Stock Tales are concise, holistic stock reports across wider spectrum of sectors. Updates will not be periodical but based on significant events or change in price. Stock _____ TALES September 28, 2021
Stock Tales are concise, holistic stock reports across wider spectrum of sectors. Updates will not be periodical but based on significant events or change in price.
Stock_____
TALES
September 28, 2021
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September 28, 2021
CMP: | 1130 Target: | 1445 (28%) Target Period: 12 -18 months
months
Vesuvius India (VESIND)
BUY
Leading player in refractories market…
About the stock: Vesuvius India (VIL) is a subsidiary of the Vesuvius Group, UK. It
is a leading metal flow engineering company. The company supplies high
performance refractory material to the steel industry and other process industries
used for lining vessels such as blast furnaces, ladles and tundishes to enable them
to withstand high temperatures and/or corrosive attack.
Shaped refractories account for ~37% of revenue in CY20 followed by
unshaped refractories (~37%) and services (~ 26%)
It holds ~11% market share in the Indian refractories industry
Key triggers for future price performance:
Focused on capturing domestic market share through faster growth in the
manufactured goods segment through localised manufacturing and new
product launches. Currently, manufactured goods contribute 50-55%
Focusing on margin accretive solution oriented services segment, which
has grown at a CAGR of 34.4% in CY13-20 and now contributes 26% to
revenue compared to 4% in CY13
Higher steel production and technological advancement is expected to drive
refractories demand. India’s crude steel production is expected to grow at
a CAGR of ~5.5% to 121 MT in FY20P-23E backed by higher infrastructure
spend and strong steel capex pipeline
Strength in developing close, collaborative relationships with customers
with an extended global manufacturing alignment with customer locations
backed by global parentage
We expect VIL to rebound to superior margins of ~14-16% over the next
couple of years owing to cost rationalisation, niche product launches
Net debt free b/s, double-digit return ratios & strong cash flows and cash
and investment of ~| 559 crore provide tremendous balance sheet strength
What should investors do? We expect decent earnings in long term led by
operational efficiency, product innovation, R&D and strong steel capex pipeline.
Considering strong cash generation, balance sheet, we initiate coverage
under Stock Tales format with a BUY recommendation
Target Price and Valuation: We value VIL at | 1445 i.e. 24x on CY22E EPS
Particulars
Particular Amount
Market Capitalization (| crore) 2,294
Total Debt (CY20) (| crore) 0
Cash and Inv (CY20) (| crore) 559
EV (CY20) (| crore) 1,735
52 week H/L (|) (BSE) 1364 / 847
Equity capital (| crore) 20.3
Face value (|) 10.0
Shareholding Pattern
(in %) Sep-20 Dec-20 Mar-21 Jun-21
Promoter 55.6 55.6 55.6 55.6
FII 1.7 1.9 1.9 1.8
DII 21.5 21.1 22.5 22.1
Others 21.2 21.4 20.0 20.5
Price Chart
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15000
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p-18
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9
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p-20
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Vesuvius NIfty 500 (R.H.S)
Key risks
Any slowdown in steel, cement capex
to adversely affect the sales
Overdependence on China for raw
material site can disrupt supply chain
Research Analyst
Chirag Shah
Amit Anwani
Key Financial Summary
S
(| Crore) CY18 CY19 CY20 5-Year CAGR
(CY15-CY20)
CY21E CY22E 2-Year CAGR
(CY20-22E)
Net Sales 925.1 887.0 791.5 2.5% 1,050.3 1,162.6 21.2
EBITDA 147.4 120.7 76.8 -9.3% 113.8 167.7 47.7
EBITDA margin (%) 15.9 13.6 9.7 10.8 14.4
Net Profit 92.5 85.6 53.1 -6.3% 81.7 122.1 51.7
EPS (|) 45.6 42.1 26.1 40.2 60.2
P/E (x) 24.8 26.8 43.2 28.1 18.8
P/BV 3.1 2.9 2.7 2.5 2.3
EV/EBITDA (x) 12.7 15.1 22.6 15.0 10.0
RoCE (%) 18.2 14.4 7.9 11.3 15.2
RoE (%) 12.5 10.6 6.3 9.0 12.0
Source: Company, ICICI Direct Research
ICICI Securities | Retail Research 2
ICICI Direct Research
Stock Tales | Vesuvius India
Industry Background
Refractory is a ceramic material used to provide refractory lining in furnaces,
kilns, incinerators and reactors. These materials have a high melting point
(greater than 1,520° Celsius). Refractory materials are subjected to various
conditions such as high temperature, abrasions & chemical corrosions, slag
attacks & chemical reactions when they are used in refractory linings.
Refractory materials can be made from both natural and synthetic materials
that are generally non-metallic, or combinations of compounds and minerals
like alumina, bauxite, fireclays, dolomite, chromite, silicon carbide,
magnesite and zirconia.
Major consumers of refractories are iron & steel, cement, glass, non-ferrous
metals, petrochemicals and hydrocarbons. Growth of the Indian refractory
market is directly linked to growth of the steel industry, which consumes
~70-75% of refractories in India.
Around 70% of refractories consumed in India are locally produced while
~30% of refractories consumed are imported (of which China accounts for
two-thirds of imports). The primary driver for substantial imports is
abundant availability of key raw materials like magnesite, etc. Indian
refractories industry is estimated at ~| 9000 crore as on FY21, which is ~5%
of the global refractories market (~US$23 billion). Overall installed refractory
capacity in India is estimated at 2.4 MT with 55-60% capacity utilisation i.e.
at ~1.2-1.3 MT refractories production. Refractory production in India is
estimated to grow at a CAGR of ~8.3% in FY21-23E amid low base, in
correlation with India crude steel production, which is estimated to grow
at~9% CAGR to reach 121 MT by FY23E amid low base.
Top five players including TRL Krosaki, RHI Megnesita India (Orient
Refractory merged), Vesuvius India, Dalmia-OCL, IFGL command more
than~60% of the Indian refractories market.
Exhibit 1: Indian refractories industry – Production (MT) and YoY growth (%) trend...
11594671199871
1136289 1135668
1237560
1330800
1310400
1236600
1367680
1449740
-9.7%
3.5%
-5.3%
-0.1%
9.0%
7.5%
-1.5%
-5.6%
10.6%
6.0%
-15%
-10%
-5%
0%
5%
10%
15%
0
200000
400000
600000
800000
1000000
1200000
1400000
1600000
FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
Production (tonnes) Volume Growth (%) YoY [R.H.S]
Source: Company, ICICI Direct Research
Exhibit 2: India refractories industry - turnover & growth (%)...
60766540 6672 6672
7379
8014
7852
7039
8759
9702
6.7%7.6%
2.0% 0.0%
10.6%
8.6%
-2.0%
-10.4%
24.4%
10.8%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
0
2000
4000
6000
8000
10000
12000
FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
Sales turnover (crore) YoY Sales Growth (%) [R.H.S.]
Source: Company, ICICI Direct Research
Exhibit 3: Value wise market share (%) of top players...
43.4%39.4%
33.6% 33.6% 31.1%
5.6%6.0%
6.0% 6.1% 9.0%
6.8%7.9%
9.5% 10.2% 8.9%
12.3%12.3%
11.5% 11.3% 11.2%
17% 18%
20% 18% 19%
15.0% 16.0%19.9% 21.1% 20.2%
0%
20%
40%
60%
80%
100%
CY16/FY17 CY17/FY18 CY18/FY19 CY19/FY20 CY20/FY21E
Others IFGL Dalmia OCL
Vesuvius India* RHI Megnesita India TRL Krosaki
Source: Company, ICICI Direct Research
ICICI Securities | Retail Research 3
ICICI Direct Research
Stock Tales | Vesuvius India
Company Background
Incorporated in 1991, Vesuvius India (VIL) is a subsidiary of the Vesuvius
Group, UK, which holds 55.6% share in VIL and started commercial
production in its first factory in Kolkata. VIL is a leading metal flow
engineering company principally serving the steel and foundry industries.
At present, the company has four factories: one each at Kolkata, Mehsana,
two at Visakhapatnam and one manufacturing arrangement at Salem.
Another factory at Vishakhapatnam is likely to be set up soon.
The Kolkata factory manufactures continuous casting refractories including
slide gate equipment, porous plugs. The Visakhapatnam factories
manufacture monolithic, pre-cast shapes, taphole clay while the Mehsana
factory manufactures crucibles for non-ferrous industry. The manufacturing
arrangement at Salem supplies basic monolithic for tundish application. It is
also planning 50%+ VISO capacity in Kolkata. VISO is trademarked isostatic
pressing technology of VIL, which is a key enabler of continuous casting.
VIL supplies high performance refractory material to the steel industry and
other process industries used for lining vessels such as blast furnaces, ladles
and tundishes to enable them to withstand high temperatures and/or
corrosive attack. These refractory lining materials are supplied in the form
of powder mixes, which are spray-applied or cast onto vessels to be lined
(monolithic), or in pre-cast shapes and bricks. Major domestic customers
include JSW, Tata Steel (JSR), JSPL (Angul), which recognised VIL’s major
contribution in continuous improvement in their steel mills.
VIL’s domestic revenue has grown at 8.3% CAGR in CY13-CY19 to | 841
crore while overall revenue registered CAGR of 6.7% in CY13-19.
Exhibit 4: Overall revenue CAGR trend over CY16-22E
821.5911.3 925.1 887.0
791.5
1050.3 1162.6
-20%
-10%
0%
10%
20%
30%
40%
0
200
400
600
800
1,000
1,200
1,400
CY16 CY17 CY18 CY19 CY20 CY21E CY22E
(| c
rore
)
Total revenue ( | crore) YoY Growth (%) [R.H.S.]
Source: Company, ICICI Direct Research
Exhibit 5: Domestic and export share...
80.7% 78.9%90.7% 94.9% 94.0% 94.1% 93.3%
19.3% 21.1%9.3% 5.1% 6.0% 5.9% 6.7%
0%
20%
40%
60%
80%
100%
CY16 CY17 CY18 CY19 CY20 CY21E CY22E
Domestic Revenue Exports Revenue
Source: Company, ICICI Direct Research
Exhibit 6: Domestic revenue growth trend over CY16-22E
662.7719.3
838.7 841.5
743.9
988.51085.3
-20%
-10%
0%
10%
20%
30%
40%
0
200
400
600
800
1,000
1,200
CY16 CY17 CY18 CY19 CY20 CY21E CY22E
(|
crore)
Domestic Revenue ( | crore) YoY Growth (%) [R.H.S.]
Source: Company, ICICI Direct Research
Exhibit 7: Exports revenue growth trend in CY16-22E
158.8
192.0
86.4
45.5 47.6
61.9 77.4
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
0
50
100
150
200
250
CY16 CY17 CY18 CY19 CY20 CY21E CY22E
(|
crore)
Exports Revenue ( | crore) YoY Growth (%) [R.H.S.]
Source: Company, ICICI Direct Research
ICICI Securities | Retail Research 4
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Stock Tales | Vesuvius India
Investment Rationale
Focus on innovative products to balance growth & margins
VIL has a well-balanced product portfolio of refractories with shaped
refractories capacity of 8.0 lakh pieces per annum and unshaped
(monolithic) refractories capacity of ~100000 tonnes per annum. VIL’s
Kolkata factory accounts for most of the shaped production capacity with
~1700 pieces per day while unshaped (monolithic) are produced at two
units at Vizag. While the Mehsana unit produces crucibles, nozzles, shaped
refractories, VIL has a manufacturing arrangement at Salem, which
produces unshaped (monolithic) refractories. Total installed capacity is
estimated at ~275000 tonnes.
VIL continues to focus on gaining market share in the domestic market
through increased contribution from the manufactured goods segment with
new product launches and enhancing local manufacturing. It contributed 50-
52% in CY20. It is also focusing on margin accretive solution oriented
management services segment that has grown at 34.4% CAGR in CY13-20
and now contributes 26% to revenue vs. 4% in CY13. Type wise, shaped
and unshaped refractories contributed ~37% and 37%, respectively, to
CY20 revenue and are likely to continue in the next two years.
However, VL is likely to focus on the unshaped (monolithic) segment to
capture market share. This is since it is a fast growing segment and it is
replacing the conventional fired refractories in many applications such as
eliminating joints in refractory lining in furnaces, etc.
Overall gross margins in coming years are likely to expand supported by
manufacturing goods driven by more local manufacturing, which are likely
to command superior gross margins in the range of 25-30% compared to
traded goods, which are likely to command gross margins in the range of
20% over the next two years.
Exhibit 8: Vesuvius refractories product portfolio...
Re f r acto r y typ e s T yp e o f p r o d u cts Main in d u s tr y u s eC Y 19 Re ve n u e
(| cr o r e )
P r o d u ct-w is e
Re ve n u e s h ar e (% )
Shaped (Bricks ) Nos . Bricks , Insulating f irebrick
L ining of blas t furnaces ,
K lins , G lass Tanks ,
incinerators
334 38%
Unshaped (Monolithics ) tonneMorter, cas tables , Plas tics ,
G unning mixes , Ramming mixes
Furnaces & K lins 213 24%
TradingShaped (38% )
Unshaped (62% )
A ll type of furnaces 256 29%
Serv ices - - 81 9%
Source: Company, ICICI Direct Research
Exhibit 9: Product-wise revenue share trend….
35% 33%36% 39% 36%
29% 28% 30% 31%
13% 15%14%
16%
12%
13%8%
9% 9%
33% 35% 33%28%
23%
17%22%
20% 21%
15% 14% 14% 14%
19%
16% 15% 15% 15%
4% 4% 3% 3%9%
26% 26% 25% 25%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
CY14 CY15 CY16 CY17 CY18 CY19 CY20 CY21E CY22E
Shaped refractories (mfg) Shaped refractories (traded) Unshaped refractories(mfg)
Unshaped refractories(traded) Sale of services
Source: Company, ICICI Direct Research
ICICI Securities | Retail Research 5
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Stock Tales | Vesuvius India
Exhibit 10: Revenue contribution by refractories type….
48% 48%
50%
55%
48%
41%
37%
39% 39%48%
49%
47%
42%42%
32%
37%36% 35%
25%
35%
45%
55%
65%
CY14 CY15 CY16 CY17 CY18 CY19 CY20 CY21E CY22E
Shaped refractories Unshaped refractories
Source: Company, ICICI Direct Research
Exhibit 11: Revenue contribution: Manufacturing. vs. traded
goods...
68% 67% 69%66%
59%
45%
50% 50%51%
28% 29% 28%30% 31%
28%
23%25%
23%
0%
10%
20%
30%
40%
50%
60%
70%
80%
CY14 CY15 CY16 CY17 CY18 CY19 CY20 CY21E CY22E
Manufactured Goods Traded Goods
Source: Company, ICICI Direct Research
Exhibit 12: Type-wise gross margin trend….
42.5%
47.1%
33.8%
15.8%
20.8% 21.0%
24.5%
41.1%
35.5%
29.5%
32.3%
16.6% 17.0%18.0%
15%
22%
29%
36%
43%
50%
CY16 CY17 CY18 CY19 CY20 CY21E CY22E
Manufactured Goods gross margins (%) Traded Goods gross margins (%)
Overall Gross margins (%)
Source: Company, ICICI Direct Research
Steel industry capex to drive refractory demand….
Refractory materials are used to provide refractory lining in furnaces, kilns,
incinerators and reactors. These materials have a high melting point (greater
than 1,520° Celsius) and are subjected to various conditions such as high
temperature, abrasions & chemical corrosions, slag attacks & chemical
reactions when they are used in refractory linings. The steel industry is one
of the major end-users of these materials with ~70% consumption and
directly drives refractories demand. In non-metallurgical industries (cement,
glass, lime) refractories are mostly installed on fired heaters, hydrogen
reformers, cracking furnaces, incinerators, utility boilers, air heaters, etc.
Growth of the Indian refractory market is directly linked to growth in these
segments while the impetus that the government is giving to infrastructure
development augurs well for the refractory industry.
Per ton consumption-wise, steel consumes 10-14 kg of refractories per
tonne with replacement required in 20 minutes to two months thereby
driving the refractories market. Steel industry demands complete refractory
management and services driven solutions from refractory makers while the
cement industry is the next biggest user (~ 7%) with annual replacement
cycle while non-ferrous & glass industries have longer replacement cycle.
Demand supply in the domestic refractories industry has been witnessing
muted consumption growth due to a fall in per tonne consumption for
steelmaking due to technological advancement and imports (~25% net
imports, of which two-thirds is from China). We expect the refractories
ICICI Securities | Retail Research 6
ICICI Direct Research
Stock Tales | Vesuvius India
industry demand to be driven by higher steel production and technological
advancement. India’s crude steel production has grown at a CAGR of 5.0%
in FY14-20P to 109.2 MT. It is expected to grow at a CAGR of ~9% to 121
MT in FY21P-23E backed by higher infrastructure spend, strong steel capex
pipeline and expansion in per capita steel consumption. While India’s
refractory production has grown at a CAGR of ~2.3% in FY14-20P to ~1.30
MT, it is expected to grow at CAGR of ~8.3% to 1.43 MT in FY21P-23E amid
low base. Steel production processes have seen a shift from traditional basic
oxygen furnace to electric arc furnace and induction furnaces, which are
more efficient and less quantity of refractories materials.
Average refractory consumption has gone down from 2.2% of crude steel
production in FY09 to 1.2% in FY20. Consequently, refractory realisation per
kg has gone up from | 25.7 per kg in FY09 to ~ | 60 per kg in FY21 led by
process shifts and technological advancements in production.
Exhibit 13: Per tonne consumption of refractories across sectors in India...
C o n s u m p tio n o f r e f r acto r ie s
acr o s s in d u s tr ie s in In d ia
A p p licatio nA vg . r e f r acto r y
co n s u m p tio n p e r to n
Re p lace m e n t C ycle
SteelBlas t Furnace, Electric A rc Furnace, Ladles ,
Pellet, rotary, K lins , Induction Furnace etc
10-12 kgs 20 mins to 2 months
Cement K lins 0.8-0.9 kgs A nnually
G lass G lass Furnace 4-5 kgs Upto 10 years
A luminium Convertors 4-6 K gs 1-10 years
Copper Convertors 3 K gs 1-10 years
Source: Company, ICICI Direct Research
Exhibit 14: Sector-wise (%) refractories consumption in India.
70.0%
7.0%
6.0%
4.8%
4.0%3.0%
5.2%
Steel Cement & Lime
Ceramics Glass
Chemicals Non-ferrous metal
Others
Source: Company, ICICI Direct Research
Exhibit 15: Steel end use by sector...
52%
16%
12%
10%
3%2%
5%
Building & Infrastructure Mechanical Equipments
Automotive Metal Products
Electrical Equipments Domestic Appliances
Other Transport
Source: Company, ICICI Direct Research
Exhibit 16: Refractory as % of steel production vs. realisation.
36.138.6
44.3
52.454.5
58.7 58.7 59.6 60.2 59.956.9
64.0
67.9
1.9% 1.9%
1.6%
1.4%1.3%
1.3%1.2% 1.2% 1.2% 1.2% 1.2% 1.2% 1.2%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
10
20
30
40
50
60
70
80
Refractory realisation per kg
Refractory Production as % of Crude Steel Production [R.H.S.]
Source: Company, ICICI Direct Research
Exhibit 17: India crude steel production (MT) trend...
7174
7882
89 90
98103
111 109
103
114
121
12.7%
7.3%
5.1% 5.6%
4.2%
8.9%
0.9%
9.1%
5.3%
7.5%
-1.5%
-5.6%
-10%
-5%
0%
5%
10%
15%
10
20
30
40
50
60
70
80
90
100
110
120
130
India Crude Steel Production (MT)
Crude steel production YoY Growth (%)
Source: Company, ICICI Direct Research
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Stock Tales | Vesuvius India
Focus on R&D to bring further cost rationalisation…
VIL continues to focus on cost leadership with manufacturing rationalisation
programme bringing improvement in cost base through increasing plant
efficiency and optimising production volumes between plants. It has also
focused on level of automation in production processes to shift patterns,
enabling it to increase productivity.
VIL continued to invest in its global R&D network with expansion of its
research facility at Vishakhapatnam to reinforce its presence in key markets
like India for future growth with increased expertise in robotics and
mechatronics. The R&D laboratory at Vishakhapatnam is being established
for Al-Si monolithic (unshaped) tap-hole clay competency and raw material
qualification for developing new products and business for VIL.
Foreign collaborations: The Kolkata factory of VIL is a highly automated
factory for continuous casting refractories with latest technology imported
from foreign collaborators like Vesuvius Company, US in which Vesuvius Plc
has controlling shares. The Mehsana factory manufactures crucibles,
nozzles, etc, with technology received from Becker & Picante now known as
Vesuvius, Germany. The Vesuvius group also provides latest technology to
monolithic factories at Vishakhapatnam and Mehsana.
Top five raw materials (alumina, silicon carbide, bauxite, zirconia and
graphite) contribute ~62% of total raw material consumed by VIL. Through
R&D and innovation it aims to reduce raw material required per ton of crude
steel production. However, there could be short term supply chain
disruptions of raw magnesia from China owing to pandemic.
Exhibit 18: Material-wise Indian refractory production trend….
20.4%20.2% 22.1% 20.7% 20.2%
11% 11% 10% 11%5.2%
5.0% 4.1%4.0% 4.0%
16.7%
16.4% 16.6% 16.9% 16.7%
23%26% 27% 29% 29%
4.7% 5.5% 5.1%5.0% 5.1%
7.1% 7.1% 7.4% 5.4% 5.6%
0%
50%
100%
FY13 FY14 FY15 FY16 FY17
Others Special products (inc. cc)
Monolithics/ castable/ pre cast blocks Basic bricks & shapes
Silica bricks & shapes High Alumina Bricks & shapes
Source: Company, ICICI Direct Research
Exhibit 19: Vesuvius material-wise raw material consumed....
16% 19% 20% 20%
14%15%
15% 16%
11%11%
10% 11%9%
8% 8% 8%7%7% 6% 6%5%4% 4% 4%4% 3% 2% 3%4% 3% 3% 2%
2% 2% 2% 2%
26% 26% 27% 26%
0%
20%
40%
60%
80%
100%
CY13/FY14 CY14/FY15 CY15/FY16 CY16/FY17
Alumina Silicon Carbide Bauxite
Zirconia Graphite Aluminous Cement
Resin Mulcoa Slide Gate Plates
Source: Company, ICICI Direct Research
Exhibit 20: Key raw material (magnesite) price moderates from over two-year peak…
Source: RHI Magnesite PPT, Company, ICICI Direct Research
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Stock Tales | Vesuvius India
Strong global parent provides edge in customer relationships…
VIL’s parent Vesuvius PLC is a leading global refractory manufacturer with
global market share of ~10%. Vesuvius plc has manufacturing locations
across the world and enjoys leadership position in technology and
innovation. VIL gets latest technology from its parent by paying nominal
royalty, license & trademark fees to the tune of ~1.5% of revenue. The latest
technology gives VIL the competitive advantage needed to maintain a niche
for itself in the Indian refractories industry. Strong parent support has helped
VIL grow faster than the industry.
Due to specialised products, high volumes are consumed by each customer.
Hence, it is important to have strong customer relationships. VIL has
developed close, collaborative relationships with customers with an
extended global manufacturing alignment with customer locations. The
company focuses on gaining fundamental understanding of customers’
processes, delivering systems and products that are mission critical for
demanding applications in which they are used.
Vesuvius Plc is a world leader in supply of refractory products, systems and
solutions that helps its customers improve efficiency and productivity.
Vesuvius’ advanced refractories business unit supplies specialist refractory
materials for lining steel-making vessels such as blast furnaces, ladles and
tundishes, which are subject to extreme temperatures, corrosion and
abrasion. Its main customers are steel producers and manufacturers of steel
production equipment, where its products accompany the steel-making
process from its early steps to the end of production in the rolling mill.
Exhibit 21: Vesuvius Plc: Segment-wise CY19 revenue break-up….
37%
31%
2%
30%
Steel Flow control (Nozzles,
Tube, Changers)
Steel Advanced refractories
(lining, precast)
Steel Digital services
(Sensors & Probes)
Foundry division (filters,
crucibles)
Source: Company, ICICI Direct Research
Exhibit 22: Global market share of major refractory players….
15%
10%
6%
4%
4%
3%
58%
RHI Megnesita (NV)
Vesuvius Plc (UK)
Krosaki Harima (JP)
Imerys (FR)
Shinagawa (FP)
Puyang (CN)
Others
Source: Company, ICICI Direct Research
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Stock Tales | Vesuvius India
Valuations & Outlook:
VIL has maintained a strong margin profile over the years and across
business cycles leveraging its strong network and parentage of Vesuvius Plc
to build market leadership position despite short-term impact of pandemic.
It has outperformed majority of domestic peers on the margin front.
VIL being debt free, derives its consistent RoE through operating leverage
and strong margin profile over the years and across business cycles
leveraging its strong network and parentage of Vesuvius Plc. We expect the
earnings momentum to continue in the long term led by operational
efficiency, product innovation through R&D, while there could be some short
headwinds amid Covid-19. Overall, the company is expected to further
strengthen its leadership position in key refractory products in steel flow
control and advanced refractories. It commands domestic market share of
~11% and expects to gain further. Further, VIL is currently trading at 19x P/E
on CY22E (vs. forward median P/E band of 24x and 10-year business cycle
average P/E of ~21x). We value VIL at | 1445/share, implying multiple of 24x
on CY22E EPS with a BUY rating on the stock.
EBITDA margin comparison with peers
Exhibit 23: EBITDA margin (%) trend of major refractories players...
17.918.3 18.2
15.9
13.6
9.7
12.6
14.1
17.717.3
15.4 15.2
6.5 6.2
9.0
11.010.5
6.0
10.6
13.7
16.9
15.4
14.0
21.0
0
5
10
15
20
25
FY16 FY17 FY18 FY19 FY20 FY21
Vesuvius India* RHI Megnesita India TRL Krosaki IFGL
Source: Company, ICICI Direct Research
VIL: One year forward P/E band
Exhibit 24: One year forward rolling P/E band
0
200
400
600
800
1,000
1,200
1,400
1,600
Price 12 16 20 24 28 32 36
Source: Company, ICICI Direct Research
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Key risk & concerns
Raw material dependence on China…
Overdependence on China is not conducive to India in the long run as it can
disrupt supply chains of critical products needed to make steel and cement.
The Indian refractories industry heavily depends on imports of dead burned
and fused magnesia and alumina from China. Changes in environmental
norms in the past have caused sustained increase in raw material prices for
refractory producers. However, some refractory manufacturers have
magnesia carbon brick manufacturing plants in China -- like Vesuvius, RHI,
Tata Krosaki Refractories, OCL, etc.
Refractory products imported from China…
Imports of refractory products from China are a key issue facing Indian
refractory producers. Around 25-30% of Indian refractories consumption,
including magnesium bricks, are imported from China. Dumping of cheaper
products from China affects the profitability of domestic refractory growth.
High correlation of refractories production to crude steel production….
Approximately 70-75% of refractories are consumed by the steel industry
making it highly dependent on crude steel production. Also, any fall in steel
demand owing to economic slowdown would also affect refractories
production. Any demand slowdown and structural changes in the steel
industry could significantly affect refractories production.
Lower capacity utilisation levels and pricing pressure...
Capacity utilisation in India is ~55-60%, which is lower than the average
utilisation levels in competing markets. Lower capacity utilisation does not
allow operating leverage to translate and affects profitability.
Challenges in refractories installation and management at customer sites
Refractory companies need to interact with customers, provide manpower
for maintaining products at sites. Developing collaborative relationships
with customers, aligning delivery network with customer locations, gaining
fundamental understanding of customer processes and accordingly
delivering products is of critical importance in the refractories industry.
ICICI Securities | Retail Research 11
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Financial story in charts:
Exhibit 25: Revenue trend...
821.5911.3 925.1 887.0
791.5
1050.3 1162.6
-20%
-10%
0%
10%
20%
30%
40%
0
200
400
600
800
1,000
1,200
1,400
CY16 CY17 CY18 CY19 CY20 CY21E CY22E
(| c
rore
)
Total revenue ( | crore) YoY Growth (%) [R.H.S.]
Source: ICICI Direct Research, Company
Exhibit 26: EBITDA and EBITDA margin trend
150.5
165.9
147.4
120.7
76.8
113.8
167.7
0
5
10
15
20
0
50
100
150
200
CY16 CY17 CY18 CY19 CY20 CY21E CY22E
(|
crore)
EBITDA ( | crore) EBITDA Margin (%) [RHS]
Source: ICICI Direct Research, Company
Exhibit 27: PAT and PAT margin (%) trend….
88.991.6 92.5
85.6
53.1
81.7
122.1
0
2
4
6
8
10
12
0
20
40
60
80
100
120
140
CY16 CY17 CY18 CY19 CY20 CY21E CY22E
(|
crore)
PAT ( | crore) PAT Margin (%) [R.H.S.]
Source: Company, ICICI Direct Research
Exhibit 28: RoE & RoCE trend...
15.3
13.9
12.5
10.6
6.3
9.0
12.0
21.821.3
18.2
14.4
7.9
11.3
15.2
0
5
10
15
20
25
CY16 CY17 CY18 CY19 CY20 CY21E CY22E
(%
)
RoE (%) RoCE (%)
Source: Company, ICICI Direct Research
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Financial Summary
Exhibit 29: Profit & loss statement (| crore)
(| Crore) CY18 CY20 CY21E CY22E
Net Sales 919 787 1,045 1,157
Total Operating Income 925 792 1,050 1,163
% Growth (Op. Income) (14.4) 32.7 10.7
Other Income 22.8 21.0 23.4 26.3
Total Revenue 948 812 1,074 1,189
Cost of materials consumed 362 314 414 452
Purchase of stock-in-trade 203 153 218 221
Change in inventories (29) 3 7 6
Employee cost 58 65 69 77
Other Expenses 184 181 228 239
Total expenditure 778 715 937 995
EBITDA 147 77 114 168
% Growth (EBITDA) (47.9) 48.1 47.4
Interest - - - -
PBDT 170 98 137 194
Depreciation 28 26 28 31
PBT 142 72 109 163
Tax 50 19 27 41
PAT 93 53 82 122
% Growth (PAT) (42.7) 53.9 49.5
EPS 45.6 26.1 40.2 60.2 v
Source: Company, ICICI Direct Research
Exhibit 30: Cash flow statement (| crore) es
(| Crore) CY18 CY20 CY21E CY22E
Profit after Tax 92.5 53.1 81.7 122.1
Depreciation 27.8 26.2 28.0 30.8
Interest - - - -
Other income (22.8) (21.0) (23.4) (26.3)
Prov for Taxation 49.9 18.5 27.5 41.1
Change in Working Capital (3.1) 40.6 (25.3) (32.1)
Taxes Paid (45.7) (12.1) (27.5) (41.1)
Cashflow from Operating Activities 98.7 105.4 61.1 94.5
(Purchase)/Sale of Fixed Assets (23.5) (15.7) (33.2) (64.9)
(Purchase)/Sale of Investments (8.2) (4.1) (11.3) (6.8)
Other Income 22.8 21.0 23.4 26.3
Cashflow from Investing Activities (9.0) 1.2 (21.1) (45.4)
Changes in Networth (1.4) (1.5) 0.0 (0.0)
Interest - - - -
Dividend paid (14.2) (14.2) (14.7) (16.2)
Cashflow from Financing Activities (15.6) (15.7) (14.7) (16.2)
Changes in Cash 74.1 90.8 25.3 32.9
Opening Cash/Cash Equivalent 345.3 468.5 559.3 584.5
Closing Cash/ Cash Equivalent 419.3 559.3 584.5 617.4 v
Source: Company, ICICI Direct Research
Exhibit 31: Balance Sheet (| crore)
es
(| Crore) CY18 CY20 CY21E CY22E
Share Capital 20.3 20.3 20.3 20.3
Reserves & Surplus 717.5 821.5 888.4 994.3
Total Shareholders fund 737.8 841.8 908.7 1,014.6
Goodwill - - - -
Total debt - - - -
Other liabilities 44.2 58.7 58.7 58.7
Total Liabilities 782.0 900.5 967.4 1,073.3
Gross Block 185.9 232.9 254.9 279.9
Acc: Depreciation 66.6 114.4 138.0 136.9
Net Block 119.3 118.5 117.0 143.1
Capital WIP 26.0 21.3 28.0 36.0
Investments 38.3 52.4 63.7 70.6
Inventory 123.1 117.0 128.8 142.6
Sundry debtors 181.4 163.4 178.7 193.2
Cash 419.3 559.3 584.5 617.4
Loans & Advances 0.3 0.4 0.5 0.5
Inv+Other current assets 16.1 24.4 25.2 33.4
CL& Prov. 143.4 157.5 160.3 164.8
Net Current Assets 596.9 706.9 757.4 822.4
Total Assets 782.0 900.5 967.4 1,073.3
Source: Company, ICICI Direct Research
Exhibit 32: Key ratios
(Year-end March) CY18 CY20 CY21E CY22E
EPS 45.6 26.1 40.2 60.2
Cash EPS 59.3 39.1 54.0 75.3
BV 363.4 414.7 447.7 499.8
DPS 7.0 7.0 7.3 8.0
Cash Per Share 32.8 56.4 68.0 67.4
EBITDA Margin 15.9 9.7 10.8 14.4
PBT / Net Sales 12.9 6.4 8.2 11.8
PAT Margin 10.0 6.7 7.8 10.5
Inventory days 48.6 53.9 44.8 44.8
Debtor days 71.6 75.3 62.1 60.6
Creditor days 56.6 72.6 55.7 51.7
RoE 12.5 6.3 9.0 12.0
RoCE 18.2 7.9 11.3 15.2
RoIC 42.6 20.9 32.4 43.5
P/E 24.8 43.2 28.1 18.8
EV / EBITDA 12.7 22.6 15.0 10.0
EV / Net Sales 2.0 2.2 1.6 1.4
Market Cap / Sales 2.5 2.9 2.2 2.0
Price to Book Value 3.1 2.7 2.5 2.3
Net Debt / Equity - - - -
Current Ratio 2.1 1.8 1.9 2.0
Quick Ratio 1.3 1.0 1.1 1.2
Source: Company, ICICI Direct Research
ICICI Securities | Retail Research 13
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RATING RATIONALE
ICICI Direct endeavors to provide objective opinions and recommendations. ICICI Direct assigns ratings to its
stocks according to their notional target price vs. current market price and then categorizes them as Buy, Hold,
Reduce and Sell. The performance horizon is two years unless specified and the notional target price is defined
as the analysts' valuation for a stock
Buy: >15%
Hold: -5% to 15%;
Reduce: -15% to -5%;
Sell: <-15%
Pankaj Pandey Head – Research [email protected]
ICICI Direct Research Desk,
ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
ICICI Securities | Retail Research 14
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Stock Tales | Vesuvius India
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