F e b - 1
2
J u n - 1
2
O c t - 1 2
F e b - 1
3
J u n - 1
3
O c t - 1 3
F e b - 1
4
J u n - 1
4
( x )
EVEBITDA IFGL EVEBITDA Vesuvius
(90)
(60)
(30)
0
30
60
F e b - 0
9
J u n - 0
9
O c t - 0 9
F e b - 1
0
J u n - 1
0
O c t - 1 0
F e b - 1
1
J u n - 1
1
O c t - 1 1
F e b - 1
2
J u n - 1
2
O c t - 1 2
F e b - 1
3
J u n - 1
3
O c t - 1 3
F e b - 1
4
J u n - 1
4
( )
EVEBITDA discount of IFGL vs Vesuvius
Avg discount of IFGL vs Vesuvius
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16IFGL Refractories Ltd
Key risks to our thesis
Dependent on raw material sourcing through imports The industry is dependent on importsof key raw materials like high grade alumina bauxite magnesia silicon carbide etc China is themajor supplier of imports and has imposed heavy taxes on export of raw materials of refractories This has resulted in sharp increase in imported raw material costs IFGL sources ~52 of its raw
materials through imports and remains exposed to increase in costs which can impact its margins Low pricing power due to excess domestic supply and import pressure The industry suffers
from low capacity utilization of ~60 with excess installed capacities (~22 MTPA) and as a resultpricing power is low for refractory makers who are squeezed between raw material suppliers andsteel makers Cheap refractory imports from China have also kept prices in check IFGL does notenjoy as much pricing power as VIL does as customers prefer VIL for its strong brand name andproven track record of providing quality products and services Further increase in competitiveintensity can lead to lower pricing for IFGL in both domestic and export markets
Sharp slowdown in steel industry leading to lower volumes Like any other refractorycompany IFGLrsquos fortunes depend on the steel industry and any slowdown in global economy mayhamper the steel industryrsquos growth and IFGLrsquos volume growth would be more vulnerable as itdoes not have strong relationships like VIL has Sharp slowdown in the steel industry (vs
expectations of recovery) in coming years could lead to lower capacity utilization and lower thanexpected volumes
Currency Fluctuation We believe that steady weakening of rupee over the past couple of yearshas been favourable to the industry as well as for IFGL due to better import substitution andhigher realizations on exports negated only to a partial extent by higher import costs for rawmaterials IFGL has 80 of its revenues coming from overseas on a consolidated basis On astandalone basis approximately 58 of the revenues (FY14) came from exports Companyrsquosrevenues remain exposed to sharp appreciation of rupee against foreign currencies
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17IFGL Refractories Ltd
Exhibit 44
Shareholding pattern ()
Q4FY14 Q3FY14 Q2FY14 Q1FY14
Promoter 713 713 713 713
FIIs 00 00 00 00
DIIs 11 22 22 22
Others 277 265 265 265
Source BSE
Company Background
IFGL Refractories Ltd is a manufacturer of specialisedrefractories and requisite operating systems for the steelIndustry IFGL offers its customers total solution for refractoryfor flow control in steel teeming and continuous casting ofSteel IFGL has 8 manufacturing plants strategically located
across the globe in India China Europe and Americas Thecompany has a presence in over 50 of the global markets Itacquired the Monocon group UK in 2005 (06 Hofmanngroup Germany in 2008 and EI Ceramics USA in 2010 Theseoverseas acquisitions have brought along access to newproducts amp technologies new markets and new customers The company has also set up a subsidiary IFGL exports atKandla Gujarat which also has technical collaboration withKrosaki Harima Corporation Japan Apart from this IFGL alsoplans to expand its capacities in India and abroad over thecoming years
Exhibit 45 Key management personnel
Name Position Profile
Mr S K Bajoria Chairman
Promoter of S K Bajoria Group based at Kolkata engaged in diversified business activitiesHas been honorary vice consul of Denmark in Kolkata president of the Indian chamber ofcommerce director of West Bengal industrial development corporation Ltd and industrialpromotion amp investment corporation of Orissa Ltd
Mr Pradeep Bajoria Managing Director
Associated with IFGL from the very early days of Indo Flogates even before thecommencement of production in 1984 Has been director amp chief executive of erstwhileIndo Flogates Ltd More than 30 years of experience of refractory industry and has beeninvolved in various capacities in Indian refractories makers association
Mr Gian Carlo Cozzani Directorr Monocon UK
Associated with IFGL since Oct 2009 Former president and CEO of Vesuvius (now Vesuviusplc) Instrumental in steering Vesuvius from US$ 100 million to over US$ 1 billion Based inEurope he is a member of IFGLrsquos Core group and a director of Monocon InternationalRefractories Limited UK
Source Company
Exhibit 46
IFGL refractories holding structure
Source Company
10051
983113983110983111983116 983127983151983154983148983140983159983145983140983141 983112983151983148983140983145983150983143 983116983145983149983145983156983141983140
983113983110983111983116 983109983160983152983151983154983156983155 983116983156983140
983117983151983150983151983139983151983150 983111983154983151983157983152 983109983113 983107983141983154983137983149983145983139983155 983112983151983142983149983137983150983150
983107983141983154983137983149983145983139
983124983141983139983144983150983145983139983137983148 983137983150983140 983110983145983150983137983150983139983145983137983148
983107983151983148983148983137983138983151983154983137983156983145983151983150 983151983142
983115983154983151983155983137983147983145 983112983137983154983145983149983137
983107983151983154983152983151983154983137983156983145983151983150983084 983114983137983152983137983150983084
983080983123983157983138983155983145983140983145983137983154983161 983151983142 983118983145983152983152983151983150
983123983156983141983141983148 983107983151983154983152983151983154983137983156983145983151983150983084
983114983137983152983137983150983081
983125983123983105 983125983115 983087 983125983123983105 983087 983107983144983145983150983137
983115983137983150983140983148983137 983123983109983130983084 983111983157983146983137983154983137983156983084 983113983150983140983145983137
983111983141983154983149983137983150983161
983113983110983111983116 983122983141983142983154983137983139983156983151983154983145983141983155 983116983145983149983145983156983141983140
983112983119 983085 983115983151983148983147983137983156983137983084 983113983150983140983145983137
983127983151983154983147983155 983085 983115983137983148983157983150983143983137983084 983119983154983145983155983155983137983084 983113983150983140983145983137
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18IFGL Refractories Ltd
Exhibit 47 Quarterly financials (cons)
YE Mar (Rs mn) Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14
Net sales 1725 1657 1690 1641 1811 2014 1947 2003
Other Operating Income 5 4 0 0 3 0 0 0
Total Income 1729 1662 1690 1641 1814 2014 1947 2003
Accretion to Stocks in trade amp work in progress (29) (10) 4 46 (65) (54) (25) 9
Cost of Raw Materials consumed 840 898 835 581 911 908 817 808
Purchase of traded goods 66 28 42 223 46 73 182 168
Staff Cost 239 234 250 264 247 275 294 281
Other Operational expenses 407 400 375 439 430 513 407 455
Operating Profit (Core EBITDA) 206 112 183 89 246 299 272 282
Depreciation 32 34 35 33 32 34 46 43
EBIT 174 78 149 56 214 265 226 239
Interest 21 22 21 15 17 18 19 16
Other RevenueIncome 16 5 7 8 5 9 6 12
Profit Before Tax 169 61 134 49 202 255 213 236
Tax 50 31 48 31 54 57 68 70
Profit After Tax 119 31 86 18 148 199 145 166
Minority Interest (7) (9) (8) (4) (1) 8 3 8
Profit after minority interest 126 40 95 22 149 191 143 158
Growth (YoY )
Revenue 371 36 61 36 50 216 153 221
EBITDA 129 (457) (125) (477) 195 1672 485 2164
PAT 174 (666) (111) (669) 189 3765 503 6292
Margin ()
EBITDA 119 67 109 54 136 148 140 141
EBIT 100 47 88 34 118 131 116 120
PAT 73 24 56 13 82 95 73 79
Segment Revenue (Net Sales Income from ops)
India 764 749 810 829 872 926 936 941
Asia (excl India) 142 175 160 167 188 213 163 156
Europe 593 545 542 543 612 744 689 764
Americas 405 370 363 344 384 399 427 386
Segment EBIT
India 83 32 84 63 92 103 129 139
Asia (excl India) 8 11 6 9 12 10 5 7
Europe 55 44 51 (4 45 76 74 81Americas 22 13 23 39 38 45 55 36
Source Company Centrum Research
Comments on recent quarterly results
Q4FY14 witnessed a healthy growth with revenue up 221 YoY EBITDA and PAT jumpedsubstantially YoY Margins showed good improvement EBITDA margin expanded by 860 bps YoYOther operating expenses as a proportion of sales reduced to 227 from 267 in Q4FY13 this had apositive impact on margins
Revenue grew 28 QoQ EBITDA amp PAT margins showed signs of consistency further improving fromQ3FY14 European business looks to be on a growth trajectory as revenues have jumped 140 YoYand 11 QoQ Revenue from American segment saw growth of 124 YoY but declined QoQ
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19IFGL Refractories Ltd
Annexure ndash Refractory Industry
About refractories ndash consumables for manufacturing processes with high temperatures
Refractories are inorganic non-metallic and heterogeneous materials having very high melting pointswhich make them suitable to be used as heat-resisting barriers consumed within various productionprocesses providing heat chemical and mechanical resistance Refractories are mainly of two types ndash
shaped and unshaped (monolithics) and are used mainly by the steel industry as a consumableproduct in the internal linings of furnaces kilns reactors and other vessels for holding andtransporting metal and slag
Shaped refractories are those which have fixed shapes with most common form being rectangularbrick Brick shapes may be divided into two standard shapes and special shapes Standard shapeshave dimensions that are conformed to by most refractory manufacturers and are generally applicableto kilns and furnaces of the same type Special shapes are specifically made for particular kilns andfurnaces Shaped refractories are almost always machine-pressed and possess high uniformity inproperties are expected
Unshaped refractories are without definite form and are only given shape upon application It forms joint less lining and are better known as monolithic refractories They are manufactured in powderform as granular material and known as plastic refractories ramming mixes castables gunning mixesfettling mixes and mortars
The raw materials used to manufacture refractories are broadly classified into clay and non-clay Clayrefractories consist of naturally occurring alumina silicate like fireclay flint clay flint brick and highalumina and are used to produce bricks and insulating refractories Non-clay refractories are madefrom non-clay materials and are further classified into basic (made in the form of bricks from magnesiadolomite chrome etc) extra high alumina mullite (made from kyanite bauxite alumina) siliconcarbide and zircon
Exhibit 48
Refractory share by form Exhibit 49
Refractory share by raw material
Source Industry data Centrum Research Source Industry data Centrum Research
Unshaped45Shaped 55
Clay 65
Non Clay35
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20IFGL Refractories Ltd
Applications of refractories ndash largely used in steel industry for furnace linings
Steel industry accounts for ~60 of refractory consumption globally and ~75 in the domesticmarket In non-metallurgical industries (cement glass lime) the refractories are mostly installed onfired heaters hydrogen reformers cracking furnaces incinerators utility boilers air heaters ductingstacks etc The different areas of the steel manufacturing processes are exposed to differenttemperatures slag and sulphur gases Refractory selection for the lining of a furnace is invariably builtupon a combination of material qualities and brick size to maximize performance Steel industry usesrefractory for diverse applications in blast furnaces coke ovens torpedo ladles and secondary refiningladles
In cement industry refractories are used in the kiln the preheating system and the cooler whichoperate in a very high temperature to protect against heat abrasion and chemical attack Commonrefractory materials used are Dolomite Magnesia-Chrome Spinel Magnesia-Alumina Spinel Fireclayand High Alumina The cement kiln clinker area is usually provided with Dolomite refractories
Non(-errous industries like copper and aluminium require high performance refractories in severalequipments like anode baking furnaces induction furnaces reduction pots slag cleaning surfaces etcGlass industry also requires refractories in refiner regenerator dog-house and ports of furnace
Exhibit 50
Refractories consumption in steel making process
Source Magnesita ppt
Exhibit 51
Refractories consumption in steel making process
Source Vesuvius PLC ppt
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21IFGL Refractories Ltd
Steel industry accounts for ~60 of refractory consumption globally and ~75 in the domesticmarket In non-metallurgical industries (cement glass lime) refractories are mostly installed on firedheaters hydrogen reformers cracking furnaces incinerators utility boilers air heaters ducting stacksetc
Exhibit 52
Sector wise refractories demand - Global Exhibit 53
Sector wise refractories demand - India
Source Industry data Centrum Research Source Industry data Centrum Research
Refractory application consumption and replacement dynamics are shown in the table belowSteelmaking requires maximum amount of refractories (10-15kgstonne) with replacement required ina time period of 20 minutes to 2months Cement industry is the next biggest user with annualreplacement requirement while non-ferrous and glass industries have longer replacement cycles
Exhibit 54
Refractory consumption dynamics across user industries
Key Industry Application Replacement Per tonne consumption Refractory requirements
Steel
BF(BOF EAFCasting LadlesInduction FurnacesPellet rotary Kilns
20 minutes to 2months
Global avg - 10-15KgsIndia avg - 15 Kgs
Consumable product ( Systems and solutions for completerefractory management
Cement Kilns annually 1 KgsInvestment goods ( Longer replacement cycles Customizedsolutions based on the specific requirements of various industrialproduction processes complete lining concepts
Glass Glass Furnace upto 10 years 4 Kgs
Non(Ferrous Converters 1(10 yearsAluminium - 6 KgsCopper - 3 Kgs
Source RHI ppt Centrum Research
Global refractory market size at ~US$25bn expected to grow at ~35 CAGR
According to various industry studies global refractoriesrsquo market size is ~US$25bn with production of415MT in CY12 According to industry estimates the global refractories industry is expected to witnessCAGR of 35 during CY13-16E and grow to 46MT with a market value of US$29bn China accountedfor ~70 of the market by volume and ~60 by value in CY12 whereas India accounts for ~3 of theglobal refractories market by volume
Exhibit 55
Global refractory market size at ~US$25bn Exhibit 56
China accounts for ~70 of the market
CY12 Production (MT) Value (US$ bn)
World 415 25
China 295 143
EU 41 39
North America 14 14
India 13 09
Source Industry Centrum Research Source Industry Centrum Research
6015
15
10 Steel
Non-Metallic (Cement GlassLime)
Non-Ferrous (AluminiumCopper Zinc Silver)
Others (paper ceramicspetrochemicals)
75
12
6 3
4
Steel
Cement
Non-Ferrous
Glass
Others
415
463
25
29
0
10
20
30
40
50
CY12 CY16
Volume (MT) Mkt Value ($ bn)
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22IFGL Refractories Ltd
Domestic refractory demand-supply indicates low industry growth amp import pressure
Demand supply analysis of domestic refractory industry shows that it has been witnessing mutedconsumption growth (due to a fall in per tonne consumption for steel making due to technologicaladvances) and faces strong import pressure with one fourth of the market being serviced by netimports (mainly from cheap supplies from China which accounts for two thirds of refractory imports inIndia) Capacity utilization for the industry remains at ~60 on installed capacity of ~22MT and marketsize is ~US$1bn Domestic refractory consumption in steel has grown at a CAGR of ~2 during FY08-14 We expect industry growth to pick up due to scope for higher steel production (backed by higherinfra spend and expansion in per capita steel consumption) The industry has seen consolidation andacquisitions by global majors in the last five years and organised sector (split between (6 players)accounts for ~65 of the market
Exhibit 57 Refractory demand from domestic steel industry
(In tonne) FY08 FY09 FY10 FY11 FY12 FY13 FY14E FY15E FY16E FY17E
Steel Production (MT) 561 572 606 686 757 817 850 893 946 1012
Growth 20 59 132 103 79 40 50 60 70
Avg Refractory consumption(kgt of crude steel)
188 173 168 16 15 145 140 140 140 140
Refractory consumption (steel) 1054680 989560 1018080 1097600 1135500 1184650 1190000 1249500 1324470 1417183
Growth (62) 29 78 35 43 05 50 60 70
Source Ministry of Steel (MoS) Centrum Research Estimates
Exhibit 58
Organised sector accounts for ~65 of domestic refractory industry
Company RevenueMarket
Share ()
Supply toIntegratedsteel mills
Comments
Vesuvius India Ltd 6017 100 95+Leading supplier with wide product basket strongcustomer relationships with large steel mills
Orient Refractories (RHI) 4035 67 10-15 Has developed a niche with mini steel mills
IFGL Refractories (incl IEL) 3674 61 85+Mainly into flow control shaped refractories goodrelationship with large mills
Tata Refractories 9800 163 Not available Largely into bricks supplies (commodity refractories)
Calderys 6250 104 Not available
Supplies largely to non-ferrous producers strong in
bricks and monolithics
OCL 4056 68 Not available
Total Organized Sector 39332 656
Source Company Centrum Research Estimates
Exhibit 59
Net imports accounts for one fourth of market Exhibit 60
China accounts for two thirds of imports
Source MoS Industry Centrum Research Source MoS Industry Centrum Research
(800000)
(600000)
(400000)
(200000)
0
200000
400000
FY07 FY08 FY09 FY10 FY11 FY12
( T o n n e )
Imports Exports Net Imports
167259
380
167228
647594
551
696 685
10
20
30
40
50
60
70
80
FY07 FY08 FY09 FY10 FY11
Net Imports - share China share in imports
Domestic refractory production growth hasbeen largely flat andcapacity utilization is~60
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23IFGL Refractories Ltd
Financials (Cons)
Exhibit 61
Income Statement
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
Revenues from Operations 6712 7776 8484 9554 10697
Raw Materials consumed 3201 3444 3725 4208 4716
of net sales 477 443 439 440 441
Employee expenses 987 1097 1185 1279 1382
of net sales 147 141 140 134 129
Other operational expenses 1621 1805 2013 2243 2486
of net sales 241 232 237 235 232
Total expenses 6130 6680 7273 8140 9068
of net sales 913 859 857 852 848
EBITDA 582 1096 1210 1414 1630
EBITDA Margin () 87 141 143 148 152
Depreciation amp Amortisation 134 155 174 189 204
EBIT 448 942 1036 1225 1425
Interest expenses 80 70 51 29 6
Other Income 45 34 40 44 484
EBT 413 906 1025 1240 1467
Provision for tax 159 248 307 372 440
Effective tax rate () 386 274 300 300 300Net Profit 254 658 717 868 1027
Less Minority interest (28) 18 32 70 99
Net Profit after MI 282 640 686 798 928
Source Company data Centrum Research Estimates
Exhibit 62 Key Ratios
YE Mar FY13 FY14 FY15E FY16E FY17E
Growth Ratio ()
Revenue 112 159 91 126 120
EBITDA (213) 884 104 168 153
PAT (292) 1269 71 163 163
Margin Ratios ()
PBIT Margin 67 121 122 128 133
PBT Margin 62 116 121 130 137
PAT Margin 42 82 81 84 87
Return Ratios ()
ROE 115 212 190 185 181
ROCE 84 177 175 189 198
ROIC 87 179 178 200 224
Turnover Ratios (days)
Asset turnover ratio (x) 18 19 19 19 19
Debtors 78 78 80 80 80
Inventory 46 49 50 50 50
Creditors 43 45 45 45 45
Net Working capital 74 76 80 80 80
Gearing Ratio (x)
Debt-equity 05 03 02 01 00
Net debt-equity 04 03 02 00 (01)
Current ratio 25 23 24 25 27
Dividend
Dividend per share 15 18 20 23 23
Dividend Payout () 251 124 130 125 107
Dividend Yield () 11 13 15 17 17
Per share Ratios (Rs)
Basic EPS 82 185 198 231 268
Fully diluted EPS 82 185 198 231 268
Book value 709 871 1044 1245 1485
Cash earnings per share 120 230 249 285 327
Valuation (x)
PE 174 77 72 62 53
PBV 20 16 14 11 10
EVEBITDA 102 53 46 36 27
EVSales 07 06 06 05 04
M-CapSales 07 06 06 05 05
Source Company data Centrum Research Estimates
Exhibit 63
Balance Sheet
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
Equity share capital 491 491 491 491 491
Reserves amp surplus 1964 2525 3121 3819 4648
Shareholders fund 2455 3016 3612 4310 5139
Total debt 1142 982 682 382 82
Deferred tax liabilities 65 74 74 74 74
Total Liabilities 3741 4167 4495 4963 5591
Gross block 2474 2656 2906 3156 3406
Less acc depreciation 1276 1430 1605 1794 1998
Net block 1198 1225 1301 1362 1407
Capital work in progress 20 20 20 20 20
Goodwill 1105 1342 1342 1342 1342
Investments 5 5 5 5 5
Inventories 848 1034 1162 1309 1465
Trade Receivables 1427 1658 1859 2094 2345
Cash amp cash equivalents 113 33 69 259 609
Loans amp advances 51 107 116 131 147
Trade payables 799 962 1046 1178 1319
Other current liabilities 166 210 232 262 293Provisions 94 124 139 157 176
Total Assets 3741 4167 4495 4963 5591
Source Company data Centrum Research Estimates
Exhibit 64 Cash Flow
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
PBT 413 906 1025 1240 1467
Interest 72 70 51 29 6
Depreciation 134 155 174 189 204
Increase in debtors (330) (231) (201) (235) (251)
Increase in inventories 7 (186) (128) (147) (157)
Increase in trade payables 46 163 84 132 141
Tax 197 248 307 372 440
Cash flow from operations 183 629 695 799 907
Change in fixed assets (194) (418) (250) (250) (250)
Cash flow from investments (172) (418) (250) (250) (250)
Change in debt 19 (160 (300) (300) (300)
Dividends paid (71) (79) (89) (100) (100)
Interest paid (80) (70) (51) (29) (6)
Cash flow from financing (94) (291) (409) (358) (306)
Net cash flow (81) (81) 36 191 350
Opening cash balance 195 113 33 69 259
Closing cash balance 113 33 69 259 609
Source Company data Centrum Research Estimates
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24IFGL Refractories Ltd
Financials (Cons) - Historical
Exhibit 65
Income Statement
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
Revenues from Operations 3780 3982 4152 4689 6039
Raw Materials consumed 1743 1907 2058 2389 3024
of net sales 461 479 496 509 501
Employee expenses 487 589 539 661 843
of net sales 129 148 130 141 140
Other operational expenses 918 1036 951 1148 1418
of net sales 243 260 229 245 235
Total expenses 3244 3708 3575 4279 5299
of net sales 858 931 861 912 878
EBITDA 536 274 578 411 739
EBITDA Margin () 142 69 139 88 122
Depreciation amp Amortisation 63 74 70 71 123
EBIT 473 200 508 339 617
Interest expenses 82 95 45 56 68
Other Income 18 24 34 43 33
EBT 409 128 497 327 582
Provision for tax 123 67 155 84 183
Effective tax rate () 301 523 311 258 315Net Profit 286 61 343 243 398
Less Minority interest 1 0 0 0 0
Net Profit after MI 285 61 343 243 399
Source Company data Centrum Research Estimates
Exhibit 66 Key Ratios
YE Mar FY08 FY09 FY10 FY11 FY12
Growth Ratio ()
Revenue 171 53 43 129 288
EBITDA 98 (489) 1111 (289) 800
PAT 85 (785) 4586 (292) 642
Margin Ratios ()
PBIT Margin 125 50 122 72 102
PBT Margin 108 32 120 70 96
PAT Margin 75 15 83 52 66
Return Ratios ()
ROE 294 54 250 138 180
ROCE 182 49 169 93 128
ROIC 195 53 183 98 141
Turnover Ratios (days)
Asset turnover ratio (x) 20 18 19 15 17
Debtors 97 55 79 85 69
Inventory 46 47 52 55 52
Creditors 49 23 41 50 44
Net Working capital 105 81 89 93 67
Gearing Ratio (x)
Debt-equity 09 09 06 07 05
Net debt-equity 08 08 05 07 04
Current ratio 29 36 26 25 24
Dividend
Dividend per share 20 00 10 05 15
Dividend Payout () 284 00 118 103 63
Dividend Yield () 15 00 07 04 11
Per share Ratios (Rs)
Basic EPS 82 18 99 70 115
Fully diluted EPS 82 18 99 70 115
Book value 280 328 396 508 641
Cash earnings per share 101 39 119 91 151
Valuation (x)
PE 164 762 136 193 117
PBV 48 41 34 27 21
EVEBITDA 102 203 93 142 76
EVSales 12 12 11 10 08
M-CapSales 12 12 11 10 08
Source Company data Centrum Research Estimates
Exhibit 67
Balance Sheet
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
Equity share capital 346 346 346 491 491
Reserves amp surplus 623 789 1026 1266 1728
Shareholders fund 969 1135 1372 1757 2219
Total debt 869 1003 793 1253 1128
Deferred tax liabilities 41 38 38 40 48
Total Liabilities 1879 2185 2206 3054 3465
Gross block 1456 1948 1966 2738 2238
Less acc depreciation 687 827 864 960 1122
Net block 769 1121 1102 1778 1117
Capital work in progress 46 53 28 21 45
Goodwill 347 594 559 1032 1094
Investments 0 0 4 14 5
Inventories 474 513 592 702 855
Trade Receivables 1001 596 895 1096 1134
Cash amp cash equivalents 77 129 120 100 195
Loans amp advances 152 121 133 152 38
Trade payables 507 256 471 637 729
Other current liabilities 32 90 137 112 194Provisions 102 2 60 60 151
Total Assets 1879 2185 2206 3054 3465
Source Company data Centrum Research Estimates
Exhibit 68 Cash Flow
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
PBT 409 128 497 327 582
Interest 81 96 45 56 59
Depreciation 63 74 75 87 129
Increase in debtors (196) 559 (330) (184) 25
Increase in inventories (72) 35 (79) (77) (135)
Increase in trade payables 82 (304 266 115 67
Tax 119 90 138 70 135
Cash flow from operations 285 814 359 237 520
Change in fixed assets (94) (99) (120) (157) (49)
Cash flow from investments (62 (536 (119 (677 (98
Change in debt (88) 15 (276) 245 (242)
Dividends paid (76) (80) (6) (46) (25)
Interest paid (87) (98) (47) (60) (68)
Cash flow from financing (261) (245) (241) 408 (339)
Net cash flow (43) 24 (8) (29) 94
Opening cash balance 120 77 129 120 100
Closing cash balance 77 129 120 100 195
Source Company data Centrum Research Estimates
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25IFGL Refractories Ltd
Appendix A
Disclaimer
Centrum Broking Limited (ldquoCentrumrdquo) is a full(service Stock Broking Company and a member of The Stock Exchange Mumbai (BSE) and National StockExchange of India Ltd (NSE) Our holding company Centrum Capital Ltd is an investment banker and an underwriter of securities As a group Centrumhas Investment Banking Advisory and other business relationships with a significant percentage of the companies covered by our Research Group Ourresearch professionals provide important inputs into the Groups Investment Banking and other business selection processes
Recipients of this report should assume that our Group is seeking or may seek or will seek Investment Banking advisory project finance or otherbusinesses and may receive commission brokerage fees or other compensation from the company or companies that are the subject of thismaterialreport Our Company and Group companies and their officers directors and employees including the analysts and others involved in thepreparation or issuance of this material and their dependants may on the date of this report or from time to time have long or short positions in actas principal in and buy or sell the securities or derivatives thereof of companies mentioned herein Centrum or its affiliates do not own 1 or more in theequity of this company Our sales people dealers traders and other professionals may provide oral or written market commentary or trading strategies toour clients that reflect opinions that are contrary to the opinions expressed herein and our proprietary trading and investing businesses may makeinvestment decisions that are inconsistent with the recommendations expressed herein We may have earlier issued or may issue in future reports on thecompanies covered herein with recommendations information inconsistent or different those made in this report In reviewing this document youshould be aware that any or all of the foregoing among other things may give rise to or potential conflicts of interest We and our Group may rely oninformation barriers such as Chinese Walls to control the flow of information contained in one or more areas within us or other areas units groups oraffiliates of Centrum Centrum or its affiliates do not make a market in the security of the company for which this report or any report was writtenFurther Centrum or its affiliates did not make a market in the subject companyrsquos securities at the time that the research report was published
This report is for information purposes only and this documentmaterial should not be construed as an offer to sell or the solicitation of an offer to buypurchase or subscribe to any securities and neither this document nor anything contained herein shall form the basis of or be relied upon in connection
with any contract or commitment whatsoever This document does not solicit any action based on the material contained herein It is for the generalinformation of the clients of Centrum Though disseminated to clients simultaneously not all clients may receive this report at the same time Centrumwill not treat recipients as clients by virtue of their receiving this report It does not constitute a personal recommendation or take into account theparticular investment objectives financial situations or needs of individual clients Similarly this document does not have regard to the specificinvestment objectives financial situationcircumstances and the particular needs of any specific person who may receive this document The securitiesdiscussed in this report may not be suitable for all investors The securities described herein may not be eligible for sale in all jurisdictions or to allcategories of investors The countries in which the companies mentioned in this report are organized may have restrictions on investments voting rightsor dealings in securities by nationals of other countries The appropriateness of a particular investment or strategy will depend on an investorsindividual circumstances and objectives Persons who may receive this document should consider and independently evaluate whether it is suitable forhis hertheir particular circumstances and if necessary seek professionalfinancial advice Any such person shall be responsible for conductinghishertheir own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risks involvedin the securities forming the subject matter of this document
The projections and forecasts described in this report were based upon a number of estimates and assumptions and are inherently subject to significantuncertainties and contingencies Projections and forecasts are necessarily speculative in nature and it can be expected that one or more of the estimateson which the projections and forecasts were based will not materialize or will vary significantly from actual results and such variances will likely increase
over time All projections and forecasts described in this report have been prepared solely by the authors of this report independently of the Company These projections and forecasts were not prepared with a view toward compliance with published guidelines or generally accented accountingprinciples No independent accountants have expressed an opinion or any other form of assurance on these projections or forecasts You should notregard the inclusion of the projections and forecasts described herein as a representation or warranty by or on behalf of the Company Centrum theauthors of this report or any other person that these projections or forecasts or their underlying assumptions will be achieved For these reasons youshould only consider the projections and forecasts described in this report after carefully evaluating all of the information in this report including theassumptions underlying such projections and forecasts
The price and value of the investments referred to in this documentmaterial and the income from them may go down as well as up and investors mayrealize losses on any investments Past performance is not a guide for future performance Future returns are not guaranteed and a loss of original capitalmay occur Actual results may differ materially from those set forth in projections Forward (looking statements are not predictions and may be subject tochange without notice Centrum does not provide tax advice to its clients and all investors are strongly advised to consult regarding any potentialinvestment Centrum and its affiliates accept no liabilities for any loss or damage of any kind arising out of the use of this report Foreign currenciesdenominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derived fromthe investment In addition investors in securities such as ADRs the value of which are influenced by foreign currencies effectively assume currency riskCertain transactions including those involving futures options and other derivatives as well as non(investment(grade securities give rise to substantial
risk and are not suitable for all investors Please ensure that you have read and understood the current risk disclosure documents before entering into anyderivative transactions
This reportdocument has been prepared by Centrum based upon information available to the public and sources believed to be reliable Norepresentation or warranty express or implied is made that it is accurate or complete Centrum has reviewed the report and in so far as it includescurrent or historical information it is believed to be reliable although its accuracy and completeness cannot be guaranteed The opinions expressed inthis documentmaterial are subject to change without notice and have no obligation to tell you when opinions or information in this report change
This report or recommendations or information contained herein dodoes not constitute or purport to constitute investment advice in publicly accessiblemedia and should not be reproduced transmitted or published by the recipient The report is for the use and consumption of the recipient only Thispublication may not be distributed to the public used by the public media without the express written consent of Centrum This report or any portionhereof may not be printed sold or distributed without the written consent of Centrum
The distribution of this document in other jurisdictions may be restricted by law and persons into whose possession this document comes should informthemselves about and observe any such restrictions Neither Centrum nor its directors employees agents or representatives shall be liable for anydamages whether direct or indirect incidental special or consequential including lost revenue or lost profits that may arise from or in connection withthe use of the information
This document does not constitute an offer or invitation to subscribe for or purchase or deal in any securities and neither this document nor anythingcontained herein shall form the basis of any contract or commitment whatsoever This document is strictly confidential and is being furnished to yousolely for your information may not be distributed to the press or other media and may not be reproduced or redistributed to any other person Thedistribution of this report in other jurisdictions may be restricted by law and persons into whose possession this report comes should inform themselvesabout and observe any such restrictions By accepting this report you agree to be bound by the fore going limitations No representation is made thatthis report is accurate or complete
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The opinions and projections expressed herein are entirely those of the author and are given as part of the normal research activity of Centrum Brokingand are given as of this date and are subject to change without notice Any opinion estimate or projection herein constitutes a view as of the date of thisreport and there can be no assurance that future results or events will be consistent with any such opinions estimate or projection
This document has not been prepared by or in conjunction with or on behalf of or at the instigation of or by arrangement with the company or any of itsdirectors or any other person Information in this document must not be relied upon as having been authorized or approved by the company or itsdirectors or any other person Any opinions and projections contained herein are entirely those of the authors None of the company or its directors orany other person accepts any liability whatsoever for any loss arising from any use of this document or its contents or otherwise arising in connectiontherewith
Centrum and its affiliates have not managed or co(managed a public offering for the subject company in the preceding twelve months Centrum andaffiliates have not received compensation from the companies mentioned in the report during the period preceding twelve months from the date of thisreport for service in respect of public offerings corporate finance debt restructuring investment banking or other advisory services in amergeracquisition or some other sort of specific transaction
As per the declarations given by them Mr Abhisar Jain research analyst and andor any of his family members do not serve as an officer director or anyway connected to the companycompanies mentioned in this report Further as declared by him he has not received any compensation from the abovecompanies in the preceding twelve months He does not hold any shares by him or through his relatives or in case if holds the shares then will not to doany transactions in the said scrip for 30 days from the date of release such report Our entire research professionals are our employees and are paid asalary They do not have any other material conflict of interest of the research analyst or member of which the research analyst knows of has reason toknow at the time of publication of the research report or at the time of the public appearance
While we would endeavour to update the information herein on a reasonable basis Centrum its associated companies their directors and employees areunder no obligation to update or keep the information current Also there may be regulatory compliance or other reasons that may prevent Centrumfrom doing so
Non(rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable
regulations andor Centrum policies in circumstances where Centrum is acting in an advisory capacity to this company or any certain othercircumstances
This report is not directed to or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality statecountry or other jurisdiction where such distribution publication availability or use would be contrary to law or regulation or which would subjectCentrum Broking Limited or its group companies to any registration or licensing requirement within such jurisdiction Specifically this document doesnot constitute an offer to or solicitation to any US person for the purchase or sale of any financial instrument or as an official confirmation of anytransaction to any US person unless otherwise stated this message should not be construed as official confirmation of any transaction No part of thisdocument may be distributed in Canada or used by private customers in United Kingdom
The information contained herein is not intended for publication or distribution or circulation in any manner whatsoever and any unauthorized readingdissemination distribution or copying of this communication is prohibited unless otherwise expressly authorized Please ensure that you have read ldquoRiskDisclosure Document for Capital Market and Derivatives Segmentsrdquo as prescribed by Securities and Exchange Board of India before investing in IndianSecurities Market
Rating Criteria
Rating Market cap lt Rs20bn Market cap gt Rs20bn but lt 100bn Market cap gt Rs100bn Buy Upside gt 25 Upside gt 20 Upside gt 15
Hold Upside between (25 to +25 Upside between (20 to +20 Upside between (15 to +15
Sell Downside gt 25 Downside gt 20 Downside gt 15
Member (NSE BSE MCX(SX) Depository Participant (CDSL) and SEBI registered Portfolio Manager
Registration Nos
CAPITAL MARKET SEBI REGN NO BSE INB011454239 NSE INB231454233
DERIVATIVES SEBI REGN NO NSE INF231454233 (TRADING amp SELF CLEARING MEMBER)
CDSL DP ID 12200 SEBI REGISTRATION NO IN(DP(CDSL(661(2012
PMS REGISTRATION NO INP000004383
MCX ndash SX (Currency Derivative segment) REGN NO INE261454230
Website wwwcentrumcoin
Investor Grievance Email ID investorgrievancescentrumcoin
Compliance Officer Details
Tel (022) 4215 9413 Email ID compliancecentrumcoin
Centrum Broking Limited
Registered Office Address
Bombay Mutual Building
2nd Floor
Dr D N Road
Fort Mumbai ( 400 001
Correspondence Address
Centrum House
6th Floor CST Road Near Vidya Nagari Marg Kalina
Santacruz (E) Mumbai 400 098
Tel (022) 4215 9000
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11IFGL Refractories Ltd
ROE shows improvement beats most peers at a global level
IFGL has shown sharp improvement in its ROE in FY14 as overseas subsidiariesrsquo profitability hasimproved and domestic profitability is on an upswing post start of IEL We expect ROE of IFGL to be thebest in the industry at a global level in the next few years
Exhibit 30
IFGL ROE well above that of global peers
Source Company Bloomberg Centrum Research Estimates CY07 = FY08
(10)
(5)
0
5
10
15
20
25
3035
CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14E CY15E
( )
Vesuvius India IFGL Refractories (FY) Vesuvius PLC
Puyang Refractories Cie de St-Gobain Magnesita Refractarios
Chosun Refractories Krosaki Harima (FY) Shinagawa (FY)
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12IFGL Refractories Ltd
Financials
Revenue growth to be led by IEL and overseas operations
We expect consolidated net sales CAGR of 112 for IFGL during FY14-17E This is expected to be ledby ~33 CAGR from IEL and 12 CAGR from overseas subsidiaries while standalone operations CAGRis expected to slow down to 67
Exhibit 31
Net sales CAGR of 112 during FY14-17E
Source Company Centrum Research Estimates
Margins and return ratios to remain healthy FY14-17E EBITDA CAGR of 141
Backed by better margins from IEL and recovery in demand we expect EBITDA CAGR of 141 duringFY14-17E Margins are expected to improve gradually as revenues from high margin subsidiary IELpicks up Expansion at EI Ceramics is also expected to help in EBITDA growth and margins Returnratios are expected to remain healthy on account of operating efficiency and high asset turnover ratiosfrom new expansions
Exhibit 32
EBITDA margin to remain stable Exhibit 33
Healthy return ratios
Source Company Centrum Research Estimates Source Company Centrum Research Estimates
Exhibit 34
Du Pont analysis
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
PATSales (x) 005 007 004 008 008 008 009
SalesAssets (x) 154 174 179 187 189 192 191
AssetsEquity (x) 174 156 152 138 124 115 109
ROE - 138 180 115 212 190 185 181
Source Company Centrum Research Estimates
4689
6039 6712
77768484
9554 10697
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( R s m n )
Standalone (IFGL) IFGL Exports (IEL) Overseas Subs Total
411 739 582 1096 1210 1414 1630
88
122
87
141 143 148
152
60
80
100
120
140
160
0
200
400
600
800
1000
1200
1400
1600
1800
FY11 FY12 FY13 FY14 FY15E FY16E FY17EEBITDA-Cons (Rs mn) OPM - RHS
50
100
150
200
250
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( )
ROE ROCE (post tax) ROIC (post tax)
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13IFGL Refractories Ltd
Key Assumptions and Sensitivity
Exhibit 35 Key Assumptions
Revenue (Rs mn) FY12 FY13 FY14 FY15E FY16E FY17E
Indian Operations
Domestic sales 1305 1495 1391 1744 2014 2304
Exports 1443 1567 1883 1744 1716 1669
Total standalone operations 2748 3061 3274 3487 3730 3973
IFGL Exports Ltd 0 90 399 518 755 953
Total Indian operations 2748 3152 3673 4005 4485 4926
Overseas Operations
Monocon Group 2410 2801 3288 3617 3979 4376
EI Ceramics 716 863 1012 1113 1447 1881
Hoffman Group 758 692 827 868 911 957
Less Intersegment revenues 596 790 1023 1120 1267 1443
Total Overseas operations 3287 3566 4103 4478 5069 5771
Total Consolidated operations 6035 6717 7776 8484 9554 10697
Source Company Centrum Research Estimates
Exhibit 36
EPS sensitivity to shaped refractory segment
EPS - FY16E (Rs) -Cons
Realizations
-10 -5 Base 5 10
V o l u m e s
-10 177 192 206 221 236
-5 187 203 218 234 250
Base 197 214 231 247 264
5 208 225 243 260 277
10 218 236 255 273 291
Source Company Centrum Research Estimates
Exhibit 37
EPS sensitivity to unshaped refractory segment
EPS - FY16E (Rs) - ConsRealizations
-10 -5 Base 5 10
V o l u m e s
-10 230 233 235 237 239
-5 228 230 233 235 237
Base 226 228 231 233 235
5 223 226 228 231 234
10 221 223 226 229 232
Source Company Centrum Research Estimates
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14IFGL Refractories Ltd
Valuation ndash poised for rerating
IFGLrsquos mean EVEBITDA stands at 47x with standard deviation of 26x and we note that the stock pricehas been volatile in last 6-7 years due to sharp fluctuations in earnings which explains the highstandard deviation However we believe that earnings would be more linear going forward asoverseas operations have been stabilised and growth would be driven by expansions at higher marginsubsidiaries of IEL and EI Ceramics At the CMP of Rs142 the stock trades at attractive valuations of 62xFY16E PE and 36x FY16E EVEBITDA and we believe that sharp improvement in free cash flow canlead to rerating in the stock We assign an EVEBITDA of 55x on Marrsquo16E earnings to arrive at a fairvalue of Rs220 and initiate with a Buy The multiple assigned by us remains below mean+05sd andthus provides comfort on historical valuations even though we expect much better earnings trajectoryfor the company going forward
Exhibit 38
EVEBITDA Valuation
(Rs mn) FY16E
EBITDA 1414
Ascribed EVEBITDA (x) 55
EV 7776
Add Net Cash (123)
Fair value mkt cap 7653
No of shares (mn) 346
Fair Valueshare (Rs) 220
Source Company Centrum Research Estimates
Exhibit 39
1-year forward EVEBITDA chart Exhibit 40
1-year forward PE chart
Source Bloomberg Company Centrum Research Estimates Source Bloomberg Company Centrum Research Estimates
Steep valuation discount exists for IFGL compared to global peersComparison of IFGLrsquos valuations with global peers shows that the company is trading at a steepdiscount despite strong fundamentals which we feel is unwarranted We expect re-rating in the stockwith improvement in outlook and stability in earnings
Exhibit 41 Valuationndash Peer comparison
CompanyMkt Cap(US$ mn)
CAGR CY13-CY15E () EBITDA Margin () PE (x) EVEBITDA (x) RoE () Div Yield ()
Rev EBITDA PAT CY13 CY14E CY15E CY13 CY14E CY15E CY13 CY14E CY15E CY13 CY14E CY15E CY13 CY14E CY15E
IFGL Refractories 82 108 136 116 141 143 148 77 72 62 53 46 36 212 190 185 12 14 16
Vesuvius India Ltd 220 110 115 126 184 178 186 203 192 161 110 100 82 164 152 158 07 08 09
Global Peers
RHI AG 1322 29 (02) 318 137 122 129 153 103 89 59 65 57 131 177 180 31 31 35
Vesuvius PLC 2140 04 53 80 117 123 128 149 141 127 86 82 74 93 1 02 108 31 34 36
Magnesita SA 574 122 129 344 156 149 158 157 180 101 60 63 55 21 17 35 15 11 21
Cie de St(Gobain 32544 20 91 32 3 100 107 114 218 181 133 76 68 60 58 76 94 29 30 33
Source Bloomberg Estimates Centrum Research Estimates CY13=FY14 for IFGL and so on
0
2
4
6
810
12
14
J u n - 0 7
O c t - 0 7
F e b - 0 8
J u n - 0 8
O c t - 0 8
F e b - 0 9
J u n - 0 9
O c t - 0 9
F e b - 1 0
J u n - 1 0
O c t - 1 0
F e b - 1 1
J u n - 1 1
O c t - 1 1
F e b - 1 2
J u n - 1 2
O c t - 1 2
F e b - 1 3
J u n - 1 3
O c t - 1 3
F e b - 1 4
J u n - 1 4
EVEBITDA MeanMean + Std Dev Mean - Std Dev
0
5
10
15
20
25
J u n - 0 7
O c t - 0 7
F e b - 0 8
J u n - 0 8
O c t - 0 8
F e b - 0 9
J u n - 0 9
O c t - 0 9
F e b - 1 0
J u n - 1 0
O c t - 1 0
F e b - 1 1
J u n - 1 1
O c t - 1 1
F e b - 1 2
J u n - 1 2
O c t - 1 2
F e b - 1 3
J u n - 1 3
O c t - 1 3
F e b - 1 4
J u n - 1 4
PE MeanMean + Std Dev Mean - Std Dev
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15IFGL Refractories Ltd
IFGL trading at a higher discount to Vesuvius than historical average
IFGL has historically (based on average during JanrsquoCY09-JunersquoCY14) traded at a discount of ~35 toVesuvius India Ltd (VIL) on EVEBITDA basis However currently IFGL is trading at a discount of ~60 toVIL which is unwarranted as the profitability of IFGL is on an uptrend post stabilisation of overseasoperations and IEL The historical discount has seen an increase in the past 3 years due to volatility inearnings of IFGL but with operations having stabilised we see the discount narrowing We also expectIFGL to be above its peers (incl VIL) in terms of ROE for the next few years and see a high cash flowyield of ~12 in FY16E The multiple assigned by us implies ~35 discount to VILrsquos current valuationswhich is in line with the historical average even though IFGL is expected to generate better returnsand free cash flow going forward
Exhibit 42
EVEBITDA ndash IFGL vs Vesuvius India Exhibit 43
Discount of IFGL EVEBITDA vs Vesuvius
Source Bloomberg Company Centrum Research Source Bloomberg Company Centrum Research
0
2
4
6
8
10
12
F e b - 0
9
J u n - 0
9
O c t - 0 9
F e b - 1
0
J u n - 1
0
O c t - 1 0
F e b - 1
1
J u n - 1
1
O c t - 1 1
F e b - 1
2
J u n - 1
2
O c t - 1 2
F e b - 1
3
J u n - 1
3
O c t - 1 3
F e b - 1
4
J u n - 1
4
( x )
EVEBITDA IFGL EVEBITDA Vesuvius
(90)
(60)
(30)
0
30
60
F e b - 0
9
J u n - 0
9
O c t - 0 9
F e b - 1
0
J u n - 1
0
O c t - 1 0
F e b - 1
1
J u n - 1
1
O c t - 1 1
F e b - 1
2
J u n - 1
2
O c t - 1 2
F e b - 1
3
J u n - 1
3
O c t - 1 3
F e b - 1
4
J u n - 1
4
( )
EVEBITDA discount of IFGL vs Vesuvius
Avg discount of IFGL vs Vesuvius
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16IFGL Refractories Ltd
Key risks to our thesis
Dependent on raw material sourcing through imports The industry is dependent on importsof key raw materials like high grade alumina bauxite magnesia silicon carbide etc China is themajor supplier of imports and has imposed heavy taxes on export of raw materials of refractories This has resulted in sharp increase in imported raw material costs IFGL sources ~52 of its raw
materials through imports and remains exposed to increase in costs which can impact its margins Low pricing power due to excess domestic supply and import pressure The industry suffers
from low capacity utilization of ~60 with excess installed capacities (~22 MTPA) and as a resultpricing power is low for refractory makers who are squeezed between raw material suppliers andsteel makers Cheap refractory imports from China have also kept prices in check IFGL does notenjoy as much pricing power as VIL does as customers prefer VIL for its strong brand name andproven track record of providing quality products and services Further increase in competitiveintensity can lead to lower pricing for IFGL in both domestic and export markets
Sharp slowdown in steel industry leading to lower volumes Like any other refractorycompany IFGLrsquos fortunes depend on the steel industry and any slowdown in global economy mayhamper the steel industryrsquos growth and IFGLrsquos volume growth would be more vulnerable as itdoes not have strong relationships like VIL has Sharp slowdown in the steel industry (vs
expectations of recovery) in coming years could lead to lower capacity utilization and lower thanexpected volumes
Currency Fluctuation We believe that steady weakening of rupee over the past couple of yearshas been favourable to the industry as well as for IFGL due to better import substitution andhigher realizations on exports negated only to a partial extent by higher import costs for rawmaterials IFGL has 80 of its revenues coming from overseas on a consolidated basis On astandalone basis approximately 58 of the revenues (FY14) came from exports Companyrsquosrevenues remain exposed to sharp appreciation of rupee against foreign currencies
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17IFGL Refractories Ltd
Exhibit 44
Shareholding pattern ()
Q4FY14 Q3FY14 Q2FY14 Q1FY14
Promoter 713 713 713 713
FIIs 00 00 00 00
DIIs 11 22 22 22
Others 277 265 265 265
Source BSE
Company Background
IFGL Refractories Ltd is a manufacturer of specialisedrefractories and requisite operating systems for the steelIndustry IFGL offers its customers total solution for refractoryfor flow control in steel teeming and continuous casting ofSteel IFGL has 8 manufacturing plants strategically located
across the globe in India China Europe and Americas Thecompany has a presence in over 50 of the global markets Itacquired the Monocon group UK in 2005 (06 Hofmanngroup Germany in 2008 and EI Ceramics USA in 2010 Theseoverseas acquisitions have brought along access to newproducts amp technologies new markets and new customers The company has also set up a subsidiary IFGL exports atKandla Gujarat which also has technical collaboration withKrosaki Harima Corporation Japan Apart from this IFGL alsoplans to expand its capacities in India and abroad over thecoming years
Exhibit 45 Key management personnel
Name Position Profile
Mr S K Bajoria Chairman
Promoter of S K Bajoria Group based at Kolkata engaged in diversified business activitiesHas been honorary vice consul of Denmark in Kolkata president of the Indian chamber ofcommerce director of West Bengal industrial development corporation Ltd and industrialpromotion amp investment corporation of Orissa Ltd
Mr Pradeep Bajoria Managing Director
Associated with IFGL from the very early days of Indo Flogates even before thecommencement of production in 1984 Has been director amp chief executive of erstwhileIndo Flogates Ltd More than 30 years of experience of refractory industry and has beeninvolved in various capacities in Indian refractories makers association
Mr Gian Carlo Cozzani Directorr Monocon UK
Associated with IFGL since Oct 2009 Former president and CEO of Vesuvius (now Vesuviusplc) Instrumental in steering Vesuvius from US$ 100 million to over US$ 1 billion Based inEurope he is a member of IFGLrsquos Core group and a director of Monocon InternationalRefractories Limited UK
Source Company
Exhibit 46
IFGL refractories holding structure
Source Company
10051
983113983110983111983116 983127983151983154983148983140983159983145983140983141 983112983151983148983140983145983150983143 983116983145983149983145983156983141983140
983113983110983111983116 983109983160983152983151983154983156983155 983116983156983140
983117983151983150983151983139983151983150 983111983154983151983157983152 983109983113 983107983141983154983137983149983145983139983155 983112983151983142983149983137983150983150
983107983141983154983137983149983145983139
983124983141983139983144983150983145983139983137983148 983137983150983140 983110983145983150983137983150983139983145983137983148
983107983151983148983148983137983138983151983154983137983156983145983151983150 983151983142
983115983154983151983155983137983147983145 983112983137983154983145983149983137
983107983151983154983152983151983154983137983156983145983151983150983084 983114983137983152983137983150983084
983080983123983157983138983155983145983140983145983137983154983161 983151983142 983118983145983152983152983151983150
983123983156983141983141983148 983107983151983154983152983151983154983137983156983145983151983150983084
983114983137983152983137983150983081
983125983123983105 983125983115 983087 983125983123983105 983087 983107983144983145983150983137
983115983137983150983140983148983137 983123983109983130983084 983111983157983146983137983154983137983156983084 983113983150983140983145983137
983111983141983154983149983137983150983161
983113983110983111983116 983122983141983142983154983137983139983156983151983154983145983141983155 983116983145983149983145983156983141983140
983112983119 983085 983115983151983148983147983137983156983137983084 983113983150983140983145983137
983127983151983154983147983155 983085 983115983137983148983157983150983143983137983084 983119983154983145983155983155983137983084 983113983150983140983145983137
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18IFGL Refractories Ltd
Exhibit 47 Quarterly financials (cons)
YE Mar (Rs mn) Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14
Net sales 1725 1657 1690 1641 1811 2014 1947 2003
Other Operating Income 5 4 0 0 3 0 0 0
Total Income 1729 1662 1690 1641 1814 2014 1947 2003
Accretion to Stocks in trade amp work in progress (29) (10) 4 46 (65) (54) (25) 9
Cost of Raw Materials consumed 840 898 835 581 911 908 817 808
Purchase of traded goods 66 28 42 223 46 73 182 168
Staff Cost 239 234 250 264 247 275 294 281
Other Operational expenses 407 400 375 439 430 513 407 455
Operating Profit (Core EBITDA) 206 112 183 89 246 299 272 282
Depreciation 32 34 35 33 32 34 46 43
EBIT 174 78 149 56 214 265 226 239
Interest 21 22 21 15 17 18 19 16
Other RevenueIncome 16 5 7 8 5 9 6 12
Profit Before Tax 169 61 134 49 202 255 213 236
Tax 50 31 48 31 54 57 68 70
Profit After Tax 119 31 86 18 148 199 145 166
Minority Interest (7) (9) (8) (4) (1) 8 3 8
Profit after minority interest 126 40 95 22 149 191 143 158
Growth (YoY )
Revenue 371 36 61 36 50 216 153 221
EBITDA 129 (457) (125) (477) 195 1672 485 2164
PAT 174 (666) (111) (669) 189 3765 503 6292
Margin ()
EBITDA 119 67 109 54 136 148 140 141
EBIT 100 47 88 34 118 131 116 120
PAT 73 24 56 13 82 95 73 79
Segment Revenue (Net Sales Income from ops)
India 764 749 810 829 872 926 936 941
Asia (excl India) 142 175 160 167 188 213 163 156
Europe 593 545 542 543 612 744 689 764
Americas 405 370 363 344 384 399 427 386
Segment EBIT
India 83 32 84 63 92 103 129 139
Asia (excl India) 8 11 6 9 12 10 5 7
Europe 55 44 51 (4 45 76 74 81Americas 22 13 23 39 38 45 55 36
Source Company Centrum Research
Comments on recent quarterly results
Q4FY14 witnessed a healthy growth with revenue up 221 YoY EBITDA and PAT jumpedsubstantially YoY Margins showed good improvement EBITDA margin expanded by 860 bps YoYOther operating expenses as a proportion of sales reduced to 227 from 267 in Q4FY13 this had apositive impact on margins
Revenue grew 28 QoQ EBITDA amp PAT margins showed signs of consistency further improving fromQ3FY14 European business looks to be on a growth trajectory as revenues have jumped 140 YoYand 11 QoQ Revenue from American segment saw growth of 124 YoY but declined QoQ
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19IFGL Refractories Ltd
Annexure ndash Refractory Industry
About refractories ndash consumables for manufacturing processes with high temperatures
Refractories are inorganic non-metallic and heterogeneous materials having very high melting pointswhich make them suitable to be used as heat-resisting barriers consumed within various productionprocesses providing heat chemical and mechanical resistance Refractories are mainly of two types ndash
shaped and unshaped (monolithics) and are used mainly by the steel industry as a consumableproduct in the internal linings of furnaces kilns reactors and other vessels for holding andtransporting metal and slag
Shaped refractories are those which have fixed shapes with most common form being rectangularbrick Brick shapes may be divided into two standard shapes and special shapes Standard shapeshave dimensions that are conformed to by most refractory manufacturers and are generally applicableto kilns and furnaces of the same type Special shapes are specifically made for particular kilns andfurnaces Shaped refractories are almost always machine-pressed and possess high uniformity inproperties are expected
Unshaped refractories are without definite form and are only given shape upon application It forms joint less lining and are better known as monolithic refractories They are manufactured in powderform as granular material and known as plastic refractories ramming mixes castables gunning mixesfettling mixes and mortars
The raw materials used to manufacture refractories are broadly classified into clay and non-clay Clayrefractories consist of naturally occurring alumina silicate like fireclay flint clay flint brick and highalumina and are used to produce bricks and insulating refractories Non-clay refractories are madefrom non-clay materials and are further classified into basic (made in the form of bricks from magnesiadolomite chrome etc) extra high alumina mullite (made from kyanite bauxite alumina) siliconcarbide and zircon
Exhibit 48
Refractory share by form Exhibit 49
Refractory share by raw material
Source Industry data Centrum Research Source Industry data Centrum Research
Unshaped45Shaped 55
Clay 65
Non Clay35
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20IFGL Refractories Ltd
Applications of refractories ndash largely used in steel industry for furnace linings
Steel industry accounts for ~60 of refractory consumption globally and ~75 in the domesticmarket In non-metallurgical industries (cement glass lime) the refractories are mostly installed onfired heaters hydrogen reformers cracking furnaces incinerators utility boilers air heaters ductingstacks etc The different areas of the steel manufacturing processes are exposed to differenttemperatures slag and sulphur gases Refractory selection for the lining of a furnace is invariably builtupon a combination of material qualities and brick size to maximize performance Steel industry usesrefractory for diverse applications in blast furnaces coke ovens torpedo ladles and secondary refiningladles
In cement industry refractories are used in the kiln the preheating system and the cooler whichoperate in a very high temperature to protect against heat abrasion and chemical attack Commonrefractory materials used are Dolomite Magnesia-Chrome Spinel Magnesia-Alumina Spinel Fireclayand High Alumina The cement kiln clinker area is usually provided with Dolomite refractories
Non(-errous industries like copper and aluminium require high performance refractories in severalequipments like anode baking furnaces induction furnaces reduction pots slag cleaning surfaces etcGlass industry also requires refractories in refiner regenerator dog-house and ports of furnace
Exhibit 50
Refractories consumption in steel making process
Source Magnesita ppt
Exhibit 51
Refractories consumption in steel making process
Source Vesuvius PLC ppt
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21IFGL Refractories Ltd
Steel industry accounts for ~60 of refractory consumption globally and ~75 in the domesticmarket In non-metallurgical industries (cement glass lime) refractories are mostly installed on firedheaters hydrogen reformers cracking furnaces incinerators utility boilers air heaters ducting stacksetc
Exhibit 52
Sector wise refractories demand - Global Exhibit 53
Sector wise refractories demand - India
Source Industry data Centrum Research Source Industry data Centrum Research
Refractory application consumption and replacement dynamics are shown in the table belowSteelmaking requires maximum amount of refractories (10-15kgstonne) with replacement required ina time period of 20 minutes to 2months Cement industry is the next biggest user with annualreplacement requirement while non-ferrous and glass industries have longer replacement cycles
Exhibit 54
Refractory consumption dynamics across user industries
Key Industry Application Replacement Per tonne consumption Refractory requirements
Steel
BF(BOF EAFCasting LadlesInduction FurnacesPellet rotary Kilns
20 minutes to 2months
Global avg - 10-15KgsIndia avg - 15 Kgs
Consumable product ( Systems and solutions for completerefractory management
Cement Kilns annually 1 KgsInvestment goods ( Longer replacement cycles Customizedsolutions based on the specific requirements of various industrialproduction processes complete lining concepts
Glass Glass Furnace upto 10 years 4 Kgs
Non(Ferrous Converters 1(10 yearsAluminium - 6 KgsCopper - 3 Kgs
Source RHI ppt Centrum Research
Global refractory market size at ~US$25bn expected to grow at ~35 CAGR
According to various industry studies global refractoriesrsquo market size is ~US$25bn with production of415MT in CY12 According to industry estimates the global refractories industry is expected to witnessCAGR of 35 during CY13-16E and grow to 46MT with a market value of US$29bn China accountedfor ~70 of the market by volume and ~60 by value in CY12 whereas India accounts for ~3 of theglobal refractories market by volume
Exhibit 55
Global refractory market size at ~US$25bn Exhibit 56
China accounts for ~70 of the market
CY12 Production (MT) Value (US$ bn)
World 415 25
China 295 143
EU 41 39
North America 14 14
India 13 09
Source Industry Centrum Research Source Industry Centrum Research
6015
15
10 Steel
Non-Metallic (Cement GlassLime)
Non-Ferrous (AluminiumCopper Zinc Silver)
Others (paper ceramicspetrochemicals)
75
12
6 3
4
Steel
Cement
Non-Ferrous
Glass
Others
415
463
25
29
0
10
20
30
40
50
CY12 CY16
Volume (MT) Mkt Value ($ bn)
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22IFGL Refractories Ltd
Domestic refractory demand-supply indicates low industry growth amp import pressure
Demand supply analysis of domestic refractory industry shows that it has been witnessing mutedconsumption growth (due to a fall in per tonne consumption for steel making due to technologicaladvances) and faces strong import pressure with one fourth of the market being serviced by netimports (mainly from cheap supplies from China which accounts for two thirds of refractory imports inIndia) Capacity utilization for the industry remains at ~60 on installed capacity of ~22MT and marketsize is ~US$1bn Domestic refractory consumption in steel has grown at a CAGR of ~2 during FY08-14 We expect industry growth to pick up due to scope for higher steel production (backed by higherinfra spend and expansion in per capita steel consumption) The industry has seen consolidation andacquisitions by global majors in the last five years and organised sector (split between (6 players)accounts for ~65 of the market
Exhibit 57 Refractory demand from domestic steel industry
(In tonne) FY08 FY09 FY10 FY11 FY12 FY13 FY14E FY15E FY16E FY17E
Steel Production (MT) 561 572 606 686 757 817 850 893 946 1012
Growth 20 59 132 103 79 40 50 60 70
Avg Refractory consumption(kgt of crude steel)
188 173 168 16 15 145 140 140 140 140
Refractory consumption (steel) 1054680 989560 1018080 1097600 1135500 1184650 1190000 1249500 1324470 1417183
Growth (62) 29 78 35 43 05 50 60 70
Source Ministry of Steel (MoS) Centrum Research Estimates
Exhibit 58
Organised sector accounts for ~65 of domestic refractory industry
Company RevenueMarket
Share ()
Supply toIntegratedsteel mills
Comments
Vesuvius India Ltd 6017 100 95+Leading supplier with wide product basket strongcustomer relationships with large steel mills
Orient Refractories (RHI) 4035 67 10-15 Has developed a niche with mini steel mills
IFGL Refractories (incl IEL) 3674 61 85+Mainly into flow control shaped refractories goodrelationship with large mills
Tata Refractories 9800 163 Not available Largely into bricks supplies (commodity refractories)
Calderys 6250 104 Not available
Supplies largely to non-ferrous producers strong in
bricks and monolithics
OCL 4056 68 Not available
Total Organized Sector 39332 656
Source Company Centrum Research Estimates
Exhibit 59
Net imports accounts for one fourth of market Exhibit 60
China accounts for two thirds of imports
Source MoS Industry Centrum Research Source MoS Industry Centrum Research
(800000)
(600000)
(400000)
(200000)
0
200000
400000
FY07 FY08 FY09 FY10 FY11 FY12
( T o n n e )
Imports Exports Net Imports
167259
380
167228
647594
551
696 685
10
20
30
40
50
60
70
80
FY07 FY08 FY09 FY10 FY11
Net Imports - share China share in imports
Domestic refractory production growth hasbeen largely flat andcapacity utilization is~60
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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23IFGL Refractories Ltd
Financials (Cons)
Exhibit 61
Income Statement
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
Revenues from Operations 6712 7776 8484 9554 10697
Raw Materials consumed 3201 3444 3725 4208 4716
of net sales 477 443 439 440 441
Employee expenses 987 1097 1185 1279 1382
of net sales 147 141 140 134 129
Other operational expenses 1621 1805 2013 2243 2486
of net sales 241 232 237 235 232
Total expenses 6130 6680 7273 8140 9068
of net sales 913 859 857 852 848
EBITDA 582 1096 1210 1414 1630
EBITDA Margin () 87 141 143 148 152
Depreciation amp Amortisation 134 155 174 189 204
EBIT 448 942 1036 1225 1425
Interest expenses 80 70 51 29 6
Other Income 45 34 40 44 484
EBT 413 906 1025 1240 1467
Provision for tax 159 248 307 372 440
Effective tax rate () 386 274 300 300 300Net Profit 254 658 717 868 1027
Less Minority interest (28) 18 32 70 99
Net Profit after MI 282 640 686 798 928
Source Company data Centrum Research Estimates
Exhibit 62 Key Ratios
YE Mar FY13 FY14 FY15E FY16E FY17E
Growth Ratio ()
Revenue 112 159 91 126 120
EBITDA (213) 884 104 168 153
PAT (292) 1269 71 163 163
Margin Ratios ()
PBIT Margin 67 121 122 128 133
PBT Margin 62 116 121 130 137
PAT Margin 42 82 81 84 87
Return Ratios ()
ROE 115 212 190 185 181
ROCE 84 177 175 189 198
ROIC 87 179 178 200 224
Turnover Ratios (days)
Asset turnover ratio (x) 18 19 19 19 19
Debtors 78 78 80 80 80
Inventory 46 49 50 50 50
Creditors 43 45 45 45 45
Net Working capital 74 76 80 80 80
Gearing Ratio (x)
Debt-equity 05 03 02 01 00
Net debt-equity 04 03 02 00 (01)
Current ratio 25 23 24 25 27
Dividend
Dividend per share 15 18 20 23 23
Dividend Payout () 251 124 130 125 107
Dividend Yield () 11 13 15 17 17
Per share Ratios (Rs)
Basic EPS 82 185 198 231 268
Fully diluted EPS 82 185 198 231 268
Book value 709 871 1044 1245 1485
Cash earnings per share 120 230 249 285 327
Valuation (x)
PE 174 77 72 62 53
PBV 20 16 14 11 10
EVEBITDA 102 53 46 36 27
EVSales 07 06 06 05 04
M-CapSales 07 06 06 05 05
Source Company data Centrum Research Estimates
Exhibit 63
Balance Sheet
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
Equity share capital 491 491 491 491 491
Reserves amp surplus 1964 2525 3121 3819 4648
Shareholders fund 2455 3016 3612 4310 5139
Total debt 1142 982 682 382 82
Deferred tax liabilities 65 74 74 74 74
Total Liabilities 3741 4167 4495 4963 5591
Gross block 2474 2656 2906 3156 3406
Less acc depreciation 1276 1430 1605 1794 1998
Net block 1198 1225 1301 1362 1407
Capital work in progress 20 20 20 20 20
Goodwill 1105 1342 1342 1342 1342
Investments 5 5 5 5 5
Inventories 848 1034 1162 1309 1465
Trade Receivables 1427 1658 1859 2094 2345
Cash amp cash equivalents 113 33 69 259 609
Loans amp advances 51 107 116 131 147
Trade payables 799 962 1046 1178 1319
Other current liabilities 166 210 232 262 293Provisions 94 124 139 157 176
Total Assets 3741 4167 4495 4963 5591
Source Company data Centrum Research Estimates
Exhibit 64 Cash Flow
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
PBT 413 906 1025 1240 1467
Interest 72 70 51 29 6
Depreciation 134 155 174 189 204
Increase in debtors (330) (231) (201) (235) (251)
Increase in inventories 7 (186) (128) (147) (157)
Increase in trade payables 46 163 84 132 141
Tax 197 248 307 372 440
Cash flow from operations 183 629 695 799 907
Change in fixed assets (194) (418) (250) (250) (250)
Cash flow from investments (172) (418) (250) (250) (250)
Change in debt 19 (160 (300) (300) (300)
Dividends paid (71) (79) (89) (100) (100)
Interest paid (80) (70) (51) (29) (6)
Cash flow from financing (94) (291) (409) (358) (306)
Net cash flow (81) (81) 36 191 350
Opening cash balance 195 113 33 69 259
Closing cash balance 113 33 69 259 609
Source Company data Centrum Research Estimates
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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24IFGL Refractories Ltd
Financials (Cons) - Historical
Exhibit 65
Income Statement
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
Revenues from Operations 3780 3982 4152 4689 6039
Raw Materials consumed 1743 1907 2058 2389 3024
of net sales 461 479 496 509 501
Employee expenses 487 589 539 661 843
of net sales 129 148 130 141 140
Other operational expenses 918 1036 951 1148 1418
of net sales 243 260 229 245 235
Total expenses 3244 3708 3575 4279 5299
of net sales 858 931 861 912 878
EBITDA 536 274 578 411 739
EBITDA Margin () 142 69 139 88 122
Depreciation amp Amortisation 63 74 70 71 123
EBIT 473 200 508 339 617
Interest expenses 82 95 45 56 68
Other Income 18 24 34 43 33
EBT 409 128 497 327 582
Provision for tax 123 67 155 84 183
Effective tax rate () 301 523 311 258 315Net Profit 286 61 343 243 398
Less Minority interest 1 0 0 0 0
Net Profit after MI 285 61 343 243 399
Source Company data Centrum Research Estimates
Exhibit 66 Key Ratios
YE Mar FY08 FY09 FY10 FY11 FY12
Growth Ratio ()
Revenue 171 53 43 129 288
EBITDA 98 (489) 1111 (289) 800
PAT 85 (785) 4586 (292) 642
Margin Ratios ()
PBIT Margin 125 50 122 72 102
PBT Margin 108 32 120 70 96
PAT Margin 75 15 83 52 66
Return Ratios ()
ROE 294 54 250 138 180
ROCE 182 49 169 93 128
ROIC 195 53 183 98 141
Turnover Ratios (days)
Asset turnover ratio (x) 20 18 19 15 17
Debtors 97 55 79 85 69
Inventory 46 47 52 55 52
Creditors 49 23 41 50 44
Net Working capital 105 81 89 93 67
Gearing Ratio (x)
Debt-equity 09 09 06 07 05
Net debt-equity 08 08 05 07 04
Current ratio 29 36 26 25 24
Dividend
Dividend per share 20 00 10 05 15
Dividend Payout () 284 00 118 103 63
Dividend Yield () 15 00 07 04 11
Per share Ratios (Rs)
Basic EPS 82 18 99 70 115
Fully diluted EPS 82 18 99 70 115
Book value 280 328 396 508 641
Cash earnings per share 101 39 119 91 151
Valuation (x)
PE 164 762 136 193 117
PBV 48 41 34 27 21
EVEBITDA 102 203 93 142 76
EVSales 12 12 11 10 08
M-CapSales 12 12 11 10 08
Source Company data Centrum Research Estimates
Exhibit 67
Balance Sheet
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
Equity share capital 346 346 346 491 491
Reserves amp surplus 623 789 1026 1266 1728
Shareholders fund 969 1135 1372 1757 2219
Total debt 869 1003 793 1253 1128
Deferred tax liabilities 41 38 38 40 48
Total Liabilities 1879 2185 2206 3054 3465
Gross block 1456 1948 1966 2738 2238
Less acc depreciation 687 827 864 960 1122
Net block 769 1121 1102 1778 1117
Capital work in progress 46 53 28 21 45
Goodwill 347 594 559 1032 1094
Investments 0 0 4 14 5
Inventories 474 513 592 702 855
Trade Receivables 1001 596 895 1096 1134
Cash amp cash equivalents 77 129 120 100 195
Loans amp advances 152 121 133 152 38
Trade payables 507 256 471 637 729
Other current liabilities 32 90 137 112 194Provisions 102 2 60 60 151
Total Assets 1879 2185 2206 3054 3465
Source Company data Centrum Research Estimates
Exhibit 68 Cash Flow
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
PBT 409 128 497 327 582
Interest 81 96 45 56 59
Depreciation 63 74 75 87 129
Increase in debtors (196) 559 (330) (184) 25
Increase in inventories (72) 35 (79) (77) (135)
Increase in trade payables 82 (304 266 115 67
Tax 119 90 138 70 135
Cash flow from operations 285 814 359 237 520
Change in fixed assets (94) (99) (120) (157) (49)
Cash flow from investments (62 (536 (119 (677 (98
Change in debt (88) 15 (276) 245 (242)
Dividends paid (76) (80) (6) (46) (25)
Interest paid (87) (98) (47) (60) (68)
Cash flow from financing (261) (245) (241) 408 (339)
Net cash flow (43) 24 (8) (29) 94
Opening cash balance 120 77 129 120 100
Closing cash balance 77 129 120 100 195
Source Company data Centrum Research Estimates
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25IFGL Refractories Ltd
Appendix A
Disclaimer
Centrum Broking Limited (ldquoCentrumrdquo) is a full(service Stock Broking Company and a member of The Stock Exchange Mumbai (BSE) and National StockExchange of India Ltd (NSE) Our holding company Centrum Capital Ltd is an investment banker and an underwriter of securities As a group Centrumhas Investment Banking Advisory and other business relationships with a significant percentage of the companies covered by our Research Group Ourresearch professionals provide important inputs into the Groups Investment Banking and other business selection processes
Recipients of this report should assume that our Group is seeking or may seek or will seek Investment Banking advisory project finance or otherbusinesses and may receive commission brokerage fees or other compensation from the company or companies that are the subject of thismaterialreport Our Company and Group companies and their officers directors and employees including the analysts and others involved in thepreparation or issuance of this material and their dependants may on the date of this report or from time to time have long or short positions in actas principal in and buy or sell the securities or derivatives thereof of companies mentioned herein Centrum or its affiliates do not own 1 or more in theequity of this company Our sales people dealers traders and other professionals may provide oral or written market commentary or trading strategies toour clients that reflect opinions that are contrary to the opinions expressed herein and our proprietary trading and investing businesses may makeinvestment decisions that are inconsistent with the recommendations expressed herein We may have earlier issued or may issue in future reports on thecompanies covered herein with recommendations information inconsistent or different those made in this report In reviewing this document youshould be aware that any or all of the foregoing among other things may give rise to or potential conflicts of interest We and our Group may rely oninformation barriers such as Chinese Walls to control the flow of information contained in one or more areas within us or other areas units groups oraffiliates of Centrum Centrum or its affiliates do not make a market in the security of the company for which this report or any report was writtenFurther Centrum or its affiliates did not make a market in the subject companyrsquos securities at the time that the research report was published
This report is for information purposes only and this documentmaterial should not be construed as an offer to sell or the solicitation of an offer to buypurchase or subscribe to any securities and neither this document nor anything contained herein shall form the basis of or be relied upon in connection
with any contract or commitment whatsoever This document does not solicit any action based on the material contained herein It is for the generalinformation of the clients of Centrum Though disseminated to clients simultaneously not all clients may receive this report at the same time Centrumwill not treat recipients as clients by virtue of their receiving this report It does not constitute a personal recommendation or take into account theparticular investment objectives financial situations or needs of individual clients Similarly this document does not have regard to the specificinvestment objectives financial situationcircumstances and the particular needs of any specific person who may receive this document The securitiesdiscussed in this report may not be suitable for all investors The securities described herein may not be eligible for sale in all jurisdictions or to allcategories of investors The countries in which the companies mentioned in this report are organized may have restrictions on investments voting rightsor dealings in securities by nationals of other countries The appropriateness of a particular investment or strategy will depend on an investorsindividual circumstances and objectives Persons who may receive this document should consider and independently evaluate whether it is suitable forhis hertheir particular circumstances and if necessary seek professionalfinancial advice Any such person shall be responsible for conductinghishertheir own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risks involvedin the securities forming the subject matter of this document
The projections and forecasts described in this report were based upon a number of estimates and assumptions and are inherently subject to significantuncertainties and contingencies Projections and forecasts are necessarily speculative in nature and it can be expected that one or more of the estimateson which the projections and forecasts were based will not materialize or will vary significantly from actual results and such variances will likely increase
over time All projections and forecasts described in this report have been prepared solely by the authors of this report independently of the Company These projections and forecasts were not prepared with a view toward compliance with published guidelines or generally accented accountingprinciples No independent accountants have expressed an opinion or any other form of assurance on these projections or forecasts You should notregard the inclusion of the projections and forecasts described herein as a representation or warranty by or on behalf of the Company Centrum theauthors of this report or any other person that these projections or forecasts or their underlying assumptions will be achieved For these reasons youshould only consider the projections and forecasts described in this report after carefully evaluating all of the information in this report including theassumptions underlying such projections and forecasts
The price and value of the investments referred to in this documentmaterial and the income from them may go down as well as up and investors mayrealize losses on any investments Past performance is not a guide for future performance Future returns are not guaranteed and a loss of original capitalmay occur Actual results may differ materially from those set forth in projections Forward (looking statements are not predictions and may be subject tochange without notice Centrum does not provide tax advice to its clients and all investors are strongly advised to consult regarding any potentialinvestment Centrum and its affiliates accept no liabilities for any loss or damage of any kind arising out of the use of this report Foreign currenciesdenominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derived fromthe investment In addition investors in securities such as ADRs the value of which are influenced by foreign currencies effectively assume currency riskCertain transactions including those involving futures options and other derivatives as well as non(investment(grade securities give rise to substantial
risk and are not suitable for all investors Please ensure that you have read and understood the current risk disclosure documents before entering into anyderivative transactions
This reportdocument has been prepared by Centrum based upon information available to the public and sources believed to be reliable Norepresentation or warranty express or implied is made that it is accurate or complete Centrum has reviewed the report and in so far as it includescurrent or historical information it is believed to be reliable although its accuracy and completeness cannot be guaranteed The opinions expressed inthis documentmaterial are subject to change without notice and have no obligation to tell you when opinions or information in this report change
This report or recommendations or information contained herein dodoes not constitute or purport to constitute investment advice in publicly accessiblemedia and should not be reproduced transmitted or published by the recipient The report is for the use and consumption of the recipient only Thispublication may not be distributed to the public used by the public media without the express written consent of Centrum This report or any portionhereof may not be printed sold or distributed without the written consent of Centrum
The distribution of this document in other jurisdictions may be restricted by law and persons into whose possession this document comes should informthemselves about and observe any such restrictions Neither Centrum nor its directors employees agents or representatives shall be liable for anydamages whether direct or indirect incidental special or consequential including lost revenue or lost profits that may arise from or in connection withthe use of the information
This document does not constitute an offer or invitation to subscribe for or purchase or deal in any securities and neither this document nor anythingcontained herein shall form the basis of any contract or commitment whatsoever This document is strictly confidential and is being furnished to yousolely for your information may not be distributed to the press or other media and may not be reproduced or redistributed to any other person Thedistribution of this report in other jurisdictions may be restricted by law and persons into whose possession this report comes should inform themselvesabout and observe any such restrictions By accepting this report you agree to be bound by the fore going limitations No representation is made thatthis report is accurate or complete
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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The opinions and projections expressed herein are entirely those of the author and are given as part of the normal research activity of Centrum Brokingand are given as of this date and are subject to change without notice Any opinion estimate or projection herein constitutes a view as of the date of thisreport and there can be no assurance that future results or events will be consistent with any such opinions estimate or projection
This document has not been prepared by or in conjunction with or on behalf of or at the instigation of or by arrangement with the company or any of itsdirectors or any other person Information in this document must not be relied upon as having been authorized or approved by the company or itsdirectors or any other person Any opinions and projections contained herein are entirely those of the authors None of the company or its directors orany other person accepts any liability whatsoever for any loss arising from any use of this document or its contents or otherwise arising in connectiontherewith
Centrum and its affiliates have not managed or co(managed a public offering for the subject company in the preceding twelve months Centrum andaffiliates have not received compensation from the companies mentioned in the report during the period preceding twelve months from the date of thisreport for service in respect of public offerings corporate finance debt restructuring investment banking or other advisory services in amergeracquisition or some other sort of specific transaction
As per the declarations given by them Mr Abhisar Jain research analyst and andor any of his family members do not serve as an officer director or anyway connected to the companycompanies mentioned in this report Further as declared by him he has not received any compensation from the abovecompanies in the preceding twelve months He does not hold any shares by him or through his relatives or in case if holds the shares then will not to doany transactions in the said scrip for 30 days from the date of release such report Our entire research professionals are our employees and are paid asalary They do not have any other material conflict of interest of the research analyst or member of which the research analyst knows of has reason toknow at the time of publication of the research report or at the time of the public appearance
While we would endeavour to update the information herein on a reasonable basis Centrum its associated companies their directors and employees areunder no obligation to update or keep the information current Also there may be regulatory compliance or other reasons that may prevent Centrumfrom doing so
Non(rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable
regulations andor Centrum policies in circumstances where Centrum is acting in an advisory capacity to this company or any certain othercircumstances
This report is not directed to or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality statecountry or other jurisdiction where such distribution publication availability or use would be contrary to law or regulation or which would subjectCentrum Broking Limited or its group companies to any registration or licensing requirement within such jurisdiction Specifically this document doesnot constitute an offer to or solicitation to any US person for the purchase or sale of any financial instrument or as an official confirmation of anytransaction to any US person unless otherwise stated this message should not be construed as official confirmation of any transaction No part of thisdocument may be distributed in Canada or used by private customers in United Kingdom
The information contained herein is not intended for publication or distribution or circulation in any manner whatsoever and any unauthorized readingdissemination distribution or copying of this communication is prohibited unless otherwise expressly authorized Please ensure that you have read ldquoRiskDisclosure Document for Capital Market and Derivatives Segmentsrdquo as prescribed by Securities and Exchange Board of India before investing in IndianSecurities Market
Rating Criteria
Rating Market cap lt Rs20bn Market cap gt Rs20bn but lt 100bn Market cap gt Rs100bn Buy Upside gt 25 Upside gt 20 Upside gt 15
Hold Upside between (25 to +25 Upside between (20 to +20 Upside between (15 to +15
Sell Downside gt 25 Downside gt 20 Downside gt 15
Member (NSE BSE MCX(SX) Depository Participant (CDSL) and SEBI registered Portfolio Manager
Registration Nos
CAPITAL MARKET SEBI REGN NO BSE INB011454239 NSE INB231454233
DERIVATIVES SEBI REGN NO NSE INF231454233 (TRADING amp SELF CLEARING MEMBER)
CDSL DP ID 12200 SEBI REGISTRATION NO IN(DP(CDSL(661(2012
PMS REGISTRATION NO INP000004383
MCX ndash SX (Currency Derivative segment) REGN NO INE261454230
Website wwwcentrumcoin
Investor Grievance Email ID investorgrievancescentrumcoin
Compliance Officer Details
Tel (022) 4215 9413 Email ID compliancecentrumcoin
Centrum Broking Limited
Registered Office Address
Bombay Mutual Building
2nd Floor
Dr D N Road
Fort Mumbai ( 400 001
Correspondence Address
Centrum House
6th Floor CST Road Near Vidya Nagari Marg Kalina
Santacruz (E) Mumbai 400 098
Tel (022) 4215 9000
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12IFGL Refractories Ltd
Financials
Revenue growth to be led by IEL and overseas operations
We expect consolidated net sales CAGR of 112 for IFGL during FY14-17E This is expected to be ledby ~33 CAGR from IEL and 12 CAGR from overseas subsidiaries while standalone operations CAGRis expected to slow down to 67
Exhibit 31
Net sales CAGR of 112 during FY14-17E
Source Company Centrum Research Estimates
Margins and return ratios to remain healthy FY14-17E EBITDA CAGR of 141
Backed by better margins from IEL and recovery in demand we expect EBITDA CAGR of 141 duringFY14-17E Margins are expected to improve gradually as revenues from high margin subsidiary IELpicks up Expansion at EI Ceramics is also expected to help in EBITDA growth and margins Returnratios are expected to remain healthy on account of operating efficiency and high asset turnover ratiosfrom new expansions
Exhibit 32
EBITDA margin to remain stable Exhibit 33
Healthy return ratios
Source Company Centrum Research Estimates Source Company Centrum Research Estimates
Exhibit 34
Du Pont analysis
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
PATSales (x) 005 007 004 008 008 008 009
SalesAssets (x) 154 174 179 187 189 192 191
AssetsEquity (x) 174 156 152 138 124 115 109
ROE - 138 180 115 212 190 185 181
Source Company Centrum Research Estimates
4689
6039 6712
77768484
9554 10697
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( R s m n )
Standalone (IFGL) IFGL Exports (IEL) Overseas Subs Total
411 739 582 1096 1210 1414 1630
88
122
87
141 143 148
152
60
80
100
120
140
160
0
200
400
600
800
1000
1200
1400
1600
1800
FY11 FY12 FY13 FY14 FY15E FY16E FY17EEBITDA-Cons (Rs mn) OPM - RHS
50
100
150
200
250
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
( )
ROE ROCE (post tax) ROIC (post tax)
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13IFGL Refractories Ltd
Key Assumptions and Sensitivity
Exhibit 35 Key Assumptions
Revenue (Rs mn) FY12 FY13 FY14 FY15E FY16E FY17E
Indian Operations
Domestic sales 1305 1495 1391 1744 2014 2304
Exports 1443 1567 1883 1744 1716 1669
Total standalone operations 2748 3061 3274 3487 3730 3973
IFGL Exports Ltd 0 90 399 518 755 953
Total Indian operations 2748 3152 3673 4005 4485 4926
Overseas Operations
Monocon Group 2410 2801 3288 3617 3979 4376
EI Ceramics 716 863 1012 1113 1447 1881
Hoffman Group 758 692 827 868 911 957
Less Intersegment revenues 596 790 1023 1120 1267 1443
Total Overseas operations 3287 3566 4103 4478 5069 5771
Total Consolidated operations 6035 6717 7776 8484 9554 10697
Source Company Centrum Research Estimates
Exhibit 36
EPS sensitivity to shaped refractory segment
EPS - FY16E (Rs) -Cons
Realizations
-10 -5 Base 5 10
V o l u m e s
-10 177 192 206 221 236
-5 187 203 218 234 250
Base 197 214 231 247 264
5 208 225 243 260 277
10 218 236 255 273 291
Source Company Centrum Research Estimates
Exhibit 37
EPS sensitivity to unshaped refractory segment
EPS - FY16E (Rs) - ConsRealizations
-10 -5 Base 5 10
V o l u m e s
-10 230 233 235 237 239
-5 228 230 233 235 237
Base 226 228 231 233 235
5 223 226 228 231 234
10 221 223 226 229 232
Source Company Centrum Research Estimates
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14IFGL Refractories Ltd
Valuation ndash poised for rerating
IFGLrsquos mean EVEBITDA stands at 47x with standard deviation of 26x and we note that the stock pricehas been volatile in last 6-7 years due to sharp fluctuations in earnings which explains the highstandard deviation However we believe that earnings would be more linear going forward asoverseas operations have been stabilised and growth would be driven by expansions at higher marginsubsidiaries of IEL and EI Ceramics At the CMP of Rs142 the stock trades at attractive valuations of 62xFY16E PE and 36x FY16E EVEBITDA and we believe that sharp improvement in free cash flow canlead to rerating in the stock We assign an EVEBITDA of 55x on Marrsquo16E earnings to arrive at a fairvalue of Rs220 and initiate with a Buy The multiple assigned by us remains below mean+05sd andthus provides comfort on historical valuations even though we expect much better earnings trajectoryfor the company going forward
Exhibit 38
EVEBITDA Valuation
(Rs mn) FY16E
EBITDA 1414
Ascribed EVEBITDA (x) 55
EV 7776
Add Net Cash (123)
Fair value mkt cap 7653
No of shares (mn) 346
Fair Valueshare (Rs) 220
Source Company Centrum Research Estimates
Exhibit 39
1-year forward EVEBITDA chart Exhibit 40
1-year forward PE chart
Source Bloomberg Company Centrum Research Estimates Source Bloomberg Company Centrum Research Estimates
Steep valuation discount exists for IFGL compared to global peersComparison of IFGLrsquos valuations with global peers shows that the company is trading at a steepdiscount despite strong fundamentals which we feel is unwarranted We expect re-rating in the stockwith improvement in outlook and stability in earnings
Exhibit 41 Valuationndash Peer comparison
CompanyMkt Cap(US$ mn)
CAGR CY13-CY15E () EBITDA Margin () PE (x) EVEBITDA (x) RoE () Div Yield ()
Rev EBITDA PAT CY13 CY14E CY15E CY13 CY14E CY15E CY13 CY14E CY15E CY13 CY14E CY15E CY13 CY14E CY15E
IFGL Refractories 82 108 136 116 141 143 148 77 72 62 53 46 36 212 190 185 12 14 16
Vesuvius India Ltd 220 110 115 126 184 178 186 203 192 161 110 100 82 164 152 158 07 08 09
Global Peers
RHI AG 1322 29 (02) 318 137 122 129 153 103 89 59 65 57 131 177 180 31 31 35
Vesuvius PLC 2140 04 53 80 117 123 128 149 141 127 86 82 74 93 1 02 108 31 34 36
Magnesita SA 574 122 129 344 156 149 158 157 180 101 60 63 55 21 17 35 15 11 21
Cie de St(Gobain 32544 20 91 32 3 100 107 114 218 181 133 76 68 60 58 76 94 29 30 33
Source Bloomberg Estimates Centrum Research Estimates CY13=FY14 for IFGL and so on
0
2
4
6
810
12
14
J u n - 0 7
O c t - 0 7
F e b - 0 8
J u n - 0 8
O c t - 0 8
F e b - 0 9
J u n - 0 9
O c t - 0 9
F e b - 1 0
J u n - 1 0
O c t - 1 0
F e b - 1 1
J u n - 1 1
O c t - 1 1
F e b - 1 2
J u n - 1 2
O c t - 1 2
F e b - 1 3
J u n - 1 3
O c t - 1 3
F e b - 1 4
J u n - 1 4
EVEBITDA MeanMean + Std Dev Mean - Std Dev
0
5
10
15
20
25
J u n - 0 7
O c t - 0 7
F e b - 0 8
J u n - 0 8
O c t - 0 8
F e b - 0 9
J u n - 0 9
O c t - 0 9
F e b - 1 0
J u n - 1 0
O c t - 1 0
F e b - 1 1
J u n - 1 1
O c t - 1 1
F e b - 1 2
J u n - 1 2
O c t - 1 2
F e b - 1 3
J u n - 1 3
O c t - 1 3
F e b - 1 4
J u n - 1 4
PE MeanMean + Std Dev Mean - Std Dev
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15IFGL Refractories Ltd
IFGL trading at a higher discount to Vesuvius than historical average
IFGL has historically (based on average during JanrsquoCY09-JunersquoCY14) traded at a discount of ~35 toVesuvius India Ltd (VIL) on EVEBITDA basis However currently IFGL is trading at a discount of ~60 toVIL which is unwarranted as the profitability of IFGL is on an uptrend post stabilisation of overseasoperations and IEL The historical discount has seen an increase in the past 3 years due to volatility inearnings of IFGL but with operations having stabilised we see the discount narrowing We also expectIFGL to be above its peers (incl VIL) in terms of ROE for the next few years and see a high cash flowyield of ~12 in FY16E The multiple assigned by us implies ~35 discount to VILrsquos current valuationswhich is in line with the historical average even though IFGL is expected to generate better returnsand free cash flow going forward
Exhibit 42
EVEBITDA ndash IFGL vs Vesuvius India Exhibit 43
Discount of IFGL EVEBITDA vs Vesuvius
Source Bloomberg Company Centrum Research Source Bloomberg Company Centrum Research
0
2
4
6
8
10
12
F e b - 0
9
J u n - 0
9
O c t - 0 9
F e b - 1
0
J u n - 1
0
O c t - 1 0
F e b - 1
1
J u n - 1
1
O c t - 1 1
F e b - 1
2
J u n - 1
2
O c t - 1 2
F e b - 1
3
J u n - 1
3
O c t - 1 3
F e b - 1
4
J u n - 1
4
( x )
EVEBITDA IFGL EVEBITDA Vesuvius
(90)
(60)
(30)
0
30
60
F e b - 0
9
J u n - 0
9
O c t - 0 9
F e b - 1
0
J u n - 1
0
O c t - 1 0
F e b - 1
1
J u n - 1
1
O c t - 1 1
F e b - 1
2
J u n - 1
2
O c t - 1 2
F e b - 1
3
J u n - 1
3
O c t - 1 3
F e b - 1
4
J u n - 1
4
( )
EVEBITDA discount of IFGL vs Vesuvius
Avg discount of IFGL vs Vesuvius
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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16IFGL Refractories Ltd
Key risks to our thesis
Dependent on raw material sourcing through imports The industry is dependent on importsof key raw materials like high grade alumina bauxite magnesia silicon carbide etc China is themajor supplier of imports and has imposed heavy taxes on export of raw materials of refractories This has resulted in sharp increase in imported raw material costs IFGL sources ~52 of its raw
materials through imports and remains exposed to increase in costs which can impact its margins Low pricing power due to excess domestic supply and import pressure The industry suffers
from low capacity utilization of ~60 with excess installed capacities (~22 MTPA) and as a resultpricing power is low for refractory makers who are squeezed between raw material suppliers andsteel makers Cheap refractory imports from China have also kept prices in check IFGL does notenjoy as much pricing power as VIL does as customers prefer VIL for its strong brand name andproven track record of providing quality products and services Further increase in competitiveintensity can lead to lower pricing for IFGL in both domestic and export markets
Sharp slowdown in steel industry leading to lower volumes Like any other refractorycompany IFGLrsquos fortunes depend on the steel industry and any slowdown in global economy mayhamper the steel industryrsquos growth and IFGLrsquos volume growth would be more vulnerable as itdoes not have strong relationships like VIL has Sharp slowdown in the steel industry (vs
expectations of recovery) in coming years could lead to lower capacity utilization and lower thanexpected volumes
Currency Fluctuation We believe that steady weakening of rupee over the past couple of yearshas been favourable to the industry as well as for IFGL due to better import substitution andhigher realizations on exports negated only to a partial extent by higher import costs for rawmaterials IFGL has 80 of its revenues coming from overseas on a consolidated basis On astandalone basis approximately 58 of the revenues (FY14) came from exports Companyrsquosrevenues remain exposed to sharp appreciation of rupee against foreign currencies
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17IFGL Refractories Ltd
Exhibit 44
Shareholding pattern ()
Q4FY14 Q3FY14 Q2FY14 Q1FY14
Promoter 713 713 713 713
FIIs 00 00 00 00
DIIs 11 22 22 22
Others 277 265 265 265
Source BSE
Company Background
IFGL Refractories Ltd is a manufacturer of specialisedrefractories and requisite operating systems for the steelIndustry IFGL offers its customers total solution for refractoryfor flow control in steel teeming and continuous casting ofSteel IFGL has 8 manufacturing plants strategically located
across the globe in India China Europe and Americas Thecompany has a presence in over 50 of the global markets Itacquired the Monocon group UK in 2005 (06 Hofmanngroup Germany in 2008 and EI Ceramics USA in 2010 Theseoverseas acquisitions have brought along access to newproducts amp technologies new markets and new customers The company has also set up a subsidiary IFGL exports atKandla Gujarat which also has technical collaboration withKrosaki Harima Corporation Japan Apart from this IFGL alsoplans to expand its capacities in India and abroad over thecoming years
Exhibit 45 Key management personnel
Name Position Profile
Mr S K Bajoria Chairman
Promoter of S K Bajoria Group based at Kolkata engaged in diversified business activitiesHas been honorary vice consul of Denmark in Kolkata president of the Indian chamber ofcommerce director of West Bengal industrial development corporation Ltd and industrialpromotion amp investment corporation of Orissa Ltd
Mr Pradeep Bajoria Managing Director
Associated with IFGL from the very early days of Indo Flogates even before thecommencement of production in 1984 Has been director amp chief executive of erstwhileIndo Flogates Ltd More than 30 years of experience of refractory industry and has beeninvolved in various capacities in Indian refractories makers association
Mr Gian Carlo Cozzani Directorr Monocon UK
Associated with IFGL since Oct 2009 Former president and CEO of Vesuvius (now Vesuviusplc) Instrumental in steering Vesuvius from US$ 100 million to over US$ 1 billion Based inEurope he is a member of IFGLrsquos Core group and a director of Monocon InternationalRefractories Limited UK
Source Company
Exhibit 46
IFGL refractories holding structure
Source Company
10051
983113983110983111983116 983127983151983154983148983140983159983145983140983141 983112983151983148983140983145983150983143 983116983145983149983145983156983141983140
983113983110983111983116 983109983160983152983151983154983156983155 983116983156983140
983117983151983150983151983139983151983150 983111983154983151983157983152 983109983113 983107983141983154983137983149983145983139983155 983112983151983142983149983137983150983150
983107983141983154983137983149983145983139
983124983141983139983144983150983145983139983137983148 983137983150983140 983110983145983150983137983150983139983145983137983148
983107983151983148983148983137983138983151983154983137983156983145983151983150 983151983142
983115983154983151983155983137983147983145 983112983137983154983145983149983137
983107983151983154983152983151983154983137983156983145983151983150983084 983114983137983152983137983150983084
983080983123983157983138983155983145983140983145983137983154983161 983151983142 983118983145983152983152983151983150
983123983156983141983141983148 983107983151983154983152983151983154983137983156983145983151983150983084
983114983137983152983137983150983081
983125983123983105 983125983115 983087 983125983123983105 983087 983107983144983145983150983137
983115983137983150983140983148983137 983123983109983130983084 983111983157983146983137983154983137983156983084 983113983150983140983145983137
983111983141983154983149983137983150983161
983113983110983111983116 983122983141983142983154983137983139983156983151983154983145983141983155 983116983145983149983145983156983141983140
983112983119 983085 983115983151983148983147983137983156983137983084 983113983150983140983145983137
983127983151983154983147983155 983085 983115983137983148983157983150983143983137983084 983119983154983145983155983155983137983084 983113983150983140983145983137
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18IFGL Refractories Ltd
Exhibit 47 Quarterly financials (cons)
YE Mar (Rs mn) Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14
Net sales 1725 1657 1690 1641 1811 2014 1947 2003
Other Operating Income 5 4 0 0 3 0 0 0
Total Income 1729 1662 1690 1641 1814 2014 1947 2003
Accretion to Stocks in trade amp work in progress (29) (10) 4 46 (65) (54) (25) 9
Cost of Raw Materials consumed 840 898 835 581 911 908 817 808
Purchase of traded goods 66 28 42 223 46 73 182 168
Staff Cost 239 234 250 264 247 275 294 281
Other Operational expenses 407 400 375 439 430 513 407 455
Operating Profit (Core EBITDA) 206 112 183 89 246 299 272 282
Depreciation 32 34 35 33 32 34 46 43
EBIT 174 78 149 56 214 265 226 239
Interest 21 22 21 15 17 18 19 16
Other RevenueIncome 16 5 7 8 5 9 6 12
Profit Before Tax 169 61 134 49 202 255 213 236
Tax 50 31 48 31 54 57 68 70
Profit After Tax 119 31 86 18 148 199 145 166
Minority Interest (7) (9) (8) (4) (1) 8 3 8
Profit after minority interest 126 40 95 22 149 191 143 158
Growth (YoY )
Revenue 371 36 61 36 50 216 153 221
EBITDA 129 (457) (125) (477) 195 1672 485 2164
PAT 174 (666) (111) (669) 189 3765 503 6292
Margin ()
EBITDA 119 67 109 54 136 148 140 141
EBIT 100 47 88 34 118 131 116 120
PAT 73 24 56 13 82 95 73 79
Segment Revenue (Net Sales Income from ops)
India 764 749 810 829 872 926 936 941
Asia (excl India) 142 175 160 167 188 213 163 156
Europe 593 545 542 543 612 744 689 764
Americas 405 370 363 344 384 399 427 386
Segment EBIT
India 83 32 84 63 92 103 129 139
Asia (excl India) 8 11 6 9 12 10 5 7
Europe 55 44 51 (4 45 76 74 81Americas 22 13 23 39 38 45 55 36
Source Company Centrum Research
Comments on recent quarterly results
Q4FY14 witnessed a healthy growth with revenue up 221 YoY EBITDA and PAT jumpedsubstantially YoY Margins showed good improvement EBITDA margin expanded by 860 bps YoYOther operating expenses as a proportion of sales reduced to 227 from 267 in Q4FY13 this had apositive impact on margins
Revenue grew 28 QoQ EBITDA amp PAT margins showed signs of consistency further improving fromQ3FY14 European business looks to be on a growth trajectory as revenues have jumped 140 YoYand 11 QoQ Revenue from American segment saw growth of 124 YoY but declined QoQ
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19IFGL Refractories Ltd
Annexure ndash Refractory Industry
About refractories ndash consumables for manufacturing processes with high temperatures
Refractories are inorganic non-metallic and heterogeneous materials having very high melting pointswhich make them suitable to be used as heat-resisting barriers consumed within various productionprocesses providing heat chemical and mechanical resistance Refractories are mainly of two types ndash
shaped and unshaped (monolithics) and are used mainly by the steel industry as a consumableproduct in the internal linings of furnaces kilns reactors and other vessels for holding andtransporting metal and slag
Shaped refractories are those which have fixed shapes with most common form being rectangularbrick Brick shapes may be divided into two standard shapes and special shapes Standard shapeshave dimensions that are conformed to by most refractory manufacturers and are generally applicableto kilns and furnaces of the same type Special shapes are specifically made for particular kilns andfurnaces Shaped refractories are almost always machine-pressed and possess high uniformity inproperties are expected
Unshaped refractories are without definite form and are only given shape upon application It forms joint less lining and are better known as monolithic refractories They are manufactured in powderform as granular material and known as plastic refractories ramming mixes castables gunning mixesfettling mixes and mortars
The raw materials used to manufacture refractories are broadly classified into clay and non-clay Clayrefractories consist of naturally occurring alumina silicate like fireclay flint clay flint brick and highalumina and are used to produce bricks and insulating refractories Non-clay refractories are madefrom non-clay materials and are further classified into basic (made in the form of bricks from magnesiadolomite chrome etc) extra high alumina mullite (made from kyanite bauxite alumina) siliconcarbide and zircon
Exhibit 48
Refractory share by form Exhibit 49
Refractory share by raw material
Source Industry data Centrum Research Source Industry data Centrum Research
Unshaped45Shaped 55
Clay 65
Non Clay35
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20IFGL Refractories Ltd
Applications of refractories ndash largely used in steel industry for furnace linings
Steel industry accounts for ~60 of refractory consumption globally and ~75 in the domesticmarket In non-metallurgical industries (cement glass lime) the refractories are mostly installed onfired heaters hydrogen reformers cracking furnaces incinerators utility boilers air heaters ductingstacks etc The different areas of the steel manufacturing processes are exposed to differenttemperatures slag and sulphur gases Refractory selection for the lining of a furnace is invariably builtupon a combination of material qualities and brick size to maximize performance Steel industry usesrefractory for diverse applications in blast furnaces coke ovens torpedo ladles and secondary refiningladles
In cement industry refractories are used in the kiln the preheating system and the cooler whichoperate in a very high temperature to protect against heat abrasion and chemical attack Commonrefractory materials used are Dolomite Magnesia-Chrome Spinel Magnesia-Alumina Spinel Fireclayand High Alumina The cement kiln clinker area is usually provided with Dolomite refractories
Non(-errous industries like copper and aluminium require high performance refractories in severalequipments like anode baking furnaces induction furnaces reduction pots slag cleaning surfaces etcGlass industry also requires refractories in refiner regenerator dog-house and ports of furnace
Exhibit 50
Refractories consumption in steel making process
Source Magnesita ppt
Exhibit 51
Refractories consumption in steel making process
Source Vesuvius PLC ppt
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21IFGL Refractories Ltd
Steel industry accounts for ~60 of refractory consumption globally and ~75 in the domesticmarket In non-metallurgical industries (cement glass lime) refractories are mostly installed on firedheaters hydrogen reformers cracking furnaces incinerators utility boilers air heaters ducting stacksetc
Exhibit 52
Sector wise refractories demand - Global Exhibit 53
Sector wise refractories demand - India
Source Industry data Centrum Research Source Industry data Centrum Research
Refractory application consumption and replacement dynamics are shown in the table belowSteelmaking requires maximum amount of refractories (10-15kgstonne) with replacement required ina time period of 20 minutes to 2months Cement industry is the next biggest user with annualreplacement requirement while non-ferrous and glass industries have longer replacement cycles
Exhibit 54
Refractory consumption dynamics across user industries
Key Industry Application Replacement Per tonne consumption Refractory requirements
Steel
BF(BOF EAFCasting LadlesInduction FurnacesPellet rotary Kilns
20 minutes to 2months
Global avg - 10-15KgsIndia avg - 15 Kgs
Consumable product ( Systems and solutions for completerefractory management
Cement Kilns annually 1 KgsInvestment goods ( Longer replacement cycles Customizedsolutions based on the specific requirements of various industrialproduction processes complete lining concepts
Glass Glass Furnace upto 10 years 4 Kgs
Non(Ferrous Converters 1(10 yearsAluminium - 6 KgsCopper - 3 Kgs
Source RHI ppt Centrum Research
Global refractory market size at ~US$25bn expected to grow at ~35 CAGR
According to various industry studies global refractoriesrsquo market size is ~US$25bn with production of415MT in CY12 According to industry estimates the global refractories industry is expected to witnessCAGR of 35 during CY13-16E and grow to 46MT with a market value of US$29bn China accountedfor ~70 of the market by volume and ~60 by value in CY12 whereas India accounts for ~3 of theglobal refractories market by volume
Exhibit 55
Global refractory market size at ~US$25bn Exhibit 56
China accounts for ~70 of the market
CY12 Production (MT) Value (US$ bn)
World 415 25
China 295 143
EU 41 39
North America 14 14
India 13 09
Source Industry Centrum Research Source Industry Centrum Research
6015
15
10 Steel
Non-Metallic (Cement GlassLime)
Non-Ferrous (AluminiumCopper Zinc Silver)
Others (paper ceramicspetrochemicals)
75
12
6 3
4
Steel
Cement
Non-Ferrous
Glass
Others
415
463
25
29
0
10
20
30
40
50
CY12 CY16
Volume (MT) Mkt Value ($ bn)
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22IFGL Refractories Ltd
Domestic refractory demand-supply indicates low industry growth amp import pressure
Demand supply analysis of domestic refractory industry shows that it has been witnessing mutedconsumption growth (due to a fall in per tonne consumption for steel making due to technologicaladvances) and faces strong import pressure with one fourth of the market being serviced by netimports (mainly from cheap supplies from China which accounts for two thirds of refractory imports inIndia) Capacity utilization for the industry remains at ~60 on installed capacity of ~22MT and marketsize is ~US$1bn Domestic refractory consumption in steel has grown at a CAGR of ~2 during FY08-14 We expect industry growth to pick up due to scope for higher steel production (backed by higherinfra spend and expansion in per capita steel consumption) The industry has seen consolidation andacquisitions by global majors in the last five years and organised sector (split between (6 players)accounts for ~65 of the market
Exhibit 57 Refractory demand from domestic steel industry
(In tonne) FY08 FY09 FY10 FY11 FY12 FY13 FY14E FY15E FY16E FY17E
Steel Production (MT) 561 572 606 686 757 817 850 893 946 1012
Growth 20 59 132 103 79 40 50 60 70
Avg Refractory consumption(kgt of crude steel)
188 173 168 16 15 145 140 140 140 140
Refractory consumption (steel) 1054680 989560 1018080 1097600 1135500 1184650 1190000 1249500 1324470 1417183
Growth (62) 29 78 35 43 05 50 60 70
Source Ministry of Steel (MoS) Centrum Research Estimates
Exhibit 58
Organised sector accounts for ~65 of domestic refractory industry
Company RevenueMarket
Share ()
Supply toIntegratedsteel mills
Comments
Vesuvius India Ltd 6017 100 95+Leading supplier with wide product basket strongcustomer relationships with large steel mills
Orient Refractories (RHI) 4035 67 10-15 Has developed a niche with mini steel mills
IFGL Refractories (incl IEL) 3674 61 85+Mainly into flow control shaped refractories goodrelationship with large mills
Tata Refractories 9800 163 Not available Largely into bricks supplies (commodity refractories)
Calderys 6250 104 Not available
Supplies largely to non-ferrous producers strong in
bricks and monolithics
OCL 4056 68 Not available
Total Organized Sector 39332 656
Source Company Centrum Research Estimates
Exhibit 59
Net imports accounts for one fourth of market Exhibit 60
China accounts for two thirds of imports
Source MoS Industry Centrum Research Source MoS Industry Centrum Research
(800000)
(600000)
(400000)
(200000)
0
200000
400000
FY07 FY08 FY09 FY10 FY11 FY12
( T o n n e )
Imports Exports Net Imports
167259
380
167228
647594
551
696 685
10
20
30
40
50
60
70
80
FY07 FY08 FY09 FY10 FY11
Net Imports - share China share in imports
Domestic refractory production growth hasbeen largely flat andcapacity utilization is~60
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23IFGL Refractories Ltd
Financials (Cons)
Exhibit 61
Income Statement
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
Revenues from Operations 6712 7776 8484 9554 10697
Raw Materials consumed 3201 3444 3725 4208 4716
of net sales 477 443 439 440 441
Employee expenses 987 1097 1185 1279 1382
of net sales 147 141 140 134 129
Other operational expenses 1621 1805 2013 2243 2486
of net sales 241 232 237 235 232
Total expenses 6130 6680 7273 8140 9068
of net sales 913 859 857 852 848
EBITDA 582 1096 1210 1414 1630
EBITDA Margin () 87 141 143 148 152
Depreciation amp Amortisation 134 155 174 189 204
EBIT 448 942 1036 1225 1425
Interest expenses 80 70 51 29 6
Other Income 45 34 40 44 484
EBT 413 906 1025 1240 1467
Provision for tax 159 248 307 372 440
Effective tax rate () 386 274 300 300 300Net Profit 254 658 717 868 1027
Less Minority interest (28) 18 32 70 99
Net Profit after MI 282 640 686 798 928
Source Company data Centrum Research Estimates
Exhibit 62 Key Ratios
YE Mar FY13 FY14 FY15E FY16E FY17E
Growth Ratio ()
Revenue 112 159 91 126 120
EBITDA (213) 884 104 168 153
PAT (292) 1269 71 163 163
Margin Ratios ()
PBIT Margin 67 121 122 128 133
PBT Margin 62 116 121 130 137
PAT Margin 42 82 81 84 87
Return Ratios ()
ROE 115 212 190 185 181
ROCE 84 177 175 189 198
ROIC 87 179 178 200 224
Turnover Ratios (days)
Asset turnover ratio (x) 18 19 19 19 19
Debtors 78 78 80 80 80
Inventory 46 49 50 50 50
Creditors 43 45 45 45 45
Net Working capital 74 76 80 80 80
Gearing Ratio (x)
Debt-equity 05 03 02 01 00
Net debt-equity 04 03 02 00 (01)
Current ratio 25 23 24 25 27
Dividend
Dividend per share 15 18 20 23 23
Dividend Payout () 251 124 130 125 107
Dividend Yield () 11 13 15 17 17
Per share Ratios (Rs)
Basic EPS 82 185 198 231 268
Fully diluted EPS 82 185 198 231 268
Book value 709 871 1044 1245 1485
Cash earnings per share 120 230 249 285 327
Valuation (x)
PE 174 77 72 62 53
PBV 20 16 14 11 10
EVEBITDA 102 53 46 36 27
EVSales 07 06 06 05 04
M-CapSales 07 06 06 05 05
Source Company data Centrum Research Estimates
Exhibit 63
Balance Sheet
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
Equity share capital 491 491 491 491 491
Reserves amp surplus 1964 2525 3121 3819 4648
Shareholders fund 2455 3016 3612 4310 5139
Total debt 1142 982 682 382 82
Deferred tax liabilities 65 74 74 74 74
Total Liabilities 3741 4167 4495 4963 5591
Gross block 2474 2656 2906 3156 3406
Less acc depreciation 1276 1430 1605 1794 1998
Net block 1198 1225 1301 1362 1407
Capital work in progress 20 20 20 20 20
Goodwill 1105 1342 1342 1342 1342
Investments 5 5 5 5 5
Inventories 848 1034 1162 1309 1465
Trade Receivables 1427 1658 1859 2094 2345
Cash amp cash equivalents 113 33 69 259 609
Loans amp advances 51 107 116 131 147
Trade payables 799 962 1046 1178 1319
Other current liabilities 166 210 232 262 293Provisions 94 124 139 157 176
Total Assets 3741 4167 4495 4963 5591
Source Company data Centrum Research Estimates
Exhibit 64 Cash Flow
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
PBT 413 906 1025 1240 1467
Interest 72 70 51 29 6
Depreciation 134 155 174 189 204
Increase in debtors (330) (231) (201) (235) (251)
Increase in inventories 7 (186) (128) (147) (157)
Increase in trade payables 46 163 84 132 141
Tax 197 248 307 372 440
Cash flow from operations 183 629 695 799 907
Change in fixed assets (194) (418) (250) (250) (250)
Cash flow from investments (172) (418) (250) (250) (250)
Change in debt 19 (160 (300) (300) (300)
Dividends paid (71) (79) (89) (100) (100)
Interest paid (80) (70) (51) (29) (6)
Cash flow from financing (94) (291) (409) (358) (306)
Net cash flow (81) (81) 36 191 350
Opening cash balance 195 113 33 69 259
Closing cash balance 113 33 69 259 609
Source Company data Centrum Research Estimates
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24IFGL Refractories Ltd
Financials (Cons) - Historical
Exhibit 65
Income Statement
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
Revenues from Operations 3780 3982 4152 4689 6039
Raw Materials consumed 1743 1907 2058 2389 3024
of net sales 461 479 496 509 501
Employee expenses 487 589 539 661 843
of net sales 129 148 130 141 140
Other operational expenses 918 1036 951 1148 1418
of net sales 243 260 229 245 235
Total expenses 3244 3708 3575 4279 5299
of net sales 858 931 861 912 878
EBITDA 536 274 578 411 739
EBITDA Margin () 142 69 139 88 122
Depreciation amp Amortisation 63 74 70 71 123
EBIT 473 200 508 339 617
Interest expenses 82 95 45 56 68
Other Income 18 24 34 43 33
EBT 409 128 497 327 582
Provision for tax 123 67 155 84 183
Effective tax rate () 301 523 311 258 315Net Profit 286 61 343 243 398
Less Minority interest 1 0 0 0 0
Net Profit after MI 285 61 343 243 399
Source Company data Centrum Research Estimates
Exhibit 66 Key Ratios
YE Mar FY08 FY09 FY10 FY11 FY12
Growth Ratio ()
Revenue 171 53 43 129 288
EBITDA 98 (489) 1111 (289) 800
PAT 85 (785) 4586 (292) 642
Margin Ratios ()
PBIT Margin 125 50 122 72 102
PBT Margin 108 32 120 70 96
PAT Margin 75 15 83 52 66
Return Ratios ()
ROE 294 54 250 138 180
ROCE 182 49 169 93 128
ROIC 195 53 183 98 141
Turnover Ratios (days)
Asset turnover ratio (x) 20 18 19 15 17
Debtors 97 55 79 85 69
Inventory 46 47 52 55 52
Creditors 49 23 41 50 44
Net Working capital 105 81 89 93 67
Gearing Ratio (x)
Debt-equity 09 09 06 07 05
Net debt-equity 08 08 05 07 04
Current ratio 29 36 26 25 24
Dividend
Dividend per share 20 00 10 05 15
Dividend Payout () 284 00 118 103 63
Dividend Yield () 15 00 07 04 11
Per share Ratios (Rs)
Basic EPS 82 18 99 70 115
Fully diluted EPS 82 18 99 70 115
Book value 280 328 396 508 641
Cash earnings per share 101 39 119 91 151
Valuation (x)
PE 164 762 136 193 117
PBV 48 41 34 27 21
EVEBITDA 102 203 93 142 76
EVSales 12 12 11 10 08
M-CapSales 12 12 11 10 08
Source Company data Centrum Research Estimates
Exhibit 67
Balance Sheet
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
Equity share capital 346 346 346 491 491
Reserves amp surplus 623 789 1026 1266 1728
Shareholders fund 969 1135 1372 1757 2219
Total debt 869 1003 793 1253 1128
Deferred tax liabilities 41 38 38 40 48
Total Liabilities 1879 2185 2206 3054 3465
Gross block 1456 1948 1966 2738 2238
Less acc depreciation 687 827 864 960 1122
Net block 769 1121 1102 1778 1117
Capital work in progress 46 53 28 21 45
Goodwill 347 594 559 1032 1094
Investments 0 0 4 14 5
Inventories 474 513 592 702 855
Trade Receivables 1001 596 895 1096 1134
Cash amp cash equivalents 77 129 120 100 195
Loans amp advances 152 121 133 152 38
Trade payables 507 256 471 637 729
Other current liabilities 32 90 137 112 194Provisions 102 2 60 60 151
Total Assets 1879 2185 2206 3054 3465
Source Company data Centrum Research Estimates
Exhibit 68 Cash Flow
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
PBT 409 128 497 327 582
Interest 81 96 45 56 59
Depreciation 63 74 75 87 129
Increase in debtors (196) 559 (330) (184) 25
Increase in inventories (72) 35 (79) (77) (135)
Increase in trade payables 82 (304 266 115 67
Tax 119 90 138 70 135
Cash flow from operations 285 814 359 237 520
Change in fixed assets (94) (99) (120) (157) (49)
Cash flow from investments (62 (536 (119 (677 (98
Change in debt (88) 15 (276) 245 (242)
Dividends paid (76) (80) (6) (46) (25)
Interest paid (87) (98) (47) (60) (68)
Cash flow from financing (261) (245) (241) 408 (339)
Net cash flow (43) 24 (8) (29) 94
Opening cash balance 120 77 129 120 100
Closing cash balance 77 129 120 100 195
Source Company data Centrum Research Estimates
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25IFGL Refractories Ltd
Appendix A
Disclaimer
Centrum Broking Limited (ldquoCentrumrdquo) is a full(service Stock Broking Company and a member of The Stock Exchange Mumbai (BSE) and National StockExchange of India Ltd (NSE) Our holding company Centrum Capital Ltd is an investment banker and an underwriter of securities As a group Centrumhas Investment Banking Advisory and other business relationships with a significant percentage of the companies covered by our Research Group Ourresearch professionals provide important inputs into the Groups Investment Banking and other business selection processes
Recipients of this report should assume that our Group is seeking or may seek or will seek Investment Banking advisory project finance or otherbusinesses and may receive commission brokerage fees or other compensation from the company or companies that are the subject of thismaterialreport Our Company and Group companies and their officers directors and employees including the analysts and others involved in thepreparation or issuance of this material and their dependants may on the date of this report or from time to time have long or short positions in actas principal in and buy or sell the securities or derivatives thereof of companies mentioned herein Centrum or its affiliates do not own 1 or more in theequity of this company Our sales people dealers traders and other professionals may provide oral or written market commentary or trading strategies toour clients that reflect opinions that are contrary to the opinions expressed herein and our proprietary trading and investing businesses may makeinvestment decisions that are inconsistent with the recommendations expressed herein We may have earlier issued or may issue in future reports on thecompanies covered herein with recommendations information inconsistent or different those made in this report In reviewing this document youshould be aware that any or all of the foregoing among other things may give rise to or potential conflicts of interest We and our Group may rely oninformation barriers such as Chinese Walls to control the flow of information contained in one or more areas within us or other areas units groups oraffiliates of Centrum Centrum or its affiliates do not make a market in the security of the company for which this report or any report was writtenFurther Centrum or its affiliates did not make a market in the subject companyrsquos securities at the time that the research report was published
This report is for information purposes only and this documentmaterial should not be construed as an offer to sell or the solicitation of an offer to buypurchase or subscribe to any securities and neither this document nor anything contained herein shall form the basis of or be relied upon in connection
with any contract or commitment whatsoever This document does not solicit any action based on the material contained herein It is for the generalinformation of the clients of Centrum Though disseminated to clients simultaneously not all clients may receive this report at the same time Centrumwill not treat recipients as clients by virtue of their receiving this report It does not constitute a personal recommendation or take into account theparticular investment objectives financial situations or needs of individual clients Similarly this document does not have regard to the specificinvestment objectives financial situationcircumstances and the particular needs of any specific person who may receive this document The securitiesdiscussed in this report may not be suitable for all investors The securities described herein may not be eligible for sale in all jurisdictions or to allcategories of investors The countries in which the companies mentioned in this report are organized may have restrictions on investments voting rightsor dealings in securities by nationals of other countries The appropriateness of a particular investment or strategy will depend on an investorsindividual circumstances and objectives Persons who may receive this document should consider and independently evaluate whether it is suitable forhis hertheir particular circumstances and if necessary seek professionalfinancial advice Any such person shall be responsible for conductinghishertheir own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risks involvedin the securities forming the subject matter of this document
The projections and forecasts described in this report were based upon a number of estimates and assumptions and are inherently subject to significantuncertainties and contingencies Projections and forecasts are necessarily speculative in nature and it can be expected that one or more of the estimateson which the projections and forecasts were based will not materialize or will vary significantly from actual results and such variances will likely increase
over time All projections and forecasts described in this report have been prepared solely by the authors of this report independently of the Company These projections and forecasts were not prepared with a view toward compliance with published guidelines or generally accented accountingprinciples No independent accountants have expressed an opinion or any other form of assurance on these projections or forecasts You should notregard the inclusion of the projections and forecasts described herein as a representation or warranty by or on behalf of the Company Centrum theauthors of this report or any other person that these projections or forecasts or their underlying assumptions will be achieved For these reasons youshould only consider the projections and forecasts described in this report after carefully evaluating all of the information in this report including theassumptions underlying such projections and forecasts
The price and value of the investments referred to in this documentmaterial and the income from them may go down as well as up and investors mayrealize losses on any investments Past performance is not a guide for future performance Future returns are not guaranteed and a loss of original capitalmay occur Actual results may differ materially from those set forth in projections Forward (looking statements are not predictions and may be subject tochange without notice Centrum does not provide tax advice to its clients and all investors are strongly advised to consult regarding any potentialinvestment Centrum and its affiliates accept no liabilities for any loss or damage of any kind arising out of the use of this report Foreign currenciesdenominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derived fromthe investment In addition investors in securities such as ADRs the value of which are influenced by foreign currencies effectively assume currency riskCertain transactions including those involving futures options and other derivatives as well as non(investment(grade securities give rise to substantial
risk and are not suitable for all investors Please ensure that you have read and understood the current risk disclosure documents before entering into anyderivative transactions
This reportdocument has been prepared by Centrum based upon information available to the public and sources believed to be reliable Norepresentation or warranty express or implied is made that it is accurate or complete Centrum has reviewed the report and in so far as it includescurrent or historical information it is believed to be reliable although its accuracy and completeness cannot be guaranteed The opinions expressed inthis documentmaterial are subject to change without notice and have no obligation to tell you when opinions or information in this report change
This report or recommendations or information contained herein dodoes not constitute or purport to constitute investment advice in publicly accessiblemedia and should not be reproduced transmitted or published by the recipient The report is for the use and consumption of the recipient only Thispublication may not be distributed to the public used by the public media without the express written consent of Centrum This report or any portionhereof may not be printed sold or distributed without the written consent of Centrum
The distribution of this document in other jurisdictions may be restricted by law and persons into whose possession this document comes should informthemselves about and observe any such restrictions Neither Centrum nor its directors employees agents or representatives shall be liable for anydamages whether direct or indirect incidental special or consequential including lost revenue or lost profits that may arise from or in connection withthe use of the information
This document does not constitute an offer or invitation to subscribe for or purchase or deal in any securities and neither this document nor anythingcontained herein shall form the basis of any contract or commitment whatsoever This document is strictly confidential and is being furnished to yousolely for your information may not be distributed to the press or other media and may not be reproduced or redistributed to any other person Thedistribution of this report in other jurisdictions may be restricted by law and persons into whose possession this report comes should inform themselvesabout and observe any such restrictions By accepting this report you agree to be bound by the fore going limitations No representation is made thatthis report is accurate or complete
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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The opinions and projections expressed herein are entirely those of the author and are given as part of the normal research activity of Centrum Brokingand are given as of this date and are subject to change without notice Any opinion estimate or projection herein constitutes a view as of the date of thisreport and there can be no assurance that future results or events will be consistent with any such opinions estimate or projection
This document has not been prepared by or in conjunction with or on behalf of or at the instigation of or by arrangement with the company or any of itsdirectors or any other person Information in this document must not be relied upon as having been authorized or approved by the company or itsdirectors or any other person Any opinions and projections contained herein are entirely those of the authors None of the company or its directors orany other person accepts any liability whatsoever for any loss arising from any use of this document or its contents or otherwise arising in connectiontherewith
Centrum and its affiliates have not managed or co(managed a public offering for the subject company in the preceding twelve months Centrum andaffiliates have not received compensation from the companies mentioned in the report during the period preceding twelve months from the date of thisreport for service in respect of public offerings corporate finance debt restructuring investment banking or other advisory services in amergeracquisition or some other sort of specific transaction
As per the declarations given by them Mr Abhisar Jain research analyst and andor any of his family members do not serve as an officer director or anyway connected to the companycompanies mentioned in this report Further as declared by him he has not received any compensation from the abovecompanies in the preceding twelve months He does not hold any shares by him or through his relatives or in case if holds the shares then will not to doany transactions in the said scrip for 30 days from the date of release such report Our entire research professionals are our employees and are paid asalary They do not have any other material conflict of interest of the research analyst or member of which the research analyst knows of has reason toknow at the time of publication of the research report or at the time of the public appearance
While we would endeavour to update the information herein on a reasonable basis Centrum its associated companies their directors and employees areunder no obligation to update or keep the information current Also there may be regulatory compliance or other reasons that may prevent Centrumfrom doing so
Non(rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable
regulations andor Centrum policies in circumstances where Centrum is acting in an advisory capacity to this company or any certain othercircumstances
This report is not directed to or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality statecountry or other jurisdiction where such distribution publication availability or use would be contrary to law or regulation or which would subjectCentrum Broking Limited or its group companies to any registration or licensing requirement within such jurisdiction Specifically this document doesnot constitute an offer to or solicitation to any US person for the purchase or sale of any financial instrument or as an official confirmation of anytransaction to any US person unless otherwise stated this message should not be construed as official confirmation of any transaction No part of thisdocument may be distributed in Canada or used by private customers in United Kingdom
The information contained herein is not intended for publication or distribution or circulation in any manner whatsoever and any unauthorized readingdissemination distribution or copying of this communication is prohibited unless otherwise expressly authorized Please ensure that you have read ldquoRiskDisclosure Document for Capital Market and Derivatives Segmentsrdquo as prescribed by Securities and Exchange Board of India before investing in IndianSecurities Market
Rating Criteria
Rating Market cap lt Rs20bn Market cap gt Rs20bn but lt 100bn Market cap gt Rs100bn Buy Upside gt 25 Upside gt 20 Upside gt 15
Hold Upside between (25 to +25 Upside between (20 to +20 Upside between (15 to +15
Sell Downside gt 25 Downside gt 20 Downside gt 15
Member (NSE BSE MCX(SX) Depository Participant (CDSL) and SEBI registered Portfolio Manager
Registration Nos
CAPITAL MARKET SEBI REGN NO BSE INB011454239 NSE INB231454233
DERIVATIVES SEBI REGN NO NSE INF231454233 (TRADING amp SELF CLEARING MEMBER)
CDSL DP ID 12200 SEBI REGISTRATION NO IN(DP(CDSL(661(2012
PMS REGISTRATION NO INP000004383
MCX ndash SX (Currency Derivative segment) REGN NO INE261454230
Website wwwcentrumcoin
Investor Grievance Email ID investorgrievancescentrumcoin
Compliance Officer Details
Tel (022) 4215 9413 Email ID compliancecentrumcoin
Centrum Broking Limited
Registered Office Address
Bombay Mutual Building
2nd Floor
Dr D N Road
Fort Mumbai ( 400 001
Correspondence Address
Centrum House
6th Floor CST Road Near Vidya Nagari Marg Kalina
Santacruz (E) Mumbai 400 098
Tel (022) 4215 9000
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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13IFGL Refractories Ltd
Key Assumptions and Sensitivity
Exhibit 35 Key Assumptions
Revenue (Rs mn) FY12 FY13 FY14 FY15E FY16E FY17E
Indian Operations
Domestic sales 1305 1495 1391 1744 2014 2304
Exports 1443 1567 1883 1744 1716 1669
Total standalone operations 2748 3061 3274 3487 3730 3973
IFGL Exports Ltd 0 90 399 518 755 953
Total Indian operations 2748 3152 3673 4005 4485 4926
Overseas Operations
Monocon Group 2410 2801 3288 3617 3979 4376
EI Ceramics 716 863 1012 1113 1447 1881
Hoffman Group 758 692 827 868 911 957
Less Intersegment revenues 596 790 1023 1120 1267 1443
Total Overseas operations 3287 3566 4103 4478 5069 5771
Total Consolidated operations 6035 6717 7776 8484 9554 10697
Source Company Centrum Research Estimates
Exhibit 36
EPS sensitivity to shaped refractory segment
EPS - FY16E (Rs) -Cons
Realizations
-10 -5 Base 5 10
V o l u m e s
-10 177 192 206 221 236
-5 187 203 218 234 250
Base 197 214 231 247 264
5 208 225 243 260 277
10 218 236 255 273 291
Source Company Centrum Research Estimates
Exhibit 37
EPS sensitivity to unshaped refractory segment
EPS - FY16E (Rs) - ConsRealizations
-10 -5 Base 5 10
V o l u m e s
-10 230 233 235 237 239
-5 228 230 233 235 237
Base 226 228 231 233 235
5 223 226 228 231 234
10 221 223 226 229 232
Source Company Centrum Research Estimates
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14IFGL Refractories Ltd
Valuation ndash poised for rerating
IFGLrsquos mean EVEBITDA stands at 47x with standard deviation of 26x and we note that the stock pricehas been volatile in last 6-7 years due to sharp fluctuations in earnings which explains the highstandard deviation However we believe that earnings would be more linear going forward asoverseas operations have been stabilised and growth would be driven by expansions at higher marginsubsidiaries of IEL and EI Ceramics At the CMP of Rs142 the stock trades at attractive valuations of 62xFY16E PE and 36x FY16E EVEBITDA and we believe that sharp improvement in free cash flow canlead to rerating in the stock We assign an EVEBITDA of 55x on Marrsquo16E earnings to arrive at a fairvalue of Rs220 and initiate with a Buy The multiple assigned by us remains below mean+05sd andthus provides comfort on historical valuations even though we expect much better earnings trajectoryfor the company going forward
Exhibit 38
EVEBITDA Valuation
(Rs mn) FY16E
EBITDA 1414
Ascribed EVEBITDA (x) 55
EV 7776
Add Net Cash (123)
Fair value mkt cap 7653
No of shares (mn) 346
Fair Valueshare (Rs) 220
Source Company Centrum Research Estimates
Exhibit 39
1-year forward EVEBITDA chart Exhibit 40
1-year forward PE chart
Source Bloomberg Company Centrum Research Estimates Source Bloomberg Company Centrum Research Estimates
Steep valuation discount exists for IFGL compared to global peersComparison of IFGLrsquos valuations with global peers shows that the company is trading at a steepdiscount despite strong fundamentals which we feel is unwarranted We expect re-rating in the stockwith improvement in outlook and stability in earnings
Exhibit 41 Valuationndash Peer comparison
CompanyMkt Cap(US$ mn)
CAGR CY13-CY15E () EBITDA Margin () PE (x) EVEBITDA (x) RoE () Div Yield ()
Rev EBITDA PAT CY13 CY14E CY15E CY13 CY14E CY15E CY13 CY14E CY15E CY13 CY14E CY15E CY13 CY14E CY15E
IFGL Refractories 82 108 136 116 141 143 148 77 72 62 53 46 36 212 190 185 12 14 16
Vesuvius India Ltd 220 110 115 126 184 178 186 203 192 161 110 100 82 164 152 158 07 08 09
Global Peers
RHI AG 1322 29 (02) 318 137 122 129 153 103 89 59 65 57 131 177 180 31 31 35
Vesuvius PLC 2140 04 53 80 117 123 128 149 141 127 86 82 74 93 1 02 108 31 34 36
Magnesita SA 574 122 129 344 156 149 158 157 180 101 60 63 55 21 17 35 15 11 21
Cie de St(Gobain 32544 20 91 32 3 100 107 114 218 181 133 76 68 60 58 76 94 29 30 33
Source Bloomberg Estimates Centrum Research Estimates CY13=FY14 for IFGL and so on
0
2
4
6
810
12
14
J u n - 0 7
O c t - 0 7
F e b - 0 8
J u n - 0 8
O c t - 0 8
F e b - 0 9
J u n - 0 9
O c t - 0 9
F e b - 1 0
J u n - 1 0
O c t - 1 0
F e b - 1 1
J u n - 1 1
O c t - 1 1
F e b - 1 2
J u n - 1 2
O c t - 1 2
F e b - 1 3
J u n - 1 3
O c t - 1 3
F e b - 1 4
J u n - 1 4
EVEBITDA MeanMean + Std Dev Mean - Std Dev
0
5
10
15
20
25
J u n - 0 7
O c t - 0 7
F e b - 0 8
J u n - 0 8
O c t - 0 8
F e b - 0 9
J u n - 0 9
O c t - 0 9
F e b - 1 0
J u n - 1 0
O c t - 1 0
F e b - 1 1
J u n - 1 1
O c t - 1 1
F e b - 1 2
J u n - 1 2
O c t - 1 2
F e b - 1 3
J u n - 1 3
O c t - 1 3
F e b - 1 4
J u n - 1 4
PE MeanMean + Std Dev Mean - Std Dev
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15IFGL Refractories Ltd
IFGL trading at a higher discount to Vesuvius than historical average
IFGL has historically (based on average during JanrsquoCY09-JunersquoCY14) traded at a discount of ~35 toVesuvius India Ltd (VIL) on EVEBITDA basis However currently IFGL is trading at a discount of ~60 toVIL which is unwarranted as the profitability of IFGL is on an uptrend post stabilisation of overseasoperations and IEL The historical discount has seen an increase in the past 3 years due to volatility inearnings of IFGL but with operations having stabilised we see the discount narrowing We also expectIFGL to be above its peers (incl VIL) in terms of ROE for the next few years and see a high cash flowyield of ~12 in FY16E The multiple assigned by us implies ~35 discount to VILrsquos current valuationswhich is in line with the historical average even though IFGL is expected to generate better returnsand free cash flow going forward
Exhibit 42
EVEBITDA ndash IFGL vs Vesuvius India Exhibit 43
Discount of IFGL EVEBITDA vs Vesuvius
Source Bloomberg Company Centrum Research Source Bloomberg Company Centrum Research
0
2
4
6
8
10
12
F e b - 0
9
J u n - 0
9
O c t - 0 9
F e b - 1
0
J u n - 1
0
O c t - 1 0
F e b - 1
1
J u n - 1
1
O c t - 1 1
F e b - 1
2
J u n - 1
2
O c t - 1 2
F e b - 1
3
J u n - 1
3
O c t - 1 3
F e b - 1
4
J u n - 1
4
( x )
EVEBITDA IFGL EVEBITDA Vesuvius
(90)
(60)
(30)
0
30
60
F e b - 0
9
J u n - 0
9
O c t - 0 9
F e b - 1
0
J u n - 1
0
O c t - 1 0
F e b - 1
1
J u n - 1
1
O c t - 1 1
F e b - 1
2
J u n - 1
2
O c t - 1 2
F e b - 1
3
J u n - 1
3
O c t - 1 3
F e b - 1
4
J u n - 1
4
( )
EVEBITDA discount of IFGL vs Vesuvius
Avg discount of IFGL vs Vesuvius
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16IFGL Refractories Ltd
Key risks to our thesis
Dependent on raw material sourcing through imports The industry is dependent on importsof key raw materials like high grade alumina bauxite magnesia silicon carbide etc China is themajor supplier of imports and has imposed heavy taxes on export of raw materials of refractories This has resulted in sharp increase in imported raw material costs IFGL sources ~52 of its raw
materials through imports and remains exposed to increase in costs which can impact its margins Low pricing power due to excess domestic supply and import pressure The industry suffers
from low capacity utilization of ~60 with excess installed capacities (~22 MTPA) and as a resultpricing power is low for refractory makers who are squeezed between raw material suppliers andsteel makers Cheap refractory imports from China have also kept prices in check IFGL does notenjoy as much pricing power as VIL does as customers prefer VIL for its strong brand name andproven track record of providing quality products and services Further increase in competitiveintensity can lead to lower pricing for IFGL in both domestic and export markets
Sharp slowdown in steel industry leading to lower volumes Like any other refractorycompany IFGLrsquos fortunes depend on the steel industry and any slowdown in global economy mayhamper the steel industryrsquos growth and IFGLrsquos volume growth would be more vulnerable as itdoes not have strong relationships like VIL has Sharp slowdown in the steel industry (vs
expectations of recovery) in coming years could lead to lower capacity utilization and lower thanexpected volumes
Currency Fluctuation We believe that steady weakening of rupee over the past couple of yearshas been favourable to the industry as well as for IFGL due to better import substitution andhigher realizations on exports negated only to a partial extent by higher import costs for rawmaterials IFGL has 80 of its revenues coming from overseas on a consolidated basis On astandalone basis approximately 58 of the revenues (FY14) came from exports Companyrsquosrevenues remain exposed to sharp appreciation of rupee against foreign currencies
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17IFGL Refractories Ltd
Exhibit 44
Shareholding pattern ()
Q4FY14 Q3FY14 Q2FY14 Q1FY14
Promoter 713 713 713 713
FIIs 00 00 00 00
DIIs 11 22 22 22
Others 277 265 265 265
Source BSE
Company Background
IFGL Refractories Ltd is a manufacturer of specialisedrefractories and requisite operating systems for the steelIndustry IFGL offers its customers total solution for refractoryfor flow control in steel teeming and continuous casting ofSteel IFGL has 8 manufacturing plants strategically located
across the globe in India China Europe and Americas Thecompany has a presence in over 50 of the global markets Itacquired the Monocon group UK in 2005 (06 Hofmanngroup Germany in 2008 and EI Ceramics USA in 2010 Theseoverseas acquisitions have brought along access to newproducts amp technologies new markets and new customers The company has also set up a subsidiary IFGL exports atKandla Gujarat which also has technical collaboration withKrosaki Harima Corporation Japan Apart from this IFGL alsoplans to expand its capacities in India and abroad over thecoming years
Exhibit 45 Key management personnel
Name Position Profile
Mr S K Bajoria Chairman
Promoter of S K Bajoria Group based at Kolkata engaged in diversified business activitiesHas been honorary vice consul of Denmark in Kolkata president of the Indian chamber ofcommerce director of West Bengal industrial development corporation Ltd and industrialpromotion amp investment corporation of Orissa Ltd
Mr Pradeep Bajoria Managing Director
Associated with IFGL from the very early days of Indo Flogates even before thecommencement of production in 1984 Has been director amp chief executive of erstwhileIndo Flogates Ltd More than 30 years of experience of refractory industry and has beeninvolved in various capacities in Indian refractories makers association
Mr Gian Carlo Cozzani Directorr Monocon UK
Associated with IFGL since Oct 2009 Former president and CEO of Vesuvius (now Vesuviusplc) Instrumental in steering Vesuvius from US$ 100 million to over US$ 1 billion Based inEurope he is a member of IFGLrsquos Core group and a director of Monocon InternationalRefractories Limited UK
Source Company
Exhibit 46
IFGL refractories holding structure
Source Company
10051
983113983110983111983116 983127983151983154983148983140983159983145983140983141 983112983151983148983140983145983150983143 983116983145983149983145983156983141983140
983113983110983111983116 983109983160983152983151983154983156983155 983116983156983140
983117983151983150983151983139983151983150 983111983154983151983157983152 983109983113 983107983141983154983137983149983145983139983155 983112983151983142983149983137983150983150
983107983141983154983137983149983145983139
983124983141983139983144983150983145983139983137983148 983137983150983140 983110983145983150983137983150983139983145983137983148
983107983151983148983148983137983138983151983154983137983156983145983151983150 983151983142
983115983154983151983155983137983147983145 983112983137983154983145983149983137
983107983151983154983152983151983154983137983156983145983151983150983084 983114983137983152983137983150983084
983080983123983157983138983155983145983140983145983137983154983161 983151983142 983118983145983152983152983151983150
983123983156983141983141983148 983107983151983154983152983151983154983137983156983145983151983150983084
983114983137983152983137983150983081
983125983123983105 983125983115 983087 983125983123983105 983087 983107983144983145983150983137
983115983137983150983140983148983137 983123983109983130983084 983111983157983146983137983154983137983156983084 983113983150983140983145983137
983111983141983154983149983137983150983161
983113983110983111983116 983122983141983142983154983137983139983156983151983154983145983141983155 983116983145983149983145983156983141983140
983112983119 983085 983115983151983148983147983137983156983137983084 983113983150983140983145983137
983127983151983154983147983155 983085 983115983137983148983157983150983143983137983084 983119983154983145983155983155983137983084 983113983150983140983145983137
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18IFGL Refractories Ltd
Exhibit 47 Quarterly financials (cons)
YE Mar (Rs mn) Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14
Net sales 1725 1657 1690 1641 1811 2014 1947 2003
Other Operating Income 5 4 0 0 3 0 0 0
Total Income 1729 1662 1690 1641 1814 2014 1947 2003
Accretion to Stocks in trade amp work in progress (29) (10) 4 46 (65) (54) (25) 9
Cost of Raw Materials consumed 840 898 835 581 911 908 817 808
Purchase of traded goods 66 28 42 223 46 73 182 168
Staff Cost 239 234 250 264 247 275 294 281
Other Operational expenses 407 400 375 439 430 513 407 455
Operating Profit (Core EBITDA) 206 112 183 89 246 299 272 282
Depreciation 32 34 35 33 32 34 46 43
EBIT 174 78 149 56 214 265 226 239
Interest 21 22 21 15 17 18 19 16
Other RevenueIncome 16 5 7 8 5 9 6 12
Profit Before Tax 169 61 134 49 202 255 213 236
Tax 50 31 48 31 54 57 68 70
Profit After Tax 119 31 86 18 148 199 145 166
Minority Interest (7) (9) (8) (4) (1) 8 3 8
Profit after minority interest 126 40 95 22 149 191 143 158
Growth (YoY )
Revenue 371 36 61 36 50 216 153 221
EBITDA 129 (457) (125) (477) 195 1672 485 2164
PAT 174 (666) (111) (669) 189 3765 503 6292
Margin ()
EBITDA 119 67 109 54 136 148 140 141
EBIT 100 47 88 34 118 131 116 120
PAT 73 24 56 13 82 95 73 79
Segment Revenue (Net Sales Income from ops)
India 764 749 810 829 872 926 936 941
Asia (excl India) 142 175 160 167 188 213 163 156
Europe 593 545 542 543 612 744 689 764
Americas 405 370 363 344 384 399 427 386
Segment EBIT
India 83 32 84 63 92 103 129 139
Asia (excl India) 8 11 6 9 12 10 5 7
Europe 55 44 51 (4 45 76 74 81Americas 22 13 23 39 38 45 55 36
Source Company Centrum Research
Comments on recent quarterly results
Q4FY14 witnessed a healthy growth with revenue up 221 YoY EBITDA and PAT jumpedsubstantially YoY Margins showed good improvement EBITDA margin expanded by 860 bps YoYOther operating expenses as a proportion of sales reduced to 227 from 267 in Q4FY13 this had apositive impact on margins
Revenue grew 28 QoQ EBITDA amp PAT margins showed signs of consistency further improving fromQ3FY14 European business looks to be on a growth trajectory as revenues have jumped 140 YoYand 11 QoQ Revenue from American segment saw growth of 124 YoY but declined QoQ
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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19IFGL Refractories Ltd
Annexure ndash Refractory Industry
About refractories ndash consumables for manufacturing processes with high temperatures
Refractories are inorganic non-metallic and heterogeneous materials having very high melting pointswhich make them suitable to be used as heat-resisting barriers consumed within various productionprocesses providing heat chemical and mechanical resistance Refractories are mainly of two types ndash
shaped and unshaped (monolithics) and are used mainly by the steel industry as a consumableproduct in the internal linings of furnaces kilns reactors and other vessels for holding andtransporting metal and slag
Shaped refractories are those which have fixed shapes with most common form being rectangularbrick Brick shapes may be divided into two standard shapes and special shapes Standard shapeshave dimensions that are conformed to by most refractory manufacturers and are generally applicableto kilns and furnaces of the same type Special shapes are specifically made for particular kilns andfurnaces Shaped refractories are almost always machine-pressed and possess high uniformity inproperties are expected
Unshaped refractories are without definite form and are only given shape upon application It forms joint less lining and are better known as monolithic refractories They are manufactured in powderform as granular material and known as plastic refractories ramming mixes castables gunning mixesfettling mixes and mortars
The raw materials used to manufacture refractories are broadly classified into clay and non-clay Clayrefractories consist of naturally occurring alumina silicate like fireclay flint clay flint brick and highalumina and are used to produce bricks and insulating refractories Non-clay refractories are madefrom non-clay materials and are further classified into basic (made in the form of bricks from magnesiadolomite chrome etc) extra high alumina mullite (made from kyanite bauxite alumina) siliconcarbide and zircon
Exhibit 48
Refractory share by form Exhibit 49
Refractory share by raw material
Source Industry data Centrum Research Source Industry data Centrum Research
Unshaped45Shaped 55
Clay 65
Non Clay35
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20IFGL Refractories Ltd
Applications of refractories ndash largely used in steel industry for furnace linings
Steel industry accounts for ~60 of refractory consumption globally and ~75 in the domesticmarket In non-metallurgical industries (cement glass lime) the refractories are mostly installed onfired heaters hydrogen reformers cracking furnaces incinerators utility boilers air heaters ductingstacks etc The different areas of the steel manufacturing processes are exposed to differenttemperatures slag and sulphur gases Refractory selection for the lining of a furnace is invariably builtupon a combination of material qualities and brick size to maximize performance Steel industry usesrefractory for diverse applications in blast furnaces coke ovens torpedo ladles and secondary refiningladles
In cement industry refractories are used in the kiln the preheating system and the cooler whichoperate in a very high temperature to protect against heat abrasion and chemical attack Commonrefractory materials used are Dolomite Magnesia-Chrome Spinel Magnesia-Alumina Spinel Fireclayand High Alumina The cement kiln clinker area is usually provided with Dolomite refractories
Non(-errous industries like copper and aluminium require high performance refractories in severalequipments like anode baking furnaces induction furnaces reduction pots slag cleaning surfaces etcGlass industry also requires refractories in refiner regenerator dog-house and ports of furnace
Exhibit 50
Refractories consumption in steel making process
Source Magnesita ppt
Exhibit 51
Refractories consumption in steel making process
Source Vesuvius PLC ppt
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21IFGL Refractories Ltd
Steel industry accounts for ~60 of refractory consumption globally and ~75 in the domesticmarket In non-metallurgical industries (cement glass lime) refractories are mostly installed on firedheaters hydrogen reformers cracking furnaces incinerators utility boilers air heaters ducting stacksetc
Exhibit 52
Sector wise refractories demand - Global Exhibit 53
Sector wise refractories demand - India
Source Industry data Centrum Research Source Industry data Centrum Research
Refractory application consumption and replacement dynamics are shown in the table belowSteelmaking requires maximum amount of refractories (10-15kgstonne) with replacement required ina time period of 20 minutes to 2months Cement industry is the next biggest user with annualreplacement requirement while non-ferrous and glass industries have longer replacement cycles
Exhibit 54
Refractory consumption dynamics across user industries
Key Industry Application Replacement Per tonne consumption Refractory requirements
Steel
BF(BOF EAFCasting LadlesInduction FurnacesPellet rotary Kilns
20 minutes to 2months
Global avg - 10-15KgsIndia avg - 15 Kgs
Consumable product ( Systems and solutions for completerefractory management
Cement Kilns annually 1 KgsInvestment goods ( Longer replacement cycles Customizedsolutions based on the specific requirements of various industrialproduction processes complete lining concepts
Glass Glass Furnace upto 10 years 4 Kgs
Non(Ferrous Converters 1(10 yearsAluminium - 6 KgsCopper - 3 Kgs
Source RHI ppt Centrum Research
Global refractory market size at ~US$25bn expected to grow at ~35 CAGR
According to various industry studies global refractoriesrsquo market size is ~US$25bn with production of415MT in CY12 According to industry estimates the global refractories industry is expected to witnessCAGR of 35 during CY13-16E and grow to 46MT with a market value of US$29bn China accountedfor ~70 of the market by volume and ~60 by value in CY12 whereas India accounts for ~3 of theglobal refractories market by volume
Exhibit 55
Global refractory market size at ~US$25bn Exhibit 56
China accounts for ~70 of the market
CY12 Production (MT) Value (US$ bn)
World 415 25
China 295 143
EU 41 39
North America 14 14
India 13 09
Source Industry Centrum Research Source Industry Centrum Research
6015
15
10 Steel
Non-Metallic (Cement GlassLime)
Non-Ferrous (AluminiumCopper Zinc Silver)
Others (paper ceramicspetrochemicals)
75
12
6 3
4
Steel
Cement
Non-Ferrous
Glass
Others
415
463
25
29
0
10
20
30
40
50
CY12 CY16
Volume (MT) Mkt Value ($ bn)
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22IFGL Refractories Ltd
Domestic refractory demand-supply indicates low industry growth amp import pressure
Demand supply analysis of domestic refractory industry shows that it has been witnessing mutedconsumption growth (due to a fall in per tonne consumption for steel making due to technologicaladvances) and faces strong import pressure with one fourth of the market being serviced by netimports (mainly from cheap supplies from China which accounts for two thirds of refractory imports inIndia) Capacity utilization for the industry remains at ~60 on installed capacity of ~22MT and marketsize is ~US$1bn Domestic refractory consumption in steel has grown at a CAGR of ~2 during FY08-14 We expect industry growth to pick up due to scope for higher steel production (backed by higherinfra spend and expansion in per capita steel consumption) The industry has seen consolidation andacquisitions by global majors in the last five years and organised sector (split between (6 players)accounts for ~65 of the market
Exhibit 57 Refractory demand from domestic steel industry
(In tonne) FY08 FY09 FY10 FY11 FY12 FY13 FY14E FY15E FY16E FY17E
Steel Production (MT) 561 572 606 686 757 817 850 893 946 1012
Growth 20 59 132 103 79 40 50 60 70
Avg Refractory consumption(kgt of crude steel)
188 173 168 16 15 145 140 140 140 140
Refractory consumption (steel) 1054680 989560 1018080 1097600 1135500 1184650 1190000 1249500 1324470 1417183
Growth (62) 29 78 35 43 05 50 60 70
Source Ministry of Steel (MoS) Centrum Research Estimates
Exhibit 58
Organised sector accounts for ~65 of domestic refractory industry
Company RevenueMarket
Share ()
Supply toIntegratedsteel mills
Comments
Vesuvius India Ltd 6017 100 95+Leading supplier with wide product basket strongcustomer relationships with large steel mills
Orient Refractories (RHI) 4035 67 10-15 Has developed a niche with mini steel mills
IFGL Refractories (incl IEL) 3674 61 85+Mainly into flow control shaped refractories goodrelationship with large mills
Tata Refractories 9800 163 Not available Largely into bricks supplies (commodity refractories)
Calderys 6250 104 Not available
Supplies largely to non-ferrous producers strong in
bricks and monolithics
OCL 4056 68 Not available
Total Organized Sector 39332 656
Source Company Centrum Research Estimates
Exhibit 59
Net imports accounts for one fourth of market Exhibit 60
China accounts for two thirds of imports
Source MoS Industry Centrum Research Source MoS Industry Centrum Research
(800000)
(600000)
(400000)
(200000)
0
200000
400000
FY07 FY08 FY09 FY10 FY11 FY12
( T o n n e )
Imports Exports Net Imports
167259
380
167228
647594
551
696 685
10
20
30
40
50
60
70
80
FY07 FY08 FY09 FY10 FY11
Net Imports - share China share in imports
Domestic refractory production growth hasbeen largely flat andcapacity utilization is~60
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23IFGL Refractories Ltd
Financials (Cons)
Exhibit 61
Income Statement
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
Revenues from Operations 6712 7776 8484 9554 10697
Raw Materials consumed 3201 3444 3725 4208 4716
of net sales 477 443 439 440 441
Employee expenses 987 1097 1185 1279 1382
of net sales 147 141 140 134 129
Other operational expenses 1621 1805 2013 2243 2486
of net sales 241 232 237 235 232
Total expenses 6130 6680 7273 8140 9068
of net sales 913 859 857 852 848
EBITDA 582 1096 1210 1414 1630
EBITDA Margin () 87 141 143 148 152
Depreciation amp Amortisation 134 155 174 189 204
EBIT 448 942 1036 1225 1425
Interest expenses 80 70 51 29 6
Other Income 45 34 40 44 484
EBT 413 906 1025 1240 1467
Provision for tax 159 248 307 372 440
Effective tax rate () 386 274 300 300 300Net Profit 254 658 717 868 1027
Less Minority interest (28) 18 32 70 99
Net Profit after MI 282 640 686 798 928
Source Company data Centrum Research Estimates
Exhibit 62 Key Ratios
YE Mar FY13 FY14 FY15E FY16E FY17E
Growth Ratio ()
Revenue 112 159 91 126 120
EBITDA (213) 884 104 168 153
PAT (292) 1269 71 163 163
Margin Ratios ()
PBIT Margin 67 121 122 128 133
PBT Margin 62 116 121 130 137
PAT Margin 42 82 81 84 87
Return Ratios ()
ROE 115 212 190 185 181
ROCE 84 177 175 189 198
ROIC 87 179 178 200 224
Turnover Ratios (days)
Asset turnover ratio (x) 18 19 19 19 19
Debtors 78 78 80 80 80
Inventory 46 49 50 50 50
Creditors 43 45 45 45 45
Net Working capital 74 76 80 80 80
Gearing Ratio (x)
Debt-equity 05 03 02 01 00
Net debt-equity 04 03 02 00 (01)
Current ratio 25 23 24 25 27
Dividend
Dividend per share 15 18 20 23 23
Dividend Payout () 251 124 130 125 107
Dividend Yield () 11 13 15 17 17
Per share Ratios (Rs)
Basic EPS 82 185 198 231 268
Fully diluted EPS 82 185 198 231 268
Book value 709 871 1044 1245 1485
Cash earnings per share 120 230 249 285 327
Valuation (x)
PE 174 77 72 62 53
PBV 20 16 14 11 10
EVEBITDA 102 53 46 36 27
EVSales 07 06 06 05 04
M-CapSales 07 06 06 05 05
Source Company data Centrum Research Estimates
Exhibit 63
Balance Sheet
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
Equity share capital 491 491 491 491 491
Reserves amp surplus 1964 2525 3121 3819 4648
Shareholders fund 2455 3016 3612 4310 5139
Total debt 1142 982 682 382 82
Deferred tax liabilities 65 74 74 74 74
Total Liabilities 3741 4167 4495 4963 5591
Gross block 2474 2656 2906 3156 3406
Less acc depreciation 1276 1430 1605 1794 1998
Net block 1198 1225 1301 1362 1407
Capital work in progress 20 20 20 20 20
Goodwill 1105 1342 1342 1342 1342
Investments 5 5 5 5 5
Inventories 848 1034 1162 1309 1465
Trade Receivables 1427 1658 1859 2094 2345
Cash amp cash equivalents 113 33 69 259 609
Loans amp advances 51 107 116 131 147
Trade payables 799 962 1046 1178 1319
Other current liabilities 166 210 232 262 293Provisions 94 124 139 157 176
Total Assets 3741 4167 4495 4963 5591
Source Company data Centrum Research Estimates
Exhibit 64 Cash Flow
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
PBT 413 906 1025 1240 1467
Interest 72 70 51 29 6
Depreciation 134 155 174 189 204
Increase in debtors (330) (231) (201) (235) (251)
Increase in inventories 7 (186) (128) (147) (157)
Increase in trade payables 46 163 84 132 141
Tax 197 248 307 372 440
Cash flow from operations 183 629 695 799 907
Change in fixed assets (194) (418) (250) (250) (250)
Cash flow from investments (172) (418) (250) (250) (250)
Change in debt 19 (160 (300) (300) (300)
Dividends paid (71) (79) (89) (100) (100)
Interest paid (80) (70) (51) (29) (6)
Cash flow from financing (94) (291) (409) (358) (306)
Net cash flow (81) (81) 36 191 350
Opening cash balance 195 113 33 69 259
Closing cash balance 113 33 69 259 609
Source Company data Centrum Research Estimates
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24IFGL Refractories Ltd
Financials (Cons) - Historical
Exhibit 65
Income Statement
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
Revenues from Operations 3780 3982 4152 4689 6039
Raw Materials consumed 1743 1907 2058 2389 3024
of net sales 461 479 496 509 501
Employee expenses 487 589 539 661 843
of net sales 129 148 130 141 140
Other operational expenses 918 1036 951 1148 1418
of net sales 243 260 229 245 235
Total expenses 3244 3708 3575 4279 5299
of net sales 858 931 861 912 878
EBITDA 536 274 578 411 739
EBITDA Margin () 142 69 139 88 122
Depreciation amp Amortisation 63 74 70 71 123
EBIT 473 200 508 339 617
Interest expenses 82 95 45 56 68
Other Income 18 24 34 43 33
EBT 409 128 497 327 582
Provision for tax 123 67 155 84 183
Effective tax rate () 301 523 311 258 315Net Profit 286 61 343 243 398
Less Minority interest 1 0 0 0 0
Net Profit after MI 285 61 343 243 399
Source Company data Centrum Research Estimates
Exhibit 66 Key Ratios
YE Mar FY08 FY09 FY10 FY11 FY12
Growth Ratio ()
Revenue 171 53 43 129 288
EBITDA 98 (489) 1111 (289) 800
PAT 85 (785) 4586 (292) 642
Margin Ratios ()
PBIT Margin 125 50 122 72 102
PBT Margin 108 32 120 70 96
PAT Margin 75 15 83 52 66
Return Ratios ()
ROE 294 54 250 138 180
ROCE 182 49 169 93 128
ROIC 195 53 183 98 141
Turnover Ratios (days)
Asset turnover ratio (x) 20 18 19 15 17
Debtors 97 55 79 85 69
Inventory 46 47 52 55 52
Creditors 49 23 41 50 44
Net Working capital 105 81 89 93 67
Gearing Ratio (x)
Debt-equity 09 09 06 07 05
Net debt-equity 08 08 05 07 04
Current ratio 29 36 26 25 24
Dividend
Dividend per share 20 00 10 05 15
Dividend Payout () 284 00 118 103 63
Dividend Yield () 15 00 07 04 11
Per share Ratios (Rs)
Basic EPS 82 18 99 70 115
Fully diluted EPS 82 18 99 70 115
Book value 280 328 396 508 641
Cash earnings per share 101 39 119 91 151
Valuation (x)
PE 164 762 136 193 117
PBV 48 41 34 27 21
EVEBITDA 102 203 93 142 76
EVSales 12 12 11 10 08
M-CapSales 12 12 11 10 08
Source Company data Centrum Research Estimates
Exhibit 67
Balance Sheet
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
Equity share capital 346 346 346 491 491
Reserves amp surplus 623 789 1026 1266 1728
Shareholders fund 969 1135 1372 1757 2219
Total debt 869 1003 793 1253 1128
Deferred tax liabilities 41 38 38 40 48
Total Liabilities 1879 2185 2206 3054 3465
Gross block 1456 1948 1966 2738 2238
Less acc depreciation 687 827 864 960 1122
Net block 769 1121 1102 1778 1117
Capital work in progress 46 53 28 21 45
Goodwill 347 594 559 1032 1094
Investments 0 0 4 14 5
Inventories 474 513 592 702 855
Trade Receivables 1001 596 895 1096 1134
Cash amp cash equivalents 77 129 120 100 195
Loans amp advances 152 121 133 152 38
Trade payables 507 256 471 637 729
Other current liabilities 32 90 137 112 194Provisions 102 2 60 60 151
Total Assets 1879 2185 2206 3054 3465
Source Company data Centrum Research Estimates
Exhibit 68 Cash Flow
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
PBT 409 128 497 327 582
Interest 81 96 45 56 59
Depreciation 63 74 75 87 129
Increase in debtors (196) 559 (330) (184) 25
Increase in inventories (72) 35 (79) (77) (135)
Increase in trade payables 82 (304 266 115 67
Tax 119 90 138 70 135
Cash flow from operations 285 814 359 237 520
Change in fixed assets (94) (99) (120) (157) (49)
Cash flow from investments (62 (536 (119 (677 (98
Change in debt (88) 15 (276) 245 (242)
Dividends paid (76) (80) (6) (46) (25)
Interest paid (87) (98) (47) (60) (68)
Cash flow from financing (261) (245) (241) 408 (339)
Net cash flow (43) 24 (8) (29) 94
Opening cash balance 120 77 129 120 100
Closing cash balance 77 129 120 100 195
Source Company data Centrum Research Estimates
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25IFGL Refractories Ltd
Appendix A
Disclaimer
Centrum Broking Limited (ldquoCentrumrdquo) is a full(service Stock Broking Company and a member of The Stock Exchange Mumbai (BSE) and National StockExchange of India Ltd (NSE) Our holding company Centrum Capital Ltd is an investment banker and an underwriter of securities As a group Centrumhas Investment Banking Advisory and other business relationships with a significant percentage of the companies covered by our Research Group Ourresearch professionals provide important inputs into the Groups Investment Banking and other business selection processes
Recipients of this report should assume that our Group is seeking or may seek or will seek Investment Banking advisory project finance or otherbusinesses and may receive commission brokerage fees or other compensation from the company or companies that are the subject of thismaterialreport Our Company and Group companies and their officers directors and employees including the analysts and others involved in thepreparation or issuance of this material and their dependants may on the date of this report or from time to time have long or short positions in actas principal in and buy or sell the securities or derivatives thereof of companies mentioned herein Centrum or its affiliates do not own 1 or more in theequity of this company Our sales people dealers traders and other professionals may provide oral or written market commentary or trading strategies toour clients that reflect opinions that are contrary to the opinions expressed herein and our proprietary trading and investing businesses may makeinvestment decisions that are inconsistent with the recommendations expressed herein We may have earlier issued or may issue in future reports on thecompanies covered herein with recommendations information inconsistent or different those made in this report In reviewing this document youshould be aware that any or all of the foregoing among other things may give rise to or potential conflicts of interest We and our Group may rely oninformation barriers such as Chinese Walls to control the flow of information contained in one or more areas within us or other areas units groups oraffiliates of Centrum Centrum or its affiliates do not make a market in the security of the company for which this report or any report was writtenFurther Centrum or its affiliates did not make a market in the subject companyrsquos securities at the time that the research report was published
This report is for information purposes only and this documentmaterial should not be construed as an offer to sell or the solicitation of an offer to buypurchase or subscribe to any securities and neither this document nor anything contained herein shall form the basis of or be relied upon in connection
with any contract or commitment whatsoever This document does not solicit any action based on the material contained herein It is for the generalinformation of the clients of Centrum Though disseminated to clients simultaneously not all clients may receive this report at the same time Centrumwill not treat recipients as clients by virtue of their receiving this report It does not constitute a personal recommendation or take into account theparticular investment objectives financial situations or needs of individual clients Similarly this document does not have regard to the specificinvestment objectives financial situationcircumstances and the particular needs of any specific person who may receive this document The securitiesdiscussed in this report may not be suitable for all investors The securities described herein may not be eligible for sale in all jurisdictions or to allcategories of investors The countries in which the companies mentioned in this report are organized may have restrictions on investments voting rightsor dealings in securities by nationals of other countries The appropriateness of a particular investment or strategy will depend on an investorsindividual circumstances and objectives Persons who may receive this document should consider and independently evaluate whether it is suitable forhis hertheir particular circumstances and if necessary seek professionalfinancial advice Any such person shall be responsible for conductinghishertheir own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risks involvedin the securities forming the subject matter of this document
The projections and forecasts described in this report were based upon a number of estimates and assumptions and are inherently subject to significantuncertainties and contingencies Projections and forecasts are necessarily speculative in nature and it can be expected that one or more of the estimateson which the projections and forecasts were based will not materialize or will vary significantly from actual results and such variances will likely increase
over time All projections and forecasts described in this report have been prepared solely by the authors of this report independently of the Company These projections and forecasts were not prepared with a view toward compliance with published guidelines or generally accented accountingprinciples No independent accountants have expressed an opinion or any other form of assurance on these projections or forecasts You should notregard the inclusion of the projections and forecasts described herein as a representation or warranty by or on behalf of the Company Centrum theauthors of this report or any other person that these projections or forecasts or their underlying assumptions will be achieved For these reasons youshould only consider the projections and forecasts described in this report after carefully evaluating all of the information in this report including theassumptions underlying such projections and forecasts
The price and value of the investments referred to in this documentmaterial and the income from them may go down as well as up and investors mayrealize losses on any investments Past performance is not a guide for future performance Future returns are not guaranteed and a loss of original capitalmay occur Actual results may differ materially from those set forth in projections Forward (looking statements are not predictions and may be subject tochange without notice Centrum does not provide tax advice to its clients and all investors are strongly advised to consult regarding any potentialinvestment Centrum and its affiliates accept no liabilities for any loss or damage of any kind arising out of the use of this report Foreign currenciesdenominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derived fromthe investment In addition investors in securities such as ADRs the value of which are influenced by foreign currencies effectively assume currency riskCertain transactions including those involving futures options and other derivatives as well as non(investment(grade securities give rise to substantial
risk and are not suitable for all investors Please ensure that you have read and understood the current risk disclosure documents before entering into anyderivative transactions
This reportdocument has been prepared by Centrum based upon information available to the public and sources believed to be reliable Norepresentation or warranty express or implied is made that it is accurate or complete Centrum has reviewed the report and in so far as it includescurrent or historical information it is believed to be reliable although its accuracy and completeness cannot be guaranteed The opinions expressed inthis documentmaterial are subject to change without notice and have no obligation to tell you when opinions or information in this report change
This report or recommendations or information contained herein dodoes not constitute or purport to constitute investment advice in publicly accessiblemedia and should not be reproduced transmitted or published by the recipient The report is for the use and consumption of the recipient only Thispublication may not be distributed to the public used by the public media without the express written consent of Centrum This report or any portionhereof may not be printed sold or distributed without the written consent of Centrum
The distribution of this document in other jurisdictions may be restricted by law and persons into whose possession this document comes should informthemselves about and observe any such restrictions Neither Centrum nor its directors employees agents or representatives shall be liable for anydamages whether direct or indirect incidental special or consequential including lost revenue or lost profits that may arise from or in connection withthe use of the information
This document does not constitute an offer or invitation to subscribe for or purchase or deal in any securities and neither this document nor anythingcontained herein shall form the basis of any contract or commitment whatsoever This document is strictly confidential and is being furnished to yousolely for your information may not be distributed to the press or other media and may not be reproduced or redistributed to any other person Thedistribution of this report in other jurisdictions may be restricted by law and persons into whose possession this report comes should inform themselvesabout and observe any such restrictions By accepting this report you agree to be bound by the fore going limitations No representation is made thatthis report is accurate or complete
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The opinions and projections expressed herein are entirely those of the author and are given as part of the normal research activity of Centrum Brokingand are given as of this date and are subject to change without notice Any opinion estimate or projection herein constitutes a view as of the date of thisreport and there can be no assurance that future results or events will be consistent with any such opinions estimate or projection
This document has not been prepared by or in conjunction with or on behalf of or at the instigation of or by arrangement with the company or any of itsdirectors or any other person Information in this document must not be relied upon as having been authorized or approved by the company or itsdirectors or any other person Any opinions and projections contained herein are entirely those of the authors None of the company or its directors orany other person accepts any liability whatsoever for any loss arising from any use of this document or its contents or otherwise arising in connectiontherewith
Centrum and its affiliates have not managed or co(managed a public offering for the subject company in the preceding twelve months Centrum andaffiliates have not received compensation from the companies mentioned in the report during the period preceding twelve months from the date of thisreport for service in respect of public offerings corporate finance debt restructuring investment banking or other advisory services in amergeracquisition or some other sort of specific transaction
As per the declarations given by them Mr Abhisar Jain research analyst and andor any of his family members do not serve as an officer director or anyway connected to the companycompanies mentioned in this report Further as declared by him he has not received any compensation from the abovecompanies in the preceding twelve months He does not hold any shares by him or through his relatives or in case if holds the shares then will not to doany transactions in the said scrip for 30 days from the date of release such report Our entire research professionals are our employees and are paid asalary They do not have any other material conflict of interest of the research analyst or member of which the research analyst knows of has reason toknow at the time of publication of the research report or at the time of the public appearance
While we would endeavour to update the information herein on a reasonable basis Centrum its associated companies their directors and employees areunder no obligation to update or keep the information current Also there may be regulatory compliance or other reasons that may prevent Centrumfrom doing so
Non(rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable
regulations andor Centrum policies in circumstances where Centrum is acting in an advisory capacity to this company or any certain othercircumstances
This report is not directed to or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality statecountry or other jurisdiction where such distribution publication availability or use would be contrary to law or regulation or which would subjectCentrum Broking Limited or its group companies to any registration or licensing requirement within such jurisdiction Specifically this document doesnot constitute an offer to or solicitation to any US person for the purchase or sale of any financial instrument or as an official confirmation of anytransaction to any US person unless otherwise stated this message should not be construed as official confirmation of any transaction No part of thisdocument may be distributed in Canada or used by private customers in United Kingdom
The information contained herein is not intended for publication or distribution or circulation in any manner whatsoever and any unauthorized readingdissemination distribution or copying of this communication is prohibited unless otherwise expressly authorized Please ensure that you have read ldquoRiskDisclosure Document for Capital Market and Derivatives Segmentsrdquo as prescribed by Securities and Exchange Board of India before investing in IndianSecurities Market
Rating Criteria
Rating Market cap lt Rs20bn Market cap gt Rs20bn but lt 100bn Market cap gt Rs100bn Buy Upside gt 25 Upside gt 20 Upside gt 15
Hold Upside between (25 to +25 Upside between (20 to +20 Upside between (15 to +15
Sell Downside gt 25 Downside gt 20 Downside gt 15
Member (NSE BSE MCX(SX) Depository Participant (CDSL) and SEBI registered Portfolio Manager
Registration Nos
CAPITAL MARKET SEBI REGN NO BSE INB011454239 NSE INB231454233
DERIVATIVES SEBI REGN NO NSE INF231454233 (TRADING amp SELF CLEARING MEMBER)
CDSL DP ID 12200 SEBI REGISTRATION NO IN(DP(CDSL(661(2012
PMS REGISTRATION NO INP000004383
MCX ndash SX (Currency Derivative segment) REGN NO INE261454230
Website wwwcentrumcoin
Investor Grievance Email ID investorgrievancescentrumcoin
Compliance Officer Details
Tel (022) 4215 9413 Email ID compliancecentrumcoin
Centrum Broking Limited
Registered Office Address
Bombay Mutual Building
2nd Floor
Dr D N Road
Fort Mumbai ( 400 001
Correspondence Address
Centrum House
6th Floor CST Road Near Vidya Nagari Marg Kalina
Santacruz (E) Mumbai 400 098
Tel (022) 4215 9000
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14IFGL Refractories Ltd
Valuation ndash poised for rerating
IFGLrsquos mean EVEBITDA stands at 47x with standard deviation of 26x and we note that the stock pricehas been volatile in last 6-7 years due to sharp fluctuations in earnings which explains the highstandard deviation However we believe that earnings would be more linear going forward asoverseas operations have been stabilised and growth would be driven by expansions at higher marginsubsidiaries of IEL and EI Ceramics At the CMP of Rs142 the stock trades at attractive valuations of 62xFY16E PE and 36x FY16E EVEBITDA and we believe that sharp improvement in free cash flow canlead to rerating in the stock We assign an EVEBITDA of 55x on Marrsquo16E earnings to arrive at a fairvalue of Rs220 and initiate with a Buy The multiple assigned by us remains below mean+05sd andthus provides comfort on historical valuations even though we expect much better earnings trajectoryfor the company going forward
Exhibit 38
EVEBITDA Valuation
(Rs mn) FY16E
EBITDA 1414
Ascribed EVEBITDA (x) 55
EV 7776
Add Net Cash (123)
Fair value mkt cap 7653
No of shares (mn) 346
Fair Valueshare (Rs) 220
Source Company Centrum Research Estimates
Exhibit 39
1-year forward EVEBITDA chart Exhibit 40
1-year forward PE chart
Source Bloomberg Company Centrum Research Estimates Source Bloomberg Company Centrum Research Estimates
Steep valuation discount exists for IFGL compared to global peersComparison of IFGLrsquos valuations with global peers shows that the company is trading at a steepdiscount despite strong fundamentals which we feel is unwarranted We expect re-rating in the stockwith improvement in outlook and stability in earnings
Exhibit 41 Valuationndash Peer comparison
CompanyMkt Cap(US$ mn)
CAGR CY13-CY15E () EBITDA Margin () PE (x) EVEBITDA (x) RoE () Div Yield ()
Rev EBITDA PAT CY13 CY14E CY15E CY13 CY14E CY15E CY13 CY14E CY15E CY13 CY14E CY15E CY13 CY14E CY15E
IFGL Refractories 82 108 136 116 141 143 148 77 72 62 53 46 36 212 190 185 12 14 16
Vesuvius India Ltd 220 110 115 126 184 178 186 203 192 161 110 100 82 164 152 158 07 08 09
Global Peers
RHI AG 1322 29 (02) 318 137 122 129 153 103 89 59 65 57 131 177 180 31 31 35
Vesuvius PLC 2140 04 53 80 117 123 128 149 141 127 86 82 74 93 1 02 108 31 34 36
Magnesita SA 574 122 129 344 156 149 158 157 180 101 60 63 55 21 17 35 15 11 21
Cie de St(Gobain 32544 20 91 32 3 100 107 114 218 181 133 76 68 60 58 76 94 29 30 33
Source Bloomberg Estimates Centrum Research Estimates CY13=FY14 for IFGL and so on
0
2
4
6
810
12
14
J u n - 0 7
O c t - 0 7
F e b - 0 8
J u n - 0 8
O c t - 0 8
F e b - 0 9
J u n - 0 9
O c t - 0 9
F e b - 1 0
J u n - 1 0
O c t - 1 0
F e b - 1 1
J u n - 1 1
O c t - 1 1
F e b - 1 2
J u n - 1 2
O c t - 1 2
F e b - 1 3
J u n - 1 3
O c t - 1 3
F e b - 1 4
J u n - 1 4
EVEBITDA MeanMean + Std Dev Mean - Std Dev
0
5
10
15
20
25
J u n - 0 7
O c t - 0 7
F e b - 0 8
J u n - 0 8
O c t - 0 8
F e b - 0 9
J u n - 0 9
O c t - 0 9
F e b - 1 0
J u n - 1 0
O c t - 1 0
F e b - 1 1
J u n - 1 1
O c t - 1 1
F e b - 1 2
J u n - 1 2
O c t - 1 2
F e b - 1 3
J u n - 1 3
O c t - 1 3
F e b - 1 4
J u n - 1 4
PE MeanMean + Std Dev Mean - Std Dev
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15IFGL Refractories Ltd
IFGL trading at a higher discount to Vesuvius than historical average
IFGL has historically (based on average during JanrsquoCY09-JunersquoCY14) traded at a discount of ~35 toVesuvius India Ltd (VIL) on EVEBITDA basis However currently IFGL is trading at a discount of ~60 toVIL which is unwarranted as the profitability of IFGL is on an uptrend post stabilisation of overseasoperations and IEL The historical discount has seen an increase in the past 3 years due to volatility inearnings of IFGL but with operations having stabilised we see the discount narrowing We also expectIFGL to be above its peers (incl VIL) in terms of ROE for the next few years and see a high cash flowyield of ~12 in FY16E The multiple assigned by us implies ~35 discount to VILrsquos current valuationswhich is in line with the historical average even though IFGL is expected to generate better returnsand free cash flow going forward
Exhibit 42
EVEBITDA ndash IFGL vs Vesuvius India Exhibit 43
Discount of IFGL EVEBITDA vs Vesuvius
Source Bloomberg Company Centrum Research Source Bloomberg Company Centrum Research
0
2
4
6
8
10
12
F e b - 0
9
J u n - 0
9
O c t - 0 9
F e b - 1
0
J u n - 1
0
O c t - 1 0
F e b - 1
1
J u n - 1
1
O c t - 1 1
F e b - 1
2
J u n - 1
2
O c t - 1 2
F e b - 1
3
J u n - 1
3
O c t - 1 3
F e b - 1
4
J u n - 1
4
( x )
EVEBITDA IFGL EVEBITDA Vesuvius
(90)
(60)
(30)
0
30
60
F e b - 0
9
J u n - 0
9
O c t - 0 9
F e b - 1
0
J u n - 1
0
O c t - 1 0
F e b - 1
1
J u n - 1
1
O c t - 1 1
F e b - 1
2
J u n - 1
2
O c t - 1 2
F e b - 1
3
J u n - 1
3
O c t - 1 3
F e b - 1
4
J u n - 1
4
( )
EVEBITDA discount of IFGL vs Vesuvius
Avg discount of IFGL vs Vesuvius
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16IFGL Refractories Ltd
Key risks to our thesis
Dependent on raw material sourcing through imports The industry is dependent on importsof key raw materials like high grade alumina bauxite magnesia silicon carbide etc China is themajor supplier of imports and has imposed heavy taxes on export of raw materials of refractories This has resulted in sharp increase in imported raw material costs IFGL sources ~52 of its raw
materials through imports and remains exposed to increase in costs which can impact its margins Low pricing power due to excess domestic supply and import pressure The industry suffers
from low capacity utilization of ~60 with excess installed capacities (~22 MTPA) and as a resultpricing power is low for refractory makers who are squeezed between raw material suppliers andsteel makers Cheap refractory imports from China have also kept prices in check IFGL does notenjoy as much pricing power as VIL does as customers prefer VIL for its strong brand name andproven track record of providing quality products and services Further increase in competitiveintensity can lead to lower pricing for IFGL in both domestic and export markets
Sharp slowdown in steel industry leading to lower volumes Like any other refractorycompany IFGLrsquos fortunes depend on the steel industry and any slowdown in global economy mayhamper the steel industryrsquos growth and IFGLrsquos volume growth would be more vulnerable as itdoes not have strong relationships like VIL has Sharp slowdown in the steel industry (vs
expectations of recovery) in coming years could lead to lower capacity utilization and lower thanexpected volumes
Currency Fluctuation We believe that steady weakening of rupee over the past couple of yearshas been favourable to the industry as well as for IFGL due to better import substitution andhigher realizations on exports negated only to a partial extent by higher import costs for rawmaterials IFGL has 80 of its revenues coming from overseas on a consolidated basis On astandalone basis approximately 58 of the revenues (FY14) came from exports Companyrsquosrevenues remain exposed to sharp appreciation of rupee against foreign currencies
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17IFGL Refractories Ltd
Exhibit 44
Shareholding pattern ()
Q4FY14 Q3FY14 Q2FY14 Q1FY14
Promoter 713 713 713 713
FIIs 00 00 00 00
DIIs 11 22 22 22
Others 277 265 265 265
Source BSE
Company Background
IFGL Refractories Ltd is a manufacturer of specialisedrefractories and requisite operating systems for the steelIndustry IFGL offers its customers total solution for refractoryfor flow control in steel teeming and continuous casting ofSteel IFGL has 8 manufacturing plants strategically located
across the globe in India China Europe and Americas Thecompany has a presence in over 50 of the global markets Itacquired the Monocon group UK in 2005 (06 Hofmanngroup Germany in 2008 and EI Ceramics USA in 2010 Theseoverseas acquisitions have brought along access to newproducts amp technologies new markets and new customers The company has also set up a subsidiary IFGL exports atKandla Gujarat which also has technical collaboration withKrosaki Harima Corporation Japan Apart from this IFGL alsoplans to expand its capacities in India and abroad over thecoming years
Exhibit 45 Key management personnel
Name Position Profile
Mr S K Bajoria Chairman
Promoter of S K Bajoria Group based at Kolkata engaged in diversified business activitiesHas been honorary vice consul of Denmark in Kolkata president of the Indian chamber ofcommerce director of West Bengal industrial development corporation Ltd and industrialpromotion amp investment corporation of Orissa Ltd
Mr Pradeep Bajoria Managing Director
Associated with IFGL from the very early days of Indo Flogates even before thecommencement of production in 1984 Has been director amp chief executive of erstwhileIndo Flogates Ltd More than 30 years of experience of refractory industry and has beeninvolved in various capacities in Indian refractories makers association
Mr Gian Carlo Cozzani Directorr Monocon UK
Associated with IFGL since Oct 2009 Former president and CEO of Vesuvius (now Vesuviusplc) Instrumental in steering Vesuvius from US$ 100 million to over US$ 1 billion Based inEurope he is a member of IFGLrsquos Core group and a director of Monocon InternationalRefractories Limited UK
Source Company
Exhibit 46
IFGL refractories holding structure
Source Company
10051
983113983110983111983116 983127983151983154983148983140983159983145983140983141 983112983151983148983140983145983150983143 983116983145983149983145983156983141983140
983113983110983111983116 983109983160983152983151983154983156983155 983116983156983140
983117983151983150983151983139983151983150 983111983154983151983157983152 983109983113 983107983141983154983137983149983145983139983155 983112983151983142983149983137983150983150
983107983141983154983137983149983145983139
983124983141983139983144983150983145983139983137983148 983137983150983140 983110983145983150983137983150983139983145983137983148
983107983151983148983148983137983138983151983154983137983156983145983151983150 983151983142
983115983154983151983155983137983147983145 983112983137983154983145983149983137
983107983151983154983152983151983154983137983156983145983151983150983084 983114983137983152983137983150983084
983080983123983157983138983155983145983140983145983137983154983161 983151983142 983118983145983152983152983151983150
983123983156983141983141983148 983107983151983154983152983151983154983137983156983145983151983150983084
983114983137983152983137983150983081
983125983123983105 983125983115 983087 983125983123983105 983087 983107983144983145983150983137
983115983137983150983140983148983137 983123983109983130983084 983111983157983146983137983154983137983156983084 983113983150983140983145983137
983111983141983154983149983137983150983161
983113983110983111983116 983122983141983142983154983137983139983156983151983154983145983141983155 983116983145983149983145983156983141983140
983112983119 983085 983115983151983148983147983137983156983137983084 983113983150983140983145983137
983127983151983154983147983155 983085 983115983137983148983157983150983143983137983084 983119983154983145983155983155983137983084 983113983150983140983145983137
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18IFGL Refractories Ltd
Exhibit 47 Quarterly financials (cons)
YE Mar (Rs mn) Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14
Net sales 1725 1657 1690 1641 1811 2014 1947 2003
Other Operating Income 5 4 0 0 3 0 0 0
Total Income 1729 1662 1690 1641 1814 2014 1947 2003
Accretion to Stocks in trade amp work in progress (29) (10) 4 46 (65) (54) (25) 9
Cost of Raw Materials consumed 840 898 835 581 911 908 817 808
Purchase of traded goods 66 28 42 223 46 73 182 168
Staff Cost 239 234 250 264 247 275 294 281
Other Operational expenses 407 400 375 439 430 513 407 455
Operating Profit (Core EBITDA) 206 112 183 89 246 299 272 282
Depreciation 32 34 35 33 32 34 46 43
EBIT 174 78 149 56 214 265 226 239
Interest 21 22 21 15 17 18 19 16
Other RevenueIncome 16 5 7 8 5 9 6 12
Profit Before Tax 169 61 134 49 202 255 213 236
Tax 50 31 48 31 54 57 68 70
Profit After Tax 119 31 86 18 148 199 145 166
Minority Interest (7) (9) (8) (4) (1) 8 3 8
Profit after minority interest 126 40 95 22 149 191 143 158
Growth (YoY )
Revenue 371 36 61 36 50 216 153 221
EBITDA 129 (457) (125) (477) 195 1672 485 2164
PAT 174 (666) (111) (669) 189 3765 503 6292
Margin ()
EBITDA 119 67 109 54 136 148 140 141
EBIT 100 47 88 34 118 131 116 120
PAT 73 24 56 13 82 95 73 79
Segment Revenue (Net Sales Income from ops)
India 764 749 810 829 872 926 936 941
Asia (excl India) 142 175 160 167 188 213 163 156
Europe 593 545 542 543 612 744 689 764
Americas 405 370 363 344 384 399 427 386
Segment EBIT
India 83 32 84 63 92 103 129 139
Asia (excl India) 8 11 6 9 12 10 5 7
Europe 55 44 51 (4 45 76 74 81Americas 22 13 23 39 38 45 55 36
Source Company Centrum Research
Comments on recent quarterly results
Q4FY14 witnessed a healthy growth with revenue up 221 YoY EBITDA and PAT jumpedsubstantially YoY Margins showed good improvement EBITDA margin expanded by 860 bps YoYOther operating expenses as a proportion of sales reduced to 227 from 267 in Q4FY13 this had apositive impact on margins
Revenue grew 28 QoQ EBITDA amp PAT margins showed signs of consistency further improving fromQ3FY14 European business looks to be on a growth trajectory as revenues have jumped 140 YoYand 11 QoQ Revenue from American segment saw growth of 124 YoY but declined QoQ
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19IFGL Refractories Ltd
Annexure ndash Refractory Industry
About refractories ndash consumables for manufacturing processes with high temperatures
Refractories are inorganic non-metallic and heterogeneous materials having very high melting pointswhich make them suitable to be used as heat-resisting barriers consumed within various productionprocesses providing heat chemical and mechanical resistance Refractories are mainly of two types ndash
shaped and unshaped (monolithics) and are used mainly by the steel industry as a consumableproduct in the internal linings of furnaces kilns reactors and other vessels for holding andtransporting metal and slag
Shaped refractories are those which have fixed shapes with most common form being rectangularbrick Brick shapes may be divided into two standard shapes and special shapes Standard shapeshave dimensions that are conformed to by most refractory manufacturers and are generally applicableto kilns and furnaces of the same type Special shapes are specifically made for particular kilns andfurnaces Shaped refractories are almost always machine-pressed and possess high uniformity inproperties are expected
Unshaped refractories are without definite form and are only given shape upon application It forms joint less lining and are better known as monolithic refractories They are manufactured in powderform as granular material and known as plastic refractories ramming mixes castables gunning mixesfettling mixes and mortars
The raw materials used to manufacture refractories are broadly classified into clay and non-clay Clayrefractories consist of naturally occurring alumina silicate like fireclay flint clay flint brick and highalumina and are used to produce bricks and insulating refractories Non-clay refractories are madefrom non-clay materials and are further classified into basic (made in the form of bricks from magnesiadolomite chrome etc) extra high alumina mullite (made from kyanite bauxite alumina) siliconcarbide and zircon
Exhibit 48
Refractory share by form Exhibit 49
Refractory share by raw material
Source Industry data Centrum Research Source Industry data Centrum Research
Unshaped45Shaped 55
Clay 65
Non Clay35
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20IFGL Refractories Ltd
Applications of refractories ndash largely used in steel industry for furnace linings
Steel industry accounts for ~60 of refractory consumption globally and ~75 in the domesticmarket In non-metallurgical industries (cement glass lime) the refractories are mostly installed onfired heaters hydrogen reformers cracking furnaces incinerators utility boilers air heaters ductingstacks etc The different areas of the steel manufacturing processes are exposed to differenttemperatures slag and sulphur gases Refractory selection for the lining of a furnace is invariably builtupon a combination of material qualities and brick size to maximize performance Steel industry usesrefractory for diverse applications in blast furnaces coke ovens torpedo ladles and secondary refiningladles
In cement industry refractories are used in the kiln the preheating system and the cooler whichoperate in a very high temperature to protect against heat abrasion and chemical attack Commonrefractory materials used are Dolomite Magnesia-Chrome Spinel Magnesia-Alumina Spinel Fireclayand High Alumina The cement kiln clinker area is usually provided with Dolomite refractories
Non(-errous industries like copper and aluminium require high performance refractories in severalequipments like anode baking furnaces induction furnaces reduction pots slag cleaning surfaces etcGlass industry also requires refractories in refiner regenerator dog-house and ports of furnace
Exhibit 50
Refractories consumption in steel making process
Source Magnesita ppt
Exhibit 51
Refractories consumption in steel making process
Source Vesuvius PLC ppt
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21IFGL Refractories Ltd
Steel industry accounts for ~60 of refractory consumption globally and ~75 in the domesticmarket In non-metallurgical industries (cement glass lime) refractories are mostly installed on firedheaters hydrogen reformers cracking furnaces incinerators utility boilers air heaters ducting stacksetc
Exhibit 52
Sector wise refractories demand - Global Exhibit 53
Sector wise refractories demand - India
Source Industry data Centrum Research Source Industry data Centrum Research
Refractory application consumption and replacement dynamics are shown in the table belowSteelmaking requires maximum amount of refractories (10-15kgstonne) with replacement required ina time period of 20 minutes to 2months Cement industry is the next biggest user with annualreplacement requirement while non-ferrous and glass industries have longer replacement cycles
Exhibit 54
Refractory consumption dynamics across user industries
Key Industry Application Replacement Per tonne consumption Refractory requirements
Steel
BF(BOF EAFCasting LadlesInduction FurnacesPellet rotary Kilns
20 minutes to 2months
Global avg - 10-15KgsIndia avg - 15 Kgs
Consumable product ( Systems and solutions for completerefractory management
Cement Kilns annually 1 KgsInvestment goods ( Longer replacement cycles Customizedsolutions based on the specific requirements of various industrialproduction processes complete lining concepts
Glass Glass Furnace upto 10 years 4 Kgs
Non(Ferrous Converters 1(10 yearsAluminium - 6 KgsCopper - 3 Kgs
Source RHI ppt Centrum Research
Global refractory market size at ~US$25bn expected to grow at ~35 CAGR
According to various industry studies global refractoriesrsquo market size is ~US$25bn with production of415MT in CY12 According to industry estimates the global refractories industry is expected to witnessCAGR of 35 during CY13-16E and grow to 46MT with a market value of US$29bn China accountedfor ~70 of the market by volume and ~60 by value in CY12 whereas India accounts for ~3 of theglobal refractories market by volume
Exhibit 55
Global refractory market size at ~US$25bn Exhibit 56
China accounts for ~70 of the market
CY12 Production (MT) Value (US$ bn)
World 415 25
China 295 143
EU 41 39
North America 14 14
India 13 09
Source Industry Centrum Research Source Industry Centrum Research
6015
15
10 Steel
Non-Metallic (Cement GlassLime)
Non-Ferrous (AluminiumCopper Zinc Silver)
Others (paper ceramicspetrochemicals)
75
12
6 3
4
Steel
Cement
Non-Ferrous
Glass
Others
415
463
25
29
0
10
20
30
40
50
CY12 CY16
Volume (MT) Mkt Value ($ bn)
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22IFGL Refractories Ltd
Domestic refractory demand-supply indicates low industry growth amp import pressure
Demand supply analysis of domestic refractory industry shows that it has been witnessing mutedconsumption growth (due to a fall in per tonne consumption for steel making due to technologicaladvances) and faces strong import pressure with one fourth of the market being serviced by netimports (mainly from cheap supplies from China which accounts for two thirds of refractory imports inIndia) Capacity utilization for the industry remains at ~60 on installed capacity of ~22MT and marketsize is ~US$1bn Domestic refractory consumption in steel has grown at a CAGR of ~2 during FY08-14 We expect industry growth to pick up due to scope for higher steel production (backed by higherinfra spend and expansion in per capita steel consumption) The industry has seen consolidation andacquisitions by global majors in the last five years and organised sector (split between (6 players)accounts for ~65 of the market
Exhibit 57 Refractory demand from domestic steel industry
(In tonne) FY08 FY09 FY10 FY11 FY12 FY13 FY14E FY15E FY16E FY17E
Steel Production (MT) 561 572 606 686 757 817 850 893 946 1012
Growth 20 59 132 103 79 40 50 60 70
Avg Refractory consumption(kgt of crude steel)
188 173 168 16 15 145 140 140 140 140
Refractory consumption (steel) 1054680 989560 1018080 1097600 1135500 1184650 1190000 1249500 1324470 1417183
Growth (62) 29 78 35 43 05 50 60 70
Source Ministry of Steel (MoS) Centrum Research Estimates
Exhibit 58
Organised sector accounts for ~65 of domestic refractory industry
Company RevenueMarket
Share ()
Supply toIntegratedsteel mills
Comments
Vesuvius India Ltd 6017 100 95+Leading supplier with wide product basket strongcustomer relationships with large steel mills
Orient Refractories (RHI) 4035 67 10-15 Has developed a niche with mini steel mills
IFGL Refractories (incl IEL) 3674 61 85+Mainly into flow control shaped refractories goodrelationship with large mills
Tata Refractories 9800 163 Not available Largely into bricks supplies (commodity refractories)
Calderys 6250 104 Not available
Supplies largely to non-ferrous producers strong in
bricks and monolithics
OCL 4056 68 Not available
Total Organized Sector 39332 656
Source Company Centrum Research Estimates
Exhibit 59
Net imports accounts for one fourth of market Exhibit 60
China accounts for two thirds of imports
Source MoS Industry Centrum Research Source MoS Industry Centrum Research
(800000)
(600000)
(400000)
(200000)
0
200000
400000
FY07 FY08 FY09 FY10 FY11 FY12
( T o n n e )
Imports Exports Net Imports
167259
380
167228
647594
551
696 685
10
20
30
40
50
60
70
80
FY07 FY08 FY09 FY10 FY11
Net Imports - share China share in imports
Domestic refractory production growth hasbeen largely flat andcapacity utilization is~60
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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23IFGL Refractories Ltd
Financials (Cons)
Exhibit 61
Income Statement
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
Revenues from Operations 6712 7776 8484 9554 10697
Raw Materials consumed 3201 3444 3725 4208 4716
of net sales 477 443 439 440 441
Employee expenses 987 1097 1185 1279 1382
of net sales 147 141 140 134 129
Other operational expenses 1621 1805 2013 2243 2486
of net sales 241 232 237 235 232
Total expenses 6130 6680 7273 8140 9068
of net sales 913 859 857 852 848
EBITDA 582 1096 1210 1414 1630
EBITDA Margin () 87 141 143 148 152
Depreciation amp Amortisation 134 155 174 189 204
EBIT 448 942 1036 1225 1425
Interest expenses 80 70 51 29 6
Other Income 45 34 40 44 484
EBT 413 906 1025 1240 1467
Provision for tax 159 248 307 372 440
Effective tax rate () 386 274 300 300 300Net Profit 254 658 717 868 1027
Less Minority interest (28) 18 32 70 99
Net Profit after MI 282 640 686 798 928
Source Company data Centrum Research Estimates
Exhibit 62 Key Ratios
YE Mar FY13 FY14 FY15E FY16E FY17E
Growth Ratio ()
Revenue 112 159 91 126 120
EBITDA (213) 884 104 168 153
PAT (292) 1269 71 163 163
Margin Ratios ()
PBIT Margin 67 121 122 128 133
PBT Margin 62 116 121 130 137
PAT Margin 42 82 81 84 87
Return Ratios ()
ROE 115 212 190 185 181
ROCE 84 177 175 189 198
ROIC 87 179 178 200 224
Turnover Ratios (days)
Asset turnover ratio (x) 18 19 19 19 19
Debtors 78 78 80 80 80
Inventory 46 49 50 50 50
Creditors 43 45 45 45 45
Net Working capital 74 76 80 80 80
Gearing Ratio (x)
Debt-equity 05 03 02 01 00
Net debt-equity 04 03 02 00 (01)
Current ratio 25 23 24 25 27
Dividend
Dividend per share 15 18 20 23 23
Dividend Payout () 251 124 130 125 107
Dividend Yield () 11 13 15 17 17
Per share Ratios (Rs)
Basic EPS 82 185 198 231 268
Fully diluted EPS 82 185 198 231 268
Book value 709 871 1044 1245 1485
Cash earnings per share 120 230 249 285 327
Valuation (x)
PE 174 77 72 62 53
PBV 20 16 14 11 10
EVEBITDA 102 53 46 36 27
EVSales 07 06 06 05 04
M-CapSales 07 06 06 05 05
Source Company data Centrum Research Estimates
Exhibit 63
Balance Sheet
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
Equity share capital 491 491 491 491 491
Reserves amp surplus 1964 2525 3121 3819 4648
Shareholders fund 2455 3016 3612 4310 5139
Total debt 1142 982 682 382 82
Deferred tax liabilities 65 74 74 74 74
Total Liabilities 3741 4167 4495 4963 5591
Gross block 2474 2656 2906 3156 3406
Less acc depreciation 1276 1430 1605 1794 1998
Net block 1198 1225 1301 1362 1407
Capital work in progress 20 20 20 20 20
Goodwill 1105 1342 1342 1342 1342
Investments 5 5 5 5 5
Inventories 848 1034 1162 1309 1465
Trade Receivables 1427 1658 1859 2094 2345
Cash amp cash equivalents 113 33 69 259 609
Loans amp advances 51 107 116 131 147
Trade payables 799 962 1046 1178 1319
Other current liabilities 166 210 232 262 293Provisions 94 124 139 157 176
Total Assets 3741 4167 4495 4963 5591
Source Company data Centrum Research Estimates
Exhibit 64 Cash Flow
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
PBT 413 906 1025 1240 1467
Interest 72 70 51 29 6
Depreciation 134 155 174 189 204
Increase in debtors (330) (231) (201) (235) (251)
Increase in inventories 7 (186) (128) (147) (157)
Increase in trade payables 46 163 84 132 141
Tax 197 248 307 372 440
Cash flow from operations 183 629 695 799 907
Change in fixed assets (194) (418) (250) (250) (250)
Cash flow from investments (172) (418) (250) (250) (250)
Change in debt 19 (160 (300) (300) (300)
Dividends paid (71) (79) (89) (100) (100)
Interest paid (80) (70) (51) (29) (6)
Cash flow from financing (94) (291) (409) (358) (306)
Net cash flow (81) (81) 36 191 350
Opening cash balance 195 113 33 69 259
Closing cash balance 113 33 69 259 609
Source Company data Centrum Research Estimates
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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24IFGL Refractories Ltd
Financials (Cons) - Historical
Exhibit 65
Income Statement
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
Revenues from Operations 3780 3982 4152 4689 6039
Raw Materials consumed 1743 1907 2058 2389 3024
of net sales 461 479 496 509 501
Employee expenses 487 589 539 661 843
of net sales 129 148 130 141 140
Other operational expenses 918 1036 951 1148 1418
of net sales 243 260 229 245 235
Total expenses 3244 3708 3575 4279 5299
of net sales 858 931 861 912 878
EBITDA 536 274 578 411 739
EBITDA Margin () 142 69 139 88 122
Depreciation amp Amortisation 63 74 70 71 123
EBIT 473 200 508 339 617
Interest expenses 82 95 45 56 68
Other Income 18 24 34 43 33
EBT 409 128 497 327 582
Provision for tax 123 67 155 84 183
Effective tax rate () 301 523 311 258 315Net Profit 286 61 343 243 398
Less Minority interest 1 0 0 0 0
Net Profit after MI 285 61 343 243 399
Source Company data Centrum Research Estimates
Exhibit 66 Key Ratios
YE Mar FY08 FY09 FY10 FY11 FY12
Growth Ratio ()
Revenue 171 53 43 129 288
EBITDA 98 (489) 1111 (289) 800
PAT 85 (785) 4586 (292) 642
Margin Ratios ()
PBIT Margin 125 50 122 72 102
PBT Margin 108 32 120 70 96
PAT Margin 75 15 83 52 66
Return Ratios ()
ROE 294 54 250 138 180
ROCE 182 49 169 93 128
ROIC 195 53 183 98 141
Turnover Ratios (days)
Asset turnover ratio (x) 20 18 19 15 17
Debtors 97 55 79 85 69
Inventory 46 47 52 55 52
Creditors 49 23 41 50 44
Net Working capital 105 81 89 93 67
Gearing Ratio (x)
Debt-equity 09 09 06 07 05
Net debt-equity 08 08 05 07 04
Current ratio 29 36 26 25 24
Dividend
Dividend per share 20 00 10 05 15
Dividend Payout () 284 00 118 103 63
Dividend Yield () 15 00 07 04 11
Per share Ratios (Rs)
Basic EPS 82 18 99 70 115
Fully diluted EPS 82 18 99 70 115
Book value 280 328 396 508 641
Cash earnings per share 101 39 119 91 151
Valuation (x)
PE 164 762 136 193 117
PBV 48 41 34 27 21
EVEBITDA 102 203 93 142 76
EVSales 12 12 11 10 08
M-CapSales 12 12 11 10 08
Source Company data Centrum Research Estimates
Exhibit 67
Balance Sheet
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
Equity share capital 346 346 346 491 491
Reserves amp surplus 623 789 1026 1266 1728
Shareholders fund 969 1135 1372 1757 2219
Total debt 869 1003 793 1253 1128
Deferred tax liabilities 41 38 38 40 48
Total Liabilities 1879 2185 2206 3054 3465
Gross block 1456 1948 1966 2738 2238
Less acc depreciation 687 827 864 960 1122
Net block 769 1121 1102 1778 1117
Capital work in progress 46 53 28 21 45
Goodwill 347 594 559 1032 1094
Investments 0 0 4 14 5
Inventories 474 513 592 702 855
Trade Receivables 1001 596 895 1096 1134
Cash amp cash equivalents 77 129 120 100 195
Loans amp advances 152 121 133 152 38
Trade payables 507 256 471 637 729
Other current liabilities 32 90 137 112 194Provisions 102 2 60 60 151
Total Assets 1879 2185 2206 3054 3465
Source Company data Centrum Research Estimates
Exhibit 68 Cash Flow
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
PBT 409 128 497 327 582
Interest 81 96 45 56 59
Depreciation 63 74 75 87 129
Increase in debtors (196) 559 (330) (184) 25
Increase in inventories (72) 35 (79) (77) (135)
Increase in trade payables 82 (304 266 115 67
Tax 119 90 138 70 135
Cash flow from operations 285 814 359 237 520
Change in fixed assets (94) (99) (120) (157) (49)
Cash flow from investments (62 (536 (119 (677 (98
Change in debt (88) 15 (276) 245 (242)
Dividends paid (76) (80) (6) (46) (25)
Interest paid (87) (98) (47) (60) (68)
Cash flow from financing (261) (245) (241) 408 (339)
Net cash flow (43) 24 (8) (29) 94
Opening cash balance 120 77 129 120 100
Closing cash balance 77 129 120 100 195
Source Company data Centrum Research Estimates
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25IFGL Refractories Ltd
Appendix A
Disclaimer
Centrum Broking Limited (ldquoCentrumrdquo) is a full(service Stock Broking Company and a member of The Stock Exchange Mumbai (BSE) and National StockExchange of India Ltd (NSE) Our holding company Centrum Capital Ltd is an investment banker and an underwriter of securities As a group Centrumhas Investment Banking Advisory and other business relationships with a significant percentage of the companies covered by our Research Group Ourresearch professionals provide important inputs into the Groups Investment Banking and other business selection processes
Recipients of this report should assume that our Group is seeking or may seek or will seek Investment Banking advisory project finance or otherbusinesses and may receive commission brokerage fees or other compensation from the company or companies that are the subject of thismaterialreport Our Company and Group companies and their officers directors and employees including the analysts and others involved in thepreparation or issuance of this material and their dependants may on the date of this report or from time to time have long or short positions in actas principal in and buy or sell the securities or derivatives thereof of companies mentioned herein Centrum or its affiliates do not own 1 or more in theequity of this company Our sales people dealers traders and other professionals may provide oral or written market commentary or trading strategies toour clients that reflect opinions that are contrary to the opinions expressed herein and our proprietary trading and investing businesses may makeinvestment decisions that are inconsistent with the recommendations expressed herein We may have earlier issued or may issue in future reports on thecompanies covered herein with recommendations information inconsistent or different those made in this report In reviewing this document youshould be aware that any or all of the foregoing among other things may give rise to or potential conflicts of interest We and our Group may rely oninformation barriers such as Chinese Walls to control the flow of information contained in one or more areas within us or other areas units groups oraffiliates of Centrum Centrum or its affiliates do not make a market in the security of the company for which this report or any report was writtenFurther Centrum or its affiliates did not make a market in the subject companyrsquos securities at the time that the research report was published
This report is for information purposes only and this documentmaterial should not be construed as an offer to sell or the solicitation of an offer to buypurchase or subscribe to any securities and neither this document nor anything contained herein shall form the basis of or be relied upon in connection
with any contract or commitment whatsoever This document does not solicit any action based on the material contained herein It is for the generalinformation of the clients of Centrum Though disseminated to clients simultaneously not all clients may receive this report at the same time Centrumwill not treat recipients as clients by virtue of their receiving this report It does not constitute a personal recommendation or take into account theparticular investment objectives financial situations or needs of individual clients Similarly this document does not have regard to the specificinvestment objectives financial situationcircumstances and the particular needs of any specific person who may receive this document The securitiesdiscussed in this report may not be suitable for all investors The securities described herein may not be eligible for sale in all jurisdictions or to allcategories of investors The countries in which the companies mentioned in this report are organized may have restrictions on investments voting rightsor dealings in securities by nationals of other countries The appropriateness of a particular investment or strategy will depend on an investorsindividual circumstances and objectives Persons who may receive this document should consider and independently evaluate whether it is suitable forhis hertheir particular circumstances and if necessary seek professionalfinancial advice Any such person shall be responsible for conductinghishertheir own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risks involvedin the securities forming the subject matter of this document
The projections and forecasts described in this report were based upon a number of estimates and assumptions and are inherently subject to significantuncertainties and contingencies Projections and forecasts are necessarily speculative in nature and it can be expected that one or more of the estimateson which the projections and forecasts were based will not materialize or will vary significantly from actual results and such variances will likely increase
over time All projections and forecasts described in this report have been prepared solely by the authors of this report independently of the Company These projections and forecasts were not prepared with a view toward compliance with published guidelines or generally accented accountingprinciples No independent accountants have expressed an opinion or any other form of assurance on these projections or forecasts You should notregard the inclusion of the projections and forecasts described herein as a representation or warranty by or on behalf of the Company Centrum theauthors of this report or any other person that these projections or forecasts or their underlying assumptions will be achieved For these reasons youshould only consider the projections and forecasts described in this report after carefully evaluating all of the information in this report including theassumptions underlying such projections and forecasts
The price and value of the investments referred to in this documentmaterial and the income from them may go down as well as up and investors mayrealize losses on any investments Past performance is not a guide for future performance Future returns are not guaranteed and a loss of original capitalmay occur Actual results may differ materially from those set forth in projections Forward (looking statements are not predictions and may be subject tochange without notice Centrum does not provide tax advice to its clients and all investors are strongly advised to consult regarding any potentialinvestment Centrum and its affiliates accept no liabilities for any loss or damage of any kind arising out of the use of this report Foreign currenciesdenominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derived fromthe investment In addition investors in securities such as ADRs the value of which are influenced by foreign currencies effectively assume currency riskCertain transactions including those involving futures options and other derivatives as well as non(investment(grade securities give rise to substantial
risk and are not suitable for all investors Please ensure that you have read and understood the current risk disclosure documents before entering into anyderivative transactions
This reportdocument has been prepared by Centrum based upon information available to the public and sources believed to be reliable Norepresentation or warranty express or implied is made that it is accurate or complete Centrum has reviewed the report and in so far as it includescurrent or historical information it is believed to be reliable although its accuracy and completeness cannot be guaranteed The opinions expressed inthis documentmaterial are subject to change without notice and have no obligation to tell you when opinions or information in this report change
This report or recommendations or information contained herein dodoes not constitute or purport to constitute investment advice in publicly accessiblemedia and should not be reproduced transmitted or published by the recipient The report is for the use and consumption of the recipient only Thispublication may not be distributed to the public used by the public media without the express written consent of Centrum This report or any portionhereof may not be printed sold or distributed without the written consent of Centrum
The distribution of this document in other jurisdictions may be restricted by law and persons into whose possession this document comes should informthemselves about and observe any such restrictions Neither Centrum nor its directors employees agents or representatives shall be liable for anydamages whether direct or indirect incidental special or consequential including lost revenue or lost profits that may arise from or in connection withthe use of the information
This document does not constitute an offer or invitation to subscribe for or purchase or deal in any securities and neither this document nor anythingcontained herein shall form the basis of any contract or commitment whatsoever This document is strictly confidential and is being furnished to yousolely for your information may not be distributed to the press or other media and may not be reproduced or redistributed to any other person Thedistribution of this report in other jurisdictions may be restricted by law and persons into whose possession this report comes should inform themselvesabout and observe any such restrictions By accepting this report you agree to be bound by the fore going limitations No representation is made thatthis report is accurate or complete
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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The opinions and projections expressed herein are entirely those of the author and are given as part of the normal research activity of Centrum Brokingand are given as of this date and are subject to change without notice Any opinion estimate or projection herein constitutes a view as of the date of thisreport and there can be no assurance that future results or events will be consistent with any such opinions estimate or projection
This document has not been prepared by or in conjunction with or on behalf of or at the instigation of or by arrangement with the company or any of itsdirectors or any other person Information in this document must not be relied upon as having been authorized or approved by the company or itsdirectors or any other person Any opinions and projections contained herein are entirely those of the authors None of the company or its directors orany other person accepts any liability whatsoever for any loss arising from any use of this document or its contents or otherwise arising in connectiontherewith
Centrum and its affiliates have not managed or co(managed a public offering for the subject company in the preceding twelve months Centrum andaffiliates have not received compensation from the companies mentioned in the report during the period preceding twelve months from the date of thisreport for service in respect of public offerings corporate finance debt restructuring investment banking or other advisory services in amergeracquisition or some other sort of specific transaction
As per the declarations given by them Mr Abhisar Jain research analyst and andor any of his family members do not serve as an officer director or anyway connected to the companycompanies mentioned in this report Further as declared by him he has not received any compensation from the abovecompanies in the preceding twelve months He does not hold any shares by him or through his relatives or in case if holds the shares then will not to doany transactions in the said scrip for 30 days from the date of release such report Our entire research professionals are our employees and are paid asalary They do not have any other material conflict of interest of the research analyst or member of which the research analyst knows of has reason toknow at the time of publication of the research report or at the time of the public appearance
While we would endeavour to update the information herein on a reasonable basis Centrum its associated companies their directors and employees areunder no obligation to update or keep the information current Also there may be regulatory compliance or other reasons that may prevent Centrumfrom doing so
Non(rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable
regulations andor Centrum policies in circumstances where Centrum is acting in an advisory capacity to this company or any certain othercircumstances
This report is not directed to or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality statecountry or other jurisdiction where such distribution publication availability or use would be contrary to law or regulation or which would subjectCentrum Broking Limited or its group companies to any registration or licensing requirement within such jurisdiction Specifically this document doesnot constitute an offer to or solicitation to any US person for the purchase or sale of any financial instrument or as an official confirmation of anytransaction to any US person unless otherwise stated this message should not be construed as official confirmation of any transaction No part of thisdocument may be distributed in Canada or used by private customers in United Kingdom
The information contained herein is not intended for publication or distribution or circulation in any manner whatsoever and any unauthorized readingdissemination distribution or copying of this communication is prohibited unless otherwise expressly authorized Please ensure that you have read ldquoRiskDisclosure Document for Capital Market and Derivatives Segmentsrdquo as prescribed by Securities and Exchange Board of India before investing in IndianSecurities Market
Rating Criteria
Rating Market cap lt Rs20bn Market cap gt Rs20bn but lt 100bn Market cap gt Rs100bn Buy Upside gt 25 Upside gt 20 Upside gt 15
Hold Upside between (25 to +25 Upside between (20 to +20 Upside between (15 to +15
Sell Downside gt 25 Downside gt 20 Downside gt 15
Member (NSE BSE MCX(SX) Depository Participant (CDSL) and SEBI registered Portfolio Manager
Registration Nos
CAPITAL MARKET SEBI REGN NO BSE INB011454239 NSE INB231454233
DERIVATIVES SEBI REGN NO NSE INF231454233 (TRADING amp SELF CLEARING MEMBER)
CDSL DP ID 12200 SEBI REGISTRATION NO IN(DP(CDSL(661(2012
PMS REGISTRATION NO INP000004383
MCX ndash SX (Currency Derivative segment) REGN NO INE261454230
Website wwwcentrumcoin
Investor Grievance Email ID investorgrievancescentrumcoin
Compliance Officer Details
Tel (022) 4215 9413 Email ID compliancecentrumcoin
Centrum Broking Limited
Registered Office Address
Bombay Mutual Building
2nd Floor
Dr D N Road
Fort Mumbai ( 400 001
Correspondence Address
Centrum House
6th Floor CST Road Near Vidya Nagari Marg Kalina
Santacruz (E) Mumbai 400 098
Tel (022) 4215 9000
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15IFGL Refractories Ltd
IFGL trading at a higher discount to Vesuvius than historical average
IFGL has historically (based on average during JanrsquoCY09-JunersquoCY14) traded at a discount of ~35 toVesuvius India Ltd (VIL) on EVEBITDA basis However currently IFGL is trading at a discount of ~60 toVIL which is unwarranted as the profitability of IFGL is on an uptrend post stabilisation of overseasoperations and IEL The historical discount has seen an increase in the past 3 years due to volatility inearnings of IFGL but with operations having stabilised we see the discount narrowing We also expectIFGL to be above its peers (incl VIL) in terms of ROE for the next few years and see a high cash flowyield of ~12 in FY16E The multiple assigned by us implies ~35 discount to VILrsquos current valuationswhich is in line with the historical average even though IFGL is expected to generate better returnsand free cash flow going forward
Exhibit 42
EVEBITDA ndash IFGL vs Vesuvius India Exhibit 43
Discount of IFGL EVEBITDA vs Vesuvius
Source Bloomberg Company Centrum Research Source Bloomberg Company Centrum Research
0
2
4
6
8
10
12
F e b - 0
9
J u n - 0
9
O c t - 0 9
F e b - 1
0
J u n - 1
0
O c t - 1 0
F e b - 1
1
J u n - 1
1
O c t - 1 1
F e b - 1
2
J u n - 1
2
O c t - 1 2
F e b - 1
3
J u n - 1
3
O c t - 1 3
F e b - 1
4
J u n - 1
4
( x )
EVEBITDA IFGL EVEBITDA Vesuvius
(90)
(60)
(30)
0
30
60
F e b - 0
9
J u n - 0
9
O c t - 0 9
F e b - 1
0
J u n - 1
0
O c t - 1 0
F e b - 1
1
J u n - 1
1
O c t - 1 1
F e b - 1
2
J u n - 1
2
O c t - 1 2
F e b - 1
3
J u n - 1
3
O c t - 1 3
F e b - 1
4
J u n - 1
4
( )
EVEBITDA discount of IFGL vs Vesuvius
Avg discount of IFGL vs Vesuvius
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16IFGL Refractories Ltd
Key risks to our thesis
Dependent on raw material sourcing through imports The industry is dependent on importsof key raw materials like high grade alumina bauxite magnesia silicon carbide etc China is themajor supplier of imports and has imposed heavy taxes on export of raw materials of refractories This has resulted in sharp increase in imported raw material costs IFGL sources ~52 of its raw
materials through imports and remains exposed to increase in costs which can impact its margins Low pricing power due to excess domestic supply and import pressure The industry suffers
from low capacity utilization of ~60 with excess installed capacities (~22 MTPA) and as a resultpricing power is low for refractory makers who are squeezed between raw material suppliers andsteel makers Cheap refractory imports from China have also kept prices in check IFGL does notenjoy as much pricing power as VIL does as customers prefer VIL for its strong brand name andproven track record of providing quality products and services Further increase in competitiveintensity can lead to lower pricing for IFGL in both domestic and export markets
Sharp slowdown in steel industry leading to lower volumes Like any other refractorycompany IFGLrsquos fortunes depend on the steel industry and any slowdown in global economy mayhamper the steel industryrsquos growth and IFGLrsquos volume growth would be more vulnerable as itdoes not have strong relationships like VIL has Sharp slowdown in the steel industry (vs
expectations of recovery) in coming years could lead to lower capacity utilization and lower thanexpected volumes
Currency Fluctuation We believe that steady weakening of rupee over the past couple of yearshas been favourable to the industry as well as for IFGL due to better import substitution andhigher realizations on exports negated only to a partial extent by higher import costs for rawmaterials IFGL has 80 of its revenues coming from overseas on a consolidated basis On astandalone basis approximately 58 of the revenues (FY14) came from exports Companyrsquosrevenues remain exposed to sharp appreciation of rupee against foreign currencies
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17IFGL Refractories Ltd
Exhibit 44
Shareholding pattern ()
Q4FY14 Q3FY14 Q2FY14 Q1FY14
Promoter 713 713 713 713
FIIs 00 00 00 00
DIIs 11 22 22 22
Others 277 265 265 265
Source BSE
Company Background
IFGL Refractories Ltd is a manufacturer of specialisedrefractories and requisite operating systems for the steelIndustry IFGL offers its customers total solution for refractoryfor flow control in steel teeming and continuous casting ofSteel IFGL has 8 manufacturing plants strategically located
across the globe in India China Europe and Americas Thecompany has a presence in over 50 of the global markets Itacquired the Monocon group UK in 2005 (06 Hofmanngroup Germany in 2008 and EI Ceramics USA in 2010 Theseoverseas acquisitions have brought along access to newproducts amp technologies new markets and new customers The company has also set up a subsidiary IFGL exports atKandla Gujarat which also has technical collaboration withKrosaki Harima Corporation Japan Apart from this IFGL alsoplans to expand its capacities in India and abroad over thecoming years
Exhibit 45 Key management personnel
Name Position Profile
Mr S K Bajoria Chairman
Promoter of S K Bajoria Group based at Kolkata engaged in diversified business activitiesHas been honorary vice consul of Denmark in Kolkata president of the Indian chamber ofcommerce director of West Bengal industrial development corporation Ltd and industrialpromotion amp investment corporation of Orissa Ltd
Mr Pradeep Bajoria Managing Director
Associated with IFGL from the very early days of Indo Flogates even before thecommencement of production in 1984 Has been director amp chief executive of erstwhileIndo Flogates Ltd More than 30 years of experience of refractory industry and has beeninvolved in various capacities in Indian refractories makers association
Mr Gian Carlo Cozzani Directorr Monocon UK
Associated with IFGL since Oct 2009 Former president and CEO of Vesuvius (now Vesuviusplc) Instrumental in steering Vesuvius from US$ 100 million to over US$ 1 billion Based inEurope he is a member of IFGLrsquos Core group and a director of Monocon InternationalRefractories Limited UK
Source Company
Exhibit 46
IFGL refractories holding structure
Source Company
10051
983113983110983111983116 983127983151983154983148983140983159983145983140983141 983112983151983148983140983145983150983143 983116983145983149983145983156983141983140
983113983110983111983116 983109983160983152983151983154983156983155 983116983156983140
983117983151983150983151983139983151983150 983111983154983151983157983152 983109983113 983107983141983154983137983149983145983139983155 983112983151983142983149983137983150983150
983107983141983154983137983149983145983139
983124983141983139983144983150983145983139983137983148 983137983150983140 983110983145983150983137983150983139983145983137983148
983107983151983148983148983137983138983151983154983137983156983145983151983150 983151983142
983115983154983151983155983137983147983145 983112983137983154983145983149983137
983107983151983154983152983151983154983137983156983145983151983150983084 983114983137983152983137983150983084
983080983123983157983138983155983145983140983145983137983154983161 983151983142 983118983145983152983152983151983150
983123983156983141983141983148 983107983151983154983152983151983154983137983156983145983151983150983084
983114983137983152983137983150983081
983125983123983105 983125983115 983087 983125983123983105 983087 983107983144983145983150983137
983115983137983150983140983148983137 983123983109983130983084 983111983157983146983137983154983137983156983084 983113983150983140983145983137
983111983141983154983149983137983150983161
983113983110983111983116 983122983141983142983154983137983139983156983151983154983145983141983155 983116983145983149983145983156983141983140
983112983119 983085 983115983151983148983147983137983156983137983084 983113983150983140983145983137
983127983151983154983147983155 983085 983115983137983148983157983150983143983137983084 983119983154983145983155983155983137983084 983113983150983140983145983137
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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18IFGL Refractories Ltd
Exhibit 47 Quarterly financials (cons)
YE Mar (Rs mn) Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14
Net sales 1725 1657 1690 1641 1811 2014 1947 2003
Other Operating Income 5 4 0 0 3 0 0 0
Total Income 1729 1662 1690 1641 1814 2014 1947 2003
Accretion to Stocks in trade amp work in progress (29) (10) 4 46 (65) (54) (25) 9
Cost of Raw Materials consumed 840 898 835 581 911 908 817 808
Purchase of traded goods 66 28 42 223 46 73 182 168
Staff Cost 239 234 250 264 247 275 294 281
Other Operational expenses 407 400 375 439 430 513 407 455
Operating Profit (Core EBITDA) 206 112 183 89 246 299 272 282
Depreciation 32 34 35 33 32 34 46 43
EBIT 174 78 149 56 214 265 226 239
Interest 21 22 21 15 17 18 19 16
Other RevenueIncome 16 5 7 8 5 9 6 12
Profit Before Tax 169 61 134 49 202 255 213 236
Tax 50 31 48 31 54 57 68 70
Profit After Tax 119 31 86 18 148 199 145 166
Minority Interest (7) (9) (8) (4) (1) 8 3 8
Profit after minority interest 126 40 95 22 149 191 143 158
Growth (YoY )
Revenue 371 36 61 36 50 216 153 221
EBITDA 129 (457) (125) (477) 195 1672 485 2164
PAT 174 (666) (111) (669) 189 3765 503 6292
Margin ()
EBITDA 119 67 109 54 136 148 140 141
EBIT 100 47 88 34 118 131 116 120
PAT 73 24 56 13 82 95 73 79
Segment Revenue (Net Sales Income from ops)
India 764 749 810 829 872 926 936 941
Asia (excl India) 142 175 160 167 188 213 163 156
Europe 593 545 542 543 612 744 689 764
Americas 405 370 363 344 384 399 427 386
Segment EBIT
India 83 32 84 63 92 103 129 139
Asia (excl India) 8 11 6 9 12 10 5 7
Europe 55 44 51 (4 45 76 74 81Americas 22 13 23 39 38 45 55 36
Source Company Centrum Research
Comments on recent quarterly results
Q4FY14 witnessed a healthy growth with revenue up 221 YoY EBITDA and PAT jumpedsubstantially YoY Margins showed good improvement EBITDA margin expanded by 860 bps YoYOther operating expenses as a proportion of sales reduced to 227 from 267 in Q4FY13 this had apositive impact on margins
Revenue grew 28 QoQ EBITDA amp PAT margins showed signs of consistency further improving fromQ3FY14 European business looks to be on a growth trajectory as revenues have jumped 140 YoYand 11 QoQ Revenue from American segment saw growth of 124 YoY but declined QoQ
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19IFGL Refractories Ltd
Annexure ndash Refractory Industry
About refractories ndash consumables for manufacturing processes with high temperatures
Refractories are inorganic non-metallic and heterogeneous materials having very high melting pointswhich make them suitable to be used as heat-resisting barriers consumed within various productionprocesses providing heat chemical and mechanical resistance Refractories are mainly of two types ndash
shaped and unshaped (monolithics) and are used mainly by the steel industry as a consumableproduct in the internal linings of furnaces kilns reactors and other vessels for holding andtransporting metal and slag
Shaped refractories are those which have fixed shapes with most common form being rectangularbrick Brick shapes may be divided into two standard shapes and special shapes Standard shapeshave dimensions that are conformed to by most refractory manufacturers and are generally applicableto kilns and furnaces of the same type Special shapes are specifically made for particular kilns andfurnaces Shaped refractories are almost always machine-pressed and possess high uniformity inproperties are expected
Unshaped refractories are without definite form and are only given shape upon application It forms joint less lining and are better known as monolithic refractories They are manufactured in powderform as granular material and known as plastic refractories ramming mixes castables gunning mixesfettling mixes and mortars
The raw materials used to manufacture refractories are broadly classified into clay and non-clay Clayrefractories consist of naturally occurring alumina silicate like fireclay flint clay flint brick and highalumina and are used to produce bricks and insulating refractories Non-clay refractories are madefrom non-clay materials and are further classified into basic (made in the form of bricks from magnesiadolomite chrome etc) extra high alumina mullite (made from kyanite bauxite alumina) siliconcarbide and zircon
Exhibit 48
Refractory share by form Exhibit 49
Refractory share by raw material
Source Industry data Centrum Research Source Industry data Centrum Research
Unshaped45Shaped 55
Clay 65
Non Clay35
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20IFGL Refractories Ltd
Applications of refractories ndash largely used in steel industry for furnace linings
Steel industry accounts for ~60 of refractory consumption globally and ~75 in the domesticmarket In non-metallurgical industries (cement glass lime) the refractories are mostly installed onfired heaters hydrogen reformers cracking furnaces incinerators utility boilers air heaters ductingstacks etc The different areas of the steel manufacturing processes are exposed to differenttemperatures slag and sulphur gases Refractory selection for the lining of a furnace is invariably builtupon a combination of material qualities and brick size to maximize performance Steel industry usesrefractory for diverse applications in blast furnaces coke ovens torpedo ladles and secondary refiningladles
In cement industry refractories are used in the kiln the preheating system and the cooler whichoperate in a very high temperature to protect against heat abrasion and chemical attack Commonrefractory materials used are Dolomite Magnesia-Chrome Spinel Magnesia-Alumina Spinel Fireclayand High Alumina The cement kiln clinker area is usually provided with Dolomite refractories
Non(-errous industries like copper and aluminium require high performance refractories in severalequipments like anode baking furnaces induction furnaces reduction pots slag cleaning surfaces etcGlass industry also requires refractories in refiner regenerator dog-house and ports of furnace
Exhibit 50
Refractories consumption in steel making process
Source Magnesita ppt
Exhibit 51
Refractories consumption in steel making process
Source Vesuvius PLC ppt
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21IFGL Refractories Ltd
Steel industry accounts for ~60 of refractory consumption globally and ~75 in the domesticmarket In non-metallurgical industries (cement glass lime) refractories are mostly installed on firedheaters hydrogen reformers cracking furnaces incinerators utility boilers air heaters ducting stacksetc
Exhibit 52
Sector wise refractories demand - Global Exhibit 53
Sector wise refractories demand - India
Source Industry data Centrum Research Source Industry data Centrum Research
Refractory application consumption and replacement dynamics are shown in the table belowSteelmaking requires maximum amount of refractories (10-15kgstonne) with replacement required ina time period of 20 minutes to 2months Cement industry is the next biggest user with annualreplacement requirement while non-ferrous and glass industries have longer replacement cycles
Exhibit 54
Refractory consumption dynamics across user industries
Key Industry Application Replacement Per tonne consumption Refractory requirements
Steel
BF(BOF EAFCasting LadlesInduction FurnacesPellet rotary Kilns
20 minutes to 2months
Global avg - 10-15KgsIndia avg - 15 Kgs
Consumable product ( Systems and solutions for completerefractory management
Cement Kilns annually 1 KgsInvestment goods ( Longer replacement cycles Customizedsolutions based on the specific requirements of various industrialproduction processes complete lining concepts
Glass Glass Furnace upto 10 years 4 Kgs
Non(Ferrous Converters 1(10 yearsAluminium - 6 KgsCopper - 3 Kgs
Source RHI ppt Centrum Research
Global refractory market size at ~US$25bn expected to grow at ~35 CAGR
According to various industry studies global refractoriesrsquo market size is ~US$25bn with production of415MT in CY12 According to industry estimates the global refractories industry is expected to witnessCAGR of 35 during CY13-16E and grow to 46MT with a market value of US$29bn China accountedfor ~70 of the market by volume and ~60 by value in CY12 whereas India accounts for ~3 of theglobal refractories market by volume
Exhibit 55
Global refractory market size at ~US$25bn Exhibit 56
China accounts for ~70 of the market
CY12 Production (MT) Value (US$ bn)
World 415 25
China 295 143
EU 41 39
North America 14 14
India 13 09
Source Industry Centrum Research Source Industry Centrum Research
6015
15
10 Steel
Non-Metallic (Cement GlassLime)
Non-Ferrous (AluminiumCopper Zinc Silver)
Others (paper ceramicspetrochemicals)
75
12
6 3
4
Steel
Cement
Non-Ferrous
Glass
Others
415
463
25
29
0
10
20
30
40
50
CY12 CY16
Volume (MT) Mkt Value ($ bn)
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22IFGL Refractories Ltd
Domestic refractory demand-supply indicates low industry growth amp import pressure
Demand supply analysis of domestic refractory industry shows that it has been witnessing mutedconsumption growth (due to a fall in per tonne consumption for steel making due to technologicaladvances) and faces strong import pressure with one fourth of the market being serviced by netimports (mainly from cheap supplies from China which accounts for two thirds of refractory imports inIndia) Capacity utilization for the industry remains at ~60 on installed capacity of ~22MT and marketsize is ~US$1bn Domestic refractory consumption in steel has grown at a CAGR of ~2 during FY08-14 We expect industry growth to pick up due to scope for higher steel production (backed by higherinfra spend and expansion in per capita steel consumption) The industry has seen consolidation andacquisitions by global majors in the last five years and organised sector (split between (6 players)accounts for ~65 of the market
Exhibit 57 Refractory demand from domestic steel industry
(In tonne) FY08 FY09 FY10 FY11 FY12 FY13 FY14E FY15E FY16E FY17E
Steel Production (MT) 561 572 606 686 757 817 850 893 946 1012
Growth 20 59 132 103 79 40 50 60 70
Avg Refractory consumption(kgt of crude steel)
188 173 168 16 15 145 140 140 140 140
Refractory consumption (steel) 1054680 989560 1018080 1097600 1135500 1184650 1190000 1249500 1324470 1417183
Growth (62) 29 78 35 43 05 50 60 70
Source Ministry of Steel (MoS) Centrum Research Estimates
Exhibit 58
Organised sector accounts for ~65 of domestic refractory industry
Company RevenueMarket
Share ()
Supply toIntegratedsteel mills
Comments
Vesuvius India Ltd 6017 100 95+Leading supplier with wide product basket strongcustomer relationships with large steel mills
Orient Refractories (RHI) 4035 67 10-15 Has developed a niche with mini steel mills
IFGL Refractories (incl IEL) 3674 61 85+Mainly into flow control shaped refractories goodrelationship with large mills
Tata Refractories 9800 163 Not available Largely into bricks supplies (commodity refractories)
Calderys 6250 104 Not available
Supplies largely to non-ferrous producers strong in
bricks and monolithics
OCL 4056 68 Not available
Total Organized Sector 39332 656
Source Company Centrum Research Estimates
Exhibit 59
Net imports accounts for one fourth of market Exhibit 60
China accounts for two thirds of imports
Source MoS Industry Centrum Research Source MoS Industry Centrum Research
(800000)
(600000)
(400000)
(200000)
0
200000
400000
FY07 FY08 FY09 FY10 FY11 FY12
( T o n n e )
Imports Exports Net Imports
167259
380
167228
647594
551
696 685
10
20
30
40
50
60
70
80
FY07 FY08 FY09 FY10 FY11
Net Imports - share China share in imports
Domestic refractory production growth hasbeen largely flat andcapacity utilization is~60
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23IFGL Refractories Ltd
Financials (Cons)
Exhibit 61
Income Statement
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
Revenues from Operations 6712 7776 8484 9554 10697
Raw Materials consumed 3201 3444 3725 4208 4716
of net sales 477 443 439 440 441
Employee expenses 987 1097 1185 1279 1382
of net sales 147 141 140 134 129
Other operational expenses 1621 1805 2013 2243 2486
of net sales 241 232 237 235 232
Total expenses 6130 6680 7273 8140 9068
of net sales 913 859 857 852 848
EBITDA 582 1096 1210 1414 1630
EBITDA Margin () 87 141 143 148 152
Depreciation amp Amortisation 134 155 174 189 204
EBIT 448 942 1036 1225 1425
Interest expenses 80 70 51 29 6
Other Income 45 34 40 44 484
EBT 413 906 1025 1240 1467
Provision for tax 159 248 307 372 440
Effective tax rate () 386 274 300 300 300Net Profit 254 658 717 868 1027
Less Minority interest (28) 18 32 70 99
Net Profit after MI 282 640 686 798 928
Source Company data Centrum Research Estimates
Exhibit 62 Key Ratios
YE Mar FY13 FY14 FY15E FY16E FY17E
Growth Ratio ()
Revenue 112 159 91 126 120
EBITDA (213) 884 104 168 153
PAT (292) 1269 71 163 163
Margin Ratios ()
PBIT Margin 67 121 122 128 133
PBT Margin 62 116 121 130 137
PAT Margin 42 82 81 84 87
Return Ratios ()
ROE 115 212 190 185 181
ROCE 84 177 175 189 198
ROIC 87 179 178 200 224
Turnover Ratios (days)
Asset turnover ratio (x) 18 19 19 19 19
Debtors 78 78 80 80 80
Inventory 46 49 50 50 50
Creditors 43 45 45 45 45
Net Working capital 74 76 80 80 80
Gearing Ratio (x)
Debt-equity 05 03 02 01 00
Net debt-equity 04 03 02 00 (01)
Current ratio 25 23 24 25 27
Dividend
Dividend per share 15 18 20 23 23
Dividend Payout () 251 124 130 125 107
Dividend Yield () 11 13 15 17 17
Per share Ratios (Rs)
Basic EPS 82 185 198 231 268
Fully diluted EPS 82 185 198 231 268
Book value 709 871 1044 1245 1485
Cash earnings per share 120 230 249 285 327
Valuation (x)
PE 174 77 72 62 53
PBV 20 16 14 11 10
EVEBITDA 102 53 46 36 27
EVSales 07 06 06 05 04
M-CapSales 07 06 06 05 05
Source Company data Centrum Research Estimates
Exhibit 63
Balance Sheet
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
Equity share capital 491 491 491 491 491
Reserves amp surplus 1964 2525 3121 3819 4648
Shareholders fund 2455 3016 3612 4310 5139
Total debt 1142 982 682 382 82
Deferred tax liabilities 65 74 74 74 74
Total Liabilities 3741 4167 4495 4963 5591
Gross block 2474 2656 2906 3156 3406
Less acc depreciation 1276 1430 1605 1794 1998
Net block 1198 1225 1301 1362 1407
Capital work in progress 20 20 20 20 20
Goodwill 1105 1342 1342 1342 1342
Investments 5 5 5 5 5
Inventories 848 1034 1162 1309 1465
Trade Receivables 1427 1658 1859 2094 2345
Cash amp cash equivalents 113 33 69 259 609
Loans amp advances 51 107 116 131 147
Trade payables 799 962 1046 1178 1319
Other current liabilities 166 210 232 262 293Provisions 94 124 139 157 176
Total Assets 3741 4167 4495 4963 5591
Source Company data Centrum Research Estimates
Exhibit 64 Cash Flow
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
PBT 413 906 1025 1240 1467
Interest 72 70 51 29 6
Depreciation 134 155 174 189 204
Increase in debtors (330) (231) (201) (235) (251)
Increase in inventories 7 (186) (128) (147) (157)
Increase in trade payables 46 163 84 132 141
Tax 197 248 307 372 440
Cash flow from operations 183 629 695 799 907
Change in fixed assets (194) (418) (250) (250) (250)
Cash flow from investments (172) (418) (250) (250) (250)
Change in debt 19 (160 (300) (300) (300)
Dividends paid (71) (79) (89) (100) (100)
Interest paid (80) (70) (51) (29) (6)
Cash flow from financing (94) (291) (409) (358) (306)
Net cash flow (81) (81) 36 191 350
Opening cash balance 195 113 33 69 259
Closing cash balance 113 33 69 259 609
Source Company data Centrum Research Estimates
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24IFGL Refractories Ltd
Financials (Cons) - Historical
Exhibit 65
Income Statement
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
Revenues from Operations 3780 3982 4152 4689 6039
Raw Materials consumed 1743 1907 2058 2389 3024
of net sales 461 479 496 509 501
Employee expenses 487 589 539 661 843
of net sales 129 148 130 141 140
Other operational expenses 918 1036 951 1148 1418
of net sales 243 260 229 245 235
Total expenses 3244 3708 3575 4279 5299
of net sales 858 931 861 912 878
EBITDA 536 274 578 411 739
EBITDA Margin () 142 69 139 88 122
Depreciation amp Amortisation 63 74 70 71 123
EBIT 473 200 508 339 617
Interest expenses 82 95 45 56 68
Other Income 18 24 34 43 33
EBT 409 128 497 327 582
Provision for tax 123 67 155 84 183
Effective tax rate () 301 523 311 258 315Net Profit 286 61 343 243 398
Less Minority interest 1 0 0 0 0
Net Profit after MI 285 61 343 243 399
Source Company data Centrum Research Estimates
Exhibit 66 Key Ratios
YE Mar FY08 FY09 FY10 FY11 FY12
Growth Ratio ()
Revenue 171 53 43 129 288
EBITDA 98 (489) 1111 (289) 800
PAT 85 (785) 4586 (292) 642
Margin Ratios ()
PBIT Margin 125 50 122 72 102
PBT Margin 108 32 120 70 96
PAT Margin 75 15 83 52 66
Return Ratios ()
ROE 294 54 250 138 180
ROCE 182 49 169 93 128
ROIC 195 53 183 98 141
Turnover Ratios (days)
Asset turnover ratio (x) 20 18 19 15 17
Debtors 97 55 79 85 69
Inventory 46 47 52 55 52
Creditors 49 23 41 50 44
Net Working capital 105 81 89 93 67
Gearing Ratio (x)
Debt-equity 09 09 06 07 05
Net debt-equity 08 08 05 07 04
Current ratio 29 36 26 25 24
Dividend
Dividend per share 20 00 10 05 15
Dividend Payout () 284 00 118 103 63
Dividend Yield () 15 00 07 04 11
Per share Ratios (Rs)
Basic EPS 82 18 99 70 115
Fully diluted EPS 82 18 99 70 115
Book value 280 328 396 508 641
Cash earnings per share 101 39 119 91 151
Valuation (x)
PE 164 762 136 193 117
PBV 48 41 34 27 21
EVEBITDA 102 203 93 142 76
EVSales 12 12 11 10 08
M-CapSales 12 12 11 10 08
Source Company data Centrum Research Estimates
Exhibit 67
Balance Sheet
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
Equity share capital 346 346 346 491 491
Reserves amp surplus 623 789 1026 1266 1728
Shareholders fund 969 1135 1372 1757 2219
Total debt 869 1003 793 1253 1128
Deferred tax liabilities 41 38 38 40 48
Total Liabilities 1879 2185 2206 3054 3465
Gross block 1456 1948 1966 2738 2238
Less acc depreciation 687 827 864 960 1122
Net block 769 1121 1102 1778 1117
Capital work in progress 46 53 28 21 45
Goodwill 347 594 559 1032 1094
Investments 0 0 4 14 5
Inventories 474 513 592 702 855
Trade Receivables 1001 596 895 1096 1134
Cash amp cash equivalents 77 129 120 100 195
Loans amp advances 152 121 133 152 38
Trade payables 507 256 471 637 729
Other current liabilities 32 90 137 112 194Provisions 102 2 60 60 151
Total Assets 1879 2185 2206 3054 3465
Source Company data Centrum Research Estimates
Exhibit 68 Cash Flow
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
PBT 409 128 497 327 582
Interest 81 96 45 56 59
Depreciation 63 74 75 87 129
Increase in debtors (196) 559 (330) (184) 25
Increase in inventories (72) 35 (79) (77) (135)
Increase in trade payables 82 (304 266 115 67
Tax 119 90 138 70 135
Cash flow from operations 285 814 359 237 520
Change in fixed assets (94) (99) (120) (157) (49)
Cash flow from investments (62 (536 (119 (677 (98
Change in debt (88) 15 (276) 245 (242)
Dividends paid (76) (80) (6) (46) (25)
Interest paid (87) (98) (47) (60) (68)
Cash flow from financing (261) (245) (241) 408 (339)
Net cash flow (43) 24 (8) (29) 94
Opening cash balance 120 77 129 120 100
Closing cash balance 77 129 120 100 195
Source Company data Centrum Research Estimates
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25IFGL Refractories Ltd
Appendix A
Disclaimer
Centrum Broking Limited (ldquoCentrumrdquo) is a full(service Stock Broking Company and a member of The Stock Exchange Mumbai (BSE) and National StockExchange of India Ltd (NSE) Our holding company Centrum Capital Ltd is an investment banker and an underwriter of securities As a group Centrumhas Investment Banking Advisory and other business relationships with a significant percentage of the companies covered by our Research Group Ourresearch professionals provide important inputs into the Groups Investment Banking and other business selection processes
Recipients of this report should assume that our Group is seeking or may seek or will seek Investment Banking advisory project finance or otherbusinesses and may receive commission brokerage fees or other compensation from the company or companies that are the subject of thismaterialreport Our Company and Group companies and their officers directors and employees including the analysts and others involved in thepreparation or issuance of this material and their dependants may on the date of this report or from time to time have long or short positions in actas principal in and buy or sell the securities or derivatives thereof of companies mentioned herein Centrum or its affiliates do not own 1 or more in theequity of this company Our sales people dealers traders and other professionals may provide oral or written market commentary or trading strategies toour clients that reflect opinions that are contrary to the opinions expressed herein and our proprietary trading and investing businesses may makeinvestment decisions that are inconsistent with the recommendations expressed herein We may have earlier issued or may issue in future reports on thecompanies covered herein with recommendations information inconsistent or different those made in this report In reviewing this document youshould be aware that any or all of the foregoing among other things may give rise to or potential conflicts of interest We and our Group may rely oninformation barriers such as Chinese Walls to control the flow of information contained in one or more areas within us or other areas units groups oraffiliates of Centrum Centrum or its affiliates do not make a market in the security of the company for which this report or any report was writtenFurther Centrum or its affiliates did not make a market in the subject companyrsquos securities at the time that the research report was published
This report is for information purposes only and this documentmaterial should not be construed as an offer to sell or the solicitation of an offer to buypurchase or subscribe to any securities and neither this document nor anything contained herein shall form the basis of or be relied upon in connection
with any contract or commitment whatsoever This document does not solicit any action based on the material contained herein It is for the generalinformation of the clients of Centrum Though disseminated to clients simultaneously not all clients may receive this report at the same time Centrumwill not treat recipients as clients by virtue of their receiving this report It does not constitute a personal recommendation or take into account theparticular investment objectives financial situations or needs of individual clients Similarly this document does not have regard to the specificinvestment objectives financial situationcircumstances and the particular needs of any specific person who may receive this document The securitiesdiscussed in this report may not be suitable for all investors The securities described herein may not be eligible for sale in all jurisdictions or to allcategories of investors The countries in which the companies mentioned in this report are organized may have restrictions on investments voting rightsor dealings in securities by nationals of other countries The appropriateness of a particular investment or strategy will depend on an investorsindividual circumstances and objectives Persons who may receive this document should consider and independently evaluate whether it is suitable forhis hertheir particular circumstances and if necessary seek professionalfinancial advice Any such person shall be responsible for conductinghishertheir own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risks involvedin the securities forming the subject matter of this document
The projections and forecasts described in this report were based upon a number of estimates and assumptions and are inherently subject to significantuncertainties and contingencies Projections and forecasts are necessarily speculative in nature and it can be expected that one or more of the estimateson which the projections and forecasts were based will not materialize or will vary significantly from actual results and such variances will likely increase
over time All projections and forecasts described in this report have been prepared solely by the authors of this report independently of the Company These projections and forecasts were not prepared with a view toward compliance with published guidelines or generally accented accountingprinciples No independent accountants have expressed an opinion or any other form of assurance on these projections or forecasts You should notregard the inclusion of the projections and forecasts described herein as a representation or warranty by or on behalf of the Company Centrum theauthors of this report or any other person that these projections or forecasts or their underlying assumptions will be achieved For these reasons youshould only consider the projections and forecasts described in this report after carefully evaluating all of the information in this report including theassumptions underlying such projections and forecasts
The price and value of the investments referred to in this documentmaterial and the income from them may go down as well as up and investors mayrealize losses on any investments Past performance is not a guide for future performance Future returns are not guaranteed and a loss of original capitalmay occur Actual results may differ materially from those set forth in projections Forward (looking statements are not predictions and may be subject tochange without notice Centrum does not provide tax advice to its clients and all investors are strongly advised to consult regarding any potentialinvestment Centrum and its affiliates accept no liabilities for any loss or damage of any kind arising out of the use of this report Foreign currenciesdenominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derived fromthe investment In addition investors in securities such as ADRs the value of which are influenced by foreign currencies effectively assume currency riskCertain transactions including those involving futures options and other derivatives as well as non(investment(grade securities give rise to substantial
risk and are not suitable for all investors Please ensure that you have read and understood the current risk disclosure documents before entering into anyderivative transactions
This reportdocument has been prepared by Centrum based upon information available to the public and sources believed to be reliable Norepresentation or warranty express or implied is made that it is accurate or complete Centrum has reviewed the report and in so far as it includescurrent or historical information it is believed to be reliable although its accuracy and completeness cannot be guaranteed The opinions expressed inthis documentmaterial are subject to change without notice and have no obligation to tell you when opinions or information in this report change
This report or recommendations or information contained herein dodoes not constitute or purport to constitute investment advice in publicly accessiblemedia and should not be reproduced transmitted or published by the recipient The report is for the use and consumption of the recipient only Thispublication may not be distributed to the public used by the public media without the express written consent of Centrum This report or any portionhereof may not be printed sold or distributed without the written consent of Centrum
The distribution of this document in other jurisdictions may be restricted by law and persons into whose possession this document comes should informthemselves about and observe any such restrictions Neither Centrum nor its directors employees agents or representatives shall be liable for anydamages whether direct or indirect incidental special or consequential including lost revenue or lost profits that may arise from or in connection withthe use of the information
This document does not constitute an offer or invitation to subscribe for or purchase or deal in any securities and neither this document nor anythingcontained herein shall form the basis of any contract or commitment whatsoever This document is strictly confidential and is being furnished to yousolely for your information may not be distributed to the press or other media and may not be reproduced or redistributed to any other person Thedistribution of this report in other jurisdictions may be restricted by law and persons into whose possession this report comes should inform themselvesabout and observe any such restrictions By accepting this report you agree to be bound by the fore going limitations No representation is made thatthis report is accurate or complete
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The opinions and projections expressed herein are entirely those of the author and are given as part of the normal research activity of Centrum Brokingand are given as of this date and are subject to change without notice Any opinion estimate or projection herein constitutes a view as of the date of thisreport and there can be no assurance that future results or events will be consistent with any such opinions estimate or projection
This document has not been prepared by or in conjunction with or on behalf of or at the instigation of or by arrangement with the company or any of itsdirectors or any other person Information in this document must not be relied upon as having been authorized or approved by the company or itsdirectors or any other person Any opinions and projections contained herein are entirely those of the authors None of the company or its directors orany other person accepts any liability whatsoever for any loss arising from any use of this document or its contents or otherwise arising in connectiontherewith
Centrum and its affiliates have not managed or co(managed a public offering for the subject company in the preceding twelve months Centrum andaffiliates have not received compensation from the companies mentioned in the report during the period preceding twelve months from the date of thisreport for service in respect of public offerings corporate finance debt restructuring investment banking or other advisory services in amergeracquisition or some other sort of specific transaction
As per the declarations given by them Mr Abhisar Jain research analyst and andor any of his family members do not serve as an officer director or anyway connected to the companycompanies mentioned in this report Further as declared by him he has not received any compensation from the abovecompanies in the preceding twelve months He does not hold any shares by him or through his relatives or in case if holds the shares then will not to doany transactions in the said scrip for 30 days from the date of release such report Our entire research professionals are our employees and are paid asalary They do not have any other material conflict of interest of the research analyst or member of which the research analyst knows of has reason toknow at the time of publication of the research report or at the time of the public appearance
While we would endeavour to update the information herein on a reasonable basis Centrum its associated companies their directors and employees areunder no obligation to update or keep the information current Also there may be regulatory compliance or other reasons that may prevent Centrumfrom doing so
Non(rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable
regulations andor Centrum policies in circumstances where Centrum is acting in an advisory capacity to this company or any certain othercircumstances
This report is not directed to or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality statecountry or other jurisdiction where such distribution publication availability or use would be contrary to law or regulation or which would subjectCentrum Broking Limited or its group companies to any registration or licensing requirement within such jurisdiction Specifically this document doesnot constitute an offer to or solicitation to any US person for the purchase or sale of any financial instrument or as an official confirmation of anytransaction to any US person unless otherwise stated this message should not be construed as official confirmation of any transaction No part of thisdocument may be distributed in Canada or used by private customers in United Kingdom
The information contained herein is not intended for publication or distribution or circulation in any manner whatsoever and any unauthorized readingdissemination distribution or copying of this communication is prohibited unless otherwise expressly authorized Please ensure that you have read ldquoRiskDisclosure Document for Capital Market and Derivatives Segmentsrdquo as prescribed by Securities and Exchange Board of India before investing in IndianSecurities Market
Rating Criteria
Rating Market cap lt Rs20bn Market cap gt Rs20bn but lt 100bn Market cap gt Rs100bn Buy Upside gt 25 Upside gt 20 Upside gt 15
Hold Upside between (25 to +25 Upside between (20 to +20 Upside between (15 to +15
Sell Downside gt 25 Downside gt 20 Downside gt 15
Member (NSE BSE MCX(SX) Depository Participant (CDSL) and SEBI registered Portfolio Manager
Registration Nos
CAPITAL MARKET SEBI REGN NO BSE INB011454239 NSE INB231454233
DERIVATIVES SEBI REGN NO NSE INF231454233 (TRADING amp SELF CLEARING MEMBER)
CDSL DP ID 12200 SEBI REGISTRATION NO IN(DP(CDSL(661(2012
PMS REGISTRATION NO INP000004383
MCX ndash SX (Currency Derivative segment) REGN NO INE261454230
Website wwwcentrumcoin
Investor Grievance Email ID investorgrievancescentrumcoin
Compliance Officer Details
Tel (022) 4215 9413 Email ID compliancecentrumcoin
Centrum Broking Limited
Registered Office Address
Bombay Mutual Building
2nd Floor
Dr D N Road
Fort Mumbai ( 400 001
Correspondence Address
Centrum House
6th Floor CST Road Near Vidya Nagari Marg Kalina
Santacruz (E) Mumbai 400 098
Tel (022) 4215 9000
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16IFGL Refractories Ltd
Key risks to our thesis
Dependent on raw material sourcing through imports The industry is dependent on importsof key raw materials like high grade alumina bauxite magnesia silicon carbide etc China is themajor supplier of imports and has imposed heavy taxes on export of raw materials of refractories This has resulted in sharp increase in imported raw material costs IFGL sources ~52 of its raw
materials through imports and remains exposed to increase in costs which can impact its margins Low pricing power due to excess domestic supply and import pressure The industry suffers
from low capacity utilization of ~60 with excess installed capacities (~22 MTPA) and as a resultpricing power is low for refractory makers who are squeezed between raw material suppliers andsteel makers Cheap refractory imports from China have also kept prices in check IFGL does notenjoy as much pricing power as VIL does as customers prefer VIL for its strong brand name andproven track record of providing quality products and services Further increase in competitiveintensity can lead to lower pricing for IFGL in both domestic and export markets
Sharp slowdown in steel industry leading to lower volumes Like any other refractorycompany IFGLrsquos fortunes depend on the steel industry and any slowdown in global economy mayhamper the steel industryrsquos growth and IFGLrsquos volume growth would be more vulnerable as itdoes not have strong relationships like VIL has Sharp slowdown in the steel industry (vs
expectations of recovery) in coming years could lead to lower capacity utilization and lower thanexpected volumes
Currency Fluctuation We believe that steady weakening of rupee over the past couple of yearshas been favourable to the industry as well as for IFGL due to better import substitution andhigher realizations on exports negated only to a partial extent by higher import costs for rawmaterials IFGL has 80 of its revenues coming from overseas on a consolidated basis On astandalone basis approximately 58 of the revenues (FY14) came from exports Companyrsquosrevenues remain exposed to sharp appreciation of rupee against foreign currencies
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17IFGL Refractories Ltd
Exhibit 44
Shareholding pattern ()
Q4FY14 Q3FY14 Q2FY14 Q1FY14
Promoter 713 713 713 713
FIIs 00 00 00 00
DIIs 11 22 22 22
Others 277 265 265 265
Source BSE
Company Background
IFGL Refractories Ltd is a manufacturer of specialisedrefractories and requisite operating systems for the steelIndustry IFGL offers its customers total solution for refractoryfor flow control in steel teeming and continuous casting ofSteel IFGL has 8 manufacturing plants strategically located
across the globe in India China Europe and Americas Thecompany has a presence in over 50 of the global markets Itacquired the Monocon group UK in 2005 (06 Hofmanngroup Germany in 2008 and EI Ceramics USA in 2010 Theseoverseas acquisitions have brought along access to newproducts amp technologies new markets and new customers The company has also set up a subsidiary IFGL exports atKandla Gujarat which also has technical collaboration withKrosaki Harima Corporation Japan Apart from this IFGL alsoplans to expand its capacities in India and abroad over thecoming years
Exhibit 45 Key management personnel
Name Position Profile
Mr S K Bajoria Chairman
Promoter of S K Bajoria Group based at Kolkata engaged in diversified business activitiesHas been honorary vice consul of Denmark in Kolkata president of the Indian chamber ofcommerce director of West Bengal industrial development corporation Ltd and industrialpromotion amp investment corporation of Orissa Ltd
Mr Pradeep Bajoria Managing Director
Associated with IFGL from the very early days of Indo Flogates even before thecommencement of production in 1984 Has been director amp chief executive of erstwhileIndo Flogates Ltd More than 30 years of experience of refractory industry and has beeninvolved in various capacities in Indian refractories makers association
Mr Gian Carlo Cozzani Directorr Monocon UK
Associated with IFGL since Oct 2009 Former president and CEO of Vesuvius (now Vesuviusplc) Instrumental in steering Vesuvius from US$ 100 million to over US$ 1 billion Based inEurope he is a member of IFGLrsquos Core group and a director of Monocon InternationalRefractories Limited UK
Source Company
Exhibit 46
IFGL refractories holding structure
Source Company
10051
983113983110983111983116 983127983151983154983148983140983159983145983140983141 983112983151983148983140983145983150983143 983116983145983149983145983156983141983140
983113983110983111983116 983109983160983152983151983154983156983155 983116983156983140
983117983151983150983151983139983151983150 983111983154983151983157983152 983109983113 983107983141983154983137983149983145983139983155 983112983151983142983149983137983150983150
983107983141983154983137983149983145983139
983124983141983139983144983150983145983139983137983148 983137983150983140 983110983145983150983137983150983139983145983137983148
983107983151983148983148983137983138983151983154983137983156983145983151983150 983151983142
983115983154983151983155983137983147983145 983112983137983154983145983149983137
983107983151983154983152983151983154983137983156983145983151983150983084 983114983137983152983137983150983084
983080983123983157983138983155983145983140983145983137983154983161 983151983142 983118983145983152983152983151983150
983123983156983141983141983148 983107983151983154983152983151983154983137983156983145983151983150983084
983114983137983152983137983150983081
983125983123983105 983125983115 983087 983125983123983105 983087 983107983144983145983150983137
983115983137983150983140983148983137 983123983109983130983084 983111983157983146983137983154983137983156983084 983113983150983140983145983137
983111983141983154983149983137983150983161
983113983110983111983116 983122983141983142983154983137983139983156983151983154983145983141983155 983116983145983149983145983156983141983140
983112983119 983085 983115983151983148983147983137983156983137983084 983113983150983140983145983137
983127983151983154983147983155 983085 983115983137983148983157983150983143983137983084 983119983154983145983155983155983137983084 983113983150983140983145983137
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18IFGL Refractories Ltd
Exhibit 47 Quarterly financials (cons)
YE Mar (Rs mn) Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14
Net sales 1725 1657 1690 1641 1811 2014 1947 2003
Other Operating Income 5 4 0 0 3 0 0 0
Total Income 1729 1662 1690 1641 1814 2014 1947 2003
Accretion to Stocks in trade amp work in progress (29) (10) 4 46 (65) (54) (25) 9
Cost of Raw Materials consumed 840 898 835 581 911 908 817 808
Purchase of traded goods 66 28 42 223 46 73 182 168
Staff Cost 239 234 250 264 247 275 294 281
Other Operational expenses 407 400 375 439 430 513 407 455
Operating Profit (Core EBITDA) 206 112 183 89 246 299 272 282
Depreciation 32 34 35 33 32 34 46 43
EBIT 174 78 149 56 214 265 226 239
Interest 21 22 21 15 17 18 19 16
Other RevenueIncome 16 5 7 8 5 9 6 12
Profit Before Tax 169 61 134 49 202 255 213 236
Tax 50 31 48 31 54 57 68 70
Profit After Tax 119 31 86 18 148 199 145 166
Minority Interest (7) (9) (8) (4) (1) 8 3 8
Profit after minority interest 126 40 95 22 149 191 143 158
Growth (YoY )
Revenue 371 36 61 36 50 216 153 221
EBITDA 129 (457) (125) (477) 195 1672 485 2164
PAT 174 (666) (111) (669) 189 3765 503 6292
Margin ()
EBITDA 119 67 109 54 136 148 140 141
EBIT 100 47 88 34 118 131 116 120
PAT 73 24 56 13 82 95 73 79
Segment Revenue (Net Sales Income from ops)
India 764 749 810 829 872 926 936 941
Asia (excl India) 142 175 160 167 188 213 163 156
Europe 593 545 542 543 612 744 689 764
Americas 405 370 363 344 384 399 427 386
Segment EBIT
India 83 32 84 63 92 103 129 139
Asia (excl India) 8 11 6 9 12 10 5 7
Europe 55 44 51 (4 45 76 74 81Americas 22 13 23 39 38 45 55 36
Source Company Centrum Research
Comments on recent quarterly results
Q4FY14 witnessed a healthy growth with revenue up 221 YoY EBITDA and PAT jumpedsubstantially YoY Margins showed good improvement EBITDA margin expanded by 860 bps YoYOther operating expenses as a proportion of sales reduced to 227 from 267 in Q4FY13 this had apositive impact on margins
Revenue grew 28 QoQ EBITDA amp PAT margins showed signs of consistency further improving fromQ3FY14 European business looks to be on a growth trajectory as revenues have jumped 140 YoYand 11 QoQ Revenue from American segment saw growth of 124 YoY but declined QoQ
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19IFGL Refractories Ltd
Annexure ndash Refractory Industry
About refractories ndash consumables for manufacturing processes with high temperatures
Refractories are inorganic non-metallic and heterogeneous materials having very high melting pointswhich make them suitable to be used as heat-resisting barriers consumed within various productionprocesses providing heat chemical and mechanical resistance Refractories are mainly of two types ndash
shaped and unshaped (monolithics) and are used mainly by the steel industry as a consumableproduct in the internal linings of furnaces kilns reactors and other vessels for holding andtransporting metal and slag
Shaped refractories are those which have fixed shapes with most common form being rectangularbrick Brick shapes may be divided into two standard shapes and special shapes Standard shapeshave dimensions that are conformed to by most refractory manufacturers and are generally applicableto kilns and furnaces of the same type Special shapes are specifically made for particular kilns andfurnaces Shaped refractories are almost always machine-pressed and possess high uniformity inproperties are expected
Unshaped refractories are without definite form and are only given shape upon application It forms joint less lining and are better known as monolithic refractories They are manufactured in powderform as granular material and known as plastic refractories ramming mixes castables gunning mixesfettling mixes and mortars
The raw materials used to manufacture refractories are broadly classified into clay and non-clay Clayrefractories consist of naturally occurring alumina silicate like fireclay flint clay flint brick and highalumina and are used to produce bricks and insulating refractories Non-clay refractories are madefrom non-clay materials and are further classified into basic (made in the form of bricks from magnesiadolomite chrome etc) extra high alumina mullite (made from kyanite bauxite alumina) siliconcarbide and zircon
Exhibit 48
Refractory share by form Exhibit 49
Refractory share by raw material
Source Industry data Centrum Research Source Industry data Centrum Research
Unshaped45Shaped 55
Clay 65
Non Clay35
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20IFGL Refractories Ltd
Applications of refractories ndash largely used in steel industry for furnace linings
Steel industry accounts for ~60 of refractory consumption globally and ~75 in the domesticmarket In non-metallurgical industries (cement glass lime) the refractories are mostly installed onfired heaters hydrogen reformers cracking furnaces incinerators utility boilers air heaters ductingstacks etc The different areas of the steel manufacturing processes are exposed to differenttemperatures slag and sulphur gases Refractory selection for the lining of a furnace is invariably builtupon a combination of material qualities and brick size to maximize performance Steel industry usesrefractory for diverse applications in blast furnaces coke ovens torpedo ladles and secondary refiningladles
In cement industry refractories are used in the kiln the preheating system and the cooler whichoperate in a very high temperature to protect against heat abrasion and chemical attack Commonrefractory materials used are Dolomite Magnesia-Chrome Spinel Magnesia-Alumina Spinel Fireclayand High Alumina The cement kiln clinker area is usually provided with Dolomite refractories
Non(-errous industries like copper and aluminium require high performance refractories in severalequipments like anode baking furnaces induction furnaces reduction pots slag cleaning surfaces etcGlass industry also requires refractories in refiner regenerator dog-house and ports of furnace
Exhibit 50
Refractories consumption in steel making process
Source Magnesita ppt
Exhibit 51
Refractories consumption in steel making process
Source Vesuvius PLC ppt
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21IFGL Refractories Ltd
Steel industry accounts for ~60 of refractory consumption globally and ~75 in the domesticmarket In non-metallurgical industries (cement glass lime) refractories are mostly installed on firedheaters hydrogen reformers cracking furnaces incinerators utility boilers air heaters ducting stacksetc
Exhibit 52
Sector wise refractories demand - Global Exhibit 53
Sector wise refractories demand - India
Source Industry data Centrum Research Source Industry data Centrum Research
Refractory application consumption and replacement dynamics are shown in the table belowSteelmaking requires maximum amount of refractories (10-15kgstonne) with replacement required ina time period of 20 minutes to 2months Cement industry is the next biggest user with annualreplacement requirement while non-ferrous and glass industries have longer replacement cycles
Exhibit 54
Refractory consumption dynamics across user industries
Key Industry Application Replacement Per tonne consumption Refractory requirements
Steel
BF(BOF EAFCasting LadlesInduction FurnacesPellet rotary Kilns
20 minutes to 2months
Global avg - 10-15KgsIndia avg - 15 Kgs
Consumable product ( Systems and solutions for completerefractory management
Cement Kilns annually 1 KgsInvestment goods ( Longer replacement cycles Customizedsolutions based on the specific requirements of various industrialproduction processes complete lining concepts
Glass Glass Furnace upto 10 years 4 Kgs
Non(Ferrous Converters 1(10 yearsAluminium - 6 KgsCopper - 3 Kgs
Source RHI ppt Centrum Research
Global refractory market size at ~US$25bn expected to grow at ~35 CAGR
According to various industry studies global refractoriesrsquo market size is ~US$25bn with production of415MT in CY12 According to industry estimates the global refractories industry is expected to witnessCAGR of 35 during CY13-16E and grow to 46MT with a market value of US$29bn China accountedfor ~70 of the market by volume and ~60 by value in CY12 whereas India accounts for ~3 of theglobal refractories market by volume
Exhibit 55
Global refractory market size at ~US$25bn Exhibit 56
China accounts for ~70 of the market
CY12 Production (MT) Value (US$ bn)
World 415 25
China 295 143
EU 41 39
North America 14 14
India 13 09
Source Industry Centrum Research Source Industry Centrum Research
6015
15
10 Steel
Non-Metallic (Cement GlassLime)
Non-Ferrous (AluminiumCopper Zinc Silver)
Others (paper ceramicspetrochemicals)
75
12
6 3
4
Steel
Cement
Non-Ferrous
Glass
Others
415
463
25
29
0
10
20
30
40
50
CY12 CY16
Volume (MT) Mkt Value ($ bn)
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22IFGL Refractories Ltd
Domestic refractory demand-supply indicates low industry growth amp import pressure
Demand supply analysis of domestic refractory industry shows that it has been witnessing mutedconsumption growth (due to a fall in per tonne consumption for steel making due to technologicaladvances) and faces strong import pressure with one fourth of the market being serviced by netimports (mainly from cheap supplies from China which accounts for two thirds of refractory imports inIndia) Capacity utilization for the industry remains at ~60 on installed capacity of ~22MT and marketsize is ~US$1bn Domestic refractory consumption in steel has grown at a CAGR of ~2 during FY08-14 We expect industry growth to pick up due to scope for higher steel production (backed by higherinfra spend and expansion in per capita steel consumption) The industry has seen consolidation andacquisitions by global majors in the last five years and organised sector (split between (6 players)accounts for ~65 of the market
Exhibit 57 Refractory demand from domestic steel industry
(In tonne) FY08 FY09 FY10 FY11 FY12 FY13 FY14E FY15E FY16E FY17E
Steel Production (MT) 561 572 606 686 757 817 850 893 946 1012
Growth 20 59 132 103 79 40 50 60 70
Avg Refractory consumption(kgt of crude steel)
188 173 168 16 15 145 140 140 140 140
Refractory consumption (steel) 1054680 989560 1018080 1097600 1135500 1184650 1190000 1249500 1324470 1417183
Growth (62) 29 78 35 43 05 50 60 70
Source Ministry of Steel (MoS) Centrum Research Estimates
Exhibit 58
Organised sector accounts for ~65 of domestic refractory industry
Company RevenueMarket
Share ()
Supply toIntegratedsteel mills
Comments
Vesuvius India Ltd 6017 100 95+Leading supplier with wide product basket strongcustomer relationships with large steel mills
Orient Refractories (RHI) 4035 67 10-15 Has developed a niche with mini steel mills
IFGL Refractories (incl IEL) 3674 61 85+Mainly into flow control shaped refractories goodrelationship with large mills
Tata Refractories 9800 163 Not available Largely into bricks supplies (commodity refractories)
Calderys 6250 104 Not available
Supplies largely to non-ferrous producers strong in
bricks and monolithics
OCL 4056 68 Not available
Total Organized Sector 39332 656
Source Company Centrum Research Estimates
Exhibit 59
Net imports accounts for one fourth of market Exhibit 60
China accounts for two thirds of imports
Source MoS Industry Centrum Research Source MoS Industry Centrum Research
(800000)
(600000)
(400000)
(200000)
0
200000
400000
FY07 FY08 FY09 FY10 FY11 FY12
( T o n n e )
Imports Exports Net Imports
167259
380
167228
647594
551
696 685
10
20
30
40
50
60
70
80
FY07 FY08 FY09 FY10 FY11
Net Imports - share China share in imports
Domestic refractory production growth hasbeen largely flat andcapacity utilization is~60
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23IFGL Refractories Ltd
Financials (Cons)
Exhibit 61
Income Statement
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
Revenues from Operations 6712 7776 8484 9554 10697
Raw Materials consumed 3201 3444 3725 4208 4716
of net sales 477 443 439 440 441
Employee expenses 987 1097 1185 1279 1382
of net sales 147 141 140 134 129
Other operational expenses 1621 1805 2013 2243 2486
of net sales 241 232 237 235 232
Total expenses 6130 6680 7273 8140 9068
of net sales 913 859 857 852 848
EBITDA 582 1096 1210 1414 1630
EBITDA Margin () 87 141 143 148 152
Depreciation amp Amortisation 134 155 174 189 204
EBIT 448 942 1036 1225 1425
Interest expenses 80 70 51 29 6
Other Income 45 34 40 44 484
EBT 413 906 1025 1240 1467
Provision for tax 159 248 307 372 440
Effective tax rate () 386 274 300 300 300Net Profit 254 658 717 868 1027
Less Minority interest (28) 18 32 70 99
Net Profit after MI 282 640 686 798 928
Source Company data Centrum Research Estimates
Exhibit 62 Key Ratios
YE Mar FY13 FY14 FY15E FY16E FY17E
Growth Ratio ()
Revenue 112 159 91 126 120
EBITDA (213) 884 104 168 153
PAT (292) 1269 71 163 163
Margin Ratios ()
PBIT Margin 67 121 122 128 133
PBT Margin 62 116 121 130 137
PAT Margin 42 82 81 84 87
Return Ratios ()
ROE 115 212 190 185 181
ROCE 84 177 175 189 198
ROIC 87 179 178 200 224
Turnover Ratios (days)
Asset turnover ratio (x) 18 19 19 19 19
Debtors 78 78 80 80 80
Inventory 46 49 50 50 50
Creditors 43 45 45 45 45
Net Working capital 74 76 80 80 80
Gearing Ratio (x)
Debt-equity 05 03 02 01 00
Net debt-equity 04 03 02 00 (01)
Current ratio 25 23 24 25 27
Dividend
Dividend per share 15 18 20 23 23
Dividend Payout () 251 124 130 125 107
Dividend Yield () 11 13 15 17 17
Per share Ratios (Rs)
Basic EPS 82 185 198 231 268
Fully diluted EPS 82 185 198 231 268
Book value 709 871 1044 1245 1485
Cash earnings per share 120 230 249 285 327
Valuation (x)
PE 174 77 72 62 53
PBV 20 16 14 11 10
EVEBITDA 102 53 46 36 27
EVSales 07 06 06 05 04
M-CapSales 07 06 06 05 05
Source Company data Centrum Research Estimates
Exhibit 63
Balance Sheet
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
Equity share capital 491 491 491 491 491
Reserves amp surplus 1964 2525 3121 3819 4648
Shareholders fund 2455 3016 3612 4310 5139
Total debt 1142 982 682 382 82
Deferred tax liabilities 65 74 74 74 74
Total Liabilities 3741 4167 4495 4963 5591
Gross block 2474 2656 2906 3156 3406
Less acc depreciation 1276 1430 1605 1794 1998
Net block 1198 1225 1301 1362 1407
Capital work in progress 20 20 20 20 20
Goodwill 1105 1342 1342 1342 1342
Investments 5 5 5 5 5
Inventories 848 1034 1162 1309 1465
Trade Receivables 1427 1658 1859 2094 2345
Cash amp cash equivalents 113 33 69 259 609
Loans amp advances 51 107 116 131 147
Trade payables 799 962 1046 1178 1319
Other current liabilities 166 210 232 262 293Provisions 94 124 139 157 176
Total Assets 3741 4167 4495 4963 5591
Source Company data Centrum Research Estimates
Exhibit 64 Cash Flow
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
PBT 413 906 1025 1240 1467
Interest 72 70 51 29 6
Depreciation 134 155 174 189 204
Increase in debtors (330) (231) (201) (235) (251)
Increase in inventories 7 (186) (128) (147) (157)
Increase in trade payables 46 163 84 132 141
Tax 197 248 307 372 440
Cash flow from operations 183 629 695 799 907
Change in fixed assets (194) (418) (250) (250) (250)
Cash flow from investments (172) (418) (250) (250) (250)
Change in debt 19 (160 (300) (300) (300)
Dividends paid (71) (79) (89) (100) (100)
Interest paid (80) (70) (51) (29) (6)
Cash flow from financing (94) (291) (409) (358) (306)
Net cash flow (81) (81) 36 191 350
Opening cash balance 195 113 33 69 259
Closing cash balance 113 33 69 259 609
Source Company data Centrum Research Estimates
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24IFGL Refractories Ltd
Financials (Cons) - Historical
Exhibit 65
Income Statement
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
Revenues from Operations 3780 3982 4152 4689 6039
Raw Materials consumed 1743 1907 2058 2389 3024
of net sales 461 479 496 509 501
Employee expenses 487 589 539 661 843
of net sales 129 148 130 141 140
Other operational expenses 918 1036 951 1148 1418
of net sales 243 260 229 245 235
Total expenses 3244 3708 3575 4279 5299
of net sales 858 931 861 912 878
EBITDA 536 274 578 411 739
EBITDA Margin () 142 69 139 88 122
Depreciation amp Amortisation 63 74 70 71 123
EBIT 473 200 508 339 617
Interest expenses 82 95 45 56 68
Other Income 18 24 34 43 33
EBT 409 128 497 327 582
Provision for tax 123 67 155 84 183
Effective tax rate () 301 523 311 258 315Net Profit 286 61 343 243 398
Less Minority interest 1 0 0 0 0
Net Profit after MI 285 61 343 243 399
Source Company data Centrum Research Estimates
Exhibit 66 Key Ratios
YE Mar FY08 FY09 FY10 FY11 FY12
Growth Ratio ()
Revenue 171 53 43 129 288
EBITDA 98 (489) 1111 (289) 800
PAT 85 (785) 4586 (292) 642
Margin Ratios ()
PBIT Margin 125 50 122 72 102
PBT Margin 108 32 120 70 96
PAT Margin 75 15 83 52 66
Return Ratios ()
ROE 294 54 250 138 180
ROCE 182 49 169 93 128
ROIC 195 53 183 98 141
Turnover Ratios (days)
Asset turnover ratio (x) 20 18 19 15 17
Debtors 97 55 79 85 69
Inventory 46 47 52 55 52
Creditors 49 23 41 50 44
Net Working capital 105 81 89 93 67
Gearing Ratio (x)
Debt-equity 09 09 06 07 05
Net debt-equity 08 08 05 07 04
Current ratio 29 36 26 25 24
Dividend
Dividend per share 20 00 10 05 15
Dividend Payout () 284 00 118 103 63
Dividend Yield () 15 00 07 04 11
Per share Ratios (Rs)
Basic EPS 82 18 99 70 115
Fully diluted EPS 82 18 99 70 115
Book value 280 328 396 508 641
Cash earnings per share 101 39 119 91 151
Valuation (x)
PE 164 762 136 193 117
PBV 48 41 34 27 21
EVEBITDA 102 203 93 142 76
EVSales 12 12 11 10 08
M-CapSales 12 12 11 10 08
Source Company data Centrum Research Estimates
Exhibit 67
Balance Sheet
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
Equity share capital 346 346 346 491 491
Reserves amp surplus 623 789 1026 1266 1728
Shareholders fund 969 1135 1372 1757 2219
Total debt 869 1003 793 1253 1128
Deferred tax liabilities 41 38 38 40 48
Total Liabilities 1879 2185 2206 3054 3465
Gross block 1456 1948 1966 2738 2238
Less acc depreciation 687 827 864 960 1122
Net block 769 1121 1102 1778 1117
Capital work in progress 46 53 28 21 45
Goodwill 347 594 559 1032 1094
Investments 0 0 4 14 5
Inventories 474 513 592 702 855
Trade Receivables 1001 596 895 1096 1134
Cash amp cash equivalents 77 129 120 100 195
Loans amp advances 152 121 133 152 38
Trade payables 507 256 471 637 729
Other current liabilities 32 90 137 112 194Provisions 102 2 60 60 151
Total Assets 1879 2185 2206 3054 3465
Source Company data Centrum Research Estimates
Exhibit 68 Cash Flow
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
PBT 409 128 497 327 582
Interest 81 96 45 56 59
Depreciation 63 74 75 87 129
Increase in debtors (196) 559 (330) (184) 25
Increase in inventories (72) 35 (79) (77) (135)
Increase in trade payables 82 (304 266 115 67
Tax 119 90 138 70 135
Cash flow from operations 285 814 359 237 520
Change in fixed assets (94) (99) (120) (157) (49)
Cash flow from investments (62 (536 (119 (677 (98
Change in debt (88) 15 (276) 245 (242)
Dividends paid (76) (80) (6) (46) (25)
Interest paid (87) (98) (47) (60) (68)
Cash flow from financing (261) (245) (241) 408 (339)
Net cash flow (43) 24 (8) (29) 94
Opening cash balance 120 77 129 120 100
Closing cash balance 77 129 120 100 195
Source Company data Centrum Research Estimates
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25IFGL Refractories Ltd
Appendix A
Disclaimer
Centrum Broking Limited (ldquoCentrumrdquo) is a full(service Stock Broking Company and a member of The Stock Exchange Mumbai (BSE) and National StockExchange of India Ltd (NSE) Our holding company Centrum Capital Ltd is an investment banker and an underwriter of securities As a group Centrumhas Investment Banking Advisory and other business relationships with a significant percentage of the companies covered by our Research Group Ourresearch professionals provide important inputs into the Groups Investment Banking and other business selection processes
Recipients of this report should assume that our Group is seeking or may seek or will seek Investment Banking advisory project finance or otherbusinesses and may receive commission brokerage fees or other compensation from the company or companies that are the subject of thismaterialreport Our Company and Group companies and their officers directors and employees including the analysts and others involved in thepreparation or issuance of this material and their dependants may on the date of this report or from time to time have long or short positions in actas principal in and buy or sell the securities or derivatives thereof of companies mentioned herein Centrum or its affiliates do not own 1 or more in theequity of this company Our sales people dealers traders and other professionals may provide oral or written market commentary or trading strategies toour clients that reflect opinions that are contrary to the opinions expressed herein and our proprietary trading and investing businesses may makeinvestment decisions that are inconsistent with the recommendations expressed herein We may have earlier issued or may issue in future reports on thecompanies covered herein with recommendations information inconsistent or different those made in this report In reviewing this document youshould be aware that any or all of the foregoing among other things may give rise to or potential conflicts of interest We and our Group may rely oninformation barriers such as Chinese Walls to control the flow of information contained in one or more areas within us or other areas units groups oraffiliates of Centrum Centrum or its affiliates do not make a market in the security of the company for which this report or any report was writtenFurther Centrum or its affiliates did not make a market in the subject companyrsquos securities at the time that the research report was published
This report is for information purposes only and this documentmaterial should not be construed as an offer to sell or the solicitation of an offer to buypurchase or subscribe to any securities and neither this document nor anything contained herein shall form the basis of or be relied upon in connection
with any contract or commitment whatsoever This document does not solicit any action based on the material contained herein It is for the generalinformation of the clients of Centrum Though disseminated to clients simultaneously not all clients may receive this report at the same time Centrumwill not treat recipients as clients by virtue of their receiving this report It does not constitute a personal recommendation or take into account theparticular investment objectives financial situations or needs of individual clients Similarly this document does not have regard to the specificinvestment objectives financial situationcircumstances and the particular needs of any specific person who may receive this document The securitiesdiscussed in this report may not be suitable for all investors The securities described herein may not be eligible for sale in all jurisdictions or to allcategories of investors The countries in which the companies mentioned in this report are organized may have restrictions on investments voting rightsor dealings in securities by nationals of other countries The appropriateness of a particular investment or strategy will depend on an investorsindividual circumstances and objectives Persons who may receive this document should consider and independently evaluate whether it is suitable forhis hertheir particular circumstances and if necessary seek professionalfinancial advice Any such person shall be responsible for conductinghishertheir own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risks involvedin the securities forming the subject matter of this document
The projections and forecasts described in this report were based upon a number of estimates and assumptions and are inherently subject to significantuncertainties and contingencies Projections and forecasts are necessarily speculative in nature and it can be expected that one or more of the estimateson which the projections and forecasts were based will not materialize or will vary significantly from actual results and such variances will likely increase
over time All projections and forecasts described in this report have been prepared solely by the authors of this report independently of the Company These projections and forecasts were not prepared with a view toward compliance with published guidelines or generally accented accountingprinciples No independent accountants have expressed an opinion or any other form of assurance on these projections or forecasts You should notregard the inclusion of the projections and forecasts described herein as a representation or warranty by or on behalf of the Company Centrum theauthors of this report or any other person that these projections or forecasts or their underlying assumptions will be achieved For these reasons youshould only consider the projections and forecasts described in this report after carefully evaluating all of the information in this report including theassumptions underlying such projections and forecasts
The price and value of the investments referred to in this documentmaterial and the income from them may go down as well as up and investors mayrealize losses on any investments Past performance is not a guide for future performance Future returns are not guaranteed and a loss of original capitalmay occur Actual results may differ materially from those set forth in projections Forward (looking statements are not predictions and may be subject tochange without notice Centrum does not provide tax advice to its clients and all investors are strongly advised to consult regarding any potentialinvestment Centrum and its affiliates accept no liabilities for any loss or damage of any kind arising out of the use of this report Foreign currenciesdenominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derived fromthe investment In addition investors in securities such as ADRs the value of which are influenced by foreign currencies effectively assume currency riskCertain transactions including those involving futures options and other derivatives as well as non(investment(grade securities give rise to substantial
risk and are not suitable for all investors Please ensure that you have read and understood the current risk disclosure documents before entering into anyderivative transactions
This reportdocument has been prepared by Centrum based upon information available to the public and sources believed to be reliable Norepresentation or warranty express or implied is made that it is accurate or complete Centrum has reviewed the report and in so far as it includescurrent or historical information it is believed to be reliable although its accuracy and completeness cannot be guaranteed The opinions expressed inthis documentmaterial are subject to change without notice and have no obligation to tell you when opinions or information in this report change
This report or recommendations or information contained herein dodoes not constitute or purport to constitute investment advice in publicly accessiblemedia and should not be reproduced transmitted or published by the recipient The report is for the use and consumption of the recipient only Thispublication may not be distributed to the public used by the public media without the express written consent of Centrum This report or any portionhereof may not be printed sold or distributed without the written consent of Centrum
The distribution of this document in other jurisdictions may be restricted by law and persons into whose possession this document comes should informthemselves about and observe any such restrictions Neither Centrum nor its directors employees agents or representatives shall be liable for anydamages whether direct or indirect incidental special or consequential including lost revenue or lost profits that may arise from or in connection withthe use of the information
This document does not constitute an offer or invitation to subscribe for or purchase or deal in any securities and neither this document nor anythingcontained herein shall form the basis of any contract or commitment whatsoever This document is strictly confidential and is being furnished to yousolely for your information may not be distributed to the press or other media and may not be reproduced or redistributed to any other person Thedistribution of this report in other jurisdictions may be restricted by law and persons into whose possession this report comes should inform themselvesabout and observe any such restrictions By accepting this report you agree to be bound by the fore going limitations No representation is made thatthis report is accurate or complete
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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The opinions and projections expressed herein are entirely those of the author and are given as part of the normal research activity of Centrum Brokingand are given as of this date and are subject to change without notice Any opinion estimate or projection herein constitutes a view as of the date of thisreport and there can be no assurance that future results or events will be consistent with any such opinions estimate or projection
This document has not been prepared by or in conjunction with or on behalf of or at the instigation of or by arrangement with the company or any of itsdirectors or any other person Information in this document must not be relied upon as having been authorized or approved by the company or itsdirectors or any other person Any opinions and projections contained herein are entirely those of the authors None of the company or its directors orany other person accepts any liability whatsoever for any loss arising from any use of this document or its contents or otherwise arising in connectiontherewith
Centrum and its affiliates have not managed or co(managed a public offering for the subject company in the preceding twelve months Centrum andaffiliates have not received compensation from the companies mentioned in the report during the period preceding twelve months from the date of thisreport for service in respect of public offerings corporate finance debt restructuring investment banking or other advisory services in amergeracquisition or some other sort of specific transaction
As per the declarations given by them Mr Abhisar Jain research analyst and andor any of his family members do not serve as an officer director or anyway connected to the companycompanies mentioned in this report Further as declared by him he has not received any compensation from the abovecompanies in the preceding twelve months He does not hold any shares by him or through his relatives or in case if holds the shares then will not to doany transactions in the said scrip for 30 days from the date of release such report Our entire research professionals are our employees and are paid asalary They do not have any other material conflict of interest of the research analyst or member of which the research analyst knows of has reason toknow at the time of publication of the research report or at the time of the public appearance
While we would endeavour to update the information herein on a reasonable basis Centrum its associated companies their directors and employees areunder no obligation to update or keep the information current Also there may be regulatory compliance or other reasons that may prevent Centrumfrom doing so
Non(rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable
regulations andor Centrum policies in circumstances where Centrum is acting in an advisory capacity to this company or any certain othercircumstances
This report is not directed to or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality statecountry or other jurisdiction where such distribution publication availability or use would be contrary to law or regulation or which would subjectCentrum Broking Limited or its group companies to any registration or licensing requirement within such jurisdiction Specifically this document doesnot constitute an offer to or solicitation to any US person for the purchase or sale of any financial instrument or as an official confirmation of anytransaction to any US person unless otherwise stated this message should not be construed as official confirmation of any transaction No part of thisdocument may be distributed in Canada or used by private customers in United Kingdom
The information contained herein is not intended for publication or distribution or circulation in any manner whatsoever and any unauthorized readingdissemination distribution or copying of this communication is prohibited unless otherwise expressly authorized Please ensure that you have read ldquoRiskDisclosure Document for Capital Market and Derivatives Segmentsrdquo as prescribed by Securities and Exchange Board of India before investing in IndianSecurities Market
Rating Criteria
Rating Market cap lt Rs20bn Market cap gt Rs20bn but lt 100bn Market cap gt Rs100bn Buy Upside gt 25 Upside gt 20 Upside gt 15
Hold Upside between (25 to +25 Upside between (20 to +20 Upside between (15 to +15
Sell Downside gt 25 Downside gt 20 Downside gt 15
Member (NSE BSE MCX(SX) Depository Participant (CDSL) and SEBI registered Portfolio Manager
Registration Nos
CAPITAL MARKET SEBI REGN NO BSE INB011454239 NSE INB231454233
DERIVATIVES SEBI REGN NO NSE INF231454233 (TRADING amp SELF CLEARING MEMBER)
CDSL DP ID 12200 SEBI REGISTRATION NO IN(DP(CDSL(661(2012
PMS REGISTRATION NO INP000004383
MCX ndash SX (Currency Derivative segment) REGN NO INE261454230
Website wwwcentrumcoin
Investor Grievance Email ID investorgrievancescentrumcoin
Compliance Officer Details
Tel (022) 4215 9413 Email ID compliancecentrumcoin
Centrum Broking Limited
Registered Office Address
Bombay Mutual Building
2nd Floor
Dr D N Road
Fort Mumbai ( 400 001
Correspondence Address
Centrum House
6th Floor CST Road Near Vidya Nagari Marg Kalina
Santacruz (E) Mumbai 400 098
Tel (022) 4215 9000
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17IFGL Refractories Ltd
Exhibit 44
Shareholding pattern ()
Q4FY14 Q3FY14 Q2FY14 Q1FY14
Promoter 713 713 713 713
FIIs 00 00 00 00
DIIs 11 22 22 22
Others 277 265 265 265
Source BSE
Company Background
IFGL Refractories Ltd is a manufacturer of specialisedrefractories and requisite operating systems for the steelIndustry IFGL offers its customers total solution for refractoryfor flow control in steel teeming and continuous casting ofSteel IFGL has 8 manufacturing plants strategically located
across the globe in India China Europe and Americas Thecompany has a presence in over 50 of the global markets Itacquired the Monocon group UK in 2005 (06 Hofmanngroup Germany in 2008 and EI Ceramics USA in 2010 Theseoverseas acquisitions have brought along access to newproducts amp technologies new markets and new customers The company has also set up a subsidiary IFGL exports atKandla Gujarat which also has technical collaboration withKrosaki Harima Corporation Japan Apart from this IFGL alsoplans to expand its capacities in India and abroad over thecoming years
Exhibit 45 Key management personnel
Name Position Profile
Mr S K Bajoria Chairman
Promoter of S K Bajoria Group based at Kolkata engaged in diversified business activitiesHas been honorary vice consul of Denmark in Kolkata president of the Indian chamber ofcommerce director of West Bengal industrial development corporation Ltd and industrialpromotion amp investment corporation of Orissa Ltd
Mr Pradeep Bajoria Managing Director
Associated with IFGL from the very early days of Indo Flogates even before thecommencement of production in 1984 Has been director amp chief executive of erstwhileIndo Flogates Ltd More than 30 years of experience of refractory industry and has beeninvolved in various capacities in Indian refractories makers association
Mr Gian Carlo Cozzani Directorr Monocon UK
Associated with IFGL since Oct 2009 Former president and CEO of Vesuvius (now Vesuviusplc) Instrumental in steering Vesuvius from US$ 100 million to over US$ 1 billion Based inEurope he is a member of IFGLrsquos Core group and a director of Monocon InternationalRefractories Limited UK
Source Company
Exhibit 46
IFGL refractories holding structure
Source Company
10051
983113983110983111983116 983127983151983154983148983140983159983145983140983141 983112983151983148983140983145983150983143 983116983145983149983145983156983141983140
983113983110983111983116 983109983160983152983151983154983156983155 983116983156983140
983117983151983150983151983139983151983150 983111983154983151983157983152 983109983113 983107983141983154983137983149983145983139983155 983112983151983142983149983137983150983150
983107983141983154983137983149983145983139
983124983141983139983144983150983145983139983137983148 983137983150983140 983110983145983150983137983150983139983145983137983148
983107983151983148983148983137983138983151983154983137983156983145983151983150 983151983142
983115983154983151983155983137983147983145 983112983137983154983145983149983137
983107983151983154983152983151983154983137983156983145983151983150983084 983114983137983152983137983150983084
983080983123983157983138983155983145983140983145983137983154983161 983151983142 983118983145983152983152983151983150
983123983156983141983141983148 983107983151983154983152983151983154983137983156983145983151983150983084
983114983137983152983137983150983081
983125983123983105 983125983115 983087 983125983123983105 983087 983107983144983145983150983137
983115983137983150983140983148983137 983123983109983130983084 983111983157983146983137983154983137983156983084 983113983150983140983145983137
983111983141983154983149983137983150983161
983113983110983111983116 983122983141983142983154983137983139983156983151983154983145983141983155 983116983145983149983145983156983141983140
983112983119 983085 983115983151983148983147983137983156983137983084 983113983150983140983145983137
983127983151983154983147983155 983085 983115983137983148983157983150983143983137983084 983119983154983145983155983155983137983084 983113983150983140983145983137
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18IFGL Refractories Ltd
Exhibit 47 Quarterly financials (cons)
YE Mar (Rs mn) Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14
Net sales 1725 1657 1690 1641 1811 2014 1947 2003
Other Operating Income 5 4 0 0 3 0 0 0
Total Income 1729 1662 1690 1641 1814 2014 1947 2003
Accretion to Stocks in trade amp work in progress (29) (10) 4 46 (65) (54) (25) 9
Cost of Raw Materials consumed 840 898 835 581 911 908 817 808
Purchase of traded goods 66 28 42 223 46 73 182 168
Staff Cost 239 234 250 264 247 275 294 281
Other Operational expenses 407 400 375 439 430 513 407 455
Operating Profit (Core EBITDA) 206 112 183 89 246 299 272 282
Depreciation 32 34 35 33 32 34 46 43
EBIT 174 78 149 56 214 265 226 239
Interest 21 22 21 15 17 18 19 16
Other RevenueIncome 16 5 7 8 5 9 6 12
Profit Before Tax 169 61 134 49 202 255 213 236
Tax 50 31 48 31 54 57 68 70
Profit After Tax 119 31 86 18 148 199 145 166
Minority Interest (7) (9) (8) (4) (1) 8 3 8
Profit after minority interest 126 40 95 22 149 191 143 158
Growth (YoY )
Revenue 371 36 61 36 50 216 153 221
EBITDA 129 (457) (125) (477) 195 1672 485 2164
PAT 174 (666) (111) (669) 189 3765 503 6292
Margin ()
EBITDA 119 67 109 54 136 148 140 141
EBIT 100 47 88 34 118 131 116 120
PAT 73 24 56 13 82 95 73 79
Segment Revenue (Net Sales Income from ops)
India 764 749 810 829 872 926 936 941
Asia (excl India) 142 175 160 167 188 213 163 156
Europe 593 545 542 543 612 744 689 764
Americas 405 370 363 344 384 399 427 386
Segment EBIT
India 83 32 84 63 92 103 129 139
Asia (excl India) 8 11 6 9 12 10 5 7
Europe 55 44 51 (4 45 76 74 81Americas 22 13 23 39 38 45 55 36
Source Company Centrum Research
Comments on recent quarterly results
Q4FY14 witnessed a healthy growth with revenue up 221 YoY EBITDA and PAT jumpedsubstantially YoY Margins showed good improvement EBITDA margin expanded by 860 bps YoYOther operating expenses as a proportion of sales reduced to 227 from 267 in Q4FY13 this had apositive impact on margins
Revenue grew 28 QoQ EBITDA amp PAT margins showed signs of consistency further improving fromQ3FY14 European business looks to be on a growth trajectory as revenues have jumped 140 YoYand 11 QoQ Revenue from American segment saw growth of 124 YoY but declined QoQ
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19IFGL Refractories Ltd
Annexure ndash Refractory Industry
About refractories ndash consumables for manufacturing processes with high temperatures
Refractories are inorganic non-metallic and heterogeneous materials having very high melting pointswhich make them suitable to be used as heat-resisting barriers consumed within various productionprocesses providing heat chemical and mechanical resistance Refractories are mainly of two types ndash
shaped and unshaped (monolithics) and are used mainly by the steel industry as a consumableproduct in the internal linings of furnaces kilns reactors and other vessels for holding andtransporting metal and slag
Shaped refractories are those which have fixed shapes with most common form being rectangularbrick Brick shapes may be divided into two standard shapes and special shapes Standard shapeshave dimensions that are conformed to by most refractory manufacturers and are generally applicableto kilns and furnaces of the same type Special shapes are specifically made for particular kilns andfurnaces Shaped refractories are almost always machine-pressed and possess high uniformity inproperties are expected
Unshaped refractories are without definite form and are only given shape upon application It forms joint less lining and are better known as monolithic refractories They are manufactured in powderform as granular material and known as plastic refractories ramming mixes castables gunning mixesfettling mixes and mortars
The raw materials used to manufacture refractories are broadly classified into clay and non-clay Clayrefractories consist of naturally occurring alumina silicate like fireclay flint clay flint brick and highalumina and are used to produce bricks and insulating refractories Non-clay refractories are madefrom non-clay materials and are further classified into basic (made in the form of bricks from magnesiadolomite chrome etc) extra high alumina mullite (made from kyanite bauxite alumina) siliconcarbide and zircon
Exhibit 48
Refractory share by form Exhibit 49
Refractory share by raw material
Source Industry data Centrum Research Source Industry data Centrum Research
Unshaped45Shaped 55
Clay 65
Non Clay35
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20IFGL Refractories Ltd
Applications of refractories ndash largely used in steel industry for furnace linings
Steel industry accounts for ~60 of refractory consumption globally and ~75 in the domesticmarket In non-metallurgical industries (cement glass lime) the refractories are mostly installed onfired heaters hydrogen reformers cracking furnaces incinerators utility boilers air heaters ductingstacks etc The different areas of the steel manufacturing processes are exposed to differenttemperatures slag and sulphur gases Refractory selection for the lining of a furnace is invariably builtupon a combination of material qualities and brick size to maximize performance Steel industry usesrefractory for diverse applications in blast furnaces coke ovens torpedo ladles and secondary refiningladles
In cement industry refractories are used in the kiln the preheating system and the cooler whichoperate in a very high temperature to protect against heat abrasion and chemical attack Commonrefractory materials used are Dolomite Magnesia-Chrome Spinel Magnesia-Alumina Spinel Fireclayand High Alumina The cement kiln clinker area is usually provided with Dolomite refractories
Non(-errous industries like copper and aluminium require high performance refractories in severalequipments like anode baking furnaces induction furnaces reduction pots slag cleaning surfaces etcGlass industry also requires refractories in refiner regenerator dog-house and ports of furnace
Exhibit 50
Refractories consumption in steel making process
Source Magnesita ppt
Exhibit 51
Refractories consumption in steel making process
Source Vesuvius PLC ppt
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21IFGL Refractories Ltd
Steel industry accounts for ~60 of refractory consumption globally and ~75 in the domesticmarket In non-metallurgical industries (cement glass lime) refractories are mostly installed on firedheaters hydrogen reformers cracking furnaces incinerators utility boilers air heaters ducting stacksetc
Exhibit 52
Sector wise refractories demand - Global Exhibit 53
Sector wise refractories demand - India
Source Industry data Centrum Research Source Industry data Centrum Research
Refractory application consumption and replacement dynamics are shown in the table belowSteelmaking requires maximum amount of refractories (10-15kgstonne) with replacement required ina time period of 20 minutes to 2months Cement industry is the next biggest user with annualreplacement requirement while non-ferrous and glass industries have longer replacement cycles
Exhibit 54
Refractory consumption dynamics across user industries
Key Industry Application Replacement Per tonne consumption Refractory requirements
Steel
BF(BOF EAFCasting LadlesInduction FurnacesPellet rotary Kilns
20 minutes to 2months
Global avg - 10-15KgsIndia avg - 15 Kgs
Consumable product ( Systems and solutions for completerefractory management
Cement Kilns annually 1 KgsInvestment goods ( Longer replacement cycles Customizedsolutions based on the specific requirements of various industrialproduction processes complete lining concepts
Glass Glass Furnace upto 10 years 4 Kgs
Non(Ferrous Converters 1(10 yearsAluminium - 6 KgsCopper - 3 Kgs
Source RHI ppt Centrum Research
Global refractory market size at ~US$25bn expected to grow at ~35 CAGR
According to various industry studies global refractoriesrsquo market size is ~US$25bn with production of415MT in CY12 According to industry estimates the global refractories industry is expected to witnessCAGR of 35 during CY13-16E and grow to 46MT with a market value of US$29bn China accountedfor ~70 of the market by volume and ~60 by value in CY12 whereas India accounts for ~3 of theglobal refractories market by volume
Exhibit 55
Global refractory market size at ~US$25bn Exhibit 56
China accounts for ~70 of the market
CY12 Production (MT) Value (US$ bn)
World 415 25
China 295 143
EU 41 39
North America 14 14
India 13 09
Source Industry Centrum Research Source Industry Centrum Research
6015
15
10 Steel
Non-Metallic (Cement GlassLime)
Non-Ferrous (AluminiumCopper Zinc Silver)
Others (paper ceramicspetrochemicals)
75
12
6 3
4
Steel
Cement
Non-Ferrous
Glass
Others
415
463
25
29
0
10
20
30
40
50
CY12 CY16
Volume (MT) Mkt Value ($ bn)
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22IFGL Refractories Ltd
Domestic refractory demand-supply indicates low industry growth amp import pressure
Demand supply analysis of domestic refractory industry shows that it has been witnessing mutedconsumption growth (due to a fall in per tonne consumption for steel making due to technologicaladvances) and faces strong import pressure with one fourth of the market being serviced by netimports (mainly from cheap supplies from China which accounts for two thirds of refractory imports inIndia) Capacity utilization for the industry remains at ~60 on installed capacity of ~22MT and marketsize is ~US$1bn Domestic refractory consumption in steel has grown at a CAGR of ~2 during FY08-14 We expect industry growth to pick up due to scope for higher steel production (backed by higherinfra spend and expansion in per capita steel consumption) The industry has seen consolidation andacquisitions by global majors in the last five years and organised sector (split between (6 players)accounts for ~65 of the market
Exhibit 57 Refractory demand from domestic steel industry
(In tonne) FY08 FY09 FY10 FY11 FY12 FY13 FY14E FY15E FY16E FY17E
Steel Production (MT) 561 572 606 686 757 817 850 893 946 1012
Growth 20 59 132 103 79 40 50 60 70
Avg Refractory consumption(kgt of crude steel)
188 173 168 16 15 145 140 140 140 140
Refractory consumption (steel) 1054680 989560 1018080 1097600 1135500 1184650 1190000 1249500 1324470 1417183
Growth (62) 29 78 35 43 05 50 60 70
Source Ministry of Steel (MoS) Centrum Research Estimates
Exhibit 58
Organised sector accounts for ~65 of domestic refractory industry
Company RevenueMarket
Share ()
Supply toIntegratedsteel mills
Comments
Vesuvius India Ltd 6017 100 95+Leading supplier with wide product basket strongcustomer relationships with large steel mills
Orient Refractories (RHI) 4035 67 10-15 Has developed a niche with mini steel mills
IFGL Refractories (incl IEL) 3674 61 85+Mainly into flow control shaped refractories goodrelationship with large mills
Tata Refractories 9800 163 Not available Largely into bricks supplies (commodity refractories)
Calderys 6250 104 Not available
Supplies largely to non-ferrous producers strong in
bricks and monolithics
OCL 4056 68 Not available
Total Organized Sector 39332 656
Source Company Centrum Research Estimates
Exhibit 59
Net imports accounts for one fourth of market Exhibit 60
China accounts for two thirds of imports
Source MoS Industry Centrum Research Source MoS Industry Centrum Research
(800000)
(600000)
(400000)
(200000)
0
200000
400000
FY07 FY08 FY09 FY10 FY11 FY12
( T o n n e )
Imports Exports Net Imports
167259
380
167228
647594
551
696 685
10
20
30
40
50
60
70
80
FY07 FY08 FY09 FY10 FY11
Net Imports - share China share in imports
Domestic refractory production growth hasbeen largely flat andcapacity utilization is~60
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23IFGL Refractories Ltd
Financials (Cons)
Exhibit 61
Income Statement
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
Revenues from Operations 6712 7776 8484 9554 10697
Raw Materials consumed 3201 3444 3725 4208 4716
of net sales 477 443 439 440 441
Employee expenses 987 1097 1185 1279 1382
of net sales 147 141 140 134 129
Other operational expenses 1621 1805 2013 2243 2486
of net sales 241 232 237 235 232
Total expenses 6130 6680 7273 8140 9068
of net sales 913 859 857 852 848
EBITDA 582 1096 1210 1414 1630
EBITDA Margin () 87 141 143 148 152
Depreciation amp Amortisation 134 155 174 189 204
EBIT 448 942 1036 1225 1425
Interest expenses 80 70 51 29 6
Other Income 45 34 40 44 484
EBT 413 906 1025 1240 1467
Provision for tax 159 248 307 372 440
Effective tax rate () 386 274 300 300 300Net Profit 254 658 717 868 1027
Less Minority interest (28) 18 32 70 99
Net Profit after MI 282 640 686 798 928
Source Company data Centrum Research Estimates
Exhibit 62 Key Ratios
YE Mar FY13 FY14 FY15E FY16E FY17E
Growth Ratio ()
Revenue 112 159 91 126 120
EBITDA (213) 884 104 168 153
PAT (292) 1269 71 163 163
Margin Ratios ()
PBIT Margin 67 121 122 128 133
PBT Margin 62 116 121 130 137
PAT Margin 42 82 81 84 87
Return Ratios ()
ROE 115 212 190 185 181
ROCE 84 177 175 189 198
ROIC 87 179 178 200 224
Turnover Ratios (days)
Asset turnover ratio (x) 18 19 19 19 19
Debtors 78 78 80 80 80
Inventory 46 49 50 50 50
Creditors 43 45 45 45 45
Net Working capital 74 76 80 80 80
Gearing Ratio (x)
Debt-equity 05 03 02 01 00
Net debt-equity 04 03 02 00 (01)
Current ratio 25 23 24 25 27
Dividend
Dividend per share 15 18 20 23 23
Dividend Payout () 251 124 130 125 107
Dividend Yield () 11 13 15 17 17
Per share Ratios (Rs)
Basic EPS 82 185 198 231 268
Fully diluted EPS 82 185 198 231 268
Book value 709 871 1044 1245 1485
Cash earnings per share 120 230 249 285 327
Valuation (x)
PE 174 77 72 62 53
PBV 20 16 14 11 10
EVEBITDA 102 53 46 36 27
EVSales 07 06 06 05 04
M-CapSales 07 06 06 05 05
Source Company data Centrum Research Estimates
Exhibit 63
Balance Sheet
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
Equity share capital 491 491 491 491 491
Reserves amp surplus 1964 2525 3121 3819 4648
Shareholders fund 2455 3016 3612 4310 5139
Total debt 1142 982 682 382 82
Deferred tax liabilities 65 74 74 74 74
Total Liabilities 3741 4167 4495 4963 5591
Gross block 2474 2656 2906 3156 3406
Less acc depreciation 1276 1430 1605 1794 1998
Net block 1198 1225 1301 1362 1407
Capital work in progress 20 20 20 20 20
Goodwill 1105 1342 1342 1342 1342
Investments 5 5 5 5 5
Inventories 848 1034 1162 1309 1465
Trade Receivables 1427 1658 1859 2094 2345
Cash amp cash equivalents 113 33 69 259 609
Loans amp advances 51 107 116 131 147
Trade payables 799 962 1046 1178 1319
Other current liabilities 166 210 232 262 293Provisions 94 124 139 157 176
Total Assets 3741 4167 4495 4963 5591
Source Company data Centrum Research Estimates
Exhibit 64 Cash Flow
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
PBT 413 906 1025 1240 1467
Interest 72 70 51 29 6
Depreciation 134 155 174 189 204
Increase in debtors (330) (231) (201) (235) (251)
Increase in inventories 7 (186) (128) (147) (157)
Increase in trade payables 46 163 84 132 141
Tax 197 248 307 372 440
Cash flow from operations 183 629 695 799 907
Change in fixed assets (194) (418) (250) (250) (250)
Cash flow from investments (172) (418) (250) (250) (250)
Change in debt 19 (160 (300) (300) (300)
Dividends paid (71) (79) (89) (100) (100)
Interest paid (80) (70) (51) (29) (6)
Cash flow from financing (94) (291) (409) (358) (306)
Net cash flow (81) (81) 36 191 350
Opening cash balance 195 113 33 69 259
Closing cash balance 113 33 69 259 609
Source Company data Centrum Research Estimates
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24IFGL Refractories Ltd
Financials (Cons) - Historical
Exhibit 65
Income Statement
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
Revenues from Operations 3780 3982 4152 4689 6039
Raw Materials consumed 1743 1907 2058 2389 3024
of net sales 461 479 496 509 501
Employee expenses 487 589 539 661 843
of net sales 129 148 130 141 140
Other operational expenses 918 1036 951 1148 1418
of net sales 243 260 229 245 235
Total expenses 3244 3708 3575 4279 5299
of net sales 858 931 861 912 878
EBITDA 536 274 578 411 739
EBITDA Margin () 142 69 139 88 122
Depreciation amp Amortisation 63 74 70 71 123
EBIT 473 200 508 339 617
Interest expenses 82 95 45 56 68
Other Income 18 24 34 43 33
EBT 409 128 497 327 582
Provision for tax 123 67 155 84 183
Effective tax rate () 301 523 311 258 315Net Profit 286 61 343 243 398
Less Minority interest 1 0 0 0 0
Net Profit after MI 285 61 343 243 399
Source Company data Centrum Research Estimates
Exhibit 66 Key Ratios
YE Mar FY08 FY09 FY10 FY11 FY12
Growth Ratio ()
Revenue 171 53 43 129 288
EBITDA 98 (489) 1111 (289) 800
PAT 85 (785) 4586 (292) 642
Margin Ratios ()
PBIT Margin 125 50 122 72 102
PBT Margin 108 32 120 70 96
PAT Margin 75 15 83 52 66
Return Ratios ()
ROE 294 54 250 138 180
ROCE 182 49 169 93 128
ROIC 195 53 183 98 141
Turnover Ratios (days)
Asset turnover ratio (x) 20 18 19 15 17
Debtors 97 55 79 85 69
Inventory 46 47 52 55 52
Creditors 49 23 41 50 44
Net Working capital 105 81 89 93 67
Gearing Ratio (x)
Debt-equity 09 09 06 07 05
Net debt-equity 08 08 05 07 04
Current ratio 29 36 26 25 24
Dividend
Dividend per share 20 00 10 05 15
Dividend Payout () 284 00 118 103 63
Dividend Yield () 15 00 07 04 11
Per share Ratios (Rs)
Basic EPS 82 18 99 70 115
Fully diluted EPS 82 18 99 70 115
Book value 280 328 396 508 641
Cash earnings per share 101 39 119 91 151
Valuation (x)
PE 164 762 136 193 117
PBV 48 41 34 27 21
EVEBITDA 102 203 93 142 76
EVSales 12 12 11 10 08
M-CapSales 12 12 11 10 08
Source Company data Centrum Research Estimates
Exhibit 67
Balance Sheet
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
Equity share capital 346 346 346 491 491
Reserves amp surplus 623 789 1026 1266 1728
Shareholders fund 969 1135 1372 1757 2219
Total debt 869 1003 793 1253 1128
Deferred tax liabilities 41 38 38 40 48
Total Liabilities 1879 2185 2206 3054 3465
Gross block 1456 1948 1966 2738 2238
Less acc depreciation 687 827 864 960 1122
Net block 769 1121 1102 1778 1117
Capital work in progress 46 53 28 21 45
Goodwill 347 594 559 1032 1094
Investments 0 0 4 14 5
Inventories 474 513 592 702 855
Trade Receivables 1001 596 895 1096 1134
Cash amp cash equivalents 77 129 120 100 195
Loans amp advances 152 121 133 152 38
Trade payables 507 256 471 637 729
Other current liabilities 32 90 137 112 194Provisions 102 2 60 60 151
Total Assets 1879 2185 2206 3054 3465
Source Company data Centrum Research Estimates
Exhibit 68 Cash Flow
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
PBT 409 128 497 327 582
Interest 81 96 45 56 59
Depreciation 63 74 75 87 129
Increase in debtors (196) 559 (330) (184) 25
Increase in inventories (72) 35 (79) (77) (135)
Increase in trade payables 82 (304 266 115 67
Tax 119 90 138 70 135
Cash flow from operations 285 814 359 237 520
Change in fixed assets (94) (99) (120) (157) (49)
Cash flow from investments (62 (536 (119 (677 (98
Change in debt (88) 15 (276) 245 (242)
Dividends paid (76) (80) (6) (46) (25)
Interest paid (87) (98) (47) (60) (68)
Cash flow from financing (261) (245) (241) 408 (339)
Net cash flow (43) 24 (8) (29) 94
Opening cash balance 120 77 129 120 100
Closing cash balance 77 129 120 100 195
Source Company data Centrum Research Estimates
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25IFGL Refractories Ltd
Appendix A
Disclaimer
Centrum Broking Limited (ldquoCentrumrdquo) is a full(service Stock Broking Company and a member of The Stock Exchange Mumbai (BSE) and National StockExchange of India Ltd (NSE) Our holding company Centrum Capital Ltd is an investment banker and an underwriter of securities As a group Centrumhas Investment Banking Advisory and other business relationships with a significant percentage of the companies covered by our Research Group Ourresearch professionals provide important inputs into the Groups Investment Banking and other business selection processes
Recipients of this report should assume that our Group is seeking or may seek or will seek Investment Banking advisory project finance or otherbusinesses and may receive commission brokerage fees or other compensation from the company or companies that are the subject of thismaterialreport Our Company and Group companies and their officers directors and employees including the analysts and others involved in thepreparation or issuance of this material and their dependants may on the date of this report or from time to time have long or short positions in actas principal in and buy or sell the securities or derivatives thereof of companies mentioned herein Centrum or its affiliates do not own 1 or more in theequity of this company Our sales people dealers traders and other professionals may provide oral or written market commentary or trading strategies toour clients that reflect opinions that are contrary to the opinions expressed herein and our proprietary trading and investing businesses may makeinvestment decisions that are inconsistent with the recommendations expressed herein We may have earlier issued or may issue in future reports on thecompanies covered herein with recommendations information inconsistent or different those made in this report In reviewing this document youshould be aware that any or all of the foregoing among other things may give rise to or potential conflicts of interest We and our Group may rely oninformation barriers such as Chinese Walls to control the flow of information contained in one or more areas within us or other areas units groups oraffiliates of Centrum Centrum or its affiliates do not make a market in the security of the company for which this report or any report was writtenFurther Centrum or its affiliates did not make a market in the subject companyrsquos securities at the time that the research report was published
This report is for information purposes only and this documentmaterial should not be construed as an offer to sell or the solicitation of an offer to buypurchase or subscribe to any securities and neither this document nor anything contained herein shall form the basis of or be relied upon in connection
with any contract or commitment whatsoever This document does not solicit any action based on the material contained herein It is for the generalinformation of the clients of Centrum Though disseminated to clients simultaneously not all clients may receive this report at the same time Centrumwill not treat recipients as clients by virtue of their receiving this report It does not constitute a personal recommendation or take into account theparticular investment objectives financial situations or needs of individual clients Similarly this document does not have regard to the specificinvestment objectives financial situationcircumstances and the particular needs of any specific person who may receive this document The securitiesdiscussed in this report may not be suitable for all investors The securities described herein may not be eligible for sale in all jurisdictions or to allcategories of investors The countries in which the companies mentioned in this report are organized may have restrictions on investments voting rightsor dealings in securities by nationals of other countries The appropriateness of a particular investment or strategy will depend on an investorsindividual circumstances and objectives Persons who may receive this document should consider and independently evaluate whether it is suitable forhis hertheir particular circumstances and if necessary seek professionalfinancial advice Any such person shall be responsible for conductinghishertheir own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risks involvedin the securities forming the subject matter of this document
The projections and forecasts described in this report were based upon a number of estimates and assumptions and are inherently subject to significantuncertainties and contingencies Projections and forecasts are necessarily speculative in nature and it can be expected that one or more of the estimateson which the projections and forecasts were based will not materialize or will vary significantly from actual results and such variances will likely increase
over time All projections and forecasts described in this report have been prepared solely by the authors of this report independently of the Company These projections and forecasts were not prepared with a view toward compliance with published guidelines or generally accented accountingprinciples No independent accountants have expressed an opinion or any other form of assurance on these projections or forecasts You should notregard the inclusion of the projections and forecasts described herein as a representation or warranty by or on behalf of the Company Centrum theauthors of this report or any other person that these projections or forecasts or their underlying assumptions will be achieved For these reasons youshould only consider the projections and forecasts described in this report after carefully evaluating all of the information in this report including theassumptions underlying such projections and forecasts
The price and value of the investments referred to in this documentmaterial and the income from them may go down as well as up and investors mayrealize losses on any investments Past performance is not a guide for future performance Future returns are not guaranteed and a loss of original capitalmay occur Actual results may differ materially from those set forth in projections Forward (looking statements are not predictions and may be subject tochange without notice Centrum does not provide tax advice to its clients and all investors are strongly advised to consult regarding any potentialinvestment Centrum and its affiliates accept no liabilities for any loss or damage of any kind arising out of the use of this report Foreign currenciesdenominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derived fromthe investment In addition investors in securities such as ADRs the value of which are influenced by foreign currencies effectively assume currency riskCertain transactions including those involving futures options and other derivatives as well as non(investment(grade securities give rise to substantial
risk and are not suitable for all investors Please ensure that you have read and understood the current risk disclosure documents before entering into anyderivative transactions
This reportdocument has been prepared by Centrum based upon information available to the public and sources believed to be reliable Norepresentation or warranty express or implied is made that it is accurate or complete Centrum has reviewed the report and in so far as it includescurrent or historical information it is believed to be reliable although its accuracy and completeness cannot be guaranteed The opinions expressed inthis documentmaterial are subject to change without notice and have no obligation to tell you when opinions or information in this report change
This report or recommendations or information contained herein dodoes not constitute or purport to constitute investment advice in publicly accessiblemedia and should not be reproduced transmitted or published by the recipient The report is for the use and consumption of the recipient only Thispublication may not be distributed to the public used by the public media without the express written consent of Centrum This report or any portionhereof may not be printed sold or distributed without the written consent of Centrum
The distribution of this document in other jurisdictions may be restricted by law and persons into whose possession this document comes should informthemselves about and observe any such restrictions Neither Centrum nor its directors employees agents or representatives shall be liable for anydamages whether direct or indirect incidental special or consequential including lost revenue or lost profits that may arise from or in connection withthe use of the information
This document does not constitute an offer or invitation to subscribe for or purchase or deal in any securities and neither this document nor anythingcontained herein shall form the basis of any contract or commitment whatsoever This document is strictly confidential and is being furnished to yousolely for your information may not be distributed to the press or other media and may not be reproduced or redistributed to any other person Thedistribution of this report in other jurisdictions may be restricted by law and persons into whose possession this report comes should inform themselvesabout and observe any such restrictions By accepting this report you agree to be bound by the fore going limitations No representation is made thatthis report is accurate or complete
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The opinions and projections expressed herein are entirely those of the author and are given as part of the normal research activity of Centrum Brokingand are given as of this date and are subject to change without notice Any opinion estimate or projection herein constitutes a view as of the date of thisreport and there can be no assurance that future results or events will be consistent with any such opinions estimate or projection
This document has not been prepared by or in conjunction with or on behalf of or at the instigation of or by arrangement with the company or any of itsdirectors or any other person Information in this document must not be relied upon as having been authorized or approved by the company or itsdirectors or any other person Any opinions and projections contained herein are entirely those of the authors None of the company or its directors orany other person accepts any liability whatsoever for any loss arising from any use of this document or its contents or otherwise arising in connectiontherewith
Centrum and its affiliates have not managed or co(managed a public offering for the subject company in the preceding twelve months Centrum andaffiliates have not received compensation from the companies mentioned in the report during the period preceding twelve months from the date of thisreport for service in respect of public offerings corporate finance debt restructuring investment banking or other advisory services in amergeracquisition or some other sort of specific transaction
As per the declarations given by them Mr Abhisar Jain research analyst and andor any of his family members do not serve as an officer director or anyway connected to the companycompanies mentioned in this report Further as declared by him he has not received any compensation from the abovecompanies in the preceding twelve months He does not hold any shares by him or through his relatives or in case if holds the shares then will not to doany transactions in the said scrip for 30 days from the date of release such report Our entire research professionals are our employees and are paid asalary They do not have any other material conflict of interest of the research analyst or member of which the research analyst knows of has reason toknow at the time of publication of the research report or at the time of the public appearance
While we would endeavour to update the information herein on a reasonable basis Centrum its associated companies their directors and employees areunder no obligation to update or keep the information current Also there may be regulatory compliance or other reasons that may prevent Centrumfrom doing so
Non(rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable
regulations andor Centrum policies in circumstances where Centrum is acting in an advisory capacity to this company or any certain othercircumstances
This report is not directed to or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality statecountry or other jurisdiction where such distribution publication availability or use would be contrary to law or regulation or which would subjectCentrum Broking Limited or its group companies to any registration or licensing requirement within such jurisdiction Specifically this document doesnot constitute an offer to or solicitation to any US person for the purchase or sale of any financial instrument or as an official confirmation of anytransaction to any US person unless otherwise stated this message should not be construed as official confirmation of any transaction No part of thisdocument may be distributed in Canada or used by private customers in United Kingdom
The information contained herein is not intended for publication or distribution or circulation in any manner whatsoever and any unauthorized readingdissemination distribution or copying of this communication is prohibited unless otherwise expressly authorized Please ensure that you have read ldquoRiskDisclosure Document for Capital Market and Derivatives Segmentsrdquo as prescribed by Securities and Exchange Board of India before investing in IndianSecurities Market
Rating Criteria
Rating Market cap lt Rs20bn Market cap gt Rs20bn but lt 100bn Market cap gt Rs100bn Buy Upside gt 25 Upside gt 20 Upside gt 15
Hold Upside between (25 to +25 Upside between (20 to +20 Upside between (15 to +15
Sell Downside gt 25 Downside gt 20 Downside gt 15
Member (NSE BSE MCX(SX) Depository Participant (CDSL) and SEBI registered Portfolio Manager
Registration Nos
CAPITAL MARKET SEBI REGN NO BSE INB011454239 NSE INB231454233
DERIVATIVES SEBI REGN NO NSE INF231454233 (TRADING amp SELF CLEARING MEMBER)
CDSL DP ID 12200 SEBI REGISTRATION NO IN(DP(CDSL(661(2012
PMS REGISTRATION NO INP000004383
MCX ndash SX (Currency Derivative segment) REGN NO INE261454230
Website wwwcentrumcoin
Investor Grievance Email ID investorgrievancescentrumcoin
Compliance Officer Details
Tel (022) 4215 9413 Email ID compliancecentrumcoin
Centrum Broking Limited
Registered Office Address
Bombay Mutual Building
2nd Floor
Dr D N Road
Fort Mumbai ( 400 001
Correspondence Address
Centrum House
6th Floor CST Road Near Vidya Nagari Marg Kalina
Santacruz (E) Mumbai 400 098
Tel (022) 4215 9000
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18IFGL Refractories Ltd
Exhibit 47 Quarterly financials (cons)
YE Mar (Rs mn) Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14
Net sales 1725 1657 1690 1641 1811 2014 1947 2003
Other Operating Income 5 4 0 0 3 0 0 0
Total Income 1729 1662 1690 1641 1814 2014 1947 2003
Accretion to Stocks in trade amp work in progress (29) (10) 4 46 (65) (54) (25) 9
Cost of Raw Materials consumed 840 898 835 581 911 908 817 808
Purchase of traded goods 66 28 42 223 46 73 182 168
Staff Cost 239 234 250 264 247 275 294 281
Other Operational expenses 407 400 375 439 430 513 407 455
Operating Profit (Core EBITDA) 206 112 183 89 246 299 272 282
Depreciation 32 34 35 33 32 34 46 43
EBIT 174 78 149 56 214 265 226 239
Interest 21 22 21 15 17 18 19 16
Other RevenueIncome 16 5 7 8 5 9 6 12
Profit Before Tax 169 61 134 49 202 255 213 236
Tax 50 31 48 31 54 57 68 70
Profit After Tax 119 31 86 18 148 199 145 166
Minority Interest (7) (9) (8) (4) (1) 8 3 8
Profit after minority interest 126 40 95 22 149 191 143 158
Growth (YoY )
Revenue 371 36 61 36 50 216 153 221
EBITDA 129 (457) (125) (477) 195 1672 485 2164
PAT 174 (666) (111) (669) 189 3765 503 6292
Margin ()
EBITDA 119 67 109 54 136 148 140 141
EBIT 100 47 88 34 118 131 116 120
PAT 73 24 56 13 82 95 73 79
Segment Revenue (Net Sales Income from ops)
India 764 749 810 829 872 926 936 941
Asia (excl India) 142 175 160 167 188 213 163 156
Europe 593 545 542 543 612 744 689 764
Americas 405 370 363 344 384 399 427 386
Segment EBIT
India 83 32 84 63 92 103 129 139
Asia (excl India) 8 11 6 9 12 10 5 7
Europe 55 44 51 (4 45 76 74 81Americas 22 13 23 39 38 45 55 36
Source Company Centrum Research
Comments on recent quarterly results
Q4FY14 witnessed a healthy growth with revenue up 221 YoY EBITDA and PAT jumpedsubstantially YoY Margins showed good improvement EBITDA margin expanded by 860 bps YoYOther operating expenses as a proportion of sales reduced to 227 from 267 in Q4FY13 this had apositive impact on margins
Revenue grew 28 QoQ EBITDA amp PAT margins showed signs of consistency further improving fromQ3FY14 European business looks to be on a growth trajectory as revenues have jumped 140 YoYand 11 QoQ Revenue from American segment saw growth of 124 YoY but declined QoQ
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19IFGL Refractories Ltd
Annexure ndash Refractory Industry
About refractories ndash consumables for manufacturing processes with high temperatures
Refractories are inorganic non-metallic and heterogeneous materials having very high melting pointswhich make them suitable to be used as heat-resisting barriers consumed within various productionprocesses providing heat chemical and mechanical resistance Refractories are mainly of two types ndash
shaped and unshaped (monolithics) and are used mainly by the steel industry as a consumableproduct in the internal linings of furnaces kilns reactors and other vessels for holding andtransporting metal and slag
Shaped refractories are those which have fixed shapes with most common form being rectangularbrick Brick shapes may be divided into two standard shapes and special shapes Standard shapeshave dimensions that are conformed to by most refractory manufacturers and are generally applicableto kilns and furnaces of the same type Special shapes are specifically made for particular kilns andfurnaces Shaped refractories are almost always machine-pressed and possess high uniformity inproperties are expected
Unshaped refractories are without definite form and are only given shape upon application It forms joint less lining and are better known as monolithic refractories They are manufactured in powderform as granular material and known as plastic refractories ramming mixes castables gunning mixesfettling mixes and mortars
The raw materials used to manufacture refractories are broadly classified into clay and non-clay Clayrefractories consist of naturally occurring alumina silicate like fireclay flint clay flint brick and highalumina and are used to produce bricks and insulating refractories Non-clay refractories are madefrom non-clay materials and are further classified into basic (made in the form of bricks from magnesiadolomite chrome etc) extra high alumina mullite (made from kyanite bauxite alumina) siliconcarbide and zircon
Exhibit 48
Refractory share by form Exhibit 49
Refractory share by raw material
Source Industry data Centrum Research Source Industry data Centrum Research
Unshaped45Shaped 55
Clay 65
Non Clay35
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20IFGL Refractories Ltd
Applications of refractories ndash largely used in steel industry for furnace linings
Steel industry accounts for ~60 of refractory consumption globally and ~75 in the domesticmarket In non-metallurgical industries (cement glass lime) the refractories are mostly installed onfired heaters hydrogen reformers cracking furnaces incinerators utility boilers air heaters ductingstacks etc The different areas of the steel manufacturing processes are exposed to differenttemperatures slag and sulphur gases Refractory selection for the lining of a furnace is invariably builtupon a combination of material qualities and brick size to maximize performance Steel industry usesrefractory for diverse applications in blast furnaces coke ovens torpedo ladles and secondary refiningladles
In cement industry refractories are used in the kiln the preheating system and the cooler whichoperate in a very high temperature to protect against heat abrasion and chemical attack Commonrefractory materials used are Dolomite Magnesia-Chrome Spinel Magnesia-Alumina Spinel Fireclayand High Alumina The cement kiln clinker area is usually provided with Dolomite refractories
Non(-errous industries like copper and aluminium require high performance refractories in severalequipments like anode baking furnaces induction furnaces reduction pots slag cleaning surfaces etcGlass industry also requires refractories in refiner regenerator dog-house and ports of furnace
Exhibit 50
Refractories consumption in steel making process
Source Magnesita ppt
Exhibit 51
Refractories consumption in steel making process
Source Vesuvius PLC ppt
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21IFGL Refractories Ltd
Steel industry accounts for ~60 of refractory consumption globally and ~75 in the domesticmarket In non-metallurgical industries (cement glass lime) refractories are mostly installed on firedheaters hydrogen reformers cracking furnaces incinerators utility boilers air heaters ducting stacksetc
Exhibit 52
Sector wise refractories demand - Global Exhibit 53
Sector wise refractories demand - India
Source Industry data Centrum Research Source Industry data Centrum Research
Refractory application consumption and replacement dynamics are shown in the table belowSteelmaking requires maximum amount of refractories (10-15kgstonne) with replacement required ina time period of 20 minutes to 2months Cement industry is the next biggest user with annualreplacement requirement while non-ferrous and glass industries have longer replacement cycles
Exhibit 54
Refractory consumption dynamics across user industries
Key Industry Application Replacement Per tonne consumption Refractory requirements
Steel
BF(BOF EAFCasting LadlesInduction FurnacesPellet rotary Kilns
20 minutes to 2months
Global avg - 10-15KgsIndia avg - 15 Kgs
Consumable product ( Systems and solutions for completerefractory management
Cement Kilns annually 1 KgsInvestment goods ( Longer replacement cycles Customizedsolutions based on the specific requirements of various industrialproduction processes complete lining concepts
Glass Glass Furnace upto 10 years 4 Kgs
Non(Ferrous Converters 1(10 yearsAluminium - 6 KgsCopper - 3 Kgs
Source RHI ppt Centrum Research
Global refractory market size at ~US$25bn expected to grow at ~35 CAGR
According to various industry studies global refractoriesrsquo market size is ~US$25bn with production of415MT in CY12 According to industry estimates the global refractories industry is expected to witnessCAGR of 35 during CY13-16E and grow to 46MT with a market value of US$29bn China accountedfor ~70 of the market by volume and ~60 by value in CY12 whereas India accounts for ~3 of theglobal refractories market by volume
Exhibit 55
Global refractory market size at ~US$25bn Exhibit 56
China accounts for ~70 of the market
CY12 Production (MT) Value (US$ bn)
World 415 25
China 295 143
EU 41 39
North America 14 14
India 13 09
Source Industry Centrum Research Source Industry Centrum Research
6015
15
10 Steel
Non-Metallic (Cement GlassLime)
Non-Ferrous (AluminiumCopper Zinc Silver)
Others (paper ceramicspetrochemicals)
75
12
6 3
4
Steel
Cement
Non-Ferrous
Glass
Others
415
463
25
29
0
10
20
30
40
50
CY12 CY16
Volume (MT) Mkt Value ($ bn)
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22IFGL Refractories Ltd
Domestic refractory demand-supply indicates low industry growth amp import pressure
Demand supply analysis of domestic refractory industry shows that it has been witnessing mutedconsumption growth (due to a fall in per tonne consumption for steel making due to technologicaladvances) and faces strong import pressure with one fourth of the market being serviced by netimports (mainly from cheap supplies from China which accounts for two thirds of refractory imports inIndia) Capacity utilization for the industry remains at ~60 on installed capacity of ~22MT and marketsize is ~US$1bn Domestic refractory consumption in steel has grown at a CAGR of ~2 during FY08-14 We expect industry growth to pick up due to scope for higher steel production (backed by higherinfra spend and expansion in per capita steel consumption) The industry has seen consolidation andacquisitions by global majors in the last five years and organised sector (split between (6 players)accounts for ~65 of the market
Exhibit 57 Refractory demand from domestic steel industry
(In tonne) FY08 FY09 FY10 FY11 FY12 FY13 FY14E FY15E FY16E FY17E
Steel Production (MT) 561 572 606 686 757 817 850 893 946 1012
Growth 20 59 132 103 79 40 50 60 70
Avg Refractory consumption(kgt of crude steel)
188 173 168 16 15 145 140 140 140 140
Refractory consumption (steel) 1054680 989560 1018080 1097600 1135500 1184650 1190000 1249500 1324470 1417183
Growth (62) 29 78 35 43 05 50 60 70
Source Ministry of Steel (MoS) Centrum Research Estimates
Exhibit 58
Organised sector accounts for ~65 of domestic refractory industry
Company RevenueMarket
Share ()
Supply toIntegratedsteel mills
Comments
Vesuvius India Ltd 6017 100 95+Leading supplier with wide product basket strongcustomer relationships with large steel mills
Orient Refractories (RHI) 4035 67 10-15 Has developed a niche with mini steel mills
IFGL Refractories (incl IEL) 3674 61 85+Mainly into flow control shaped refractories goodrelationship with large mills
Tata Refractories 9800 163 Not available Largely into bricks supplies (commodity refractories)
Calderys 6250 104 Not available
Supplies largely to non-ferrous producers strong in
bricks and monolithics
OCL 4056 68 Not available
Total Organized Sector 39332 656
Source Company Centrum Research Estimates
Exhibit 59
Net imports accounts for one fourth of market Exhibit 60
China accounts for two thirds of imports
Source MoS Industry Centrum Research Source MoS Industry Centrum Research
(800000)
(600000)
(400000)
(200000)
0
200000
400000
FY07 FY08 FY09 FY10 FY11 FY12
( T o n n e )
Imports Exports Net Imports
167259
380
167228
647594
551
696 685
10
20
30
40
50
60
70
80
FY07 FY08 FY09 FY10 FY11
Net Imports - share China share in imports
Domestic refractory production growth hasbeen largely flat andcapacity utilization is~60
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23IFGL Refractories Ltd
Financials (Cons)
Exhibit 61
Income Statement
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
Revenues from Operations 6712 7776 8484 9554 10697
Raw Materials consumed 3201 3444 3725 4208 4716
of net sales 477 443 439 440 441
Employee expenses 987 1097 1185 1279 1382
of net sales 147 141 140 134 129
Other operational expenses 1621 1805 2013 2243 2486
of net sales 241 232 237 235 232
Total expenses 6130 6680 7273 8140 9068
of net sales 913 859 857 852 848
EBITDA 582 1096 1210 1414 1630
EBITDA Margin () 87 141 143 148 152
Depreciation amp Amortisation 134 155 174 189 204
EBIT 448 942 1036 1225 1425
Interest expenses 80 70 51 29 6
Other Income 45 34 40 44 484
EBT 413 906 1025 1240 1467
Provision for tax 159 248 307 372 440
Effective tax rate () 386 274 300 300 300Net Profit 254 658 717 868 1027
Less Minority interest (28) 18 32 70 99
Net Profit after MI 282 640 686 798 928
Source Company data Centrum Research Estimates
Exhibit 62 Key Ratios
YE Mar FY13 FY14 FY15E FY16E FY17E
Growth Ratio ()
Revenue 112 159 91 126 120
EBITDA (213) 884 104 168 153
PAT (292) 1269 71 163 163
Margin Ratios ()
PBIT Margin 67 121 122 128 133
PBT Margin 62 116 121 130 137
PAT Margin 42 82 81 84 87
Return Ratios ()
ROE 115 212 190 185 181
ROCE 84 177 175 189 198
ROIC 87 179 178 200 224
Turnover Ratios (days)
Asset turnover ratio (x) 18 19 19 19 19
Debtors 78 78 80 80 80
Inventory 46 49 50 50 50
Creditors 43 45 45 45 45
Net Working capital 74 76 80 80 80
Gearing Ratio (x)
Debt-equity 05 03 02 01 00
Net debt-equity 04 03 02 00 (01)
Current ratio 25 23 24 25 27
Dividend
Dividend per share 15 18 20 23 23
Dividend Payout () 251 124 130 125 107
Dividend Yield () 11 13 15 17 17
Per share Ratios (Rs)
Basic EPS 82 185 198 231 268
Fully diluted EPS 82 185 198 231 268
Book value 709 871 1044 1245 1485
Cash earnings per share 120 230 249 285 327
Valuation (x)
PE 174 77 72 62 53
PBV 20 16 14 11 10
EVEBITDA 102 53 46 36 27
EVSales 07 06 06 05 04
M-CapSales 07 06 06 05 05
Source Company data Centrum Research Estimates
Exhibit 63
Balance Sheet
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
Equity share capital 491 491 491 491 491
Reserves amp surplus 1964 2525 3121 3819 4648
Shareholders fund 2455 3016 3612 4310 5139
Total debt 1142 982 682 382 82
Deferred tax liabilities 65 74 74 74 74
Total Liabilities 3741 4167 4495 4963 5591
Gross block 2474 2656 2906 3156 3406
Less acc depreciation 1276 1430 1605 1794 1998
Net block 1198 1225 1301 1362 1407
Capital work in progress 20 20 20 20 20
Goodwill 1105 1342 1342 1342 1342
Investments 5 5 5 5 5
Inventories 848 1034 1162 1309 1465
Trade Receivables 1427 1658 1859 2094 2345
Cash amp cash equivalents 113 33 69 259 609
Loans amp advances 51 107 116 131 147
Trade payables 799 962 1046 1178 1319
Other current liabilities 166 210 232 262 293Provisions 94 124 139 157 176
Total Assets 3741 4167 4495 4963 5591
Source Company data Centrum Research Estimates
Exhibit 64 Cash Flow
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
PBT 413 906 1025 1240 1467
Interest 72 70 51 29 6
Depreciation 134 155 174 189 204
Increase in debtors (330) (231) (201) (235) (251)
Increase in inventories 7 (186) (128) (147) (157)
Increase in trade payables 46 163 84 132 141
Tax 197 248 307 372 440
Cash flow from operations 183 629 695 799 907
Change in fixed assets (194) (418) (250) (250) (250)
Cash flow from investments (172) (418) (250) (250) (250)
Change in debt 19 (160 (300) (300) (300)
Dividends paid (71) (79) (89) (100) (100)
Interest paid (80) (70) (51) (29) (6)
Cash flow from financing (94) (291) (409) (358) (306)
Net cash flow (81) (81) 36 191 350
Opening cash balance 195 113 33 69 259
Closing cash balance 113 33 69 259 609
Source Company data Centrum Research Estimates
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24IFGL Refractories Ltd
Financials (Cons) - Historical
Exhibit 65
Income Statement
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
Revenues from Operations 3780 3982 4152 4689 6039
Raw Materials consumed 1743 1907 2058 2389 3024
of net sales 461 479 496 509 501
Employee expenses 487 589 539 661 843
of net sales 129 148 130 141 140
Other operational expenses 918 1036 951 1148 1418
of net sales 243 260 229 245 235
Total expenses 3244 3708 3575 4279 5299
of net sales 858 931 861 912 878
EBITDA 536 274 578 411 739
EBITDA Margin () 142 69 139 88 122
Depreciation amp Amortisation 63 74 70 71 123
EBIT 473 200 508 339 617
Interest expenses 82 95 45 56 68
Other Income 18 24 34 43 33
EBT 409 128 497 327 582
Provision for tax 123 67 155 84 183
Effective tax rate () 301 523 311 258 315Net Profit 286 61 343 243 398
Less Minority interest 1 0 0 0 0
Net Profit after MI 285 61 343 243 399
Source Company data Centrum Research Estimates
Exhibit 66 Key Ratios
YE Mar FY08 FY09 FY10 FY11 FY12
Growth Ratio ()
Revenue 171 53 43 129 288
EBITDA 98 (489) 1111 (289) 800
PAT 85 (785) 4586 (292) 642
Margin Ratios ()
PBIT Margin 125 50 122 72 102
PBT Margin 108 32 120 70 96
PAT Margin 75 15 83 52 66
Return Ratios ()
ROE 294 54 250 138 180
ROCE 182 49 169 93 128
ROIC 195 53 183 98 141
Turnover Ratios (days)
Asset turnover ratio (x) 20 18 19 15 17
Debtors 97 55 79 85 69
Inventory 46 47 52 55 52
Creditors 49 23 41 50 44
Net Working capital 105 81 89 93 67
Gearing Ratio (x)
Debt-equity 09 09 06 07 05
Net debt-equity 08 08 05 07 04
Current ratio 29 36 26 25 24
Dividend
Dividend per share 20 00 10 05 15
Dividend Payout () 284 00 118 103 63
Dividend Yield () 15 00 07 04 11
Per share Ratios (Rs)
Basic EPS 82 18 99 70 115
Fully diluted EPS 82 18 99 70 115
Book value 280 328 396 508 641
Cash earnings per share 101 39 119 91 151
Valuation (x)
PE 164 762 136 193 117
PBV 48 41 34 27 21
EVEBITDA 102 203 93 142 76
EVSales 12 12 11 10 08
M-CapSales 12 12 11 10 08
Source Company data Centrum Research Estimates
Exhibit 67
Balance Sheet
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
Equity share capital 346 346 346 491 491
Reserves amp surplus 623 789 1026 1266 1728
Shareholders fund 969 1135 1372 1757 2219
Total debt 869 1003 793 1253 1128
Deferred tax liabilities 41 38 38 40 48
Total Liabilities 1879 2185 2206 3054 3465
Gross block 1456 1948 1966 2738 2238
Less acc depreciation 687 827 864 960 1122
Net block 769 1121 1102 1778 1117
Capital work in progress 46 53 28 21 45
Goodwill 347 594 559 1032 1094
Investments 0 0 4 14 5
Inventories 474 513 592 702 855
Trade Receivables 1001 596 895 1096 1134
Cash amp cash equivalents 77 129 120 100 195
Loans amp advances 152 121 133 152 38
Trade payables 507 256 471 637 729
Other current liabilities 32 90 137 112 194Provisions 102 2 60 60 151
Total Assets 1879 2185 2206 3054 3465
Source Company data Centrum Research Estimates
Exhibit 68 Cash Flow
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
PBT 409 128 497 327 582
Interest 81 96 45 56 59
Depreciation 63 74 75 87 129
Increase in debtors (196) 559 (330) (184) 25
Increase in inventories (72) 35 (79) (77) (135)
Increase in trade payables 82 (304 266 115 67
Tax 119 90 138 70 135
Cash flow from operations 285 814 359 237 520
Change in fixed assets (94) (99) (120) (157) (49)
Cash flow from investments (62 (536 (119 (677 (98
Change in debt (88) 15 (276) 245 (242)
Dividends paid (76) (80) (6) (46) (25)
Interest paid (87) (98) (47) (60) (68)
Cash flow from financing (261) (245) (241) 408 (339)
Net cash flow (43) 24 (8) (29) 94
Opening cash balance 120 77 129 120 100
Closing cash balance 77 129 120 100 195
Source Company data Centrum Research Estimates
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25IFGL Refractories Ltd
Appendix A
Disclaimer
Centrum Broking Limited (ldquoCentrumrdquo) is a full(service Stock Broking Company and a member of The Stock Exchange Mumbai (BSE) and National StockExchange of India Ltd (NSE) Our holding company Centrum Capital Ltd is an investment banker and an underwriter of securities As a group Centrumhas Investment Banking Advisory and other business relationships with a significant percentage of the companies covered by our Research Group Ourresearch professionals provide important inputs into the Groups Investment Banking and other business selection processes
Recipients of this report should assume that our Group is seeking or may seek or will seek Investment Banking advisory project finance or otherbusinesses and may receive commission brokerage fees or other compensation from the company or companies that are the subject of thismaterialreport Our Company and Group companies and their officers directors and employees including the analysts and others involved in thepreparation or issuance of this material and their dependants may on the date of this report or from time to time have long or short positions in actas principal in and buy or sell the securities or derivatives thereof of companies mentioned herein Centrum or its affiliates do not own 1 or more in theequity of this company Our sales people dealers traders and other professionals may provide oral or written market commentary or trading strategies toour clients that reflect opinions that are contrary to the opinions expressed herein and our proprietary trading and investing businesses may makeinvestment decisions that are inconsistent with the recommendations expressed herein We may have earlier issued or may issue in future reports on thecompanies covered herein with recommendations information inconsistent or different those made in this report In reviewing this document youshould be aware that any or all of the foregoing among other things may give rise to or potential conflicts of interest We and our Group may rely oninformation barriers such as Chinese Walls to control the flow of information contained in one or more areas within us or other areas units groups oraffiliates of Centrum Centrum or its affiliates do not make a market in the security of the company for which this report or any report was writtenFurther Centrum or its affiliates did not make a market in the subject companyrsquos securities at the time that the research report was published
This report is for information purposes only and this documentmaterial should not be construed as an offer to sell or the solicitation of an offer to buypurchase or subscribe to any securities and neither this document nor anything contained herein shall form the basis of or be relied upon in connection
with any contract or commitment whatsoever This document does not solicit any action based on the material contained herein It is for the generalinformation of the clients of Centrum Though disseminated to clients simultaneously not all clients may receive this report at the same time Centrumwill not treat recipients as clients by virtue of their receiving this report It does not constitute a personal recommendation or take into account theparticular investment objectives financial situations or needs of individual clients Similarly this document does not have regard to the specificinvestment objectives financial situationcircumstances and the particular needs of any specific person who may receive this document The securitiesdiscussed in this report may not be suitable for all investors The securities described herein may not be eligible for sale in all jurisdictions or to allcategories of investors The countries in which the companies mentioned in this report are organized may have restrictions on investments voting rightsor dealings in securities by nationals of other countries The appropriateness of a particular investment or strategy will depend on an investorsindividual circumstances and objectives Persons who may receive this document should consider and independently evaluate whether it is suitable forhis hertheir particular circumstances and if necessary seek professionalfinancial advice Any such person shall be responsible for conductinghishertheir own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risks involvedin the securities forming the subject matter of this document
The projections and forecasts described in this report were based upon a number of estimates and assumptions and are inherently subject to significantuncertainties and contingencies Projections and forecasts are necessarily speculative in nature and it can be expected that one or more of the estimateson which the projections and forecasts were based will not materialize or will vary significantly from actual results and such variances will likely increase
over time All projections and forecasts described in this report have been prepared solely by the authors of this report independently of the Company These projections and forecasts were not prepared with a view toward compliance with published guidelines or generally accented accountingprinciples No independent accountants have expressed an opinion or any other form of assurance on these projections or forecasts You should notregard the inclusion of the projections and forecasts described herein as a representation or warranty by or on behalf of the Company Centrum theauthors of this report or any other person that these projections or forecasts or their underlying assumptions will be achieved For these reasons youshould only consider the projections and forecasts described in this report after carefully evaluating all of the information in this report including theassumptions underlying such projections and forecasts
The price and value of the investments referred to in this documentmaterial and the income from them may go down as well as up and investors mayrealize losses on any investments Past performance is not a guide for future performance Future returns are not guaranteed and a loss of original capitalmay occur Actual results may differ materially from those set forth in projections Forward (looking statements are not predictions and may be subject tochange without notice Centrum does not provide tax advice to its clients and all investors are strongly advised to consult regarding any potentialinvestment Centrum and its affiliates accept no liabilities for any loss or damage of any kind arising out of the use of this report Foreign currenciesdenominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derived fromthe investment In addition investors in securities such as ADRs the value of which are influenced by foreign currencies effectively assume currency riskCertain transactions including those involving futures options and other derivatives as well as non(investment(grade securities give rise to substantial
risk and are not suitable for all investors Please ensure that you have read and understood the current risk disclosure documents before entering into anyderivative transactions
This reportdocument has been prepared by Centrum based upon information available to the public and sources believed to be reliable Norepresentation or warranty express or implied is made that it is accurate or complete Centrum has reviewed the report and in so far as it includescurrent or historical information it is believed to be reliable although its accuracy and completeness cannot be guaranteed The opinions expressed inthis documentmaterial are subject to change without notice and have no obligation to tell you when opinions or information in this report change
This report or recommendations or information contained herein dodoes not constitute or purport to constitute investment advice in publicly accessiblemedia and should not be reproduced transmitted or published by the recipient The report is for the use and consumption of the recipient only Thispublication may not be distributed to the public used by the public media without the express written consent of Centrum This report or any portionhereof may not be printed sold or distributed without the written consent of Centrum
The distribution of this document in other jurisdictions may be restricted by law and persons into whose possession this document comes should informthemselves about and observe any such restrictions Neither Centrum nor its directors employees agents or representatives shall be liable for anydamages whether direct or indirect incidental special or consequential including lost revenue or lost profits that may arise from or in connection withthe use of the information
This document does not constitute an offer or invitation to subscribe for or purchase or deal in any securities and neither this document nor anythingcontained herein shall form the basis of any contract or commitment whatsoever This document is strictly confidential and is being furnished to yousolely for your information may not be distributed to the press or other media and may not be reproduced or redistributed to any other person Thedistribution of this report in other jurisdictions may be restricted by law and persons into whose possession this report comes should inform themselvesabout and observe any such restrictions By accepting this report you agree to be bound by the fore going limitations No representation is made thatthis report is accurate or complete
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The opinions and projections expressed herein are entirely those of the author and are given as part of the normal research activity of Centrum Brokingand are given as of this date and are subject to change without notice Any opinion estimate or projection herein constitutes a view as of the date of thisreport and there can be no assurance that future results or events will be consistent with any such opinions estimate or projection
This document has not been prepared by or in conjunction with or on behalf of or at the instigation of or by arrangement with the company or any of itsdirectors or any other person Information in this document must not be relied upon as having been authorized or approved by the company or itsdirectors or any other person Any opinions and projections contained herein are entirely those of the authors None of the company or its directors orany other person accepts any liability whatsoever for any loss arising from any use of this document or its contents or otherwise arising in connectiontherewith
Centrum and its affiliates have not managed or co(managed a public offering for the subject company in the preceding twelve months Centrum andaffiliates have not received compensation from the companies mentioned in the report during the period preceding twelve months from the date of thisreport for service in respect of public offerings corporate finance debt restructuring investment banking or other advisory services in amergeracquisition or some other sort of specific transaction
As per the declarations given by them Mr Abhisar Jain research analyst and andor any of his family members do not serve as an officer director or anyway connected to the companycompanies mentioned in this report Further as declared by him he has not received any compensation from the abovecompanies in the preceding twelve months He does not hold any shares by him or through his relatives or in case if holds the shares then will not to doany transactions in the said scrip for 30 days from the date of release such report Our entire research professionals are our employees and are paid asalary They do not have any other material conflict of interest of the research analyst or member of which the research analyst knows of has reason toknow at the time of publication of the research report or at the time of the public appearance
While we would endeavour to update the information herein on a reasonable basis Centrum its associated companies their directors and employees areunder no obligation to update or keep the information current Also there may be regulatory compliance or other reasons that may prevent Centrumfrom doing so
Non(rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable
regulations andor Centrum policies in circumstances where Centrum is acting in an advisory capacity to this company or any certain othercircumstances
This report is not directed to or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality statecountry or other jurisdiction where such distribution publication availability or use would be contrary to law or regulation or which would subjectCentrum Broking Limited or its group companies to any registration or licensing requirement within such jurisdiction Specifically this document doesnot constitute an offer to or solicitation to any US person for the purchase or sale of any financial instrument or as an official confirmation of anytransaction to any US person unless otherwise stated this message should not be construed as official confirmation of any transaction No part of thisdocument may be distributed in Canada or used by private customers in United Kingdom
The information contained herein is not intended for publication or distribution or circulation in any manner whatsoever and any unauthorized readingdissemination distribution or copying of this communication is prohibited unless otherwise expressly authorized Please ensure that you have read ldquoRiskDisclosure Document for Capital Market and Derivatives Segmentsrdquo as prescribed by Securities and Exchange Board of India before investing in IndianSecurities Market
Rating Criteria
Rating Market cap lt Rs20bn Market cap gt Rs20bn but lt 100bn Market cap gt Rs100bn Buy Upside gt 25 Upside gt 20 Upside gt 15
Hold Upside between (25 to +25 Upside between (20 to +20 Upside between (15 to +15
Sell Downside gt 25 Downside gt 20 Downside gt 15
Member (NSE BSE MCX(SX) Depository Participant (CDSL) and SEBI registered Portfolio Manager
Registration Nos
CAPITAL MARKET SEBI REGN NO BSE INB011454239 NSE INB231454233
DERIVATIVES SEBI REGN NO NSE INF231454233 (TRADING amp SELF CLEARING MEMBER)
CDSL DP ID 12200 SEBI REGISTRATION NO IN(DP(CDSL(661(2012
PMS REGISTRATION NO INP000004383
MCX ndash SX (Currency Derivative segment) REGN NO INE261454230
Website wwwcentrumcoin
Investor Grievance Email ID investorgrievancescentrumcoin
Compliance Officer Details
Tel (022) 4215 9413 Email ID compliancecentrumcoin
Centrum Broking Limited
Registered Office Address
Bombay Mutual Building
2nd Floor
Dr D N Road
Fort Mumbai ( 400 001
Correspondence Address
Centrum House
6th Floor CST Road Near Vidya Nagari Marg Kalina
Santacruz (E) Mumbai 400 098
Tel (022) 4215 9000
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19IFGL Refractories Ltd
Annexure ndash Refractory Industry
About refractories ndash consumables for manufacturing processes with high temperatures
Refractories are inorganic non-metallic and heterogeneous materials having very high melting pointswhich make them suitable to be used as heat-resisting barriers consumed within various productionprocesses providing heat chemical and mechanical resistance Refractories are mainly of two types ndash
shaped and unshaped (monolithics) and are used mainly by the steel industry as a consumableproduct in the internal linings of furnaces kilns reactors and other vessels for holding andtransporting metal and slag
Shaped refractories are those which have fixed shapes with most common form being rectangularbrick Brick shapes may be divided into two standard shapes and special shapes Standard shapeshave dimensions that are conformed to by most refractory manufacturers and are generally applicableto kilns and furnaces of the same type Special shapes are specifically made for particular kilns andfurnaces Shaped refractories are almost always machine-pressed and possess high uniformity inproperties are expected
Unshaped refractories are without definite form and are only given shape upon application It forms joint less lining and are better known as monolithic refractories They are manufactured in powderform as granular material and known as plastic refractories ramming mixes castables gunning mixesfettling mixes and mortars
The raw materials used to manufacture refractories are broadly classified into clay and non-clay Clayrefractories consist of naturally occurring alumina silicate like fireclay flint clay flint brick and highalumina and are used to produce bricks and insulating refractories Non-clay refractories are madefrom non-clay materials and are further classified into basic (made in the form of bricks from magnesiadolomite chrome etc) extra high alumina mullite (made from kyanite bauxite alumina) siliconcarbide and zircon
Exhibit 48
Refractory share by form Exhibit 49
Refractory share by raw material
Source Industry data Centrum Research Source Industry data Centrum Research
Unshaped45Shaped 55
Clay 65
Non Clay35
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20IFGL Refractories Ltd
Applications of refractories ndash largely used in steel industry for furnace linings
Steel industry accounts for ~60 of refractory consumption globally and ~75 in the domesticmarket In non-metallurgical industries (cement glass lime) the refractories are mostly installed onfired heaters hydrogen reformers cracking furnaces incinerators utility boilers air heaters ductingstacks etc The different areas of the steel manufacturing processes are exposed to differenttemperatures slag and sulphur gases Refractory selection for the lining of a furnace is invariably builtupon a combination of material qualities and brick size to maximize performance Steel industry usesrefractory for diverse applications in blast furnaces coke ovens torpedo ladles and secondary refiningladles
In cement industry refractories are used in the kiln the preheating system and the cooler whichoperate in a very high temperature to protect against heat abrasion and chemical attack Commonrefractory materials used are Dolomite Magnesia-Chrome Spinel Magnesia-Alumina Spinel Fireclayand High Alumina The cement kiln clinker area is usually provided with Dolomite refractories
Non(-errous industries like copper and aluminium require high performance refractories in severalequipments like anode baking furnaces induction furnaces reduction pots slag cleaning surfaces etcGlass industry also requires refractories in refiner regenerator dog-house and ports of furnace
Exhibit 50
Refractories consumption in steel making process
Source Magnesita ppt
Exhibit 51
Refractories consumption in steel making process
Source Vesuvius PLC ppt
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21IFGL Refractories Ltd
Steel industry accounts for ~60 of refractory consumption globally and ~75 in the domesticmarket In non-metallurgical industries (cement glass lime) refractories are mostly installed on firedheaters hydrogen reformers cracking furnaces incinerators utility boilers air heaters ducting stacksetc
Exhibit 52
Sector wise refractories demand - Global Exhibit 53
Sector wise refractories demand - India
Source Industry data Centrum Research Source Industry data Centrum Research
Refractory application consumption and replacement dynamics are shown in the table belowSteelmaking requires maximum amount of refractories (10-15kgstonne) with replacement required ina time period of 20 minutes to 2months Cement industry is the next biggest user with annualreplacement requirement while non-ferrous and glass industries have longer replacement cycles
Exhibit 54
Refractory consumption dynamics across user industries
Key Industry Application Replacement Per tonne consumption Refractory requirements
Steel
BF(BOF EAFCasting LadlesInduction FurnacesPellet rotary Kilns
20 minutes to 2months
Global avg - 10-15KgsIndia avg - 15 Kgs
Consumable product ( Systems and solutions for completerefractory management
Cement Kilns annually 1 KgsInvestment goods ( Longer replacement cycles Customizedsolutions based on the specific requirements of various industrialproduction processes complete lining concepts
Glass Glass Furnace upto 10 years 4 Kgs
Non(Ferrous Converters 1(10 yearsAluminium - 6 KgsCopper - 3 Kgs
Source RHI ppt Centrum Research
Global refractory market size at ~US$25bn expected to grow at ~35 CAGR
According to various industry studies global refractoriesrsquo market size is ~US$25bn with production of415MT in CY12 According to industry estimates the global refractories industry is expected to witnessCAGR of 35 during CY13-16E and grow to 46MT with a market value of US$29bn China accountedfor ~70 of the market by volume and ~60 by value in CY12 whereas India accounts for ~3 of theglobal refractories market by volume
Exhibit 55
Global refractory market size at ~US$25bn Exhibit 56
China accounts for ~70 of the market
CY12 Production (MT) Value (US$ bn)
World 415 25
China 295 143
EU 41 39
North America 14 14
India 13 09
Source Industry Centrum Research Source Industry Centrum Research
6015
15
10 Steel
Non-Metallic (Cement GlassLime)
Non-Ferrous (AluminiumCopper Zinc Silver)
Others (paper ceramicspetrochemicals)
75
12
6 3
4
Steel
Cement
Non-Ferrous
Glass
Others
415
463
25
29
0
10
20
30
40
50
CY12 CY16
Volume (MT) Mkt Value ($ bn)
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22IFGL Refractories Ltd
Domestic refractory demand-supply indicates low industry growth amp import pressure
Demand supply analysis of domestic refractory industry shows that it has been witnessing mutedconsumption growth (due to a fall in per tonne consumption for steel making due to technologicaladvances) and faces strong import pressure with one fourth of the market being serviced by netimports (mainly from cheap supplies from China which accounts for two thirds of refractory imports inIndia) Capacity utilization for the industry remains at ~60 on installed capacity of ~22MT and marketsize is ~US$1bn Domestic refractory consumption in steel has grown at a CAGR of ~2 during FY08-14 We expect industry growth to pick up due to scope for higher steel production (backed by higherinfra spend and expansion in per capita steel consumption) The industry has seen consolidation andacquisitions by global majors in the last five years and organised sector (split between (6 players)accounts for ~65 of the market
Exhibit 57 Refractory demand from domestic steel industry
(In tonne) FY08 FY09 FY10 FY11 FY12 FY13 FY14E FY15E FY16E FY17E
Steel Production (MT) 561 572 606 686 757 817 850 893 946 1012
Growth 20 59 132 103 79 40 50 60 70
Avg Refractory consumption(kgt of crude steel)
188 173 168 16 15 145 140 140 140 140
Refractory consumption (steel) 1054680 989560 1018080 1097600 1135500 1184650 1190000 1249500 1324470 1417183
Growth (62) 29 78 35 43 05 50 60 70
Source Ministry of Steel (MoS) Centrum Research Estimates
Exhibit 58
Organised sector accounts for ~65 of domestic refractory industry
Company RevenueMarket
Share ()
Supply toIntegratedsteel mills
Comments
Vesuvius India Ltd 6017 100 95+Leading supplier with wide product basket strongcustomer relationships with large steel mills
Orient Refractories (RHI) 4035 67 10-15 Has developed a niche with mini steel mills
IFGL Refractories (incl IEL) 3674 61 85+Mainly into flow control shaped refractories goodrelationship with large mills
Tata Refractories 9800 163 Not available Largely into bricks supplies (commodity refractories)
Calderys 6250 104 Not available
Supplies largely to non-ferrous producers strong in
bricks and monolithics
OCL 4056 68 Not available
Total Organized Sector 39332 656
Source Company Centrum Research Estimates
Exhibit 59
Net imports accounts for one fourth of market Exhibit 60
China accounts for two thirds of imports
Source MoS Industry Centrum Research Source MoS Industry Centrum Research
(800000)
(600000)
(400000)
(200000)
0
200000
400000
FY07 FY08 FY09 FY10 FY11 FY12
( T o n n e )
Imports Exports Net Imports
167259
380
167228
647594
551
696 685
10
20
30
40
50
60
70
80
FY07 FY08 FY09 FY10 FY11
Net Imports - share China share in imports
Domestic refractory production growth hasbeen largely flat andcapacity utilization is~60
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23IFGL Refractories Ltd
Financials (Cons)
Exhibit 61
Income Statement
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
Revenues from Operations 6712 7776 8484 9554 10697
Raw Materials consumed 3201 3444 3725 4208 4716
of net sales 477 443 439 440 441
Employee expenses 987 1097 1185 1279 1382
of net sales 147 141 140 134 129
Other operational expenses 1621 1805 2013 2243 2486
of net sales 241 232 237 235 232
Total expenses 6130 6680 7273 8140 9068
of net sales 913 859 857 852 848
EBITDA 582 1096 1210 1414 1630
EBITDA Margin () 87 141 143 148 152
Depreciation amp Amortisation 134 155 174 189 204
EBIT 448 942 1036 1225 1425
Interest expenses 80 70 51 29 6
Other Income 45 34 40 44 484
EBT 413 906 1025 1240 1467
Provision for tax 159 248 307 372 440
Effective tax rate () 386 274 300 300 300Net Profit 254 658 717 868 1027
Less Minority interest (28) 18 32 70 99
Net Profit after MI 282 640 686 798 928
Source Company data Centrum Research Estimates
Exhibit 62 Key Ratios
YE Mar FY13 FY14 FY15E FY16E FY17E
Growth Ratio ()
Revenue 112 159 91 126 120
EBITDA (213) 884 104 168 153
PAT (292) 1269 71 163 163
Margin Ratios ()
PBIT Margin 67 121 122 128 133
PBT Margin 62 116 121 130 137
PAT Margin 42 82 81 84 87
Return Ratios ()
ROE 115 212 190 185 181
ROCE 84 177 175 189 198
ROIC 87 179 178 200 224
Turnover Ratios (days)
Asset turnover ratio (x) 18 19 19 19 19
Debtors 78 78 80 80 80
Inventory 46 49 50 50 50
Creditors 43 45 45 45 45
Net Working capital 74 76 80 80 80
Gearing Ratio (x)
Debt-equity 05 03 02 01 00
Net debt-equity 04 03 02 00 (01)
Current ratio 25 23 24 25 27
Dividend
Dividend per share 15 18 20 23 23
Dividend Payout () 251 124 130 125 107
Dividend Yield () 11 13 15 17 17
Per share Ratios (Rs)
Basic EPS 82 185 198 231 268
Fully diluted EPS 82 185 198 231 268
Book value 709 871 1044 1245 1485
Cash earnings per share 120 230 249 285 327
Valuation (x)
PE 174 77 72 62 53
PBV 20 16 14 11 10
EVEBITDA 102 53 46 36 27
EVSales 07 06 06 05 04
M-CapSales 07 06 06 05 05
Source Company data Centrum Research Estimates
Exhibit 63
Balance Sheet
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
Equity share capital 491 491 491 491 491
Reserves amp surplus 1964 2525 3121 3819 4648
Shareholders fund 2455 3016 3612 4310 5139
Total debt 1142 982 682 382 82
Deferred tax liabilities 65 74 74 74 74
Total Liabilities 3741 4167 4495 4963 5591
Gross block 2474 2656 2906 3156 3406
Less acc depreciation 1276 1430 1605 1794 1998
Net block 1198 1225 1301 1362 1407
Capital work in progress 20 20 20 20 20
Goodwill 1105 1342 1342 1342 1342
Investments 5 5 5 5 5
Inventories 848 1034 1162 1309 1465
Trade Receivables 1427 1658 1859 2094 2345
Cash amp cash equivalents 113 33 69 259 609
Loans amp advances 51 107 116 131 147
Trade payables 799 962 1046 1178 1319
Other current liabilities 166 210 232 262 293Provisions 94 124 139 157 176
Total Assets 3741 4167 4495 4963 5591
Source Company data Centrum Research Estimates
Exhibit 64 Cash Flow
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
PBT 413 906 1025 1240 1467
Interest 72 70 51 29 6
Depreciation 134 155 174 189 204
Increase in debtors (330) (231) (201) (235) (251)
Increase in inventories 7 (186) (128) (147) (157)
Increase in trade payables 46 163 84 132 141
Tax 197 248 307 372 440
Cash flow from operations 183 629 695 799 907
Change in fixed assets (194) (418) (250) (250) (250)
Cash flow from investments (172) (418) (250) (250) (250)
Change in debt 19 (160 (300) (300) (300)
Dividends paid (71) (79) (89) (100) (100)
Interest paid (80) (70) (51) (29) (6)
Cash flow from financing (94) (291) (409) (358) (306)
Net cash flow (81) (81) 36 191 350
Opening cash balance 195 113 33 69 259
Closing cash balance 113 33 69 259 609
Source Company data Centrum Research Estimates
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24IFGL Refractories Ltd
Financials (Cons) - Historical
Exhibit 65
Income Statement
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
Revenues from Operations 3780 3982 4152 4689 6039
Raw Materials consumed 1743 1907 2058 2389 3024
of net sales 461 479 496 509 501
Employee expenses 487 589 539 661 843
of net sales 129 148 130 141 140
Other operational expenses 918 1036 951 1148 1418
of net sales 243 260 229 245 235
Total expenses 3244 3708 3575 4279 5299
of net sales 858 931 861 912 878
EBITDA 536 274 578 411 739
EBITDA Margin () 142 69 139 88 122
Depreciation amp Amortisation 63 74 70 71 123
EBIT 473 200 508 339 617
Interest expenses 82 95 45 56 68
Other Income 18 24 34 43 33
EBT 409 128 497 327 582
Provision for tax 123 67 155 84 183
Effective tax rate () 301 523 311 258 315Net Profit 286 61 343 243 398
Less Minority interest 1 0 0 0 0
Net Profit after MI 285 61 343 243 399
Source Company data Centrum Research Estimates
Exhibit 66 Key Ratios
YE Mar FY08 FY09 FY10 FY11 FY12
Growth Ratio ()
Revenue 171 53 43 129 288
EBITDA 98 (489) 1111 (289) 800
PAT 85 (785) 4586 (292) 642
Margin Ratios ()
PBIT Margin 125 50 122 72 102
PBT Margin 108 32 120 70 96
PAT Margin 75 15 83 52 66
Return Ratios ()
ROE 294 54 250 138 180
ROCE 182 49 169 93 128
ROIC 195 53 183 98 141
Turnover Ratios (days)
Asset turnover ratio (x) 20 18 19 15 17
Debtors 97 55 79 85 69
Inventory 46 47 52 55 52
Creditors 49 23 41 50 44
Net Working capital 105 81 89 93 67
Gearing Ratio (x)
Debt-equity 09 09 06 07 05
Net debt-equity 08 08 05 07 04
Current ratio 29 36 26 25 24
Dividend
Dividend per share 20 00 10 05 15
Dividend Payout () 284 00 118 103 63
Dividend Yield () 15 00 07 04 11
Per share Ratios (Rs)
Basic EPS 82 18 99 70 115
Fully diluted EPS 82 18 99 70 115
Book value 280 328 396 508 641
Cash earnings per share 101 39 119 91 151
Valuation (x)
PE 164 762 136 193 117
PBV 48 41 34 27 21
EVEBITDA 102 203 93 142 76
EVSales 12 12 11 10 08
M-CapSales 12 12 11 10 08
Source Company data Centrum Research Estimates
Exhibit 67
Balance Sheet
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
Equity share capital 346 346 346 491 491
Reserves amp surplus 623 789 1026 1266 1728
Shareholders fund 969 1135 1372 1757 2219
Total debt 869 1003 793 1253 1128
Deferred tax liabilities 41 38 38 40 48
Total Liabilities 1879 2185 2206 3054 3465
Gross block 1456 1948 1966 2738 2238
Less acc depreciation 687 827 864 960 1122
Net block 769 1121 1102 1778 1117
Capital work in progress 46 53 28 21 45
Goodwill 347 594 559 1032 1094
Investments 0 0 4 14 5
Inventories 474 513 592 702 855
Trade Receivables 1001 596 895 1096 1134
Cash amp cash equivalents 77 129 120 100 195
Loans amp advances 152 121 133 152 38
Trade payables 507 256 471 637 729
Other current liabilities 32 90 137 112 194Provisions 102 2 60 60 151
Total Assets 1879 2185 2206 3054 3465
Source Company data Centrum Research Estimates
Exhibit 68 Cash Flow
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
PBT 409 128 497 327 582
Interest 81 96 45 56 59
Depreciation 63 74 75 87 129
Increase in debtors (196) 559 (330) (184) 25
Increase in inventories (72) 35 (79) (77) (135)
Increase in trade payables 82 (304 266 115 67
Tax 119 90 138 70 135
Cash flow from operations 285 814 359 237 520
Change in fixed assets (94) (99) (120) (157) (49)
Cash flow from investments (62 (536 (119 (677 (98
Change in debt (88) 15 (276) 245 (242)
Dividends paid (76) (80) (6) (46) (25)
Interest paid (87) (98) (47) (60) (68)
Cash flow from financing (261) (245) (241) 408 (339)
Net cash flow (43) 24 (8) (29) 94
Opening cash balance 120 77 129 120 100
Closing cash balance 77 129 120 100 195
Source Company data Centrum Research Estimates
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25IFGL Refractories Ltd
Appendix A
Disclaimer
Centrum Broking Limited (ldquoCentrumrdquo) is a full(service Stock Broking Company and a member of The Stock Exchange Mumbai (BSE) and National StockExchange of India Ltd (NSE) Our holding company Centrum Capital Ltd is an investment banker and an underwriter of securities As a group Centrumhas Investment Banking Advisory and other business relationships with a significant percentage of the companies covered by our Research Group Ourresearch professionals provide important inputs into the Groups Investment Banking and other business selection processes
Recipients of this report should assume that our Group is seeking or may seek or will seek Investment Banking advisory project finance or otherbusinesses and may receive commission brokerage fees or other compensation from the company or companies that are the subject of thismaterialreport Our Company and Group companies and their officers directors and employees including the analysts and others involved in thepreparation or issuance of this material and their dependants may on the date of this report or from time to time have long or short positions in actas principal in and buy or sell the securities or derivatives thereof of companies mentioned herein Centrum or its affiliates do not own 1 or more in theequity of this company Our sales people dealers traders and other professionals may provide oral or written market commentary or trading strategies toour clients that reflect opinions that are contrary to the opinions expressed herein and our proprietary trading and investing businesses may makeinvestment decisions that are inconsistent with the recommendations expressed herein We may have earlier issued or may issue in future reports on thecompanies covered herein with recommendations information inconsistent or different those made in this report In reviewing this document youshould be aware that any or all of the foregoing among other things may give rise to or potential conflicts of interest We and our Group may rely oninformation barriers such as Chinese Walls to control the flow of information contained in one or more areas within us or other areas units groups oraffiliates of Centrum Centrum or its affiliates do not make a market in the security of the company for which this report or any report was writtenFurther Centrum or its affiliates did not make a market in the subject companyrsquos securities at the time that the research report was published
This report is for information purposes only and this documentmaterial should not be construed as an offer to sell or the solicitation of an offer to buypurchase or subscribe to any securities and neither this document nor anything contained herein shall form the basis of or be relied upon in connection
with any contract or commitment whatsoever This document does not solicit any action based on the material contained herein It is for the generalinformation of the clients of Centrum Though disseminated to clients simultaneously not all clients may receive this report at the same time Centrumwill not treat recipients as clients by virtue of their receiving this report It does not constitute a personal recommendation or take into account theparticular investment objectives financial situations or needs of individual clients Similarly this document does not have regard to the specificinvestment objectives financial situationcircumstances and the particular needs of any specific person who may receive this document The securitiesdiscussed in this report may not be suitable for all investors The securities described herein may not be eligible for sale in all jurisdictions or to allcategories of investors The countries in which the companies mentioned in this report are organized may have restrictions on investments voting rightsor dealings in securities by nationals of other countries The appropriateness of a particular investment or strategy will depend on an investorsindividual circumstances and objectives Persons who may receive this document should consider and independently evaluate whether it is suitable forhis hertheir particular circumstances and if necessary seek professionalfinancial advice Any such person shall be responsible for conductinghishertheir own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risks involvedin the securities forming the subject matter of this document
The projections and forecasts described in this report were based upon a number of estimates and assumptions and are inherently subject to significantuncertainties and contingencies Projections and forecasts are necessarily speculative in nature and it can be expected that one or more of the estimateson which the projections and forecasts were based will not materialize or will vary significantly from actual results and such variances will likely increase
over time All projections and forecasts described in this report have been prepared solely by the authors of this report independently of the Company These projections and forecasts were not prepared with a view toward compliance with published guidelines or generally accented accountingprinciples No independent accountants have expressed an opinion or any other form of assurance on these projections or forecasts You should notregard the inclusion of the projections and forecasts described herein as a representation or warranty by or on behalf of the Company Centrum theauthors of this report or any other person that these projections or forecasts or their underlying assumptions will be achieved For these reasons youshould only consider the projections and forecasts described in this report after carefully evaluating all of the information in this report including theassumptions underlying such projections and forecasts
The price and value of the investments referred to in this documentmaterial and the income from them may go down as well as up and investors mayrealize losses on any investments Past performance is not a guide for future performance Future returns are not guaranteed and a loss of original capitalmay occur Actual results may differ materially from those set forth in projections Forward (looking statements are not predictions and may be subject tochange without notice Centrum does not provide tax advice to its clients and all investors are strongly advised to consult regarding any potentialinvestment Centrum and its affiliates accept no liabilities for any loss or damage of any kind arising out of the use of this report Foreign currenciesdenominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derived fromthe investment In addition investors in securities such as ADRs the value of which are influenced by foreign currencies effectively assume currency riskCertain transactions including those involving futures options and other derivatives as well as non(investment(grade securities give rise to substantial
risk and are not suitable for all investors Please ensure that you have read and understood the current risk disclosure documents before entering into anyderivative transactions
This reportdocument has been prepared by Centrum based upon information available to the public and sources believed to be reliable Norepresentation or warranty express or implied is made that it is accurate or complete Centrum has reviewed the report and in so far as it includescurrent or historical information it is believed to be reliable although its accuracy and completeness cannot be guaranteed The opinions expressed inthis documentmaterial are subject to change without notice and have no obligation to tell you when opinions or information in this report change
This report or recommendations or information contained herein dodoes not constitute or purport to constitute investment advice in publicly accessiblemedia and should not be reproduced transmitted or published by the recipient The report is for the use and consumption of the recipient only Thispublication may not be distributed to the public used by the public media without the express written consent of Centrum This report or any portionhereof may not be printed sold or distributed without the written consent of Centrum
The distribution of this document in other jurisdictions may be restricted by law and persons into whose possession this document comes should informthemselves about and observe any such restrictions Neither Centrum nor its directors employees agents or representatives shall be liable for anydamages whether direct or indirect incidental special or consequential including lost revenue or lost profits that may arise from or in connection withthe use of the information
This document does not constitute an offer or invitation to subscribe for or purchase or deal in any securities and neither this document nor anythingcontained herein shall form the basis of any contract or commitment whatsoever This document is strictly confidential and is being furnished to yousolely for your information may not be distributed to the press or other media and may not be reproduced or redistributed to any other person Thedistribution of this report in other jurisdictions may be restricted by law and persons into whose possession this report comes should inform themselvesabout and observe any such restrictions By accepting this report you agree to be bound by the fore going limitations No representation is made thatthis report is accurate or complete
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The opinions and projections expressed herein are entirely those of the author and are given as part of the normal research activity of Centrum Brokingand are given as of this date and are subject to change without notice Any opinion estimate or projection herein constitutes a view as of the date of thisreport and there can be no assurance that future results or events will be consistent with any such opinions estimate or projection
This document has not been prepared by or in conjunction with or on behalf of or at the instigation of or by arrangement with the company or any of itsdirectors or any other person Information in this document must not be relied upon as having been authorized or approved by the company or itsdirectors or any other person Any opinions and projections contained herein are entirely those of the authors None of the company or its directors orany other person accepts any liability whatsoever for any loss arising from any use of this document or its contents or otherwise arising in connectiontherewith
Centrum and its affiliates have not managed or co(managed a public offering for the subject company in the preceding twelve months Centrum andaffiliates have not received compensation from the companies mentioned in the report during the period preceding twelve months from the date of thisreport for service in respect of public offerings corporate finance debt restructuring investment banking or other advisory services in amergeracquisition or some other sort of specific transaction
As per the declarations given by them Mr Abhisar Jain research analyst and andor any of his family members do not serve as an officer director or anyway connected to the companycompanies mentioned in this report Further as declared by him he has not received any compensation from the abovecompanies in the preceding twelve months He does not hold any shares by him or through his relatives or in case if holds the shares then will not to doany transactions in the said scrip for 30 days from the date of release such report Our entire research professionals are our employees and are paid asalary They do not have any other material conflict of interest of the research analyst or member of which the research analyst knows of has reason toknow at the time of publication of the research report or at the time of the public appearance
While we would endeavour to update the information herein on a reasonable basis Centrum its associated companies their directors and employees areunder no obligation to update or keep the information current Also there may be regulatory compliance or other reasons that may prevent Centrumfrom doing so
Non(rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable
regulations andor Centrum policies in circumstances where Centrum is acting in an advisory capacity to this company or any certain othercircumstances
This report is not directed to or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality statecountry or other jurisdiction where such distribution publication availability or use would be contrary to law or regulation or which would subjectCentrum Broking Limited or its group companies to any registration or licensing requirement within such jurisdiction Specifically this document doesnot constitute an offer to or solicitation to any US person for the purchase or sale of any financial instrument or as an official confirmation of anytransaction to any US person unless otherwise stated this message should not be construed as official confirmation of any transaction No part of thisdocument may be distributed in Canada or used by private customers in United Kingdom
The information contained herein is not intended for publication or distribution or circulation in any manner whatsoever and any unauthorized readingdissemination distribution or copying of this communication is prohibited unless otherwise expressly authorized Please ensure that you have read ldquoRiskDisclosure Document for Capital Market and Derivatives Segmentsrdquo as prescribed by Securities and Exchange Board of India before investing in IndianSecurities Market
Rating Criteria
Rating Market cap lt Rs20bn Market cap gt Rs20bn but lt 100bn Market cap gt Rs100bn Buy Upside gt 25 Upside gt 20 Upside gt 15
Hold Upside between (25 to +25 Upside between (20 to +20 Upside between (15 to +15
Sell Downside gt 25 Downside gt 20 Downside gt 15
Member (NSE BSE MCX(SX) Depository Participant (CDSL) and SEBI registered Portfolio Manager
Registration Nos
CAPITAL MARKET SEBI REGN NO BSE INB011454239 NSE INB231454233
DERIVATIVES SEBI REGN NO NSE INF231454233 (TRADING amp SELF CLEARING MEMBER)
CDSL DP ID 12200 SEBI REGISTRATION NO IN(DP(CDSL(661(2012
PMS REGISTRATION NO INP000004383
MCX ndash SX (Currency Derivative segment) REGN NO INE261454230
Website wwwcentrumcoin
Investor Grievance Email ID investorgrievancescentrumcoin
Compliance Officer Details
Tel (022) 4215 9413 Email ID compliancecentrumcoin
Centrum Broking Limited
Registered Office Address
Bombay Mutual Building
2nd Floor
Dr D N Road
Fort Mumbai ( 400 001
Correspondence Address
Centrum House
6th Floor CST Road Near Vidya Nagari Marg Kalina
Santacruz (E) Mumbai 400 098
Tel (022) 4215 9000
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20IFGL Refractories Ltd
Applications of refractories ndash largely used in steel industry for furnace linings
Steel industry accounts for ~60 of refractory consumption globally and ~75 in the domesticmarket In non-metallurgical industries (cement glass lime) the refractories are mostly installed onfired heaters hydrogen reformers cracking furnaces incinerators utility boilers air heaters ductingstacks etc The different areas of the steel manufacturing processes are exposed to differenttemperatures slag and sulphur gases Refractory selection for the lining of a furnace is invariably builtupon a combination of material qualities and brick size to maximize performance Steel industry usesrefractory for diverse applications in blast furnaces coke ovens torpedo ladles and secondary refiningladles
In cement industry refractories are used in the kiln the preheating system and the cooler whichoperate in a very high temperature to protect against heat abrasion and chemical attack Commonrefractory materials used are Dolomite Magnesia-Chrome Spinel Magnesia-Alumina Spinel Fireclayand High Alumina The cement kiln clinker area is usually provided with Dolomite refractories
Non(-errous industries like copper and aluminium require high performance refractories in severalequipments like anode baking furnaces induction furnaces reduction pots slag cleaning surfaces etcGlass industry also requires refractories in refiner regenerator dog-house and ports of furnace
Exhibit 50
Refractories consumption in steel making process
Source Magnesita ppt
Exhibit 51
Refractories consumption in steel making process
Source Vesuvius PLC ppt
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21IFGL Refractories Ltd
Steel industry accounts for ~60 of refractory consumption globally and ~75 in the domesticmarket In non-metallurgical industries (cement glass lime) refractories are mostly installed on firedheaters hydrogen reformers cracking furnaces incinerators utility boilers air heaters ducting stacksetc
Exhibit 52
Sector wise refractories demand - Global Exhibit 53
Sector wise refractories demand - India
Source Industry data Centrum Research Source Industry data Centrum Research
Refractory application consumption and replacement dynamics are shown in the table belowSteelmaking requires maximum amount of refractories (10-15kgstonne) with replacement required ina time period of 20 minutes to 2months Cement industry is the next biggest user with annualreplacement requirement while non-ferrous and glass industries have longer replacement cycles
Exhibit 54
Refractory consumption dynamics across user industries
Key Industry Application Replacement Per tonne consumption Refractory requirements
Steel
BF(BOF EAFCasting LadlesInduction FurnacesPellet rotary Kilns
20 minutes to 2months
Global avg - 10-15KgsIndia avg - 15 Kgs
Consumable product ( Systems and solutions for completerefractory management
Cement Kilns annually 1 KgsInvestment goods ( Longer replacement cycles Customizedsolutions based on the specific requirements of various industrialproduction processes complete lining concepts
Glass Glass Furnace upto 10 years 4 Kgs
Non(Ferrous Converters 1(10 yearsAluminium - 6 KgsCopper - 3 Kgs
Source RHI ppt Centrum Research
Global refractory market size at ~US$25bn expected to grow at ~35 CAGR
According to various industry studies global refractoriesrsquo market size is ~US$25bn with production of415MT in CY12 According to industry estimates the global refractories industry is expected to witnessCAGR of 35 during CY13-16E and grow to 46MT with a market value of US$29bn China accountedfor ~70 of the market by volume and ~60 by value in CY12 whereas India accounts for ~3 of theglobal refractories market by volume
Exhibit 55
Global refractory market size at ~US$25bn Exhibit 56
China accounts for ~70 of the market
CY12 Production (MT) Value (US$ bn)
World 415 25
China 295 143
EU 41 39
North America 14 14
India 13 09
Source Industry Centrum Research Source Industry Centrum Research
6015
15
10 Steel
Non-Metallic (Cement GlassLime)
Non-Ferrous (AluminiumCopper Zinc Silver)
Others (paper ceramicspetrochemicals)
75
12
6 3
4
Steel
Cement
Non-Ferrous
Glass
Others
415
463
25
29
0
10
20
30
40
50
CY12 CY16
Volume (MT) Mkt Value ($ bn)
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22IFGL Refractories Ltd
Domestic refractory demand-supply indicates low industry growth amp import pressure
Demand supply analysis of domestic refractory industry shows that it has been witnessing mutedconsumption growth (due to a fall in per tonne consumption for steel making due to technologicaladvances) and faces strong import pressure with one fourth of the market being serviced by netimports (mainly from cheap supplies from China which accounts for two thirds of refractory imports inIndia) Capacity utilization for the industry remains at ~60 on installed capacity of ~22MT and marketsize is ~US$1bn Domestic refractory consumption in steel has grown at a CAGR of ~2 during FY08-14 We expect industry growth to pick up due to scope for higher steel production (backed by higherinfra spend and expansion in per capita steel consumption) The industry has seen consolidation andacquisitions by global majors in the last five years and organised sector (split between (6 players)accounts for ~65 of the market
Exhibit 57 Refractory demand from domestic steel industry
(In tonne) FY08 FY09 FY10 FY11 FY12 FY13 FY14E FY15E FY16E FY17E
Steel Production (MT) 561 572 606 686 757 817 850 893 946 1012
Growth 20 59 132 103 79 40 50 60 70
Avg Refractory consumption(kgt of crude steel)
188 173 168 16 15 145 140 140 140 140
Refractory consumption (steel) 1054680 989560 1018080 1097600 1135500 1184650 1190000 1249500 1324470 1417183
Growth (62) 29 78 35 43 05 50 60 70
Source Ministry of Steel (MoS) Centrum Research Estimates
Exhibit 58
Organised sector accounts for ~65 of domestic refractory industry
Company RevenueMarket
Share ()
Supply toIntegratedsteel mills
Comments
Vesuvius India Ltd 6017 100 95+Leading supplier with wide product basket strongcustomer relationships with large steel mills
Orient Refractories (RHI) 4035 67 10-15 Has developed a niche with mini steel mills
IFGL Refractories (incl IEL) 3674 61 85+Mainly into flow control shaped refractories goodrelationship with large mills
Tata Refractories 9800 163 Not available Largely into bricks supplies (commodity refractories)
Calderys 6250 104 Not available
Supplies largely to non-ferrous producers strong in
bricks and monolithics
OCL 4056 68 Not available
Total Organized Sector 39332 656
Source Company Centrum Research Estimates
Exhibit 59
Net imports accounts for one fourth of market Exhibit 60
China accounts for two thirds of imports
Source MoS Industry Centrum Research Source MoS Industry Centrum Research
(800000)
(600000)
(400000)
(200000)
0
200000
400000
FY07 FY08 FY09 FY10 FY11 FY12
( T o n n e )
Imports Exports Net Imports
167259
380
167228
647594
551
696 685
10
20
30
40
50
60
70
80
FY07 FY08 FY09 FY10 FY11
Net Imports - share China share in imports
Domestic refractory production growth hasbeen largely flat andcapacity utilization is~60
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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23IFGL Refractories Ltd
Financials (Cons)
Exhibit 61
Income Statement
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
Revenues from Operations 6712 7776 8484 9554 10697
Raw Materials consumed 3201 3444 3725 4208 4716
of net sales 477 443 439 440 441
Employee expenses 987 1097 1185 1279 1382
of net sales 147 141 140 134 129
Other operational expenses 1621 1805 2013 2243 2486
of net sales 241 232 237 235 232
Total expenses 6130 6680 7273 8140 9068
of net sales 913 859 857 852 848
EBITDA 582 1096 1210 1414 1630
EBITDA Margin () 87 141 143 148 152
Depreciation amp Amortisation 134 155 174 189 204
EBIT 448 942 1036 1225 1425
Interest expenses 80 70 51 29 6
Other Income 45 34 40 44 484
EBT 413 906 1025 1240 1467
Provision for tax 159 248 307 372 440
Effective tax rate () 386 274 300 300 300Net Profit 254 658 717 868 1027
Less Minority interest (28) 18 32 70 99
Net Profit after MI 282 640 686 798 928
Source Company data Centrum Research Estimates
Exhibit 62 Key Ratios
YE Mar FY13 FY14 FY15E FY16E FY17E
Growth Ratio ()
Revenue 112 159 91 126 120
EBITDA (213) 884 104 168 153
PAT (292) 1269 71 163 163
Margin Ratios ()
PBIT Margin 67 121 122 128 133
PBT Margin 62 116 121 130 137
PAT Margin 42 82 81 84 87
Return Ratios ()
ROE 115 212 190 185 181
ROCE 84 177 175 189 198
ROIC 87 179 178 200 224
Turnover Ratios (days)
Asset turnover ratio (x) 18 19 19 19 19
Debtors 78 78 80 80 80
Inventory 46 49 50 50 50
Creditors 43 45 45 45 45
Net Working capital 74 76 80 80 80
Gearing Ratio (x)
Debt-equity 05 03 02 01 00
Net debt-equity 04 03 02 00 (01)
Current ratio 25 23 24 25 27
Dividend
Dividend per share 15 18 20 23 23
Dividend Payout () 251 124 130 125 107
Dividend Yield () 11 13 15 17 17
Per share Ratios (Rs)
Basic EPS 82 185 198 231 268
Fully diluted EPS 82 185 198 231 268
Book value 709 871 1044 1245 1485
Cash earnings per share 120 230 249 285 327
Valuation (x)
PE 174 77 72 62 53
PBV 20 16 14 11 10
EVEBITDA 102 53 46 36 27
EVSales 07 06 06 05 04
M-CapSales 07 06 06 05 05
Source Company data Centrum Research Estimates
Exhibit 63
Balance Sheet
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
Equity share capital 491 491 491 491 491
Reserves amp surplus 1964 2525 3121 3819 4648
Shareholders fund 2455 3016 3612 4310 5139
Total debt 1142 982 682 382 82
Deferred tax liabilities 65 74 74 74 74
Total Liabilities 3741 4167 4495 4963 5591
Gross block 2474 2656 2906 3156 3406
Less acc depreciation 1276 1430 1605 1794 1998
Net block 1198 1225 1301 1362 1407
Capital work in progress 20 20 20 20 20
Goodwill 1105 1342 1342 1342 1342
Investments 5 5 5 5 5
Inventories 848 1034 1162 1309 1465
Trade Receivables 1427 1658 1859 2094 2345
Cash amp cash equivalents 113 33 69 259 609
Loans amp advances 51 107 116 131 147
Trade payables 799 962 1046 1178 1319
Other current liabilities 166 210 232 262 293Provisions 94 124 139 157 176
Total Assets 3741 4167 4495 4963 5591
Source Company data Centrum Research Estimates
Exhibit 64 Cash Flow
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
PBT 413 906 1025 1240 1467
Interest 72 70 51 29 6
Depreciation 134 155 174 189 204
Increase in debtors (330) (231) (201) (235) (251)
Increase in inventories 7 (186) (128) (147) (157)
Increase in trade payables 46 163 84 132 141
Tax 197 248 307 372 440
Cash flow from operations 183 629 695 799 907
Change in fixed assets (194) (418) (250) (250) (250)
Cash flow from investments (172) (418) (250) (250) (250)
Change in debt 19 (160 (300) (300) (300)
Dividends paid (71) (79) (89) (100) (100)
Interest paid (80) (70) (51) (29) (6)
Cash flow from financing (94) (291) (409) (358) (306)
Net cash flow (81) (81) 36 191 350
Opening cash balance 195 113 33 69 259
Closing cash balance 113 33 69 259 609
Source Company data Centrum Research Estimates
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24IFGL Refractories Ltd
Financials (Cons) - Historical
Exhibit 65
Income Statement
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
Revenues from Operations 3780 3982 4152 4689 6039
Raw Materials consumed 1743 1907 2058 2389 3024
of net sales 461 479 496 509 501
Employee expenses 487 589 539 661 843
of net sales 129 148 130 141 140
Other operational expenses 918 1036 951 1148 1418
of net sales 243 260 229 245 235
Total expenses 3244 3708 3575 4279 5299
of net sales 858 931 861 912 878
EBITDA 536 274 578 411 739
EBITDA Margin () 142 69 139 88 122
Depreciation amp Amortisation 63 74 70 71 123
EBIT 473 200 508 339 617
Interest expenses 82 95 45 56 68
Other Income 18 24 34 43 33
EBT 409 128 497 327 582
Provision for tax 123 67 155 84 183
Effective tax rate () 301 523 311 258 315Net Profit 286 61 343 243 398
Less Minority interest 1 0 0 0 0
Net Profit after MI 285 61 343 243 399
Source Company data Centrum Research Estimates
Exhibit 66 Key Ratios
YE Mar FY08 FY09 FY10 FY11 FY12
Growth Ratio ()
Revenue 171 53 43 129 288
EBITDA 98 (489) 1111 (289) 800
PAT 85 (785) 4586 (292) 642
Margin Ratios ()
PBIT Margin 125 50 122 72 102
PBT Margin 108 32 120 70 96
PAT Margin 75 15 83 52 66
Return Ratios ()
ROE 294 54 250 138 180
ROCE 182 49 169 93 128
ROIC 195 53 183 98 141
Turnover Ratios (days)
Asset turnover ratio (x) 20 18 19 15 17
Debtors 97 55 79 85 69
Inventory 46 47 52 55 52
Creditors 49 23 41 50 44
Net Working capital 105 81 89 93 67
Gearing Ratio (x)
Debt-equity 09 09 06 07 05
Net debt-equity 08 08 05 07 04
Current ratio 29 36 26 25 24
Dividend
Dividend per share 20 00 10 05 15
Dividend Payout () 284 00 118 103 63
Dividend Yield () 15 00 07 04 11
Per share Ratios (Rs)
Basic EPS 82 18 99 70 115
Fully diluted EPS 82 18 99 70 115
Book value 280 328 396 508 641
Cash earnings per share 101 39 119 91 151
Valuation (x)
PE 164 762 136 193 117
PBV 48 41 34 27 21
EVEBITDA 102 203 93 142 76
EVSales 12 12 11 10 08
M-CapSales 12 12 11 10 08
Source Company data Centrum Research Estimates
Exhibit 67
Balance Sheet
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
Equity share capital 346 346 346 491 491
Reserves amp surplus 623 789 1026 1266 1728
Shareholders fund 969 1135 1372 1757 2219
Total debt 869 1003 793 1253 1128
Deferred tax liabilities 41 38 38 40 48
Total Liabilities 1879 2185 2206 3054 3465
Gross block 1456 1948 1966 2738 2238
Less acc depreciation 687 827 864 960 1122
Net block 769 1121 1102 1778 1117
Capital work in progress 46 53 28 21 45
Goodwill 347 594 559 1032 1094
Investments 0 0 4 14 5
Inventories 474 513 592 702 855
Trade Receivables 1001 596 895 1096 1134
Cash amp cash equivalents 77 129 120 100 195
Loans amp advances 152 121 133 152 38
Trade payables 507 256 471 637 729
Other current liabilities 32 90 137 112 194Provisions 102 2 60 60 151
Total Assets 1879 2185 2206 3054 3465
Source Company data Centrum Research Estimates
Exhibit 68 Cash Flow
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
PBT 409 128 497 327 582
Interest 81 96 45 56 59
Depreciation 63 74 75 87 129
Increase in debtors (196) 559 (330) (184) 25
Increase in inventories (72) 35 (79) (77) (135)
Increase in trade payables 82 (304 266 115 67
Tax 119 90 138 70 135
Cash flow from operations 285 814 359 237 520
Change in fixed assets (94) (99) (120) (157) (49)
Cash flow from investments (62 (536 (119 (677 (98
Change in debt (88) 15 (276) 245 (242)
Dividends paid (76) (80) (6) (46) (25)
Interest paid (87) (98) (47) (60) (68)
Cash flow from financing (261) (245) (241) 408 (339)
Net cash flow (43) 24 (8) (29) 94
Opening cash balance 120 77 129 120 100
Closing cash balance 77 129 120 100 195
Source Company data Centrum Research Estimates
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25IFGL Refractories Ltd
Appendix A
Disclaimer
Centrum Broking Limited (ldquoCentrumrdquo) is a full(service Stock Broking Company and a member of The Stock Exchange Mumbai (BSE) and National StockExchange of India Ltd (NSE) Our holding company Centrum Capital Ltd is an investment banker and an underwriter of securities As a group Centrumhas Investment Banking Advisory and other business relationships with a significant percentage of the companies covered by our Research Group Ourresearch professionals provide important inputs into the Groups Investment Banking and other business selection processes
Recipients of this report should assume that our Group is seeking or may seek or will seek Investment Banking advisory project finance or otherbusinesses and may receive commission brokerage fees or other compensation from the company or companies that are the subject of thismaterialreport Our Company and Group companies and their officers directors and employees including the analysts and others involved in thepreparation or issuance of this material and their dependants may on the date of this report or from time to time have long or short positions in actas principal in and buy or sell the securities or derivatives thereof of companies mentioned herein Centrum or its affiliates do not own 1 or more in theequity of this company Our sales people dealers traders and other professionals may provide oral or written market commentary or trading strategies toour clients that reflect opinions that are contrary to the opinions expressed herein and our proprietary trading and investing businesses may makeinvestment decisions that are inconsistent with the recommendations expressed herein We may have earlier issued or may issue in future reports on thecompanies covered herein with recommendations information inconsistent or different those made in this report In reviewing this document youshould be aware that any or all of the foregoing among other things may give rise to or potential conflicts of interest We and our Group may rely oninformation barriers such as Chinese Walls to control the flow of information contained in one or more areas within us or other areas units groups oraffiliates of Centrum Centrum or its affiliates do not make a market in the security of the company for which this report or any report was writtenFurther Centrum or its affiliates did not make a market in the subject companyrsquos securities at the time that the research report was published
This report is for information purposes only and this documentmaterial should not be construed as an offer to sell or the solicitation of an offer to buypurchase or subscribe to any securities and neither this document nor anything contained herein shall form the basis of or be relied upon in connection
with any contract or commitment whatsoever This document does not solicit any action based on the material contained herein It is for the generalinformation of the clients of Centrum Though disseminated to clients simultaneously not all clients may receive this report at the same time Centrumwill not treat recipients as clients by virtue of their receiving this report It does not constitute a personal recommendation or take into account theparticular investment objectives financial situations or needs of individual clients Similarly this document does not have regard to the specificinvestment objectives financial situationcircumstances and the particular needs of any specific person who may receive this document The securitiesdiscussed in this report may not be suitable for all investors The securities described herein may not be eligible for sale in all jurisdictions or to allcategories of investors The countries in which the companies mentioned in this report are organized may have restrictions on investments voting rightsor dealings in securities by nationals of other countries The appropriateness of a particular investment or strategy will depend on an investorsindividual circumstances and objectives Persons who may receive this document should consider and independently evaluate whether it is suitable forhis hertheir particular circumstances and if necessary seek professionalfinancial advice Any such person shall be responsible for conductinghishertheir own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risks involvedin the securities forming the subject matter of this document
The projections and forecasts described in this report were based upon a number of estimates and assumptions and are inherently subject to significantuncertainties and contingencies Projections and forecasts are necessarily speculative in nature and it can be expected that one or more of the estimateson which the projections and forecasts were based will not materialize or will vary significantly from actual results and such variances will likely increase
over time All projections and forecasts described in this report have been prepared solely by the authors of this report independently of the Company These projections and forecasts were not prepared with a view toward compliance with published guidelines or generally accented accountingprinciples No independent accountants have expressed an opinion or any other form of assurance on these projections or forecasts You should notregard the inclusion of the projections and forecasts described herein as a representation or warranty by or on behalf of the Company Centrum theauthors of this report or any other person that these projections or forecasts or their underlying assumptions will be achieved For these reasons youshould only consider the projections and forecasts described in this report after carefully evaluating all of the information in this report including theassumptions underlying such projections and forecasts
The price and value of the investments referred to in this documentmaterial and the income from them may go down as well as up and investors mayrealize losses on any investments Past performance is not a guide for future performance Future returns are not guaranteed and a loss of original capitalmay occur Actual results may differ materially from those set forth in projections Forward (looking statements are not predictions and may be subject tochange without notice Centrum does not provide tax advice to its clients and all investors are strongly advised to consult regarding any potentialinvestment Centrum and its affiliates accept no liabilities for any loss or damage of any kind arising out of the use of this report Foreign currenciesdenominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derived fromthe investment In addition investors in securities such as ADRs the value of which are influenced by foreign currencies effectively assume currency riskCertain transactions including those involving futures options and other derivatives as well as non(investment(grade securities give rise to substantial
risk and are not suitable for all investors Please ensure that you have read and understood the current risk disclosure documents before entering into anyderivative transactions
This reportdocument has been prepared by Centrum based upon information available to the public and sources believed to be reliable Norepresentation or warranty express or implied is made that it is accurate or complete Centrum has reviewed the report and in so far as it includescurrent or historical information it is believed to be reliable although its accuracy and completeness cannot be guaranteed The opinions expressed inthis documentmaterial are subject to change without notice and have no obligation to tell you when opinions or information in this report change
This report or recommendations or information contained herein dodoes not constitute or purport to constitute investment advice in publicly accessiblemedia and should not be reproduced transmitted or published by the recipient The report is for the use and consumption of the recipient only Thispublication may not be distributed to the public used by the public media without the express written consent of Centrum This report or any portionhereof may not be printed sold or distributed without the written consent of Centrum
The distribution of this document in other jurisdictions may be restricted by law and persons into whose possession this document comes should informthemselves about and observe any such restrictions Neither Centrum nor its directors employees agents or representatives shall be liable for anydamages whether direct or indirect incidental special or consequential including lost revenue or lost profits that may arise from or in connection withthe use of the information
This document does not constitute an offer or invitation to subscribe for or purchase or deal in any securities and neither this document nor anythingcontained herein shall form the basis of any contract or commitment whatsoever This document is strictly confidential and is being furnished to yousolely for your information may not be distributed to the press or other media and may not be reproduced or redistributed to any other person Thedistribution of this report in other jurisdictions may be restricted by law and persons into whose possession this report comes should inform themselvesabout and observe any such restrictions By accepting this report you agree to be bound by the fore going limitations No representation is made thatthis report is accurate or complete
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The opinions and projections expressed herein are entirely those of the author and are given as part of the normal research activity of Centrum Brokingand are given as of this date and are subject to change without notice Any opinion estimate or projection herein constitutes a view as of the date of thisreport and there can be no assurance that future results or events will be consistent with any such opinions estimate or projection
This document has not been prepared by or in conjunction with or on behalf of or at the instigation of or by arrangement with the company or any of itsdirectors or any other person Information in this document must not be relied upon as having been authorized or approved by the company or itsdirectors or any other person Any opinions and projections contained herein are entirely those of the authors None of the company or its directors orany other person accepts any liability whatsoever for any loss arising from any use of this document or its contents or otherwise arising in connectiontherewith
Centrum and its affiliates have not managed or co(managed a public offering for the subject company in the preceding twelve months Centrum andaffiliates have not received compensation from the companies mentioned in the report during the period preceding twelve months from the date of thisreport for service in respect of public offerings corporate finance debt restructuring investment banking or other advisory services in amergeracquisition or some other sort of specific transaction
As per the declarations given by them Mr Abhisar Jain research analyst and andor any of his family members do not serve as an officer director or anyway connected to the companycompanies mentioned in this report Further as declared by him he has not received any compensation from the abovecompanies in the preceding twelve months He does not hold any shares by him or through his relatives or in case if holds the shares then will not to doany transactions in the said scrip for 30 days from the date of release such report Our entire research professionals are our employees and are paid asalary They do not have any other material conflict of interest of the research analyst or member of which the research analyst knows of has reason toknow at the time of publication of the research report or at the time of the public appearance
While we would endeavour to update the information herein on a reasonable basis Centrum its associated companies their directors and employees areunder no obligation to update or keep the information current Also there may be regulatory compliance or other reasons that may prevent Centrumfrom doing so
Non(rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable
regulations andor Centrum policies in circumstances where Centrum is acting in an advisory capacity to this company or any certain othercircumstances
This report is not directed to or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality statecountry or other jurisdiction where such distribution publication availability or use would be contrary to law or regulation or which would subjectCentrum Broking Limited or its group companies to any registration or licensing requirement within such jurisdiction Specifically this document doesnot constitute an offer to or solicitation to any US person for the purchase or sale of any financial instrument or as an official confirmation of anytransaction to any US person unless otherwise stated this message should not be construed as official confirmation of any transaction No part of thisdocument may be distributed in Canada or used by private customers in United Kingdom
The information contained herein is not intended for publication or distribution or circulation in any manner whatsoever and any unauthorized readingdissemination distribution or copying of this communication is prohibited unless otherwise expressly authorized Please ensure that you have read ldquoRiskDisclosure Document for Capital Market and Derivatives Segmentsrdquo as prescribed by Securities and Exchange Board of India before investing in IndianSecurities Market
Rating Criteria
Rating Market cap lt Rs20bn Market cap gt Rs20bn but lt 100bn Market cap gt Rs100bn Buy Upside gt 25 Upside gt 20 Upside gt 15
Hold Upside between (25 to +25 Upside between (20 to +20 Upside between (15 to +15
Sell Downside gt 25 Downside gt 20 Downside gt 15
Member (NSE BSE MCX(SX) Depository Participant (CDSL) and SEBI registered Portfolio Manager
Registration Nos
CAPITAL MARKET SEBI REGN NO BSE INB011454239 NSE INB231454233
DERIVATIVES SEBI REGN NO NSE INF231454233 (TRADING amp SELF CLEARING MEMBER)
CDSL DP ID 12200 SEBI REGISTRATION NO IN(DP(CDSL(661(2012
PMS REGISTRATION NO INP000004383
MCX ndash SX (Currency Derivative segment) REGN NO INE261454230
Website wwwcentrumcoin
Investor Grievance Email ID investorgrievancescentrumcoin
Compliance Officer Details
Tel (022) 4215 9413 Email ID compliancecentrumcoin
Centrum Broking Limited
Registered Office Address
Bombay Mutual Building
2nd Floor
Dr D N Road
Fort Mumbai ( 400 001
Correspondence Address
Centrum House
6th Floor CST Road Near Vidya Nagari Marg Kalina
Santacruz (E) Mumbai 400 098
Tel (022) 4215 9000
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21IFGL Refractories Ltd
Steel industry accounts for ~60 of refractory consumption globally and ~75 in the domesticmarket In non-metallurgical industries (cement glass lime) refractories are mostly installed on firedheaters hydrogen reformers cracking furnaces incinerators utility boilers air heaters ducting stacksetc
Exhibit 52
Sector wise refractories demand - Global Exhibit 53
Sector wise refractories demand - India
Source Industry data Centrum Research Source Industry data Centrum Research
Refractory application consumption and replacement dynamics are shown in the table belowSteelmaking requires maximum amount of refractories (10-15kgstonne) with replacement required ina time period of 20 minutes to 2months Cement industry is the next biggest user with annualreplacement requirement while non-ferrous and glass industries have longer replacement cycles
Exhibit 54
Refractory consumption dynamics across user industries
Key Industry Application Replacement Per tonne consumption Refractory requirements
Steel
BF(BOF EAFCasting LadlesInduction FurnacesPellet rotary Kilns
20 minutes to 2months
Global avg - 10-15KgsIndia avg - 15 Kgs
Consumable product ( Systems and solutions for completerefractory management
Cement Kilns annually 1 KgsInvestment goods ( Longer replacement cycles Customizedsolutions based on the specific requirements of various industrialproduction processes complete lining concepts
Glass Glass Furnace upto 10 years 4 Kgs
Non(Ferrous Converters 1(10 yearsAluminium - 6 KgsCopper - 3 Kgs
Source RHI ppt Centrum Research
Global refractory market size at ~US$25bn expected to grow at ~35 CAGR
According to various industry studies global refractoriesrsquo market size is ~US$25bn with production of415MT in CY12 According to industry estimates the global refractories industry is expected to witnessCAGR of 35 during CY13-16E and grow to 46MT with a market value of US$29bn China accountedfor ~70 of the market by volume and ~60 by value in CY12 whereas India accounts for ~3 of theglobal refractories market by volume
Exhibit 55
Global refractory market size at ~US$25bn Exhibit 56
China accounts for ~70 of the market
CY12 Production (MT) Value (US$ bn)
World 415 25
China 295 143
EU 41 39
North America 14 14
India 13 09
Source Industry Centrum Research Source Industry Centrum Research
6015
15
10 Steel
Non-Metallic (Cement GlassLime)
Non-Ferrous (AluminiumCopper Zinc Silver)
Others (paper ceramicspetrochemicals)
75
12
6 3
4
Steel
Cement
Non-Ferrous
Glass
Others
415
463
25
29
0
10
20
30
40
50
CY12 CY16
Volume (MT) Mkt Value ($ bn)
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22IFGL Refractories Ltd
Domestic refractory demand-supply indicates low industry growth amp import pressure
Demand supply analysis of domestic refractory industry shows that it has been witnessing mutedconsumption growth (due to a fall in per tonne consumption for steel making due to technologicaladvances) and faces strong import pressure with one fourth of the market being serviced by netimports (mainly from cheap supplies from China which accounts for two thirds of refractory imports inIndia) Capacity utilization for the industry remains at ~60 on installed capacity of ~22MT and marketsize is ~US$1bn Domestic refractory consumption in steel has grown at a CAGR of ~2 during FY08-14 We expect industry growth to pick up due to scope for higher steel production (backed by higherinfra spend and expansion in per capita steel consumption) The industry has seen consolidation andacquisitions by global majors in the last five years and organised sector (split between (6 players)accounts for ~65 of the market
Exhibit 57 Refractory demand from domestic steel industry
(In tonne) FY08 FY09 FY10 FY11 FY12 FY13 FY14E FY15E FY16E FY17E
Steel Production (MT) 561 572 606 686 757 817 850 893 946 1012
Growth 20 59 132 103 79 40 50 60 70
Avg Refractory consumption(kgt of crude steel)
188 173 168 16 15 145 140 140 140 140
Refractory consumption (steel) 1054680 989560 1018080 1097600 1135500 1184650 1190000 1249500 1324470 1417183
Growth (62) 29 78 35 43 05 50 60 70
Source Ministry of Steel (MoS) Centrum Research Estimates
Exhibit 58
Organised sector accounts for ~65 of domestic refractory industry
Company RevenueMarket
Share ()
Supply toIntegratedsteel mills
Comments
Vesuvius India Ltd 6017 100 95+Leading supplier with wide product basket strongcustomer relationships with large steel mills
Orient Refractories (RHI) 4035 67 10-15 Has developed a niche with mini steel mills
IFGL Refractories (incl IEL) 3674 61 85+Mainly into flow control shaped refractories goodrelationship with large mills
Tata Refractories 9800 163 Not available Largely into bricks supplies (commodity refractories)
Calderys 6250 104 Not available
Supplies largely to non-ferrous producers strong in
bricks and monolithics
OCL 4056 68 Not available
Total Organized Sector 39332 656
Source Company Centrum Research Estimates
Exhibit 59
Net imports accounts for one fourth of market Exhibit 60
China accounts for two thirds of imports
Source MoS Industry Centrum Research Source MoS Industry Centrum Research
(800000)
(600000)
(400000)
(200000)
0
200000
400000
FY07 FY08 FY09 FY10 FY11 FY12
( T o n n e )
Imports Exports Net Imports
167259
380
167228
647594
551
696 685
10
20
30
40
50
60
70
80
FY07 FY08 FY09 FY10 FY11
Net Imports - share China share in imports
Domestic refractory production growth hasbeen largely flat andcapacity utilization is~60
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23IFGL Refractories Ltd
Financials (Cons)
Exhibit 61
Income Statement
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
Revenues from Operations 6712 7776 8484 9554 10697
Raw Materials consumed 3201 3444 3725 4208 4716
of net sales 477 443 439 440 441
Employee expenses 987 1097 1185 1279 1382
of net sales 147 141 140 134 129
Other operational expenses 1621 1805 2013 2243 2486
of net sales 241 232 237 235 232
Total expenses 6130 6680 7273 8140 9068
of net sales 913 859 857 852 848
EBITDA 582 1096 1210 1414 1630
EBITDA Margin () 87 141 143 148 152
Depreciation amp Amortisation 134 155 174 189 204
EBIT 448 942 1036 1225 1425
Interest expenses 80 70 51 29 6
Other Income 45 34 40 44 484
EBT 413 906 1025 1240 1467
Provision for tax 159 248 307 372 440
Effective tax rate () 386 274 300 300 300Net Profit 254 658 717 868 1027
Less Minority interest (28) 18 32 70 99
Net Profit after MI 282 640 686 798 928
Source Company data Centrum Research Estimates
Exhibit 62 Key Ratios
YE Mar FY13 FY14 FY15E FY16E FY17E
Growth Ratio ()
Revenue 112 159 91 126 120
EBITDA (213) 884 104 168 153
PAT (292) 1269 71 163 163
Margin Ratios ()
PBIT Margin 67 121 122 128 133
PBT Margin 62 116 121 130 137
PAT Margin 42 82 81 84 87
Return Ratios ()
ROE 115 212 190 185 181
ROCE 84 177 175 189 198
ROIC 87 179 178 200 224
Turnover Ratios (days)
Asset turnover ratio (x) 18 19 19 19 19
Debtors 78 78 80 80 80
Inventory 46 49 50 50 50
Creditors 43 45 45 45 45
Net Working capital 74 76 80 80 80
Gearing Ratio (x)
Debt-equity 05 03 02 01 00
Net debt-equity 04 03 02 00 (01)
Current ratio 25 23 24 25 27
Dividend
Dividend per share 15 18 20 23 23
Dividend Payout () 251 124 130 125 107
Dividend Yield () 11 13 15 17 17
Per share Ratios (Rs)
Basic EPS 82 185 198 231 268
Fully diluted EPS 82 185 198 231 268
Book value 709 871 1044 1245 1485
Cash earnings per share 120 230 249 285 327
Valuation (x)
PE 174 77 72 62 53
PBV 20 16 14 11 10
EVEBITDA 102 53 46 36 27
EVSales 07 06 06 05 04
M-CapSales 07 06 06 05 05
Source Company data Centrum Research Estimates
Exhibit 63
Balance Sheet
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
Equity share capital 491 491 491 491 491
Reserves amp surplus 1964 2525 3121 3819 4648
Shareholders fund 2455 3016 3612 4310 5139
Total debt 1142 982 682 382 82
Deferred tax liabilities 65 74 74 74 74
Total Liabilities 3741 4167 4495 4963 5591
Gross block 2474 2656 2906 3156 3406
Less acc depreciation 1276 1430 1605 1794 1998
Net block 1198 1225 1301 1362 1407
Capital work in progress 20 20 20 20 20
Goodwill 1105 1342 1342 1342 1342
Investments 5 5 5 5 5
Inventories 848 1034 1162 1309 1465
Trade Receivables 1427 1658 1859 2094 2345
Cash amp cash equivalents 113 33 69 259 609
Loans amp advances 51 107 116 131 147
Trade payables 799 962 1046 1178 1319
Other current liabilities 166 210 232 262 293Provisions 94 124 139 157 176
Total Assets 3741 4167 4495 4963 5591
Source Company data Centrum Research Estimates
Exhibit 64 Cash Flow
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
PBT 413 906 1025 1240 1467
Interest 72 70 51 29 6
Depreciation 134 155 174 189 204
Increase in debtors (330) (231) (201) (235) (251)
Increase in inventories 7 (186) (128) (147) (157)
Increase in trade payables 46 163 84 132 141
Tax 197 248 307 372 440
Cash flow from operations 183 629 695 799 907
Change in fixed assets (194) (418) (250) (250) (250)
Cash flow from investments (172) (418) (250) (250) (250)
Change in debt 19 (160 (300) (300) (300)
Dividends paid (71) (79) (89) (100) (100)
Interest paid (80) (70) (51) (29) (6)
Cash flow from financing (94) (291) (409) (358) (306)
Net cash flow (81) (81) 36 191 350
Opening cash balance 195 113 33 69 259
Closing cash balance 113 33 69 259 609
Source Company data Centrum Research Estimates
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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24IFGL Refractories Ltd
Financials (Cons) - Historical
Exhibit 65
Income Statement
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
Revenues from Operations 3780 3982 4152 4689 6039
Raw Materials consumed 1743 1907 2058 2389 3024
of net sales 461 479 496 509 501
Employee expenses 487 589 539 661 843
of net sales 129 148 130 141 140
Other operational expenses 918 1036 951 1148 1418
of net sales 243 260 229 245 235
Total expenses 3244 3708 3575 4279 5299
of net sales 858 931 861 912 878
EBITDA 536 274 578 411 739
EBITDA Margin () 142 69 139 88 122
Depreciation amp Amortisation 63 74 70 71 123
EBIT 473 200 508 339 617
Interest expenses 82 95 45 56 68
Other Income 18 24 34 43 33
EBT 409 128 497 327 582
Provision for tax 123 67 155 84 183
Effective tax rate () 301 523 311 258 315Net Profit 286 61 343 243 398
Less Minority interest 1 0 0 0 0
Net Profit after MI 285 61 343 243 399
Source Company data Centrum Research Estimates
Exhibit 66 Key Ratios
YE Mar FY08 FY09 FY10 FY11 FY12
Growth Ratio ()
Revenue 171 53 43 129 288
EBITDA 98 (489) 1111 (289) 800
PAT 85 (785) 4586 (292) 642
Margin Ratios ()
PBIT Margin 125 50 122 72 102
PBT Margin 108 32 120 70 96
PAT Margin 75 15 83 52 66
Return Ratios ()
ROE 294 54 250 138 180
ROCE 182 49 169 93 128
ROIC 195 53 183 98 141
Turnover Ratios (days)
Asset turnover ratio (x) 20 18 19 15 17
Debtors 97 55 79 85 69
Inventory 46 47 52 55 52
Creditors 49 23 41 50 44
Net Working capital 105 81 89 93 67
Gearing Ratio (x)
Debt-equity 09 09 06 07 05
Net debt-equity 08 08 05 07 04
Current ratio 29 36 26 25 24
Dividend
Dividend per share 20 00 10 05 15
Dividend Payout () 284 00 118 103 63
Dividend Yield () 15 00 07 04 11
Per share Ratios (Rs)
Basic EPS 82 18 99 70 115
Fully diluted EPS 82 18 99 70 115
Book value 280 328 396 508 641
Cash earnings per share 101 39 119 91 151
Valuation (x)
PE 164 762 136 193 117
PBV 48 41 34 27 21
EVEBITDA 102 203 93 142 76
EVSales 12 12 11 10 08
M-CapSales 12 12 11 10 08
Source Company data Centrum Research Estimates
Exhibit 67
Balance Sheet
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
Equity share capital 346 346 346 491 491
Reserves amp surplus 623 789 1026 1266 1728
Shareholders fund 969 1135 1372 1757 2219
Total debt 869 1003 793 1253 1128
Deferred tax liabilities 41 38 38 40 48
Total Liabilities 1879 2185 2206 3054 3465
Gross block 1456 1948 1966 2738 2238
Less acc depreciation 687 827 864 960 1122
Net block 769 1121 1102 1778 1117
Capital work in progress 46 53 28 21 45
Goodwill 347 594 559 1032 1094
Investments 0 0 4 14 5
Inventories 474 513 592 702 855
Trade Receivables 1001 596 895 1096 1134
Cash amp cash equivalents 77 129 120 100 195
Loans amp advances 152 121 133 152 38
Trade payables 507 256 471 637 729
Other current liabilities 32 90 137 112 194Provisions 102 2 60 60 151
Total Assets 1879 2185 2206 3054 3465
Source Company data Centrum Research Estimates
Exhibit 68 Cash Flow
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
PBT 409 128 497 327 582
Interest 81 96 45 56 59
Depreciation 63 74 75 87 129
Increase in debtors (196) 559 (330) (184) 25
Increase in inventories (72) 35 (79) (77) (135)
Increase in trade payables 82 (304 266 115 67
Tax 119 90 138 70 135
Cash flow from operations 285 814 359 237 520
Change in fixed assets (94) (99) (120) (157) (49)
Cash flow from investments (62 (536 (119 (677 (98
Change in debt (88) 15 (276) 245 (242)
Dividends paid (76) (80) (6) (46) (25)
Interest paid (87) (98) (47) (60) (68)
Cash flow from financing (261) (245) (241) 408 (339)
Net cash flow (43) 24 (8) (29) 94
Opening cash balance 120 77 129 120 100
Closing cash balance 77 129 120 100 195
Source Company data Centrum Research Estimates
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25IFGL Refractories Ltd
Appendix A
Disclaimer
Centrum Broking Limited (ldquoCentrumrdquo) is a full(service Stock Broking Company and a member of The Stock Exchange Mumbai (BSE) and National StockExchange of India Ltd (NSE) Our holding company Centrum Capital Ltd is an investment banker and an underwriter of securities As a group Centrumhas Investment Banking Advisory and other business relationships with a significant percentage of the companies covered by our Research Group Ourresearch professionals provide important inputs into the Groups Investment Banking and other business selection processes
Recipients of this report should assume that our Group is seeking or may seek or will seek Investment Banking advisory project finance or otherbusinesses and may receive commission brokerage fees or other compensation from the company or companies that are the subject of thismaterialreport Our Company and Group companies and their officers directors and employees including the analysts and others involved in thepreparation or issuance of this material and their dependants may on the date of this report or from time to time have long or short positions in actas principal in and buy or sell the securities or derivatives thereof of companies mentioned herein Centrum or its affiliates do not own 1 or more in theequity of this company Our sales people dealers traders and other professionals may provide oral or written market commentary or trading strategies toour clients that reflect opinions that are contrary to the opinions expressed herein and our proprietary trading and investing businesses may makeinvestment decisions that are inconsistent with the recommendations expressed herein We may have earlier issued or may issue in future reports on thecompanies covered herein with recommendations information inconsistent or different those made in this report In reviewing this document youshould be aware that any or all of the foregoing among other things may give rise to or potential conflicts of interest We and our Group may rely oninformation barriers such as Chinese Walls to control the flow of information contained in one or more areas within us or other areas units groups oraffiliates of Centrum Centrum or its affiliates do not make a market in the security of the company for which this report or any report was writtenFurther Centrum or its affiliates did not make a market in the subject companyrsquos securities at the time that the research report was published
This report is for information purposes only and this documentmaterial should not be construed as an offer to sell or the solicitation of an offer to buypurchase or subscribe to any securities and neither this document nor anything contained herein shall form the basis of or be relied upon in connection
with any contract or commitment whatsoever This document does not solicit any action based on the material contained herein It is for the generalinformation of the clients of Centrum Though disseminated to clients simultaneously not all clients may receive this report at the same time Centrumwill not treat recipients as clients by virtue of their receiving this report It does not constitute a personal recommendation or take into account theparticular investment objectives financial situations or needs of individual clients Similarly this document does not have regard to the specificinvestment objectives financial situationcircumstances and the particular needs of any specific person who may receive this document The securitiesdiscussed in this report may not be suitable for all investors The securities described herein may not be eligible for sale in all jurisdictions or to allcategories of investors The countries in which the companies mentioned in this report are organized may have restrictions on investments voting rightsor dealings in securities by nationals of other countries The appropriateness of a particular investment or strategy will depend on an investorsindividual circumstances and objectives Persons who may receive this document should consider and independently evaluate whether it is suitable forhis hertheir particular circumstances and if necessary seek professionalfinancial advice Any such person shall be responsible for conductinghishertheir own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risks involvedin the securities forming the subject matter of this document
The projections and forecasts described in this report were based upon a number of estimates and assumptions and are inherently subject to significantuncertainties and contingencies Projections and forecasts are necessarily speculative in nature and it can be expected that one or more of the estimateson which the projections and forecasts were based will not materialize or will vary significantly from actual results and such variances will likely increase
over time All projections and forecasts described in this report have been prepared solely by the authors of this report independently of the Company These projections and forecasts were not prepared with a view toward compliance with published guidelines or generally accented accountingprinciples No independent accountants have expressed an opinion or any other form of assurance on these projections or forecasts You should notregard the inclusion of the projections and forecasts described herein as a representation or warranty by or on behalf of the Company Centrum theauthors of this report or any other person that these projections or forecasts or their underlying assumptions will be achieved For these reasons youshould only consider the projections and forecasts described in this report after carefully evaluating all of the information in this report including theassumptions underlying such projections and forecasts
The price and value of the investments referred to in this documentmaterial and the income from them may go down as well as up and investors mayrealize losses on any investments Past performance is not a guide for future performance Future returns are not guaranteed and a loss of original capitalmay occur Actual results may differ materially from those set forth in projections Forward (looking statements are not predictions and may be subject tochange without notice Centrum does not provide tax advice to its clients and all investors are strongly advised to consult regarding any potentialinvestment Centrum and its affiliates accept no liabilities for any loss or damage of any kind arising out of the use of this report Foreign currenciesdenominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derived fromthe investment In addition investors in securities such as ADRs the value of which are influenced by foreign currencies effectively assume currency riskCertain transactions including those involving futures options and other derivatives as well as non(investment(grade securities give rise to substantial
risk and are not suitable for all investors Please ensure that you have read and understood the current risk disclosure documents before entering into anyderivative transactions
This reportdocument has been prepared by Centrum based upon information available to the public and sources believed to be reliable Norepresentation or warranty express or implied is made that it is accurate or complete Centrum has reviewed the report and in so far as it includescurrent or historical information it is believed to be reliable although its accuracy and completeness cannot be guaranteed The opinions expressed inthis documentmaterial are subject to change without notice and have no obligation to tell you when opinions or information in this report change
This report or recommendations or information contained herein dodoes not constitute or purport to constitute investment advice in publicly accessiblemedia and should not be reproduced transmitted or published by the recipient The report is for the use and consumption of the recipient only Thispublication may not be distributed to the public used by the public media without the express written consent of Centrum This report or any portionhereof may not be printed sold or distributed without the written consent of Centrum
The distribution of this document in other jurisdictions may be restricted by law and persons into whose possession this document comes should informthemselves about and observe any such restrictions Neither Centrum nor its directors employees agents or representatives shall be liable for anydamages whether direct or indirect incidental special or consequential including lost revenue or lost profits that may arise from or in connection withthe use of the information
This document does not constitute an offer or invitation to subscribe for or purchase or deal in any securities and neither this document nor anythingcontained herein shall form the basis of any contract or commitment whatsoever This document is strictly confidential and is being furnished to yousolely for your information may not be distributed to the press or other media and may not be reproduced or redistributed to any other person Thedistribution of this report in other jurisdictions may be restricted by law and persons into whose possession this report comes should inform themselvesabout and observe any such restrictions By accepting this report you agree to be bound by the fore going limitations No representation is made thatthis report is accurate or complete
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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The opinions and projections expressed herein are entirely those of the author and are given as part of the normal research activity of Centrum Brokingand are given as of this date and are subject to change without notice Any opinion estimate or projection herein constitutes a view as of the date of thisreport and there can be no assurance that future results or events will be consistent with any such opinions estimate or projection
This document has not been prepared by or in conjunction with or on behalf of or at the instigation of or by arrangement with the company or any of itsdirectors or any other person Information in this document must not be relied upon as having been authorized or approved by the company or itsdirectors or any other person Any opinions and projections contained herein are entirely those of the authors None of the company or its directors orany other person accepts any liability whatsoever for any loss arising from any use of this document or its contents or otherwise arising in connectiontherewith
Centrum and its affiliates have not managed or co(managed a public offering for the subject company in the preceding twelve months Centrum andaffiliates have not received compensation from the companies mentioned in the report during the period preceding twelve months from the date of thisreport for service in respect of public offerings corporate finance debt restructuring investment banking or other advisory services in amergeracquisition or some other sort of specific transaction
As per the declarations given by them Mr Abhisar Jain research analyst and andor any of his family members do not serve as an officer director or anyway connected to the companycompanies mentioned in this report Further as declared by him he has not received any compensation from the abovecompanies in the preceding twelve months He does not hold any shares by him or through his relatives or in case if holds the shares then will not to doany transactions in the said scrip for 30 days from the date of release such report Our entire research professionals are our employees and are paid asalary They do not have any other material conflict of interest of the research analyst or member of which the research analyst knows of has reason toknow at the time of publication of the research report or at the time of the public appearance
While we would endeavour to update the information herein on a reasonable basis Centrum its associated companies their directors and employees areunder no obligation to update or keep the information current Also there may be regulatory compliance or other reasons that may prevent Centrumfrom doing so
Non(rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable
regulations andor Centrum policies in circumstances where Centrum is acting in an advisory capacity to this company or any certain othercircumstances
This report is not directed to or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality statecountry or other jurisdiction where such distribution publication availability or use would be contrary to law or regulation or which would subjectCentrum Broking Limited or its group companies to any registration or licensing requirement within such jurisdiction Specifically this document doesnot constitute an offer to or solicitation to any US person for the purchase or sale of any financial instrument or as an official confirmation of anytransaction to any US person unless otherwise stated this message should not be construed as official confirmation of any transaction No part of thisdocument may be distributed in Canada or used by private customers in United Kingdom
The information contained herein is not intended for publication or distribution or circulation in any manner whatsoever and any unauthorized readingdissemination distribution or copying of this communication is prohibited unless otherwise expressly authorized Please ensure that you have read ldquoRiskDisclosure Document for Capital Market and Derivatives Segmentsrdquo as prescribed by Securities and Exchange Board of India before investing in IndianSecurities Market
Rating Criteria
Rating Market cap lt Rs20bn Market cap gt Rs20bn but lt 100bn Market cap gt Rs100bn Buy Upside gt 25 Upside gt 20 Upside gt 15
Hold Upside between (25 to +25 Upside between (20 to +20 Upside between (15 to +15
Sell Downside gt 25 Downside gt 20 Downside gt 15
Member (NSE BSE MCX(SX) Depository Participant (CDSL) and SEBI registered Portfolio Manager
Registration Nos
CAPITAL MARKET SEBI REGN NO BSE INB011454239 NSE INB231454233
DERIVATIVES SEBI REGN NO NSE INF231454233 (TRADING amp SELF CLEARING MEMBER)
CDSL DP ID 12200 SEBI REGISTRATION NO IN(DP(CDSL(661(2012
PMS REGISTRATION NO INP000004383
MCX ndash SX (Currency Derivative segment) REGN NO INE261454230
Website wwwcentrumcoin
Investor Grievance Email ID investorgrievancescentrumcoin
Compliance Officer Details
Tel (022) 4215 9413 Email ID compliancecentrumcoin
Centrum Broking Limited
Registered Office Address
Bombay Mutual Building
2nd Floor
Dr D N Road
Fort Mumbai ( 400 001
Correspondence Address
Centrum House
6th Floor CST Road Near Vidya Nagari Marg Kalina
Santacruz (E) Mumbai 400 098
Tel (022) 4215 9000
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22IFGL Refractories Ltd
Domestic refractory demand-supply indicates low industry growth amp import pressure
Demand supply analysis of domestic refractory industry shows that it has been witnessing mutedconsumption growth (due to a fall in per tonne consumption for steel making due to technologicaladvances) and faces strong import pressure with one fourth of the market being serviced by netimports (mainly from cheap supplies from China which accounts for two thirds of refractory imports inIndia) Capacity utilization for the industry remains at ~60 on installed capacity of ~22MT and marketsize is ~US$1bn Domestic refractory consumption in steel has grown at a CAGR of ~2 during FY08-14 We expect industry growth to pick up due to scope for higher steel production (backed by higherinfra spend and expansion in per capita steel consumption) The industry has seen consolidation andacquisitions by global majors in the last five years and organised sector (split between (6 players)accounts for ~65 of the market
Exhibit 57 Refractory demand from domestic steel industry
(In tonne) FY08 FY09 FY10 FY11 FY12 FY13 FY14E FY15E FY16E FY17E
Steel Production (MT) 561 572 606 686 757 817 850 893 946 1012
Growth 20 59 132 103 79 40 50 60 70
Avg Refractory consumption(kgt of crude steel)
188 173 168 16 15 145 140 140 140 140
Refractory consumption (steel) 1054680 989560 1018080 1097600 1135500 1184650 1190000 1249500 1324470 1417183
Growth (62) 29 78 35 43 05 50 60 70
Source Ministry of Steel (MoS) Centrum Research Estimates
Exhibit 58
Organised sector accounts for ~65 of domestic refractory industry
Company RevenueMarket
Share ()
Supply toIntegratedsteel mills
Comments
Vesuvius India Ltd 6017 100 95+Leading supplier with wide product basket strongcustomer relationships with large steel mills
Orient Refractories (RHI) 4035 67 10-15 Has developed a niche with mini steel mills
IFGL Refractories (incl IEL) 3674 61 85+Mainly into flow control shaped refractories goodrelationship with large mills
Tata Refractories 9800 163 Not available Largely into bricks supplies (commodity refractories)
Calderys 6250 104 Not available
Supplies largely to non-ferrous producers strong in
bricks and monolithics
OCL 4056 68 Not available
Total Organized Sector 39332 656
Source Company Centrum Research Estimates
Exhibit 59
Net imports accounts for one fourth of market Exhibit 60
China accounts for two thirds of imports
Source MoS Industry Centrum Research Source MoS Industry Centrum Research
(800000)
(600000)
(400000)
(200000)
0
200000
400000
FY07 FY08 FY09 FY10 FY11 FY12
( T o n n e )
Imports Exports Net Imports
167259
380
167228
647594
551
696 685
10
20
30
40
50
60
70
80
FY07 FY08 FY09 FY10 FY11
Net Imports - share China share in imports
Domestic refractory production growth hasbeen largely flat andcapacity utilization is~60
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23IFGL Refractories Ltd
Financials (Cons)
Exhibit 61
Income Statement
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
Revenues from Operations 6712 7776 8484 9554 10697
Raw Materials consumed 3201 3444 3725 4208 4716
of net sales 477 443 439 440 441
Employee expenses 987 1097 1185 1279 1382
of net sales 147 141 140 134 129
Other operational expenses 1621 1805 2013 2243 2486
of net sales 241 232 237 235 232
Total expenses 6130 6680 7273 8140 9068
of net sales 913 859 857 852 848
EBITDA 582 1096 1210 1414 1630
EBITDA Margin () 87 141 143 148 152
Depreciation amp Amortisation 134 155 174 189 204
EBIT 448 942 1036 1225 1425
Interest expenses 80 70 51 29 6
Other Income 45 34 40 44 484
EBT 413 906 1025 1240 1467
Provision for tax 159 248 307 372 440
Effective tax rate () 386 274 300 300 300Net Profit 254 658 717 868 1027
Less Minority interest (28) 18 32 70 99
Net Profit after MI 282 640 686 798 928
Source Company data Centrum Research Estimates
Exhibit 62 Key Ratios
YE Mar FY13 FY14 FY15E FY16E FY17E
Growth Ratio ()
Revenue 112 159 91 126 120
EBITDA (213) 884 104 168 153
PAT (292) 1269 71 163 163
Margin Ratios ()
PBIT Margin 67 121 122 128 133
PBT Margin 62 116 121 130 137
PAT Margin 42 82 81 84 87
Return Ratios ()
ROE 115 212 190 185 181
ROCE 84 177 175 189 198
ROIC 87 179 178 200 224
Turnover Ratios (days)
Asset turnover ratio (x) 18 19 19 19 19
Debtors 78 78 80 80 80
Inventory 46 49 50 50 50
Creditors 43 45 45 45 45
Net Working capital 74 76 80 80 80
Gearing Ratio (x)
Debt-equity 05 03 02 01 00
Net debt-equity 04 03 02 00 (01)
Current ratio 25 23 24 25 27
Dividend
Dividend per share 15 18 20 23 23
Dividend Payout () 251 124 130 125 107
Dividend Yield () 11 13 15 17 17
Per share Ratios (Rs)
Basic EPS 82 185 198 231 268
Fully diluted EPS 82 185 198 231 268
Book value 709 871 1044 1245 1485
Cash earnings per share 120 230 249 285 327
Valuation (x)
PE 174 77 72 62 53
PBV 20 16 14 11 10
EVEBITDA 102 53 46 36 27
EVSales 07 06 06 05 04
M-CapSales 07 06 06 05 05
Source Company data Centrum Research Estimates
Exhibit 63
Balance Sheet
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
Equity share capital 491 491 491 491 491
Reserves amp surplus 1964 2525 3121 3819 4648
Shareholders fund 2455 3016 3612 4310 5139
Total debt 1142 982 682 382 82
Deferred tax liabilities 65 74 74 74 74
Total Liabilities 3741 4167 4495 4963 5591
Gross block 2474 2656 2906 3156 3406
Less acc depreciation 1276 1430 1605 1794 1998
Net block 1198 1225 1301 1362 1407
Capital work in progress 20 20 20 20 20
Goodwill 1105 1342 1342 1342 1342
Investments 5 5 5 5 5
Inventories 848 1034 1162 1309 1465
Trade Receivables 1427 1658 1859 2094 2345
Cash amp cash equivalents 113 33 69 259 609
Loans amp advances 51 107 116 131 147
Trade payables 799 962 1046 1178 1319
Other current liabilities 166 210 232 262 293Provisions 94 124 139 157 176
Total Assets 3741 4167 4495 4963 5591
Source Company data Centrum Research Estimates
Exhibit 64 Cash Flow
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
PBT 413 906 1025 1240 1467
Interest 72 70 51 29 6
Depreciation 134 155 174 189 204
Increase in debtors (330) (231) (201) (235) (251)
Increase in inventories 7 (186) (128) (147) (157)
Increase in trade payables 46 163 84 132 141
Tax 197 248 307 372 440
Cash flow from operations 183 629 695 799 907
Change in fixed assets (194) (418) (250) (250) (250)
Cash flow from investments (172) (418) (250) (250) (250)
Change in debt 19 (160 (300) (300) (300)
Dividends paid (71) (79) (89) (100) (100)
Interest paid (80) (70) (51) (29) (6)
Cash flow from financing (94) (291) (409) (358) (306)
Net cash flow (81) (81) 36 191 350
Opening cash balance 195 113 33 69 259
Closing cash balance 113 33 69 259 609
Source Company data Centrum Research Estimates
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24IFGL Refractories Ltd
Financials (Cons) - Historical
Exhibit 65
Income Statement
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
Revenues from Operations 3780 3982 4152 4689 6039
Raw Materials consumed 1743 1907 2058 2389 3024
of net sales 461 479 496 509 501
Employee expenses 487 589 539 661 843
of net sales 129 148 130 141 140
Other operational expenses 918 1036 951 1148 1418
of net sales 243 260 229 245 235
Total expenses 3244 3708 3575 4279 5299
of net sales 858 931 861 912 878
EBITDA 536 274 578 411 739
EBITDA Margin () 142 69 139 88 122
Depreciation amp Amortisation 63 74 70 71 123
EBIT 473 200 508 339 617
Interest expenses 82 95 45 56 68
Other Income 18 24 34 43 33
EBT 409 128 497 327 582
Provision for tax 123 67 155 84 183
Effective tax rate () 301 523 311 258 315Net Profit 286 61 343 243 398
Less Minority interest 1 0 0 0 0
Net Profit after MI 285 61 343 243 399
Source Company data Centrum Research Estimates
Exhibit 66 Key Ratios
YE Mar FY08 FY09 FY10 FY11 FY12
Growth Ratio ()
Revenue 171 53 43 129 288
EBITDA 98 (489) 1111 (289) 800
PAT 85 (785) 4586 (292) 642
Margin Ratios ()
PBIT Margin 125 50 122 72 102
PBT Margin 108 32 120 70 96
PAT Margin 75 15 83 52 66
Return Ratios ()
ROE 294 54 250 138 180
ROCE 182 49 169 93 128
ROIC 195 53 183 98 141
Turnover Ratios (days)
Asset turnover ratio (x) 20 18 19 15 17
Debtors 97 55 79 85 69
Inventory 46 47 52 55 52
Creditors 49 23 41 50 44
Net Working capital 105 81 89 93 67
Gearing Ratio (x)
Debt-equity 09 09 06 07 05
Net debt-equity 08 08 05 07 04
Current ratio 29 36 26 25 24
Dividend
Dividend per share 20 00 10 05 15
Dividend Payout () 284 00 118 103 63
Dividend Yield () 15 00 07 04 11
Per share Ratios (Rs)
Basic EPS 82 18 99 70 115
Fully diluted EPS 82 18 99 70 115
Book value 280 328 396 508 641
Cash earnings per share 101 39 119 91 151
Valuation (x)
PE 164 762 136 193 117
PBV 48 41 34 27 21
EVEBITDA 102 203 93 142 76
EVSales 12 12 11 10 08
M-CapSales 12 12 11 10 08
Source Company data Centrum Research Estimates
Exhibit 67
Balance Sheet
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
Equity share capital 346 346 346 491 491
Reserves amp surplus 623 789 1026 1266 1728
Shareholders fund 969 1135 1372 1757 2219
Total debt 869 1003 793 1253 1128
Deferred tax liabilities 41 38 38 40 48
Total Liabilities 1879 2185 2206 3054 3465
Gross block 1456 1948 1966 2738 2238
Less acc depreciation 687 827 864 960 1122
Net block 769 1121 1102 1778 1117
Capital work in progress 46 53 28 21 45
Goodwill 347 594 559 1032 1094
Investments 0 0 4 14 5
Inventories 474 513 592 702 855
Trade Receivables 1001 596 895 1096 1134
Cash amp cash equivalents 77 129 120 100 195
Loans amp advances 152 121 133 152 38
Trade payables 507 256 471 637 729
Other current liabilities 32 90 137 112 194Provisions 102 2 60 60 151
Total Assets 1879 2185 2206 3054 3465
Source Company data Centrum Research Estimates
Exhibit 68 Cash Flow
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
PBT 409 128 497 327 582
Interest 81 96 45 56 59
Depreciation 63 74 75 87 129
Increase in debtors (196) 559 (330) (184) 25
Increase in inventories (72) 35 (79) (77) (135)
Increase in trade payables 82 (304 266 115 67
Tax 119 90 138 70 135
Cash flow from operations 285 814 359 237 520
Change in fixed assets (94) (99) (120) (157) (49)
Cash flow from investments (62 (536 (119 (677 (98
Change in debt (88) 15 (276) 245 (242)
Dividends paid (76) (80) (6) (46) (25)
Interest paid (87) (98) (47) (60) (68)
Cash flow from financing (261) (245) (241) 408 (339)
Net cash flow (43) 24 (8) (29) 94
Opening cash balance 120 77 129 120 100
Closing cash balance 77 129 120 100 195
Source Company data Centrum Research Estimates
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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25IFGL Refractories Ltd
Appendix A
Disclaimer
Centrum Broking Limited (ldquoCentrumrdquo) is a full(service Stock Broking Company and a member of The Stock Exchange Mumbai (BSE) and National StockExchange of India Ltd (NSE) Our holding company Centrum Capital Ltd is an investment banker and an underwriter of securities As a group Centrumhas Investment Banking Advisory and other business relationships with a significant percentage of the companies covered by our Research Group Ourresearch professionals provide important inputs into the Groups Investment Banking and other business selection processes
Recipients of this report should assume that our Group is seeking or may seek or will seek Investment Banking advisory project finance or otherbusinesses and may receive commission brokerage fees or other compensation from the company or companies that are the subject of thismaterialreport Our Company and Group companies and their officers directors and employees including the analysts and others involved in thepreparation or issuance of this material and their dependants may on the date of this report or from time to time have long or short positions in actas principal in and buy or sell the securities or derivatives thereof of companies mentioned herein Centrum or its affiliates do not own 1 or more in theequity of this company Our sales people dealers traders and other professionals may provide oral or written market commentary or trading strategies toour clients that reflect opinions that are contrary to the opinions expressed herein and our proprietary trading and investing businesses may makeinvestment decisions that are inconsistent with the recommendations expressed herein We may have earlier issued or may issue in future reports on thecompanies covered herein with recommendations information inconsistent or different those made in this report In reviewing this document youshould be aware that any or all of the foregoing among other things may give rise to or potential conflicts of interest We and our Group may rely oninformation barriers such as Chinese Walls to control the flow of information contained in one or more areas within us or other areas units groups oraffiliates of Centrum Centrum or its affiliates do not make a market in the security of the company for which this report or any report was writtenFurther Centrum or its affiliates did not make a market in the subject companyrsquos securities at the time that the research report was published
This report is for information purposes only and this documentmaterial should not be construed as an offer to sell or the solicitation of an offer to buypurchase or subscribe to any securities and neither this document nor anything contained herein shall form the basis of or be relied upon in connection
with any contract or commitment whatsoever This document does not solicit any action based on the material contained herein It is for the generalinformation of the clients of Centrum Though disseminated to clients simultaneously not all clients may receive this report at the same time Centrumwill not treat recipients as clients by virtue of their receiving this report It does not constitute a personal recommendation or take into account theparticular investment objectives financial situations or needs of individual clients Similarly this document does not have regard to the specificinvestment objectives financial situationcircumstances and the particular needs of any specific person who may receive this document The securitiesdiscussed in this report may not be suitable for all investors The securities described herein may not be eligible for sale in all jurisdictions or to allcategories of investors The countries in which the companies mentioned in this report are organized may have restrictions on investments voting rightsor dealings in securities by nationals of other countries The appropriateness of a particular investment or strategy will depend on an investorsindividual circumstances and objectives Persons who may receive this document should consider and independently evaluate whether it is suitable forhis hertheir particular circumstances and if necessary seek professionalfinancial advice Any such person shall be responsible for conductinghishertheir own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risks involvedin the securities forming the subject matter of this document
The projections and forecasts described in this report were based upon a number of estimates and assumptions and are inherently subject to significantuncertainties and contingencies Projections and forecasts are necessarily speculative in nature and it can be expected that one or more of the estimateson which the projections and forecasts were based will not materialize or will vary significantly from actual results and such variances will likely increase
over time All projections and forecasts described in this report have been prepared solely by the authors of this report independently of the Company These projections and forecasts were not prepared with a view toward compliance with published guidelines or generally accented accountingprinciples No independent accountants have expressed an opinion or any other form of assurance on these projections or forecasts You should notregard the inclusion of the projections and forecasts described herein as a representation or warranty by or on behalf of the Company Centrum theauthors of this report or any other person that these projections or forecasts or their underlying assumptions will be achieved For these reasons youshould only consider the projections and forecasts described in this report after carefully evaluating all of the information in this report including theassumptions underlying such projections and forecasts
The price and value of the investments referred to in this documentmaterial and the income from them may go down as well as up and investors mayrealize losses on any investments Past performance is not a guide for future performance Future returns are not guaranteed and a loss of original capitalmay occur Actual results may differ materially from those set forth in projections Forward (looking statements are not predictions and may be subject tochange without notice Centrum does not provide tax advice to its clients and all investors are strongly advised to consult regarding any potentialinvestment Centrum and its affiliates accept no liabilities for any loss or damage of any kind arising out of the use of this report Foreign currenciesdenominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derived fromthe investment In addition investors in securities such as ADRs the value of which are influenced by foreign currencies effectively assume currency riskCertain transactions including those involving futures options and other derivatives as well as non(investment(grade securities give rise to substantial
risk and are not suitable for all investors Please ensure that you have read and understood the current risk disclosure documents before entering into anyderivative transactions
This reportdocument has been prepared by Centrum based upon information available to the public and sources believed to be reliable Norepresentation or warranty express or implied is made that it is accurate or complete Centrum has reviewed the report and in so far as it includescurrent or historical information it is believed to be reliable although its accuracy and completeness cannot be guaranteed The opinions expressed inthis documentmaterial are subject to change without notice and have no obligation to tell you when opinions or information in this report change
This report or recommendations or information contained herein dodoes not constitute or purport to constitute investment advice in publicly accessiblemedia and should not be reproduced transmitted or published by the recipient The report is for the use and consumption of the recipient only Thispublication may not be distributed to the public used by the public media without the express written consent of Centrum This report or any portionhereof may not be printed sold or distributed without the written consent of Centrum
The distribution of this document in other jurisdictions may be restricted by law and persons into whose possession this document comes should informthemselves about and observe any such restrictions Neither Centrum nor its directors employees agents or representatives shall be liable for anydamages whether direct or indirect incidental special or consequential including lost revenue or lost profits that may arise from or in connection withthe use of the information
This document does not constitute an offer or invitation to subscribe for or purchase or deal in any securities and neither this document nor anythingcontained herein shall form the basis of any contract or commitment whatsoever This document is strictly confidential and is being furnished to yousolely for your information may not be distributed to the press or other media and may not be reproduced or redistributed to any other person Thedistribution of this report in other jurisdictions may be restricted by law and persons into whose possession this report comes should inform themselvesabout and observe any such restrictions By accepting this report you agree to be bound by the fore going limitations No representation is made thatthis report is accurate or complete
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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The opinions and projections expressed herein are entirely those of the author and are given as part of the normal research activity of Centrum Brokingand are given as of this date and are subject to change without notice Any opinion estimate or projection herein constitutes a view as of the date of thisreport and there can be no assurance that future results or events will be consistent with any such opinions estimate or projection
This document has not been prepared by or in conjunction with or on behalf of or at the instigation of or by arrangement with the company or any of itsdirectors or any other person Information in this document must not be relied upon as having been authorized or approved by the company or itsdirectors or any other person Any opinions and projections contained herein are entirely those of the authors None of the company or its directors orany other person accepts any liability whatsoever for any loss arising from any use of this document or its contents or otherwise arising in connectiontherewith
Centrum and its affiliates have not managed or co(managed a public offering for the subject company in the preceding twelve months Centrum andaffiliates have not received compensation from the companies mentioned in the report during the period preceding twelve months from the date of thisreport for service in respect of public offerings corporate finance debt restructuring investment banking or other advisory services in amergeracquisition or some other sort of specific transaction
As per the declarations given by them Mr Abhisar Jain research analyst and andor any of his family members do not serve as an officer director or anyway connected to the companycompanies mentioned in this report Further as declared by him he has not received any compensation from the abovecompanies in the preceding twelve months He does not hold any shares by him or through his relatives or in case if holds the shares then will not to doany transactions in the said scrip for 30 days from the date of release such report Our entire research professionals are our employees and are paid asalary They do not have any other material conflict of interest of the research analyst or member of which the research analyst knows of has reason toknow at the time of publication of the research report or at the time of the public appearance
While we would endeavour to update the information herein on a reasonable basis Centrum its associated companies their directors and employees areunder no obligation to update or keep the information current Also there may be regulatory compliance or other reasons that may prevent Centrumfrom doing so
Non(rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable
regulations andor Centrum policies in circumstances where Centrum is acting in an advisory capacity to this company or any certain othercircumstances
This report is not directed to or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality statecountry or other jurisdiction where such distribution publication availability or use would be contrary to law or regulation or which would subjectCentrum Broking Limited or its group companies to any registration or licensing requirement within such jurisdiction Specifically this document doesnot constitute an offer to or solicitation to any US person for the purchase or sale of any financial instrument or as an official confirmation of anytransaction to any US person unless otherwise stated this message should not be construed as official confirmation of any transaction No part of thisdocument may be distributed in Canada or used by private customers in United Kingdom
The information contained herein is not intended for publication or distribution or circulation in any manner whatsoever and any unauthorized readingdissemination distribution or copying of this communication is prohibited unless otherwise expressly authorized Please ensure that you have read ldquoRiskDisclosure Document for Capital Market and Derivatives Segmentsrdquo as prescribed by Securities and Exchange Board of India before investing in IndianSecurities Market
Rating Criteria
Rating Market cap lt Rs20bn Market cap gt Rs20bn but lt 100bn Market cap gt Rs100bn Buy Upside gt 25 Upside gt 20 Upside gt 15
Hold Upside between (25 to +25 Upside between (20 to +20 Upside between (15 to +15
Sell Downside gt 25 Downside gt 20 Downside gt 15
Member (NSE BSE MCX(SX) Depository Participant (CDSL) and SEBI registered Portfolio Manager
Registration Nos
CAPITAL MARKET SEBI REGN NO BSE INB011454239 NSE INB231454233
DERIVATIVES SEBI REGN NO NSE INF231454233 (TRADING amp SELF CLEARING MEMBER)
CDSL DP ID 12200 SEBI REGISTRATION NO IN(DP(CDSL(661(2012
PMS REGISTRATION NO INP000004383
MCX ndash SX (Currency Derivative segment) REGN NO INE261454230
Website wwwcentrumcoin
Investor Grievance Email ID investorgrievancescentrumcoin
Compliance Officer Details
Tel (022) 4215 9413 Email ID compliancecentrumcoin
Centrum Broking Limited
Registered Office Address
Bombay Mutual Building
2nd Floor
Dr D N Road
Fort Mumbai ( 400 001
Correspondence Address
Centrum House
6th Floor CST Road Near Vidya Nagari Marg Kalina
Santacruz (E) Mumbai 400 098
Tel (022) 4215 9000
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
httpslidepdfcomreaderfullifgl-refractories-initiating-coverage-centrum-24062014 2326
23IFGL Refractories Ltd
Financials (Cons)
Exhibit 61
Income Statement
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
Revenues from Operations 6712 7776 8484 9554 10697
Raw Materials consumed 3201 3444 3725 4208 4716
of net sales 477 443 439 440 441
Employee expenses 987 1097 1185 1279 1382
of net sales 147 141 140 134 129
Other operational expenses 1621 1805 2013 2243 2486
of net sales 241 232 237 235 232
Total expenses 6130 6680 7273 8140 9068
of net sales 913 859 857 852 848
EBITDA 582 1096 1210 1414 1630
EBITDA Margin () 87 141 143 148 152
Depreciation amp Amortisation 134 155 174 189 204
EBIT 448 942 1036 1225 1425
Interest expenses 80 70 51 29 6
Other Income 45 34 40 44 484
EBT 413 906 1025 1240 1467
Provision for tax 159 248 307 372 440
Effective tax rate () 386 274 300 300 300Net Profit 254 658 717 868 1027
Less Minority interest (28) 18 32 70 99
Net Profit after MI 282 640 686 798 928
Source Company data Centrum Research Estimates
Exhibit 62 Key Ratios
YE Mar FY13 FY14 FY15E FY16E FY17E
Growth Ratio ()
Revenue 112 159 91 126 120
EBITDA (213) 884 104 168 153
PAT (292) 1269 71 163 163
Margin Ratios ()
PBIT Margin 67 121 122 128 133
PBT Margin 62 116 121 130 137
PAT Margin 42 82 81 84 87
Return Ratios ()
ROE 115 212 190 185 181
ROCE 84 177 175 189 198
ROIC 87 179 178 200 224
Turnover Ratios (days)
Asset turnover ratio (x) 18 19 19 19 19
Debtors 78 78 80 80 80
Inventory 46 49 50 50 50
Creditors 43 45 45 45 45
Net Working capital 74 76 80 80 80
Gearing Ratio (x)
Debt-equity 05 03 02 01 00
Net debt-equity 04 03 02 00 (01)
Current ratio 25 23 24 25 27
Dividend
Dividend per share 15 18 20 23 23
Dividend Payout () 251 124 130 125 107
Dividend Yield () 11 13 15 17 17
Per share Ratios (Rs)
Basic EPS 82 185 198 231 268
Fully diluted EPS 82 185 198 231 268
Book value 709 871 1044 1245 1485
Cash earnings per share 120 230 249 285 327
Valuation (x)
PE 174 77 72 62 53
PBV 20 16 14 11 10
EVEBITDA 102 53 46 36 27
EVSales 07 06 06 05 04
M-CapSales 07 06 06 05 05
Source Company data Centrum Research Estimates
Exhibit 63
Balance Sheet
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
Equity share capital 491 491 491 491 491
Reserves amp surplus 1964 2525 3121 3819 4648
Shareholders fund 2455 3016 3612 4310 5139
Total debt 1142 982 682 382 82
Deferred tax liabilities 65 74 74 74 74
Total Liabilities 3741 4167 4495 4963 5591
Gross block 2474 2656 2906 3156 3406
Less acc depreciation 1276 1430 1605 1794 1998
Net block 1198 1225 1301 1362 1407
Capital work in progress 20 20 20 20 20
Goodwill 1105 1342 1342 1342 1342
Investments 5 5 5 5 5
Inventories 848 1034 1162 1309 1465
Trade Receivables 1427 1658 1859 2094 2345
Cash amp cash equivalents 113 33 69 259 609
Loans amp advances 51 107 116 131 147
Trade payables 799 962 1046 1178 1319
Other current liabilities 166 210 232 262 293Provisions 94 124 139 157 176
Total Assets 3741 4167 4495 4963 5591
Source Company data Centrum Research Estimates
Exhibit 64 Cash Flow
YE Mar(Rs mn) FY13 FY14 FY15E FY16E FY17E
PBT 413 906 1025 1240 1467
Interest 72 70 51 29 6
Depreciation 134 155 174 189 204
Increase in debtors (330) (231) (201) (235) (251)
Increase in inventories 7 (186) (128) (147) (157)
Increase in trade payables 46 163 84 132 141
Tax 197 248 307 372 440
Cash flow from operations 183 629 695 799 907
Change in fixed assets (194) (418) (250) (250) (250)
Cash flow from investments (172) (418) (250) (250) (250)
Change in debt 19 (160 (300) (300) (300)
Dividends paid (71) (79) (89) (100) (100)
Interest paid (80) (70) (51) (29) (6)
Cash flow from financing (94) (291) (409) (358) (306)
Net cash flow (81) (81) 36 191 350
Opening cash balance 195 113 33 69 259
Closing cash balance 113 33 69 259 609
Source Company data Centrum Research Estimates
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
httpslidepdfcomreaderfullifgl-refractories-initiating-coverage-centrum-24062014 2426
24IFGL Refractories Ltd
Financials (Cons) - Historical
Exhibit 65
Income Statement
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
Revenues from Operations 3780 3982 4152 4689 6039
Raw Materials consumed 1743 1907 2058 2389 3024
of net sales 461 479 496 509 501
Employee expenses 487 589 539 661 843
of net sales 129 148 130 141 140
Other operational expenses 918 1036 951 1148 1418
of net sales 243 260 229 245 235
Total expenses 3244 3708 3575 4279 5299
of net sales 858 931 861 912 878
EBITDA 536 274 578 411 739
EBITDA Margin () 142 69 139 88 122
Depreciation amp Amortisation 63 74 70 71 123
EBIT 473 200 508 339 617
Interest expenses 82 95 45 56 68
Other Income 18 24 34 43 33
EBT 409 128 497 327 582
Provision for tax 123 67 155 84 183
Effective tax rate () 301 523 311 258 315Net Profit 286 61 343 243 398
Less Minority interest 1 0 0 0 0
Net Profit after MI 285 61 343 243 399
Source Company data Centrum Research Estimates
Exhibit 66 Key Ratios
YE Mar FY08 FY09 FY10 FY11 FY12
Growth Ratio ()
Revenue 171 53 43 129 288
EBITDA 98 (489) 1111 (289) 800
PAT 85 (785) 4586 (292) 642
Margin Ratios ()
PBIT Margin 125 50 122 72 102
PBT Margin 108 32 120 70 96
PAT Margin 75 15 83 52 66
Return Ratios ()
ROE 294 54 250 138 180
ROCE 182 49 169 93 128
ROIC 195 53 183 98 141
Turnover Ratios (days)
Asset turnover ratio (x) 20 18 19 15 17
Debtors 97 55 79 85 69
Inventory 46 47 52 55 52
Creditors 49 23 41 50 44
Net Working capital 105 81 89 93 67
Gearing Ratio (x)
Debt-equity 09 09 06 07 05
Net debt-equity 08 08 05 07 04
Current ratio 29 36 26 25 24
Dividend
Dividend per share 20 00 10 05 15
Dividend Payout () 284 00 118 103 63
Dividend Yield () 15 00 07 04 11
Per share Ratios (Rs)
Basic EPS 82 18 99 70 115
Fully diluted EPS 82 18 99 70 115
Book value 280 328 396 508 641
Cash earnings per share 101 39 119 91 151
Valuation (x)
PE 164 762 136 193 117
PBV 48 41 34 27 21
EVEBITDA 102 203 93 142 76
EVSales 12 12 11 10 08
M-CapSales 12 12 11 10 08
Source Company data Centrum Research Estimates
Exhibit 67
Balance Sheet
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
Equity share capital 346 346 346 491 491
Reserves amp surplus 623 789 1026 1266 1728
Shareholders fund 969 1135 1372 1757 2219
Total debt 869 1003 793 1253 1128
Deferred tax liabilities 41 38 38 40 48
Total Liabilities 1879 2185 2206 3054 3465
Gross block 1456 1948 1966 2738 2238
Less acc depreciation 687 827 864 960 1122
Net block 769 1121 1102 1778 1117
Capital work in progress 46 53 28 21 45
Goodwill 347 594 559 1032 1094
Investments 0 0 4 14 5
Inventories 474 513 592 702 855
Trade Receivables 1001 596 895 1096 1134
Cash amp cash equivalents 77 129 120 100 195
Loans amp advances 152 121 133 152 38
Trade payables 507 256 471 637 729
Other current liabilities 32 90 137 112 194Provisions 102 2 60 60 151
Total Assets 1879 2185 2206 3054 3465
Source Company data Centrum Research Estimates
Exhibit 68 Cash Flow
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
PBT 409 128 497 327 582
Interest 81 96 45 56 59
Depreciation 63 74 75 87 129
Increase in debtors (196) 559 (330) (184) 25
Increase in inventories (72) 35 (79) (77) (135)
Increase in trade payables 82 (304 266 115 67
Tax 119 90 138 70 135
Cash flow from operations 285 814 359 237 520
Change in fixed assets (94) (99) (120) (157) (49)
Cash flow from investments (62 (536 (119 (677 (98
Change in debt (88) 15 (276) 245 (242)
Dividends paid (76) (80) (6) (46) (25)
Interest paid (87) (98) (47) (60) (68)
Cash flow from financing (261) (245) (241) 408 (339)
Net cash flow (43) 24 (8) (29) 94
Opening cash balance 120 77 129 120 100
Closing cash balance 77 129 120 100 195
Source Company data Centrum Research Estimates
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
httpslidepdfcomreaderfullifgl-refractories-initiating-coverage-centrum-24062014 2526
25IFGL Refractories Ltd
Appendix A
Disclaimer
Centrum Broking Limited (ldquoCentrumrdquo) is a full(service Stock Broking Company and a member of The Stock Exchange Mumbai (BSE) and National StockExchange of India Ltd (NSE) Our holding company Centrum Capital Ltd is an investment banker and an underwriter of securities As a group Centrumhas Investment Banking Advisory and other business relationships with a significant percentage of the companies covered by our Research Group Ourresearch professionals provide important inputs into the Groups Investment Banking and other business selection processes
Recipients of this report should assume that our Group is seeking or may seek or will seek Investment Banking advisory project finance or otherbusinesses and may receive commission brokerage fees or other compensation from the company or companies that are the subject of thismaterialreport Our Company and Group companies and their officers directors and employees including the analysts and others involved in thepreparation or issuance of this material and their dependants may on the date of this report or from time to time have long or short positions in actas principal in and buy or sell the securities or derivatives thereof of companies mentioned herein Centrum or its affiliates do not own 1 or more in theequity of this company Our sales people dealers traders and other professionals may provide oral or written market commentary or trading strategies toour clients that reflect opinions that are contrary to the opinions expressed herein and our proprietary trading and investing businesses may makeinvestment decisions that are inconsistent with the recommendations expressed herein We may have earlier issued or may issue in future reports on thecompanies covered herein with recommendations information inconsistent or different those made in this report In reviewing this document youshould be aware that any or all of the foregoing among other things may give rise to or potential conflicts of interest We and our Group may rely oninformation barriers such as Chinese Walls to control the flow of information contained in one or more areas within us or other areas units groups oraffiliates of Centrum Centrum or its affiliates do not make a market in the security of the company for which this report or any report was writtenFurther Centrum or its affiliates did not make a market in the subject companyrsquos securities at the time that the research report was published
This report is for information purposes only and this documentmaterial should not be construed as an offer to sell or the solicitation of an offer to buypurchase or subscribe to any securities and neither this document nor anything contained herein shall form the basis of or be relied upon in connection
with any contract or commitment whatsoever This document does not solicit any action based on the material contained herein It is for the generalinformation of the clients of Centrum Though disseminated to clients simultaneously not all clients may receive this report at the same time Centrumwill not treat recipients as clients by virtue of their receiving this report It does not constitute a personal recommendation or take into account theparticular investment objectives financial situations or needs of individual clients Similarly this document does not have regard to the specificinvestment objectives financial situationcircumstances and the particular needs of any specific person who may receive this document The securitiesdiscussed in this report may not be suitable for all investors The securities described herein may not be eligible for sale in all jurisdictions or to allcategories of investors The countries in which the companies mentioned in this report are organized may have restrictions on investments voting rightsor dealings in securities by nationals of other countries The appropriateness of a particular investment or strategy will depend on an investorsindividual circumstances and objectives Persons who may receive this document should consider and independently evaluate whether it is suitable forhis hertheir particular circumstances and if necessary seek professionalfinancial advice Any such person shall be responsible for conductinghishertheir own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risks involvedin the securities forming the subject matter of this document
The projections and forecasts described in this report were based upon a number of estimates and assumptions and are inherently subject to significantuncertainties and contingencies Projections and forecasts are necessarily speculative in nature and it can be expected that one or more of the estimateson which the projections and forecasts were based will not materialize or will vary significantly from actual results and such variances will likely increase
over time All projections and forecasts described in this report have been prepared solely by the authors of this report independently of the Company These projections and forecasts were not prepared with a view toward compliance with published guidelines or generally accented accountingprinciples No independent accountants have expressed an opinion or any other form of assurance on these projections or forecasts You should notregard the inclusion of the projections and forecasts described herein as a representation or warranty by or on behalf of the Company Centrum theauthors of this report or any other person that these projections or forecasts or their underlying assumptions will be achieved For these reasons youshould only consider the projections and forecasts described in this report after carefully evaluating all of the information in this report including theassumptions underlying such projections and forecasts
The price and value of the investments referred to in this documentmaterial and the income from them may go down as well as up and investors mayrealize losses on any investments Past performance is not a guide for future performance Future returns are not guaranteed and a loss of original capitalmay occur Actual results may differ materially from those set forth in projections Forward (looking statements are not predictions and may be subject tochange without notice Centrum does not provide tax advice to its clients and all investors are strongly advised to consult regarding any potentialinvestment Centrum and its affiliates accept no liabilities for any loss or damage of any kind arising out of the use of this report Foreign currenciesdenominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derived fromthe investment In addition investors in securities such as ADRs the value of which are influenced by foreign currencies effectively assume currency riskCertain transactions including those involving futures options and other derivatives as well as non(investment(grade securities give rise to substantial
risk and are not suitable for all investors Please ensure that you have read and understood the current risk disclosure documents before entering into anyderivative transactions
This reportdocument has been prepared by Centrum based upon information available to the public and sources believed to be reliable Norepresentation or warranty express or implied is made that it is accurate or complete Centrum has reviewed the report and in so far as it includescurrent or historical information it is believed to be reliable although its accuracy and completeness cannot be guaranteed The opinions expressed inthis documentmaterial are subject to change without notice and have no obligation to tell you when opinions or information in this report change
This report or recommendations or information contained herein dodoes not constitute or purport to constitute investment advice in publicly accessiblemedia and should not be reproduced transmitted or published by the recipient The report is for the use and consumption of the recipient only Thispublication may not be distributed to the public used by the public media without the express written consent of Centrum This report or any portionhereof may not be printed sold or distributed without the written consent of Centrum
The distribution of this document in other jurisdictions may be restricted by law and persons into whose possession this document comes should informthemselves about and observe any such restrictions Neither Centrum nor its directors employees agents or representatives shall be liable for anydamages whether direct or indirect incidental special or consequential including lost revenue or lost profits that may arise from or in connection withthe use of the information
This document does not constitute an offer or invitation to subscribe for or purchase or deal in any securities and neither this document nor anythingcontained herein shall form the basis of any contract or commitment whatsoever This document is strictly confidential and is being furnished to yousolely for your information may not be distributed to the press or other media and may not be reproduced or redistributed to any other person Thedistribution of this report in other jurisdictions may be restricted by law and persons into whose possession this report comes should inform themselvesabout and observe any such restrictions By accepting this report you agree to be bound by the fore going limitations No representation is made thatthis report is accurate or complete
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
httpslidepdfcomreaderfullifgl-refractories-initiating-coverage-centrum-24062014 2626
The opinions and projections expressed herein are entirely those of the author and are given as part of the normal research activity of Centrum Brokingand are given as of this date and are subject to change without notice Any opinion estimate or projection herein constitutes a view as of the date of thisreport and there can be no assurance that future results or events will be consistent with any such opinions estimate or projection
This document has not been prepared by or in conjunction with or on behalf of or at the instigation of or by arrangement with the company or any of itsdirectors or any other person Information in this document must not be relied upon as having been authorized or approved by the company or itsdirectors or any other person Any opinions and projections contained herein are entirely those of the authors None of the company or its directors orany other person accepts any liability whatsoever for any loss arising from any use of this document or its contents or otherwise arising in connectiontherewith
Centrum and its affiliates have not managed or co(managed a public offering for the subject company in the preceding twelve months Centrum andaffiliates have not received compensation from the companies mentioned in the report during the period preceding twelve months from the date of thisreport for service in respect of public offerings corporate finance debt restructuring investment banking or other advisory services in amergeracquisition or some other sort of specific transaction
As per the declarations given by them Mr Abhisar Jain research analyst and andor any of his family members do not serve as an officer director or anyway connected to the companycompanies mentioned in this report Further as declared by him he has not received any compensation from the abovecompanies in the preceding twelve months He does not hold any shares by him or through his relatives or in case if holds the shares then will not to doany transactions in the said scrip for 30 days from the date of release such report Our entire research professionals are our employees and are paid asalary They do not have any other material conflict of interest of the research analyst or member of which the research analyst knows of has reason toknow at the time of publication of the research report or at the time of the public appearance
While we would endeavour to update the information herein on a reasonable basis Centrum its associated companies their directors and employees areunder no obligation to update or keep the information current Also there may be regulatory compliance or other reasons that may prevent Centrumfrom doing so
Non(rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable
regulations andor Centrum policies in circumstances where Centrum is acting in an advisory capacity to this company or any certain othercircumstances
This report is not directed to or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality statecountry or other jurisdiction where such distribution publication availability or use would be contrary to law or regulation or which would subjectCentrum Broking Limited or its group companies to any registration or licensing requirement within such jurisdiction Specifically this document doesnot constitute an offer to or solicitation to any US person for the purchase or sale of any financial instrument or as an official confirmation of anytransaction to any US person unless otherwise stated this message should not be construed as official confirmation of any transaction No part of thisdocument may be distributed in Canada or used by private customers in United Kingdom
The information contained herein is not intended for publication or distribution or circulation in any manner whatsoever and any unauthorized readingdissemination distribution or copying of this communication is prohibited unless otherwise expressly authorized Please ensure that you have read ldquoRiskDisclosure Document for Capital Market and Derivatives Segmentsrdquo as prescribed by Securities and Exchange Board of India before investing in IndianSecurities Market
Rating Criteria
Rating Market cap lt Rs20bn Market cap gt Rs20bn but lt 100bn Market cap gt Rs100bn Buy Upside gt 25 Upside gt 20 Upside gt 15
Hold Upside between (25 to +25 Upside between (20 to +20 Upside between (15 to +15
Sell Downside gt 25 Downside gt 20 Downside gt 15
Member (NSE BSE MCX(SX) Depository Participant (CDSL) and SEBI registered Portfolio Manager
Registration Nos
CAPITAL MARKET SEBI REGN NO BSE INB011454239 NSE INB231454233
DERIVATIVES SEBI REGN NO NSE INF231454233 (TRADING amp SELF CLEARING MEMBER)
CDSL DP ID 12200 SEBI REGISTRATION NO IN(DP(CDSL(661(2012
PMS REGISTRATION NO INP000004383
MCX ndash SX (Currency Derivative segment) REGN NO INE261454230
Website wwwcentrumcoin
Investor Grievance Email ID investorgrievancescentrumcoin
Compliance Officer Details
Tel (022) 4215 9413 Email ID compliancecentrumcoin
Centrum Broking Limited
Registered Office Address
Bombay Mutual Building
2nd Floor
Dr D N Road
Fort Mumbai ( 400 001
Correspondence Address
Centrum House
6th Floor CST Road Near Vidya Nagari Marg Kalina
Santacruz (E) Mumbai 400 098
Tel (022) 4215 9000
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
httpslidepdfcomreaderfullifgl-refractories-initiating-coverage-centrum-24062014 2426
24IFGL Refractories Ltd
Financials (Cons) - Historical
Exhibit 65
Income Statement
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
Revenues from Operations 3780 3982 4152 4689 6039
Raw Materials consumed 1743 1907 2058 2389 3024
of net sales 461 479 496 509 501
Employee expenses 487 589 539 661 843
of net sales 129 148 130 141 140
Other operational expenses 918 1036 951 1148 1418
of net sales 243 260 229 245 235
Total expenses 3244 3708 3575 4279 5299
of net sales 858 931 861 912 878
EBITDA 536 274 578 411 739
EBITDA Margin () 142 69 139 88 122
Depreciation amp Amortisation 63 74 70 71 123
EBIT 473 200 508 339 617
Interest expenses 82 95 45 56 68
Other Income 18 24 34 43 33
EBT 409 128 497 327 582
Provision for tax 123 67 155 84 183
Effective tax rate () 301 523 311 258 315Net Profit 286 61 343 243 398
Less Minority interest 1 0 0 0 0
Net Profit after MI 285 61 343 243 399
Source Company data Centrum Research Estimates
Exhibit 66 Key Ratios
YE Mar FY08 FY09 FY10 FY11 FY12
Growth Ratio ()
Revenue 171 53 43 129 288
EBITDA 98 (489) 1111 (289) 800
PAT 85 (785) 4586 (292) 642
Margin Ratios ()
PBIT Margin 125 50 122 72 102
PBT Margin 108 32 120 70 96
PAT Margin 75 15 83 52 66
Return Ratios ()
ROE 294 54 250 138 180
ROCE 182 49 169 93 128
ROIC 195 53 183 98 141
Turnover Ratios (days)
Asset turnover ratio (x) 20 18 19 15 17
Debtors 97 55 79 85 69
Inventory 46 47 52 55 52
Creditors 49 23 41 50 44
Net Working capital 105 81 89 93 67
Gearing Ratio (x)
Debt-equity 09 09 06 07 05
Net debt-equity 08 08 05 07 04
Current ratio 29 36 26 25 24
Dividend
Dividend per share 20 00 10 05 15
Dividend Payout () 284 00 118 103 63
Dividend Yield () 15 00 07 04 11
Per share Ratios (Rs)
Basic EPS 82 18 99 70 115
Fully diluted EPS 82 18 99 70 115
Book value 280 328 396 508 641
Cash earnings per share 101 39 119 91 151
Valuation (x)
PE 164 762 136 193 117
PBV 48 41 34 27 21
EVEBITDA 102 203 93 142 76
EVSales 12 12 11 10 08
M-CapSales 12 12 11 10 08
Source Company data Centrum Research Estimates
Exhibit 67
Balance Sheet
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
Equity share capital 346 346 346 491 491
Reserves amp surplus 623 789 1026 1266 1728
Shareholders fund 969 1135 1372 1757 2219
Total debt 869 1003 793 1253 1128
Deferred tax liabilities 41 38 38 40 48
Total Liabilities 1879 2185 2206 3054 3465
Gross block 1456 1948 1966 2738 2238
Less acc depreciation 687 827 864 960 1122
Net block 769 1121 1102 1778 1117
Capital work in progress 46 53 28 21 45
Goodwill 347 594 559 1032 1094
Investments 0 0 4 14 5
Inventories 474 513 592 702 855
Trade Receivables 1001 596 895 1096 1134
Cash amp cash equivalents 77 129 120 100 195
Loans amp advances 152 121 133 152 38
Trade payables 507 256 471 637 729
Other current liabilities 32 90 137 112 194Provisions 102 2 60 60 151
Total Assets 1879 2185 2206 3054 3465
Source Company data Centrum Research Estimates
Exhibit 68 Cash Flow
YE Mar(Rs mn) FY08 FY09 FY10 FY11 FY12
PBT 409 128 497 327 582
Interest 81 96 45 56 59
Depreciation 63 74 75 87 129
Increase in debtors (196) 559 (330) (184) 25
Increase in inventories (72) 35 (79) (77) (135)
Increase in trade payables 82 (304 266 115 67
Tax 119 90 138 70 135
Cash flow from operations 285 814 359 237 520
Change in fixed assets (94) (99) (120) (157) (49)
Cash flow from investments (62 (536 (119 (677 (98
Change in debt (88) 15 (276) 245 (242)
Dividends paid (76) (80) (6) (46) (25)
Interest paid (87) (98) (47) (60) (68)
Cash flow from financing (261) (245) (241) 408 (339)
Net cash flow (43) 24 (8) (29) 94
Opening cash balance 120 77 129 120 100
Closing cash balance 77 129 120 100 195
Source Company data Centrum Research Estimates
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
httpslidepdfcomreaderfullifgl-refractories-initiating-coverage-centrum-24062014 2526
25IFGL Refractories Ltd
Appendix A
Disclaimer
Centrum Broking Limited (ldquoCentrumrdquo) is a full(service Stock Broking Company and a member of The Stock Exchange Mumbai (BSE) and National StockExchange of India Ltd (NSE) Our holding company Centrum Capital Ltd is an investment banker and an underwriter of securities As a group Centrumhas Investment Banking Advisory and other business relationships with a significant percentage of the companies covered by our Research Group Ourresearch professionals provide important inputs into the Groups Investment Banking and other business selection processes
Recipients of this report should assume that our Group is seeking or may seek or will seek Investment Banking advisory project finance or otherbusinesses and may receive commission brokerage fees or other compensation from the company or companies that are the subject of thismaterialreport Our Company and Group companies and their officers directors and employees including the analysts and others involved in thepreparation or issuance of this material and their dependants may on the date of this report or from time to time have long or short positions in actas principal in and buy or sell the securities or derivatives thereof of companies mentioned herein Centrum or its affiliates do not own 1 or more in theequity of this company Our sales people dealers traders and other professionals may provide oral or written market commentary or trading strategies toour clients that reflect opinions that are contrary to the opinions expressed herein and our proprietary trading and investing businesses may makeinvestment decisions that are inconsistent with the recommendations expressed herein We may have earlier issued or may issue in future reports on thecompanies covered herein with recommendations information inconsistent or different those made in this report In reviewing this document youshould be aware that any or all of the foregoing among other things may give rise to or potential conflicts of interest We and our Group may rely oninformation barriers such as Chinese Walls to control the flow of information contained in one or more areas within us or other areas units groups oraffiliates of Centrum Centrum or its affiliates do not make a market in the security of the company for which this report or any report was writtenFurther Centrum or its affiliates did not make a market in the subject companyrsquos securities at the time that the research report was published
This report is for information purposes only and this documentmaterial should not be construed as an offer to sell or the solicitation of an offer to buypurchase or subscribe to any securities and neither this document nor anything contained herein shall form the basis of or be relied upon in connection
with any contract or commitment whatsoever This document does not solicit any action based on the material contained herein It is for the generalinformation of the clients of Centrum Though disseminated to clients simultaneously not all clients may receive this report at the same time Centrumwill not treat recipients as clients by virtue of their receiving this report It does not constitute a personal recommendation or take into account theparticular investment objectives financial situations or needs of individual clients Similarly this document does not have regard to the specificinvestment objectives financial situationcircumstances and the particular needs of any specific person who may receive this document The securitiesdiscussed in this report may not be suitable for all investors The securities described herein may not be eligible for sale in all jurisdictions or to allcategories of investors The countries in which the companies mentioned in this report are organized may have restrictions on investments voting rightsor dealings in securities by nationals of other countries The appropriateness of a particular investment or strategy will depend on an investorsindividual circumstances and objectives Persons who may receive this document should consider and independently evaluate whether it is suitable forhis hertheir particular circumstances and if necessary seek professionalfinancial advice Any such person shall be responsible for conductinghishertheir own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risks involvedin the securities forming the subject matter of this document
The projections and forecasts described in this report were based upon a number of estimates and assumptions and are inherently subject to significantuncertainties and contingencies Projections and forecasts are necessarily speculative in nature and it can be expected that one or more of the estimateson which the projections and forecasts were based will not materialize or will vary significantly from actual results and such variances will likely increase
over time All projections and forecasts described in this report have been prepared solely by the authors of this report independently of the Company These projections and forecasts were not prepared with a view toward compliance with published guidelines or generally accented accountingprinciples No independent accountants have expressed an opinion or any other form of assurance on these projections or forecasts You should notregard the inclusion of the projections and forecasts described herein as a representation or warranty by or on behalf of the Company Centrum theauthors of this report or any other person that these projections or forecasts or their underlying assumptions will be achieved For these reasons youshould only consider the projections and forecasts described in this report after carefully evaluating all of the information in this report including theassumptions underlying such projections and forecasts
The price and value of the investments referred to in this documentmaterial and the income from them may go down as well as up and investors mayrealize losses on any investments Past performance is not a guide for future performance Future returns are not guaranteed and a loss of original capitalmay occur Actual results may differ materially from those set forth in projections Forward (looking statements are not predictions and may be subject tochange without notice Centrum does not provide tax advice to its clients and all investors are strongly advised to consult regarding any potentialinvestment Centrum and its affiliates accept no liabilities for any loss or damage of any kind arising out of the use of this report Foreign currenciesdenominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derived fromthe investment In addition investors in securities such as ADRs the value of which are influenced by foreign currencies effectively assume currency riskCertain transactions including those involving futures options and other derivatives as well as non(investment(grade securities give rise to substantial
risk and are not suitable for all investors Please ensure that you have read and understood the current risk disclosure documents before entering into anyderivative transactions
This reportdocument has been prepared by Centrum based upon information available to the public and sources believed to be reliable Norepresentation or warranty express or implied is made that it is accurate or complete Centrum has reviewed the report and in so far as it includescurrent or historical information it is believed to be reliable although its accuracy and completeness cannot be guaranteed The opinions expressed inthis documentmaterial are subject to change without notice and have no obligation to tell you when opinions or information in this report change
This report or recommendations or information contained herein dodoes not constitute or purport to constitute investment advice in publicly accessiblemedia and should not be reproduced transmitted or published by the recipient The report is for the use and consumption of the recipient only Thispublication may not be distributed to the public used by the public media without the express written consent of Centrum This report or any portionhereof may not be printed sold or distributed without the written consent of Centrum
The distribution of this document in other jurisdictions may be restricted by law and persons into whose possession this document comes should informthemselves about and observe any such restrictions Neither Centrum nor its directors employees agents or representatives shall be liable for anydamages whether direct or indirect incidental special or consequential including lost revenue or lost profits that may arise from or in connection withthe use of the information
This document does not constitute an offer or invitation to subscribe for or purchase or deal in any securities and neither this document nor anythingcontained herein shall form the basis of any contract or commitment whatsoever This document is strictly confidential and is being furnished to yousolely for your information may not be distributed to the press or other media and may not be reproduced or redistributed to any other person Thedistribution of this report in other jurisdictions may be restricted by law and persons into whose possession this report comes should inform themselvesabout and observe any such restrictions By accepting this report you agree to be bound by the fore going limitations No representation is made thatthis report is accurate or complete
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
httpslidepdfcomreaderfullifgl-refractories-initiating-coverage-centrum-24062014 2626
The opinions and projections expressed herein are entirely those of the author and are given as part of the normal research activity of Centrum Brokingand are given as of this date and are subject to change without notice Any opinion estimate or projection herein constitutes a view as of the date of thisreport and there can be no assurance that future results or events will be consistent with any such opinions estimate or projection
This document has not been prepared by or in conjunction with or on behalf of or at the instigation of or by arrangement with the company or any of itsdirectors or any other person Information in this document must not be relied upon as having been authorized or approved by the company or itsdirectors or any other person Any opinions and projections contained herein are entirely those of the authors None of the company or its directors orany other person accepts any liability whatsoever for any loss arising from any use of this document or its contents or otherwise arising in connectiontherewith
Centrum and its affiliates have not managed or co(managed a public offering for the subject company in the preceding twelve months Centrum andaffiliates have not received compensation from the companies mentioned in the report during the period preceding twelve months from the date of thisreport for service in respect of public offerings corporate finance debt restructuring investment banking or other advisory services in amergeracquisition or some other sort of specific transaction
As per the declarations given by them Mr Abhisar Jain research analyst and andor any of his family members do not serve as an officer director or anyway connected to the companycompanies mentioned in this report Further as declared by him he has not received any compensation from the abovecompanies in the preceding twelve months He does not hold any shares by him or through his relatives or in case if holds the shares then will not to doany transactions in the said scrip for 30 days from the date of release such report Our entire research professionals are our employees and are paid asalary They do not have any other material conflict of interest of the research analyst or member of which the research analyst knows of has reason toknow at the time of publication of the research report or at the time of the public appearance
While we would endeavour to update the information herein on a reasonable basis Centrum its associated companies their directors and employees areunder no obligation to update or keep the information current Also there may be regulatory compliance or other reasons that may prevent Centrumfrom doing so
Non(rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable
regulations andor Centrum policies in circumstances where Centrum is acting in an advisory capacity to this company or any certain othercircumstances
This report is not directed to or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality statecountry or other jurisdiction where such distribution publication availability or use would be contrary to law or regulation or which would subjectCentrum Broking Limited or its group companies to any registration or licensing requirement within such jurisdiction Specifically this document doesnot constitute an offer to or solicitation to any US person for the purchase or sale of any financial instrument or as an official confirmation of anytransaction to any US person unless otherwise stated this message should not be construed as official confirmation of any transaction No part of thisdocument may be distributed in Canada or used by private customers in United Kingdom
The information contained herein is not intended for publication or distribution or circulation in any manner whatsoever and any unauthorized readingdissemination distribution or copying of this communication is prohibited unless otherwise expressly authorized Please ensure that you have read ldquoRiskDisclosure Document for Capital Market and Derivatives Segmentsrdquo as prescribed by Securities and Exchange Board of India before investing in IndianSecurities Market
Rating Criteria
Rating Market cap lt Rs20bn Market cap gt Rs20bn but lt 100bn Market cap gt Rs100bn Buy Upside gt 25 Upside gt 20 Upside gt 15
Hold Upside between (25 to +25 Upside between (20 to +20 Upside between (15 to +15
Sell Downside gt 25 Downside gt 20 Downside gt 15
Member (NSE BSE MCX(SX) Depository Participant (CDSL) and SEBI registered Portfolio Manager
Registration Nos
CAPITAL MARKET SEBI REGN NO BSE INB011454239 NSE INB231454233
DERIVATIVES SEBI REGN NO NSE INF231454233 (TRADING amp SELF CLEARING MEMBER)
CDSL DP ID 12200 SEBI REGISTRATION NO IN(DP(CDSL(661(2012
PMS REGISTRATION NO INP000004383
MCX ndash SX (Currency Derivative segment) REGN NO INE261454230
Website wwwcentrumcoin
Investor Grievance Email ID investorgrievancescentrumcoin
Compliance Officer Details
Tel (022) 4215 9413 Email ID compliancecentrumcoin
Centrum Broking Limited
Registered Office Address
Bombay Mutual Building
2nd Floor
Dr D N Road
Fort Mumbai ( 400 001
Correspondence Address
Centrum House
6th Floor CST Road Near Vidya Nagari Marg Kalina
Santacruz (E) Mumbai 400 098
Tel (022) 4215 9000
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
httpslidepdfcomreaderfullifgl-refractories-initiating-coverage-centrum-24062014 2526
25IFGL Refractories Ltd
Appendix A
Disclaimer
Centrum Broking Limited (ldquoCentrumrdquo) is a full(service Stock Broking Company and a member of The Stock Exchange Mumbai (BSE) and National StockExchange of India Ltd (NSE) Our holding company Centrum Capital Ltd is an investment banker and an underwriter of securities As a group Centrumhas Investment Banking Advisory and other business relationships with a significant percentage of the companies covered by our Research Group Ourresearch professionals provide important inputs into the Groups Investment Banking and other business selection processes
Recipients of this report should assume that our Group is seeking or may seek or will seek Investment Banking advisory project finance or otherbusinesses and may receive commission brokerage fees or other compensation from the company or companies that are the subject of thismaterialreport Our Company and Group companies and their officers directors and employees including the analysts and others involved in thepreparation or issuance of this material and their dependants may on the date of this report or from time to time have long or short positions in actas principal in and buy or sell the securities or derivatives thereof of companies mentioned herein Centrum or its affiliates do not own 1 or more in theequity of this company Our sales people dealers traders and other professionals may provide oral or written market commentary or trading strategies toour clients that reflect opinions that are contrary to the opinions expressed herein and our proprietary trading and investing businesses may makeinvestment decisions that are inconsistent with the recommendations expressed herein We may have earlier issued or may issue in future reports on thecompanies covered herein with recommendations information inconsistent or different those made in this report In reviewing this document youshould be aware that any or all of the foregoing among other things may give rise to or potential conflicts of interest We and our Group may rely oninformation barriers such as Chinese Walls to control the flow of information contained in one or more areas within us or other areas units groups oraffiliates of Centrum Centrum or its affiliates do not make a market in the security of the company for which this report or any report was writtenFurther Centrum or its affiliates did not make a market in the subject companyrsquos securities at the time that the research report was published
This report is for information purposes only and this documentmaterial should not be construed as an offer to sell or the solicitation of an offer to buypurchase or subscribe to any securities and neither this document nor anything contained herein shall form the basis of or be relied upon in connection
with any contract or commitment whatsoever This document does not solicit any action based on the material contained herein It is for the generalinformation of the clients of Centrum Though disseminated to clients simultaneously not all clients may receive this report at the same time Centrumwill not treat recipients as clients by virtue of their receiving this report It does not constitute a personal recommendation or take into account theparticular investment objectives financial situations or needs of individual clients Similarly this document does not have regard to the specificinvestment objectives financial situationcircumstances and the particular needs of any specific person who may receive this document The securitiesdiscussed in this report may not be suitable for all investors The securities described herein may not be eligible for sale in all jurisdictions or to allcategories of investors The countries in which the companies mentioned in this report are organized may have restrictions on investments voting rightsor dealings in securities by nationals of other countries The appropriateness of a particular investment or strategy will depend on an investorsindividual circumstances and objectives Persons who may receive this document should consider and independently evaluate whether it is suitable forhis hertheir particular circumstances and if necessary seek professionalfinancial advice Any such person shall be responsible for conductinghishertheir own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risks involvedin the securities forming the subject matter of this document
The projections and forecasts described in this report were based upon a number of estimates and assumptions and are inherently subject to significantuncertainties and contingencies Projections and forecasts are necessarily speculative in nature and it can be expected that one or more of the estimateson which the projections and forecasts were based will not materialize or will vary significantly from actual results and such variances will likely increase
over time All projections and forecasts described in this report have been prepared solely by the authors of this report independently of the Company These projections and forecasts were not prepared with a view toward compliance with published guidelines or generally accented accountingprinciples No independent accountants have expressed an opinion or any other form of assurance on these projections or forecasts You should notregard the inclusion of the projections and forecasts described herein as a representation or warranty by or on behalf of the Company Centrum theauthors of this report or any other person that these projections or forecasts or their underlying assumptions will be achieved For these reasons youshould only consider the projections and forecasts described in this report after carefully evaluating all of the information in this report including theassumptions underlying such projections and forecasts
The price and value of the investments referred to in this documentmaterial and the income from them may go down as well as up and investors mayrealize losses on any investments Past performance is not a guide for future performance Future returns are not guaranteed and a loss of original capitalmay occur Actual results may differ materially from those set forth in projections Forward (looking statements are not predictions and may be subject tochange without notice Centrum does not provide tax advice to its clients and all investors are strongly advised to consult regarding any potentialinvestment Centrum and its affiliates accept no liabilities for any loss or damage of any kind arising out of the use of this report Foreign currenciesdenominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derived fromthe investment In addition investors in securities such as ADRs the value of which are influenced by foreign currencies effectively assume currency riskCertain transactions including those involving futures options and other derivatives as well as non(investment(grade securities give rise to substantial
risk and are not suitable for all investors Please ensure that you have read and understood the current risk disclosure documents before entering into anyderivative transactions
This reportdocument has been prepared by Centrum based upon information available to the public and sources believed to be reliable Norepresentation or warranty express or implied is made that it is accurate or complete Centrum has reviewed the report and in so far as it includescurrent or historical information it is believed to be reliable although its accuracy and completeness cannot be guaranteed The opinions expressed inthis documentmaterial are subject to change without notice and have no obligation to tell you when opinions or information in this report change
This report or recommendations or information contained herein dodoes not constitute or purport to constitute investment advice in publicly accessiblemedia and should not be reproduced transmitted or published by the recipient The report is for the use and consumption of the recipient only Thispublication may not be distributed to the public used by the public media without the express written consent of Centrum This report or any portionhereof may not be printed sold or distributed without the written consent of Centrum
The distribution of this document in other jurisdictions may be restricted by law and persons into whose possession this document comes should informthemselves about and observe any such restrictions Neither Centrum nor its directors employees agents or representatives shall be liable for anydamages whether direct or indirect incidental special or consequential including lost revenue or lost profits that may arise from or in connection withthe use of the information
This document does not constitute an offer or invitation to subscribe for or purchase or deal in any securities and neither this document nor anythingcontained herein shall form the basis of any contract or commitment whatsoever This document is strictly confidential and is being furnished to yousolely for your information may not be distributed to the press or other media and may not be reproduced or redistributed to any other person Thedistribution of this report in other jurisdictions may be restricted by law and persons into whose possession this report comes should inform themselvesabout and observe any such restrictions By accepting this report you agree to be bound by the fore going limitations No representation is made thatthis report is accurate or complete
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
httpslidepdfcomreaderfullifgl-refractories-initiating-coverage-centrum-24062014 2626
The opinions and projections expressed herein are entirely those of the author and are given as part of the normal research activity of Centrum Brokingand are given as of this date and are subject to change without notice Any opinion estimate or projection herein constitutes a view as of the date of thisreport and there can be no assurance that future results or events will be consistent with any such opinions estimate or projection
This document has not been prepared by or in conjunction with or on behalf of or at the instigation of or by arrangement with the company or any of itsdirectors or any other person Information in this document must not be relied upon as having been authorized or approved by the company or itsdirectors or any other person Any opinions and projections contained herein are entirely those of the authors None of the company or its directors orany other person accepts any liability whatsoever for any loss arising from any use of this document or its contents or otherwise arising in connectiontherewith
Centrum and its affiliates have not managed or co(managed a public offering for the subject company in the preceding twelve months Centrum andaffiliates have not received compensation from the companies mentioned in the report during the period preceding twelve months from the date of thisreport for service in respect of public offerings corporate finance debt restructuring investment banking or other advisory services in amergeracquisition or some other sort of specific transaction
As per the declarations given by them Mr Abhisar Jain research analyst and andor any of his family members do not serve as an officer director or anyway connected to the companycompanies mentioned in this report Further as declared by him he has not received any compensation from the abovecompanies in the preceding twelve months He does not hold any shares by him or through his relatives or in case if holds the shares then will not to doany transactions in the said scrip for 30 days from the date of release such report Our entire research professionals are our employees and are paid asalary They do not have any other material conflict of interest of the research analyst or member of which the research analyst knows of has reason toknow at the time of publication of the research report or at the time of the public appearance
While we would endeavour to update the information herein on a reasonable basis Centrum its associated companies their directors and employees areunder no obligation to update or keep the information current Also there may be regulatory compliance or other reasons that may prevent Centrumfrom doing so
Non(rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable
regulations andor Centrum policies in circumstances where Centrum is acting in an advisory capacity to this company or any certain othercircumstances
This report is not directed to or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality statecountry or other jurisdiction where such distribution publication availability or use would be contrary to law or regulation or which would subjectCentrum Broking Limited or its group companies to any registration or licensing requirement within such jurisdiction Specifically this document doesnot constitute an offer to or solicitation to any US person for the purchase or sale of any financial instrument or as an official confirmation of anytransaction to any US person unless otherwise stated this message should not be construed as official confirmation of any transaction No part of thisdocument may be distributed in Canada or used by private customers in United Kingdom
The information contained herein is not intended for publication or distribution or circulation in any manner whatsoever and any unauthorized readingdissemination distribution or copying of this communication is prohibited unless otherwise expressly authorized Please ensure that you have read ldquoRiskDisclosure Document for Capital Market and Derivatives Segmentsrdquo as prescribed by Securities and Exchange Board of India before investing in IndianSecurities Market
Rating Criteria
Rating Market cap lt Rs20bn Market cap gt Rs20bn but lt 100bn Market cap gt Rs100bn Buy Upside gt 25 Upside gt 20 Upside gt 15
Hold Upside between (25 to +25 Upside between (20 to +20 Upside between (15 to +15
Sell Downside gt 25 Downside gt 20 Downside gt 15
Member (NSE BSE MCX(SX) Depository Participant (CDSL) and SEBI registered Portfolio Manager
Registration Nos
CAPITAL MARKET SEBI REGN NO BSE INB011454239 NSE INB231454233
DERIVATIVES SEBI REGN NO NSE INF231454233 (TRADING amp SELF CLEARING MEMBER)
CDSL DP ID 12200 SEBI REGISTRATION NO IN(DP(CDSL(661(2012
PMS REGISTRATION NO INP000004383
MCX ndash SX (Currency Derivative segment) REGN NO INE261454230
Website wwwcentrumcoin
Investor Grievance Email ID investorgrievancescentrumcoin
Compliance Officer Details
Tel (022) 4215 9413 Email ID compliancecentrumcoin
Centrum Broking Limited
Registered Office Address
Bombay Mutual Building
2nd Floor
Dr D N Road
Fort Mumbai ( 400 001
Correspondence Address
Centrum House
6th Floor CST Road Near Vidya Nagari Marg Kalina
Santacruz (E) Mumbai 400 098
Tel (022) 4215 9000
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
httpslidepdfcomreaderfullifgl-refractories-initiating-coverage-centrum-24062014 2626
The opinions and projections expressed herein are entirely those of the author and are given as part of the normal research activity of Centrum Brokingand are given as of this date and are subject to change without notice Any opinion estimate or projection herein constitutes a view as of the date of thisreport and there can be no assurance that future results or events will be consistent with any such opinions estimate or projection
This document has not been prepared by or in conjunction with or on behalf of or at the instigation of or by arrangement with the company or any of itsdirectors or any other person Information in this document must not be relied upon as having been authorized or approved by the company or itsdirectors or any other person Any opinions and projections contained herein are entirely those of the authors None of the company or its directors orany other person accepts any liability whatsoever for any loss arising from any use of this document or its contents or otherwise arising in connectiontherewith
Centrum and its affiliates have not managed or co(managed a public offering for the subject company in the preceding twelve months Centrum andaffiliates have not received compensation from the companies mentioned in the report during the period preceding twelve months from the date of thisreport for service in respect of public offerings corporate finance debt restructuring investment banking or other advisory services in amergeracquisition or some other sort of specific transaction
As per the declarations given by them Mr Abhisar Jain research analyst and andor any of his family members do not serve as an officer director or anyway connected to the companycompanies mentioned in this report Further as declared by him he has not received any compensation from the abovecompanies in the preceding twelve months He does not hold any shares by him or through his relatives or in case if holds the shares then will not to doany transactions in the said scrip for 30 days from the date of release such report Our entire research professionals are our employees and are paid asalary They do not have any other material conflict of interest of the research analyst or member of which the research analyst knows of has reason toknow at the time of publication of the research report or at the time of the public appearance
While we would endeavour to update the information herein on a reasonable basis Centrum its associated companies their directors and employees areunder no obligation to update or keep the information current Also there may be regulatory compliance or other reasons that may prevent Centrumfrom doing so
Non(rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable
regulations andor Centrum policies in circumstances where Centrum is acting in an advisory capacity to this company or any certain othercircumstances
This report is not directed to or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality statecountry or other jurisdiction where such distribution publication availability or use would be contrary to law or regulation or which would subjectCentrum Broking Limited or its group companies to any registration or licensing requirement within such jurisdiction Specifically this document doesnot constitute an offer to or solicitation to any US person for the purchase or sale of any financial instrument or as an official confirmation of anytransaction to any US person unless otherwise stated this message should not be construed as official confirmation of any transaction No part of thisdocument may be distributed in Canada or used by private customers in United Kingdom
The information contained herein is not intended for publication or distribution or circulation in any manner whatsoever and any unauthorized readingdissemination distribution or copying of this communication is prohibited unless otherwise expressly authorized Please ensure that you have read ldquoRiskDisclosure Document for Capital Market and Derivatives Segmentsrdquo as prescribed by Securities and Exchange Board of India before investing in IndianSecurities Market
Rating Criteria
Rating Market cap lt Rs20bn Market cap gt Rs20bn but lt 100bn Market cap gt Rs100bn Buy Upside gt 25 Upside gt 20 Upside gt 15
Hold Upside between (25 to +25 Upside between (20 to +20 Upside between (15 to +15
Sell Downside gt 25 Downside gt 20 Downside gt 15
Member (NSE BSE MCX(SX) Depository Participant (CDSL) and SEBI registered Portfolio Manager
Registration Nos
CAPITAL MARKET SEBI REGN NO BSE INB011454239 NSE INB231454233
DERIVATIVES SEBI REGN NO NSE INF231454233 (TRADING amp SELF CLEARING MEMBER)
CDSL DP ID 12200 SEBI REGISTRATION NO IN(DP(CDSL(661(2012
PMS REGISTRATION NO INP000004383
MCX ndash SX (Currency Derivative segment) REGN NO INE261454230
Website wwwcentrumcoin
Investor Grievance Email ID investorgrievancescentrumcoin
Compliance Officer Details
Tel (022) 4215 9413 Email ID compliancecentrumcoin
Centrum Broking Limited
Registered Office Address
Bombay Mutual Building
2nd Floor
Dr D N Road
Fort Mumbai ( 400 001
Correspondence Address
Centrum House
6th Floor CST Road Near Vidya Nagari Marg Kalina
Santacruz (E) Mumbai 400 098
Tel (022) 4215 9000