India Infrastructure And Renewable Trends Will Unlock Long-Term Potential

Key Takeaways

• Strong growth in India, innovation in technology-driven products, and expansion into non-ferrous segments are strengthening market position and boosting margins.
  
• Improved free cash flow and financial flexibility result from restructuring, while global decarbonization trends ensure long-term demand and earnings growth.
  
• Structural decline in core markets, rising input costs, and slow adaptation to industry changes threaten Vesuvius' margins, pricing power, and long-term competitive positioning.

Catalysts

Provides molten metal flow engineering and technology services to steel and foundry casting industries worldwide.

• Vesuvius is experiencing rapid, sustained revenue and profitability growth in India, driven by structural increases in infrastructure and steel demand. The company's large, modern manufacturing footprint, strong management teams, and "India for India" strategy position it to capitalize on this multi-year growth tailwind, with Indian operations now representing higher-than-average group margins and continuing to expand as a share of total sales.
  
• Robust investment in R&D and the consistent launch of higher-value, technology-driven product lines (automation, robotics, advanced refractories, cost
• and energy-saving solutions) are steadily increasing the new product sales ratio (now 19.5%), enabling market share gains, supporting premium pricing, and positioning Vesuvius for future margin expansion as the demand for energy-efficient materials and digital solutions accelerates.
  
• The expansion into higher-growth, non-ferrous foundry segments-particularly aluminum products linked to the automotive and renewable sectors-diversifies Vesuvius's revenue base and taps into long-term demand from electric vehicle manufacturing and renewables infrastructure, supporting future revenue growth and improving business resilience.
  
• The recent completion of a multi-year global CapEx program and ongoing restructuring/cost reduction efforts are expected to materially improve free cash flow and reduce leverage, creating more financial flexibility for potential M&A, further R&D investment, or shareholder returns, while stabilizing operating margins as market conditions recover.
  
• Secular global trends-including rising governmental and corporate investments in infrastructure, and the need for decarbonization/industrial modernization-are set to drive sustained demand for modern steel and high-performance refractory solutions, increasing Vesuvius's order book stability and providing a long runway for top-line and earnings growth over the next decade.

Vesuvius Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Vesuvius's revenue will grow by 2.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.9% today to 5.8% in 3 years time.
• Analysts expect earnings to reach £111.8 million (and earnings per share of £0.41) by about September 2028, up from £70.3 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.7x on those 2028 earnings, down from 13.0x today. This future PE is lower than the current PE for the GB Machinery industry at 22.9x.
• Analysts expect the number of shares outstanding to decline by 0.12% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.03%, as per the Simply Wall St company report.

Vesuvius Future Earnings Per Share Growth

Risks

• Persistent structural decline and subdued outlook for steel production in Europe, along with customer trade-down to lower-margin products and ongoing difficulty in passing through cost inflation, are likely to see continued or further pressure on Vesuvius' revenues and net margins in its largest historical market.
  
• High reliance on cyclical steel and foundry markets, particularly in Europe and China where demand has been weak and price increases have struggled to keep pace with labor and input cost inflation, exposes the company to volatile annual earnings and the risk of further net profit erosion if the recovery lags or adverse trends deepen.
  
• Longer-term secular trends, including the global shift from traditional blast furnace steelmaking toward more electric arc furnace (EAF) production and increased steel recycling (which require different or fewer refractory products), threaten to shrink the addressable market for Vesuvius' legacy steel segment and place long-term pressure on both revenue and product mix.
  
• Growth in lower-cost competitors, especially in Asia, alongside customer price-sensitivity and mix-down behaviors, risks further eroding Vesuvius' pricing power, compressing operating margins, and requiring ongoing restructuring and cost-cutting to maintain profitability across mature markets.
  
• If the company is unable to sufficiently accelerate diversification into higher-growth, adjacent sectors (such as non-ferrous foundry, green steel solutions, or automation/robotics) or sustain innovation, it may lose competitive positioning and face stagnating or declining revenues and margins over the longer term, particularly as industry secular changes outpace its adaptation.

Valuation

• The analysts have a consensus price target of £4.39 for Vesuvius based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £5.9, and the most bearish reporting a price target of just £3.3.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be £1.9 billion, earnings will come to £111.8 million, and it would be trading on a PE ratio of 12.7x, assuming you use a discount rate of 10.0%.
• Given the current share price of £3.73, the analyst price target of £4.39 is 15.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.