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Ladies and gentlemen, good day and welcome to IFGL Refractories Limited Q1 FY '21 Earnings Conference Call.This conference call may contain forward-looking statements about the company, which are based on beliefs, opinions and expectations of the company as on date of this call. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions]Please note that this conference is being recorded. I now hand the conference over to Mr. Kamal Sarda, CEO and CFO, IFGL Refractories Limited, for his opening remarks. Thank you, and over you, sir.
Thank you. Good morning, ladies and gentlemen. Thank you for joining us on IFGL Refractories' Quarter 1 FY '21 Earnings Conference Call. I hope you and everyone around you are safe and in good health. Along with me, we have on call Mr. Rajesh Agarwal, Company Secretary; and SGR, Investor Relations Advisor.We had uploaded our results presentation on the stock exchange as well as on the website of our company. And I hope you have had the chance to go through the same. Let me first start with the economy and some business highlights. We are living in one of the most challenging times in human history due to the COVID-19 pandemic. COVID has impacted businesses throughout the world and forced everyone to adopt the new way of working. Our operations in Kandla, Gujarat facilities was briefly disrupted in April 2020 due to the lockdown implemented by the government. Atmanirbhar Bharat is the vision of government to make India a self-reliant nation. Government's vocal for local campaign promotes Indian company to use locally-sourced products will change the landscape of the domestic industries.No global tenders are allowed for less than INR 200 crores in government procurement. This will further boost the government's -- domestic company. The public sector steel companies have already started implementing this, which will immensely benefit the Indian refractory company.India is the 2nd largest steel producer in the world after China now. Encouragement for domestic raw materials sourcing by the domestic steel companies will significantly enhance demand of your company's products.As the lockdown started easing from April onwards, the demand for steel gradually increased on the back of resumption of infra projects and other increased industrial activities. We ramped up our production facilities to keep up with the rising demand. We expect business operations to reach pre-COVID levels soon.During the lockdown period, we used the time to analyze our cost and optimize the sale to improve the company's profitability. We expect a stable demand for steel going forward as government is expected to unveil various CapEx program to kick start the economic and bring it back on the growth trajectory. This will enhance the demand of product of your company.I now move forward to give a brief on financial performance of Q1 FY '21. Let me first start with the stand-alone results. We are pleased to report strong domestic performance in spite of the tough challenges post by the pandemic. Although our top line was slightly lower on a year-on-year basis, so with the help of lower raw metal prices, this several cost optimization effort, we have been able to post strong improvement in profitability.Total stand-alone income of quarter 1 FY '21 stood at INR 129.9 crore as compared to INR 143.4 crore in FY '20, down by 9% year-on-year. EBITDA for Q1 FY '21 stood at INR 26.2 crore as compared to INR 22 crore, up by 19%.EBITDA margins expanded by 490 bps year-on-year. PAT for quarter 1 stood at INR 11.9 crore as compared to INR 8.5 crore in quarter 1 FY '20, up by 41% year-on-year. PAT margins also expanded by 330 basis points year-on-year to 9.2% in quarter 1 FY '21 as compared to 5.9% in quarter 1 FY '20.Let me move on to the consolidated results. Our consolidated financials got impacted due to the poor market conditions in U.S. and Germany, especially. International market is showing a considerable sign of improvement now. Governments in the U.K., U.S. and Germany have around several measures for business support and revival. Nonetheless, we took several initiatives to optimize our fixed and operating expenses to minimize impact on our profitability.Total consolidated income for quarter 1 FY '21 stood at INR 206 crore as compared to INR 256 crore in quarter 1 FY '20, down by 19%. Consolidated EBITDA for quarter 1 stood at INR 26.5 crore as compared to INR 30.2 crore, down by 12% year-on-year.Consolidated EBITDA margin expanded by 100 basis points to 12.8% in quarter 1 FY '21 as compared to 11.8% in quarter 1 FY '20. Consolidated PAT stood at INR 10.2 crore as compared to INR 13.6 crore in FY '20. PAT margins at 4.9% in quarter 1 FY '21 as compared to 5.3% in quarter 1 FY '20.Let me give you some brief highlights of our international businesses as well. EI Ceramics, our U.S. subsidiary, total income stood at $2.76 million; EBITDA, there was a loss of $0.18 million; and PAT loss of $0.2 million.Monocon, our U.K. subsidiary, the total income was GBP 6.1 million. EBITDA was GBP 0.15 million, and PAT was GBP 0.1 million.Hofmann, our German subsidiary, and total income stood at EUR 1.45 million; EBITDA and PAT nearly at breakeven levels.With respect to liquidity position, we remain net debt-free with a strong balance sheet, and we are very well placed to harness new business opportunities amidst COVID-19 pandemic. Disruptions, which may come our way, thus increase our market value.I now leave the floor for any question and answers. Thank you.
[Operator Instructions] The first question is from line of [ Amar Morey ] from [ Alpha Equity Advisors ].
Yes, am I audible?
Yes, please.
Yes. Hi, Sarda-ji. How are you?
Yes. [ Amar ], how are you?
Perfect, perfect sir. Hope, everything is well at your end.
Yes, so far, so good.
Yes. So sir, a couple of questions. Firstly, if you can indicate, like in the month of April, May and June, what was the utilization? And what is the utilization currently in July? And how it is going in August?
See April, as I mentioned in my speech, the Gujarat plant was shut most part of April, but we were running the Odisha plant. So obviously, the April, I would say my operating product -- I would say production levels were somewhere around 55%, 60%. And then thereafter, I think May, June, ramping up to July and August, we are running at around 85%, 90% levels, of the normal level.
Okay. 85%, 90% of the normal level in July and August?
Yes, yes, yes.
Okay. And sir, second question was like, we had seen a sharp decline in your RMC costs. So this is like some change at the overall strategy level? Or this was like we were holding a low-cost inventory, something like that?
No, see any kind of raw material cost cannot have 1 factor. There are multiple factors. As I mentioned in my speech also that some of the raw material prices have softened. So that's number one. Number two, our overall realization was slightly better because of the exchange rate moving in our favor. Plus, we had done a lot of cost optimization, alternate raw material usages. So all put together, there was a mix of few factors wherein this you see the raw material cost going down.
Okay. Because why I'm asking this to you, sir, like almost there was a 600 basis point improvement in the overall RMC to sales. So out of this, how much we can sustain going forward as you are indicating that we did a lot of internal changes. So out of this 600 basis points, how much we can see continuing in the coming quarters?
I don't have a ready answer to this because honestly [Foreign Language]. So that effect would be based on the raw metal prices, which are -- which will be there in the subsequent quarters. So that answer, I don't have.
Okay. Perfect. Sir, one more from my side. Like employee cost also come down on a quarterly run rate basis. So is it because of the shutdown and there were temporary staffing, which were not there or this is sustainable?
No, no. Because see in the bargain what happened is a lot of log work which we did, get it done outside, which was not there. So some of the contract labor, which did not -- which were running on a fees basis. So because of the lower productivity now they had in April and in Gujarat plant, we had a restriction of number of heads coming in. So obviously, the number of manpower entering the factory was less. So that is why the cost is lower.
Okay, okay, okay. So ultimately that cost will again come back now and probably you could now come back in August?
Yes, yes, yes. That will come back, yes.
The next question is from the line of Rohit Sinha from Emkay Global.
Just wanted to understand what's the industry demand right now? How you are seeing industry shaping for -- during the COVID days and now exactly the unlocking is going on. So how the demand from the customers are there and how it should be going forward as per your understanding?
See the industry is bouncing back. And I think they're bouncing back quite fast, okay? Indian steel companies, you must have seen that their overall, I would say, demand is increasing. So -- and I see that in the coming near future, we will only see improvement from there.
Okay, okay. So any particular -- is there any particular segment size or peer size where you are seeing a faster recovery or that is across the...
No, no, no. There's no specific instances. No specific space.
The next question is from the line of Dinesh Kotecha from KRIC. There is no response from the current participant, I have muted the line.We'll take the next question from the line of [ Priyanka Singh ] from [ Atidhan Securities ].
Yes. I have 2 questions. First one is, what is your strategy on international business?
What do you mean by strategy like?
Actually, I mean, what is your plan going ahead on the international business side?
We would like the businesses to stabilize after the effect of corona, and then we will decide. We have not decided anything specific.
Okay. And do you think there is a scope of equity dilution in overseas business for major field...
No, no, no.
The next question is from the line of Dinesh Kotecha from KRIC. As there is no response from the current participant, I have muted the line.We'll take the next question from the line of Rohit Balakrishnan from VRDDHI CAPITAL.
I hope all of you are well at your end. Actually just wanted to understand, in the domestic market, can you talk about the overall refractory space? Like what is your market share? And how has that moved vis-à-vis the other players, if you can just talk about it.And on this point on Atmanirbhar Bharat and sort of imports that are sort of having an issue with China. I believe a lot of your refractory raw materials come from China. So I mean, have you been facing any issues? And also longer term, what is the solution there? So these are the 2 questions.
On the market share, I would say in the specialized refractories where we are into, in the domestic market, we should be somewhere around 12% to 15% because we are into the flow control refractories, our market share would be around that. There are 8 or 9 players in the markets. So that's the first question. And what did you ask me, the second question. Can you repeat it again, please?
Yes. So on the second question was that a lot of the raw materials for the refractories come from China. So given...
Yes, there is no impact from the Chinese raw material coming in. The Chinese raw material are available as I think there are no restrictions imposed by the government. On import of raw materials, there are certain restrictions by the government of use of overall imported. So what they are -- now government in the Make in India or Atmanirbhar or whatever you call it, is that your value addition has to be more than 50%. So that, in any case, we have fulfilled on an overall basis also. So import from China, there are no restrictions at all.
Okay. And on the first question on the market share. So 15% to 20% on flow control, is that a fair assumption that your market share has remained in that range for the last 2, 3 years? Or you've gained market share or...
No, no, no. Domestic market share are almost at very similar levels.
And you don't see any changes in the competitive scenario in the sense that no player is getting excited at all terms in of pricing pressure, et cetera?
Competition mean competitive scenario. There will be people who will get aggressive and market readjust itself. So I cannot say that somebody is not getting aggressive, sometimes we get aggressive, sometimes x gets aggressive. So in the competition scenario that aggression will be there. And we don't lose any market share, big market share because the market is so big. Even if you lose 1 customer, it amounts very small. You gain another customer out there. So it will not have big impact. The market -- the competition scenario would be there. It would be intense. It would get intense also subsequently. So that one should not worry about it.
Got it. And right now, in a sense that you're saying that -- there is no too much of aggression from anybody, meaning it's more at a stable environment right now. Is that a fair understanding?
Yes, yes, yes. There's no such -- no problem as such.
[Operator Instructions] The next question is from the line of Abhisar Jain from Monarch Networth Capital.
Sir, congrats for a good performance in one of the toughest quarters that we could have hoped for. Sir, quite positively surprised on the stand-alone performance with net sales increasing sequentially and also down only 10% year-on-year. So can you just throw some light, sir, how did we manage that considering strict lockdowns, et cetera?
See, there are few factors, which helped us in doing that. So one was -- as had the overall -- okay, we are a mix of both domestic market as well as the international market. So in the month of April or May, our international demand was there. Internationally, the lockdowns were not that severe. So they continued to produce. So our markets had that demand, okay? So when the Indian refractory industry, the other players, they are more dependent on the domestic market, they could not run because their -- either their factory was closed or steel plants were closed or there was a restriction on variety of movement of goods. But we had continuous demand of products for our overseas market.
Right.
Okay. So that is one which helped. So we have a balance of say, 40%, 45% domestic and 55%, 60% is the international business. So that keeps our balance there. That's number one.Number two, foreign exchange movement was also in our favor. You must have seen both the dollar and euro and your pound, they appreciated significantly in the last 4, 5, 6 months, I would say, okay?And then third, coupled with that, which helped was the softening of input prices. Because overall demand was less. So input prices also got in our favor. Plus we could do a lot of cost savings in our -- within this period, we have done a lot of work on cost savings.So all these 4, 5 factors helped us in this improvement in the, I would say, the performance.
Okay. And now, sir, from a little bit medium perspective for the Indian operations because we are -- doing expansions in, obviously, both the existing plants and also, we are setting up a greenfield new plant at Vizag. So sir, any outlook that you can give from a 3- to 5-year basis, where does the company see the stand-alone business going? And any mix shift, change in mix going forward between export and domestic considering Vizag plant will also come in?
Abhisar, you know that I don't give you any kind of a forward statement. I will just go and can ask you to look at our past performance of the growth. And our desire would be to grow faster than that.
Yes. Sir, I was asking because the stand-alone business has been -- not been able to grow in that faster clip. But now since we have a lot of focused expansion of the CapEx going on in all plants. That's why.
Mr. Jain, this is the operator. Sorry to interrupt you. Ladies and gentlemen, the line from Mr. Kamal Sarda has been disconnected. Please hold while we reconnect them. Thank you. Ladies and gentlemen, thank you for patiently waiting. The line for Mr. Kamal Sarda has been connected. Thank you, and over to you, sir.
Yes. My apologies, some problem with my phone. I didn't know what happened. Okay. Can we please carry on?
Mr. Jain, please repeat your question.
Yes. So Kamal sir, I was just saying since we have been making a lot of investments into the Indian operations in the last few years, and a lot of them will come on stream by the end of this year. That's why I was just basically trying to get an idea that on the medium term, the stand-alone business, which has seen not so greater growth in the last 4, 5 years. Can be much better off in the next 3 to 5 years and some direction therein could be helpful from your side.
Okay. So the investments in the -- in both Kandla -- so the investments in Kandla meant for adding some facilities for exports. We have seen in Kandla, there are a lot of cost advantageous in terms of logistics and when we are exporting the material, there are no customs duties and all. And that has given the advantage in the last 8 years or so when we started this. So that's the reason why we are putting that investment there in Kandla. And I'm sure -- so that will be for exports, okay? So that will be there.And in the domestic front, when we are talking of the projects in Vizag, apart from some of the new products, which we'll launch in the Vizag plant. That will be both in the unshaped as well as some shaped refractory. We may also, in the near future, to bricks, which we have. So basically, some new products will get added. And it will take 2 to 3 years' time when we establish our products and have some reasonable market share. So this will -- the Vizag plant will be mainly address the domestic market.Now with the Make in India program, a lot of products, which will -- as there will be some impact on import of that. So maybe any project, which is there, wish we had this project in hand 1 year before, but this will give us the advantage to cater to the Make in India program as well. A lot of bricks are getting imported in India. A lot of shape also get imported in India. So I think all put together, then at the port base, we'll have a logistics advantage also there. So all put together, that Vizag plant will mainly cater to the domestic industry and Kandla continues to cater to the overseas market.
Okay. Understood, sir. And sir, just one last question on EI Ceramics. So has the performance now bounced back in Q2? Obviously, given Q1 has been the weakest there among all our subsidiaries.
It is bouncing back. I will not say it's bounced back. What I understand that August performance seems to be better. But the U.S. is still under pressure. The U.S. economy is under pressure, okay? But that economy is so strong that maybe these are all very, very temporary, maybe 2 months, 3 months, 6 months max. So that's going to come back again. But there are no inherent problem in that economy as such. It's just a temporary blip. The average steel utilization there -- capacity -- steel industry capacity utilization has gone to one of the lowest level, below 50%. It has gone as low as 50%. So now it is about 60%, 61%. It is inching forward. But it is going up. So August is comparatively a better month. It will bounce back. So it will bounce back. Nothing to worry.
[Operator Instructions] The next question is from the line of [ Rahul Soni ] from SMIFS Limited.
Congratulations for a good set of numbers. Sir, I would like to know who are your key customers domestically and in the international markets?
There are a variety of customers. I would request, can you just address this question to Srini. He'll give you most of the answer. Let's limit certain specific questions here. In India, all these steel plants in India applies this.
Okay. So there are like your repeat clients?
Well, they are -- all are repeat clients or regular clients.
So how frequently they place the order, sir?
6 months, 1 year.
Okay. So have you seen any like pickup in the orders from your domestic clients recently?
Yes. Yes. Yes. They are improving.
Okay. And sir, secondly, can you throw some light on the volume growth during the quarter for your domestic units and your foreign units?
I don't have volume figures honestly. We honestly don't because we deal in multiple products, there are no single product assets. We don't deal in like tonnage or anything like that.
We'll take the next question from the line of Senthil Kamaraj from ithought Financial Consulting.
Just to this Atmanirbhar Bharat highlight you mentioned in the presentation. So the global tenders below INR 200 crores are mostly for the domestic market. So just if you would share some numbers like compared to last year, what percentage of the refractory market could be beneficial to the domestic manufacturers?
Pardon, can you come again. I didn't get your question.
Sir, this Atmanirbhar Bharat scheme, you have mentioned in the presentation that most of the steel companies have adopted this policy. So as a percentage of refractory market demand, so how much of this, you are seeing beneficial to the domestic manufacturers? So shipping demand towards...
What the public -- what the Make in India program say is that any tender below INR 200 crore will have to be procured from domestic industry, okay? So most of the refractory business is below INR 200 crore. I would say, refractory tenders are below INR 200 crore. So most of the refractories procured by the public sector, partially procured from domestic sources, okay? So that's -- it is still, it is just the beginning of things. Let's just understand it will take 1 year to understand the full implication. Let me tell you, this will give a big boost to the refractory industry in India. So most of the refractory which are imported will have to be produced in India.Can we take 1 or 2 closer questions, please?
The next question is from the line of Anurag Patil from Roha Asset Managers.
Sir, how much of our current installed capacity is domestic. And how much is...
Mr. Patil, sorry to interrupt you. We are not able to hear you clearly, sir.
Am I audible?
Now you are audible sir.
Yes. So sir, how much is our installed capacity domestically? And how much it would increase to post expansion and debottlenecking?
Can I -- can you ask these questions to Srini. I will give you these results subsequently later on. Srini, you can take this call from this gentlemen.
As there are no further questions, I would now like to hand the conference over to Mr. Kamal Sarda for closing comments.
Thank you very much. And it was a, I think, a wonderful question-and-answer session. So I hope I've been able to answer most of your queries, some of the queries, which I did not -- I could not answer, you may contact, of SGA, our Investor Relation Advisor. And we look forward to your participation in the next quarter. Thank you, everyone, and remain safe. Thank you.
Thank you. On behalf of IFGL Refractories Limited, that -- we conclude this conference. Thank you for joining us, and you may now disconnect your lines.