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Ladies and gentlemen, good day and welcome to IFGL Refractories Limited Q2 FY '21 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Kamal Sarda, CEO and CFO, IFGL Refractories Limited. Thank you, and over to you, sir.
Yes. Thank you. So good evening, ladies and gentlemen. I thank you for joining us on the IFGL Refractories Limited Quarter 2 FY '21 Earnings Conference Call. I hope and everyone around you is safe and in definitely in a good health. Along with me, we have on call, Mr. Rajesh Agarwal, our Company Secretary; and SGA, our Investor Relations Advisors. We have uploaded our results presentation on the stock exchange and our website. And I hope you all have got a chance to go through the same. Let me give you a very brief on economy and business. So quarter 2 witnessed a very strong recovery in business as government released lockdown restrictions on business operations and movement of people. And this was all across the globe too, other and except the last part of the quarter 2. Our manufacturing facilities continued to operate smoothly during quarter 2 adhering to the guidelines issued by the respective governments. As you know steel industry has witnessed one of the sharpest and V shaped demand recovery. This recovery was led by strong pickup in all the industries, especially the auto and real estate where the highest amount of steel is consumed. Based on various other factors led to -- I'm happy to inform you that we have recorded highest ever quarterly EBITDA and PAT in the history of IFGL. I shall now move on to give you a brief on our performance. Let me start with the stand-alone figures. We recorded highest ever revenue, highest EBITDA and highest profit at the stand-alone level on the back of strong demand, increased realization, cost measures taken by the company and operating leverage benefits. Total income for the quarter 2 was INR 167.6 crores as compared to INR 122.3 crores in quarter 2 FY 2020. This was up by 37%. EBITDA for this quarter was INR 36.4 crores as compared to INR 17.8 crores, which is like almost doubled. EBITDA margins expanded by 7.1% to 21.7% as compared to 14.6% in the previous corresponding quarter. PAT was INR 19.2 crores as compared to INR 7.6 crores, up by 152%. PAT margins was at 11.4% as compared to 6.2% in the corresponding quarter.I will give you a brief on the consolidated financial highlights. Our consolidated financials also include our international subsidiaries in the U.S. and Europe which were impacted by the second wave of COVID which is still continuing. International markets are showing considerable kind of improvements as we speak. Nonetheless, we reported highest ever EBITDA and PAT at the consolidated level also.Total consolidated income for this quarter was INR 248.4 crores as compared to INR 227.4 crores, up by 9%. Consolidated EBITDA was INR 41.3 crores as compared to INR 26.2 crore, up by 58%. Consolidated EBITDA margin was 16.6% as compared to 11.5%.Consolidated PAT is INR 20.6 crore as compared to INR 12.5 crore in the corresponding quarter, up by 65%. Consolidated PAT margin were 8.3% as compared to 5.5% in the corresponding quarter.Let me give you brief highlights of the financials of subsidiaries for this quarter. EI Ceramic, our U.S. subsidiary, total income was USD 3.89 million for the quarter. EBITDA was $0.47 and PAT was $0.31. Monocon Group total income was £6.76 million, EBITDA was £0.22 million, PAT was £0.12 million, Hofmann, our German subsidiary’s total income wasEUR 1.28 million, EBITDA near breakeven level and marginal loss at PAT level.I am happy to tell you that we continued to remain net debt free. We have a very strong balance sheet and a strong cash flow. Our ongoing CapEx plan at Kandla and Visakhapatnam remains on track. With the economy now opening up rapidly and showing signs of improvement, our product offerings and strong financial positions, we are well placed to capitalize on the business opportunities in the times to come.This is the brief. I look forward to any question from you. Thank you
[Operator Instructions] First question is from the line of [ Ankit Agarwal from ARC Capital ].
And congrats on a great set of numbers, sir. Sir, I have a couple of questions. See, the higher revenue that we have recorded so what is the breakup in terms of value and volume?
That -- I don't have that figure. We don't calculate that way because we have various product ranges. So I don't think we can give you instantly these figures.
But realizations must have improved, right?
Realizations improved on the backdrop of the that rupee had depreciated in the last, I would say, 6 months that has also helped us quite a bit.
And similar for, sir, the EBITDA margins, what are the factors -- key factors there?
As I said -- see, one is the overall business which has increased, if you see on the stand-alone, the total income has increased by 37%. That itself a big increase for us, so that's is one. As I said the cost reduction measures, cost optimization measures taken by the company, we had a soft raw material rates during the last half year. And overall, if you see some of the cost like travel cost there was hardly any travel, lot of things have -- are factored in the improvement in margins
So sir, I mean, are these margins sustainable then going forward like...
Difficult to say. Let's wait. If the costs are going up, the ocean freights are going up significantly, the raw material rates are hardening up. So we will try and see what can be done. Everything in the market looks good.
Okay. sir. And sir, one last...
Yes, definitely the market looks good.
Right, right. Okay. And sir, one last question, sir. The current PLI scheme, which has been announced by the government, is there any benefit for us from that?
No. No. It is not for the refractory industry for some specialized steel. I'm yet to see the detailed guidelines.
Next question is from the line of [ Arush Oberoi from Victor Delta Securities ].
I have couple of questions. Sir, I would like to know that what would the company's total CapEx at Kandla and Visakhapatnam plant?
See if you go through the -- have you seen the presentation? It is mentioned there very clearly.
Okay. Okay. So what could be the potential revenue opportunities from these expansions?
Difficult to say but I think -- let's wait. It will take a bit of a time. We are yet to see yet. We cannot really tell you what is the total. But refractory industry we can always factor into 2.5 to 3x.
Any ballpark numbers like any percentage type? Okay. So another question is that our subsidiaries in U.S. and Europe are not doing well. So can you highlight what exactly are the issues there?
See the U.K. subsidiary was doing okay, reasonably okay, I would say compared to the corresponding quarter. Margins may have been slightly here and there but U.S. market, the first quarter was very bad, but the second quarter towards the end and the last month has seen a significant recovery. And I am sure in the coming quarters unless government comes out with the specific lockdown separately, I see that current quarter should be good. We have seen in the month of October, we have gone back to almost normal in EI Ceramics. We hope the current quarter and the next quarter or H2 should be much better than H1.
Okay. And sir, lastly, what is your outlook on the domestic steel demand in the near term?
It looks very good. Every steel industries, I think you must have seen the H1 results, they're all doing excellent. So I hope they will continue with the same trend. I don't see any reason why they should go down. So prices they have increased. They all are making tons of money.
Next question is from [ Atul K from Rahul Securities ].
Sir, just wanted to know, have the raw material prices softened?
In the first half yes, but now as we speak there are signs that it is going up plus what is happening is the ocean freight, there is a significant turbulence, ocean freight is also hardening up very, very steeply.
Okay. And sir, what kind of impact these prices to have our margins going forward?
It is still to be assessed.
Sir, pardon me, I couldn't get your point.
I said it is still to be assessed. We need to understand where it stops.
Okay. Okay. Sure. And secondly, sir, are we seeing any demand shift from players who are shifting their requirements from China to India?
Not yet.
Okay. And are we likely to witness the same going forward? What is your perspective on the same?
Not in our range of products.
Next participant is Sanjay Nandi from Ratnabali Investments.
So just wanted to know from the presentation, like we have been eyeing for a 4% kind of steel growth in the worldwide from '20 to '21. So what kind of refractory growth can we presume if we see our India to grow at 23% kind of growth in the steel sector from '20 to '21, so what kind of refractory growth in the topline thing is possible, sir, from that perspective?
We are almost linked, I would say. If you look at any growth or degrowth in steel, we will have almost 75% effect of it in refractory industry.
So can you please guide us like so that if can help us in the for our projections purpose...
In fact, [ 2 to 3 years ] of the growth honestly speaking.
Pardon, sir?
I don't have the total figures on the globe. We are not readily -- I think it's about $40 billion, $41 billion in the globe, but I don't know exactly how much is -- see, India is about INR 10,000 crore market, okay, roughly around INR 10,000 crore market. So whatever growth we have of 5% or a 10% growth in steel, we'll have around, let's say, 75% of that in the refractory industry as well. Am I able to make it clear?
Okay. And sir -- yes, it's perfect, sir. Perfect. Sir, my next question is like in this particular quarter, we could find out like they have happened [Audio Gap] in the margin from the Indian operations, sir, is it because of our foreign exchange or did we something improvement in realizations or what exactly happened if you can kindly clarify the same, sir?
I think I answered in one of the last questions.
But it would be helpful kindly clarify a bit, so like if any kind of product mix or something happened?
I telling to -- for the sake of everyone, it will be difficult for me to repeat the same thing. Okay. That's why I think -- so basically, it gives you the demand of our increase in sales is one of the major factor, okay? Our overall customer demands are very high. As I mentioned, the raw material rates are soft in the quarter 2 as well as the H1. Our foreign exchange rates rupee was on a depreciated condition so that also helped us. Then we had taken out a lot of costs optimization measures that helped. I can tell you in that MPT prices were very soft in the first half. It is still very, very similar. Then on the other cost is our travel cost, we hardly had any travel everybody was working from home. So that the net reduction in cost. So then there could be various other small small reasons. So these are the major factors.
And sir, one thing, so like can you just give us the sales mix, like what percentage do we sell in the like shaped refractories and what percentage do we have in the unshaped refractories?
We don't calculate in that way.
[Operator Instructions] Next question is from [ Viraj from SIMPL ].
Congratulations for such a good performance in challenging environment. I just had 3, 4, specific questions. Firstly, you talked about the overall market of refractories in India being around INR 10,000 crores. So what will be the share of say Chinese or other imports of the total consumption?
INR 10,000 crore, I think imports will be -- if I'm not wrong, imports will be about INR 1,500 crores to INR 1,800 crores.
And similarly, in terms of other unorganized players, so is there any product categories where the large imports are largely concentrated and...
The major import of refractories happen in the [ magnesia carbon ] space. That is largely imported. There are Indian companies who are taking lot of steps to manufacture in India based on the Make in India program. So I am sure in the coming 1 or 2 years, we will find lot of shifts go to domestic market
Okay. And similarly, in the presentation also, you talked about a lot of tenders below INR 200 crores, and there was lot's of PSUs will start looking at sourcing from local markets. So any rough idea you can give, what will be the annual sourcing requirement of the PSU players in terms of refractories and...
Honestly, I don't have that figure.
Okay. Are we seeing any shift yet? Or the rest still yet to play out?
That is happening. In the PSU, all the orders which are coming with the condition that it has to have a 50% value addition in India. So a lot of shifts are happening there. There are hardly any orders even on Chinese companies now. Hardly any orders.
Okay. Sir, you already answered on the margin, but what exactly just want to get a more qualitative perspective is, so if you see our overall operating margin expansion as you said this is the good amount of growth as well, but other than that if you look at a contribution level, it's almost 500, 600 basis points expansion for last couple of quarters. So apart from if you look at the factors which you have outlined, what will be the major factors would cost initiatives, would that be the larger part while you have seen a change in...
As I said, our sales has increased by 37% [indiscernible]. Okay? That's a significant increase. So that contributes the maximum.
Okay. And the expansion in contribution margin, which you talked about. So would the FX and low RM would be the larger factor there at the gross margin level or other cost initiatives there also? Just trying to understand what would be the larger factors there?
I really cannot divide that, but these are the major factors as I said.. All of these are contributing in a reasonable -- a big way in our margin improvements.
Okay. And just last question if I can squeeze in. How you are seeing the pricing environment in the industry? So you talked about the overall RM prices hardening now, so are we able to pass that to the end customers given the kind of profitability and the margins, they are kind of making right now? So is the pass through more simpler or easier now than what it is used to be earlier, any perspective you can share on the pricing part?
See every order -- every contract is the fixed price contract. There are no price variation clause. Okay? Any price change will happen in the next ordering level. I am sure every company, in the industry will be affected by the price increase or cost increases and we all will be forced to pass it on. Of course, it's a very, very highly competitive market, not every cost increase will be passed on, okay, there will be competition effect to this also. But then yes, it gets passed on. There are price increases. And even the customer realizations are going up and they are also willing to increase the prices
[Operator Instructions] The next question is from Anurag Patil from Roha Asset Managers.
Sir, what would be our total installed capacity in India and international?
I would request you to talk to SGA on this. They have the figures. Okay?
Okay. Sir, can you broadly just utilization level, can just share?
I think in India, we are operating now at almost -- I think most of the major product line would be about 80%, 90% and in overseas companies, we should be at roughly around 50% level.
Next question is from [ Alok Sharma from 3M Investments ].
This is Alok Sharma. I have 2 questions, sir. One is in the next 3, 5 years, where do you see the mix between export and domestic just your thoughts?
Alok, can you come again, please?
Yes, in the next 3 to 5 years, what do you think could be the mix between export and domestic revenues?
We don't normally give you these kind of forward-looking statements. We target growth, and we continue to target that. I don't want to give any figures into it.
Sir, but do you think the domestic growth would be stronger? You indicated, but just, again, if you can comment the domestic growth would be stronger than export in the next 3, 5 years, does that make a reasonable possibility?
I said, domestic market, it looks very good as of now. And going by the Government of India's steel policy and the growth in that, the domestic market seems to be very, very good.
Okay. Okay. And the second question is, our cash generation has been very strong in the past 2 years. Is there any structural change which has happened in our business model so that our cash generation will be as like the last 2 years? Or do you think things will revert back to they were historically? So any structural changes in the business?
No, no, no, there are no structural changes. It is just because the margin, the profitability has increased and cash has been generated. And on top of it, we have had strong working capital management policy. With that we -- so the cash is the result of that factor.
Okay. So just on that, do you think the working capital efficiency will be maintained going forward?
Yes.
[Operator Instructions] Next participant is Sanjay Nandi from Ratnabali Investments.
Sir, just a follow-up question, like you mentioned like you have targeted kind of growth, okay, sir, for the next few years for the refractory industry as a whole. So can you just elaborate like what kind of growth we are predicting vis-à-vis what kind of growth exactly happened recently?
As I said, -- I said, Mr. Nandi, that we do not give any kind of figures. If you go by the past, our cumulative growth and we target that we should be doing better than the past, but we don't give you any kind of figures.
Sir, can you please elaborate what kind of growth percentage happened in the past also in terms of numbers, if you can throw something?
I think it was something about 10% to 11%, if you look at the last 6, 7 years.
This is -- you're talking of the industry as a whole, right, sir, of the company specifically?
I'm talking about IFGL.
IFGL, right. So 10% has been the growth in last -- like last how many years, sir?
6, 7 years, if you look at.
in 6, 7 years. And we're expecting that thing to be like surpassed in the next coming years, right?
That's our target. That's our desire.
The next participant is [ Viraj from SIMPL ].
I just had one query. If I look at the period between FY '17 to FY '20, we are seeing some good moderation in our gross or contribution margins for us and similar trend was seen in other industry players as well. So given the share of refractories in total cost of production for steel, one would think that it would be quite a discipline in terms of pricing, spend margin, but that has not really played out. so has there been any change in the industry, the competitive dynamics or any behavior in terms of end customer which had like to this moderation?
There has been no change as such, just because if we have the opportunity majorly to performance-based refractories and performance based contract I would say. So each company tend to maximize the benefit which is passed on to the customer as well as give the company higher margins. So that is only change which happens. Other than that, there is no other change.
[Operator Instructions] Ladies and gentlemen, that was the last question for today. I will now hand the conference over to Mr. Sarda for closing remarks.
Thank you everyone for joining in this conference. I hope I have been able to answer to most of your queries. We look forward to your participation in the coming quarters. If you have any queries, you may contact SGA, our Investor Relation Advisors. Thank you. Have a nice day and remain safe. Thank you.
Thank you very much. On behalf of IFGL Refractories Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.