IFGL Refractories Ltd. - Domestic focus continues to payoff; overseas improving gradually | Company Update

We decrease target price to Rs 280 (previously Rs 300) but maintain BUY rating. The change in TP is mainly due to cut of earnings estimates. IFGL delivered another quarter of strong standalone growth as its domestic-focused strategy continues to gain traction. Improvement in the US business sustained, while early signs of recovery were visible in the UK subsidiary as restructuring benefits start to flow through. Margins remain subdued at the consol. level due to elevated RM costs and poor profitability at subsidiaries. However, stability in RM cost, improving operational visibility across subsidiaries and addition of new products indicate a structural recovery . Remain positive on IFGL.

Shift to domestic drives standalone growth:

IFGL reported a strong 13% yoy growth in standalone revenues at Rs 2.87 bn; largely driven by underlying steel production growth and lower dependence on exports. Further, consolidated revenues grew by 19% yoy to Rs 4.89 bn, supported by ~25% yoy growth each in Europe and America. US operations saw sustained improvement in prices and offtake due to benefits of reciprocal tariff on steel, while UK performance improved under new management.

Margins improve at the US business:

The standalone margins expanded by 80bps yoy to 12.5%, on stabilization of RM cost despite rising employee cost due to new hirings. Consolidated margins declined by 16bps yoy to 7.8% driven by elevated employee cost, RM cost pressure and weak margins at the overseas subsidiaries. EBIT margin improved materially in the US business (6.9% vs 3.8% yoy), while Europe remained in loss (-6.4% vs -3% yoy). Effectively, IFGL reported a consol. PAT of Rs 127 mn; +5% yoy.

Domestic business on track, expect gradual turnaround in subsidiaries:

IFGL’s 2QFY26 performance was a mixed bag with steady performance on standalone business, improved revenue visibility in overseas subsidiaries but lacklustre margins across the business. The RM cost curve has stabilised, and high-cost alumina inventory has now been largely consumed, which should support margin recovery from H2FY26. The US business continues to improve, and the UK subsidiary is expected to break even by end-FY26 / early-FY27, while Europe sees early signs of demand recovery. Additionally, ramp-up in sales of new products like mould flux, magnesia bricks, JV with Marvel refractories and scale up of non-ferrous business should keep driving growth. We raise our overseas revenue estimates, but reduce margin given the gradual pace of turnaround in Europe and weak profitability for domestic business. Consequently, FY26E/ FY27E consol. EBITDA/PAT reduced by 4-8% / 10-23%.

Valuation and rating:

We value the consol. IFGL at 8.3x Sept’27 EV/EBITDA, which is a 55% discount to MNC peers, to arrive at a TP of Rs280/share (previously Rs300) while maintaining our BUY rating. The decrease in TP is mainly on account of earnings revision. Key risks: Longer than expected weakness at overseas subsidiaries and RM cost pressure.

Company website: https://ifglgroup.com/

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Analyst:

• Sahil Sanghvi - Research Analyst, Institutional Equities (NISM-201900004744)
• Uvais Khatri - Research Associate, Institutional Equities (NISM-202300049054)

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