7/21/2019 IFGL Refractories - Initiating Coverage - Centrum 24062014 http://slidepdf.com/reader/full/ifgl-refractories-initiating-coverage-centrum-24062014 1/26 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 company’s foresight in strategically expanding its high margin facilities at Kandla, Gujarat and Ohio, US at minimal capex which provides strong visibility on earnings growth and margin expansion. Favorable demand outlook for refractories from both domestic and European markets on the back of increasing steel production provides an opportunity for growth. Improving balance sheet health, strong free cash flow visibility (yield of ~12% in FY16E) and attractive returns (ROE of 18.5% in FY16E) are added positives. Expansion at Kandla to be the game changer for domestic operations: We expect 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% at standalone operations) due to SEZ benefits and huge freight advantage on exports (~US$700/container for a shipment to Europe) on account of its port based location. We expect volumes & EBITDA at IEL to more than double in the next three years. Exports from standalone operations (~57% share) should be substituted by IEL gradually, improving margins at the standalone entity as it supplies more in the domestic market. Steady growth seen from overseas operations after turnaround: IFGL has successfully turned around its overseas operations (~53% of cons. revenue in FY14) by consolidation & recalibration of various facilities and has seen steady earnings trajectory with key subsidiaries like Monocon group/EI Ceramics clocking EBITDA CAGR of ~16%/38% during FY11-14. Doubling of capacity (by Q1FY16E) at EI Ceramics, which enjoys highest margins (~16%) among overseas subsidiaries, is expected to not only provide strong earnings growth but also margin improvement to IFGL from its overseas subsidiaries’ basket. Balance sheet strengthened, free cash flow generation strong: IFGL has turned free cash flow positive at a consolidated level in FY14 as operating cash flow improved sharply (up 240% YoY) led by higher profitability across operations. We see strong free cash flow generation ahead on the back of limited capex (~Rs250mn annually over FY15-16E). We see free cash flow/EBITDA going up to 0.4x in FY16E (vs 0.2x in FY14) and free cash flow yield is expected to be ~12% in FY16E. Balance sheet remains strong and we expect the company to be debt free at a consolidated level in the next three years. Valuation and risks - poised for rerating: We expect earnings momentum to continue with an EBITDA/PAT CAGR of 13.6%/11.6% during FY14-16E led by volume growth from expansions and margin improvement. Despite the recent up move, the stock trades at attractive valuations of 6.2x FY16E P/E and 3.6x FY16E EV/EBITDA. We value the stock at 5.5xMar’16E EV/EBITDA to arrive at our TP of Rs220. Initiate with a Buy. The stock is currently very thinly covered by the street. Key risks are sharp increase in imported raw material costs and extreme stress in the steel industry in India and Europe. Target Price Rs220Key DataBloomberg Code IFGL IN CMP*Rs142Curr Shares O/S (mn) 34.6 Diluted Shares O/S(mn) 34.6 Upside 55% Mkt Cap (Rsbn/USDmn) 4.9/81.6 Price Performance (%)* 52 Wk H / L (Rs) 156.7/23.5 1M 6M 1Yr 5 Year H / L (Rs) 156.7/15.3 IFGL IN 21.2 151.0 421.9 Daily Vol. (3M NSE Avg.) 88220 Nifty 1.7 19.2 32.2 *as on 23 June 2014; Source: Bloomberg, Centrum Research Shareholding pattern (%) * Mar-14 Dec-13 Sep-13 Jun-13 Promoter 71.3 71.3 71.3 71.3 FIIs 0.0 0.0 0.0 0.0 DIIs 1.1 2.2 2.2 2.2 Others 27.7 26.5 26.5 26.5 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 EV/EBITDA of IFGL vs Vesuvius Source: Bloomberg, Centrum Research Abhisar Jain, CFA , [email protected]; 91 22 4215 9928Y/E Mar(Rs mn) Rev YoY (%) EBITDA EBITDA (%) PAT YoY (%) EPS (Rs) RoE (%) RoCE (%) P/E (x) EV/EBITDA (x) FY13 6,712 11.2 582 8.7 282 (29.2) 8.2 11.5 8.4 17.4 10.2 FY14 7,776 15.9 1,096 14.1 640 126.9 18.5 21.2 17.7 7.7 5.3 FY15E 8,484 9.1 1,210 14.3 686 7.1 19.8 19.0 17.5 7.2 4.6 FY16E 9,554 12.6 1,414 14.8 798 16.3 23.1 18.5 18.9 6.2 3.6 FY17E 10,697 12.0 1,630 15.2 928 16.3 26.8 18.1 19.8 5.3 2.7 Source: Company, Centrum Research Estimates -527 -99 -39 211 445 549 657 (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 C Y0 7 C Y0 8 C Y09 C Y10 C Y1 1 C Y12 C Y13 C Y1 4E C Y15E ( % ) Vesuvius India IFGL Refractories (FY) Vesuvius PLC Puyang Refractories Cie de St-Gobain Magnesita Refractarios Chosu 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 ) EV/EBITDA IFGL EV/EBITDA Vesuvius Buy Metals & Mining Initiating Coverage 24 June 2014 INDIA IFGL Refractories Ltd
26
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IFGL Refractories - Initiating Coverage - Centrum 24062014
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7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
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
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
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
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
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
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
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
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
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
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
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 ()
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
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
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
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
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
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
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
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)
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
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
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
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
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
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
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
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
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
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
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
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
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
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 ()
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
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
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
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
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
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
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
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)
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
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
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
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
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
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
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
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
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
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
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
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
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
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 ()
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
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
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
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
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
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
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
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)
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
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
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
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
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
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
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
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
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
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
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
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
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 ()
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
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
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
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
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
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
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
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)
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
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
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
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
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
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
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
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
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
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
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
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 ()
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
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
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
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
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
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
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
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)
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
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
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
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
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
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
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
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
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
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
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 ()
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
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
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
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
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
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
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
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)
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
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
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
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
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
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
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
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
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
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 ()
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
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
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
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
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
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
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
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)
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
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
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
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
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
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
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
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
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 ()
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
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
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
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
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
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
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
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)
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
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
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
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
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
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
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
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 ()
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
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
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
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
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
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
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
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)
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
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
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
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
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
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
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 ()
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
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
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
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
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
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
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
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)
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
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
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
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
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
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 ()
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
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
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
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
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
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
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
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)
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
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
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
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
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 ()
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
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
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
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
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
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
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
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)
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
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
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
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 ()
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
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
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
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
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
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
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
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)
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
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
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
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 ()
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
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
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
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
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
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
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
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)
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
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
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
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
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
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
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
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
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
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
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)
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
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
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
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
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
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
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
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
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
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)
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
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
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
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
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
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
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
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
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)
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
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
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
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
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
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
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
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)
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
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
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
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
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
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
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)
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
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
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
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
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
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
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)
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
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
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
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
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
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)
7212019 IFGL Refractories - Initiating Coverage - Centrum 24062014
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
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
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
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
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
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
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
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
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
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
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
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
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