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Research
IFGL Refractories Ltd - Poised for growth - SKP Securities
Posted On : 2012-05-11 10:00:14( TIMEZONE : IST )
Company Profile
Incorporated in Kolkata in 1989, IFGL Refractories Ltd (IRL), is promoted by Indo Flogates (IFGL) and Bajorias. IRL manufactures specialized refractories and requisite operating systems for the steel industry. IFGL markets its products and services worldwide with operations in India, Brazil, China, Czech Republic, Germany, UK and USA.
Investment Rationale
Growth in steel sector to increase demand
- Around 75% of the refractories produced worldwide are consumed by the steel sector. It is expected that world steel production will grow at a CAGR of 2.6% by 2015 resulting in higher demand for refractories going forward. Further, strong economic growth in the BRIC countries will increase demand for steel in these regions.
- Increase in capital expenditure for capacity expansion by major steel producers both within India and internationally will augur well for the refractory industry.
CCR manufacturing facility at Kandla SEZ
- IRL, through its subsidiary IFGL Exports Ltd (IEL), has setup a facility at Kandla SEZ to manufacture Continuous Casting Refractories (CCR) with an initial capacity of 84,000 pieces per annum (sales value - Rs 42 crores).
- The plant is designed for a final capacity of 250,000 pieces (sales value - Rs 125 crores) which is expected to be achieved over the next 5 years. IRL has made an investment of Rs 35 crores and holds 80% stake (including stake held by group companies) while the balance is held by its Japanese partner, Krosaki Harima Corporation (KHC).
Low leveraged balance sheet
-The company reported debt equity ratio of 0.7x in FY11. We expect the debt equity to gradually reduce over time to 0.3x in FY14E. This will reduce the interest cost going forward thereby enhancing the company's bottomline.
Valuation
We recommend a BUY rating on the stock with an 18 months target price of Rs 63.5/share, implying an upside of ~41% from current levels. We have arrived at the target price by taking the average of Rs 59.9/share, at 2.5x FY14E EBITDA of Rs 111.8 crores and Rs 67.1/share calculated using DCF method.
