New Joint Venture With Marvels Group Will Expand Product Portfolio

Key Takeaways

• Focus on the Indian domestic market and joint ventures support growth in market share, product portfolio, and long-term revenue.
  
• Operational restructuring and technological upgrades aim to improve efficiency, margins, and positioning across international subsidiaries.
  
• Declining global steel demand, economic challenges in key markets, and rising costs pressure IFGL Refractories' margins and international revenue.

Catalysts

Engages in the manufacturing, trading, and selling of refractory items and related equipment and accessories used in steel plants in India and internationally.

• The shift in focus from exports to the domestic market in India, driven by favorable growth conditions and long-term potential, is likely to strengthen IFGL's market share and drive future revenue growth.
  
• The newly formed joint venture with the Marvels Group, enabling diversification into high-potential sectors such as cement, glass, nonferrous, and gasification, is expected to expand product portfolio and support long-term revenue and earnings growth.
  
• Strategic steps toward restructuring and optimizing operations across international subsidiaries, specifically in the USA, Germany, and the U.K., aim to improve margins and better position the company for growth as market conditions recover.
  
• The introduction of advanced manufacturing capabilities and expanded production lines, such as the alumina line in Gujarat and the Continuous Casting Flux plant in Visakhapatnam, indicate increased scalability and efficiency, positively impacting revenue and margins.
  
• The integration of technology and innovation initiatives, such as automation and robotic operations, is intended to enhance productivity and cost efficiency, leading to improved margins and long-term earnings potential.

IFGL Refractories Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming IFGL Refractories's revenue will grow by 13.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.9% today to 7.7% in 3 years time.
• Analysts expect earnings to reach ₹1.8 billion (and earnings per share of ₹49.04) by about March 2028, up from ₹470.9 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 12.8x on those 2028 earnings, down from 26.8x today. This future PE is lower than the current PE for the IN Basic Materials industry at 31.2x.
• Analysts expect the number of shares outstanding to grow by 0.82% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.23%, as per the Simply Wall St company report.

IFGL Refractories Future Earnings Per Share Growth

Risks

• The global steel demand is expected to decline by 0.9% in 2024, and this poses a risk to IFGL Refractories because the steel industry is a primary market for the company. A decrease in steel demand could impact their revenue negatively.
  
• IFGL is facing challenges in key export markets, including the USA, Germany, and the UK, due to economic slowdowns, major steel plant shutdowns, and geopolitical uncertainties. This could reduce international revenues and affect overall earnings.
  
• Despite a 3% year-on-year growth for Q3 FY '25, the consolidated total income did not show significant growth due to subdued demand and elevated raw material costs, which could compress net margins.
  
• IFGL’s global subsidiaries have been impacted by elevated raw material costs, economic headwinds, and restructuring efforts, which have affected earnings and may continue to hinder net profit margins until these issues are resolved.
  
• The high employee costs, increasing consistently over the quarters, present a challenge, as margins are under pressure due to the associated operational expenses, impacting net earnings unless revenue growth outpaces employee cost increases.

Valuation

• The analysts have a consensus price target of ₹421.0 for IFGL Refractories based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹23.1 billion, earnings will come to ₹1.8 billion, and it would be trading on a PE ratio of 12.8x, assuming you use a discount rate of 14.2%.
  
• Given the current share price of ₹350.25, the analyst price target of ₹421.0 is 16.8% 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.