IFGL Refractories Ltd. - Domestic muted; overseas subsidiaries shine - Company Update

IFGL’s 4QFY26 consol. revenue was below our estimates due to lower than expected growth in the standalone business, impacted by fierce competition and overcapacity in domestic markets. However, turnaround in the overseas subsidiaries led to a beat in margins. We expect the standalone business to gradually improve with upcoming price hikes and new product additions. Further, completion of goodwill amortization (termination of annual charge worth Rs 267mn) and a deeper turnaround in overseas business are the key drivers for the 12.7%/38.9%/81% CAGR in Revenue/EBITDA/PAT over FY26-28E. EI ceramics achieved record high teens EBITDA margins and witnessed robust revenues growth due to price hikes, rising demand, introduction of new products and efficiencies of scale. We expect the Europe business to also achieve breakeven within a year due to improved demand from foundries, new product addition and expansion of sales team, in turn leading to new customer approvals. We have increased our margin estimates to account for the turnaround in the overseas business, leading to upward revision of 8.8%/ 3.6% in FY27E/FY28E earnings respectively. We value IFGL at 8x FY28E EV/EBITDA (unchanged) to arrive at a TP of Rs 275/share (previously Rs 230) and maintain BUY rating.

Overseas business lifts consolidated revenues:

IFGL reported a modest 2.1% yoy growth in standalone revenues at Rs 2.8bn; largely driven by 7.1% yoy growth in domestic revenues, partially offset by a 11.0% decline in export revenues. Exposure to domestic market increased to 78% in 4QFY26 vs 75% yoy. However, consol. revenues grew by 7.7% yoy (better than growth in standalone business) to Rs 4.8bn, driven by robust 26% yoy growth in America and 6% yoy growth in Europe. US operations continued to see improvement in prices and offtake due to benefits of reciprocal tariff on steel. For FY26, standalone revenues grew 11.2% yoy to Rs 11bn, while consol. revenues increased 14.6% yoy to Rs 18.9bn.

Overseas subsidiaries drive margin improvement:

The standalone margins declined by 234bps yoy to 11.5%, impacted by elevated RM cost. However, consol. margins improved by 65bps yoy to 8.1% with an EBITDA of Rs 389mn (+17.2% yoy), aided by recovery in overseas operations despite continued pressure from elevated RM costs and employee expenses. EBIT margin improved materially in the US business (8.8% vs 4.5% yoy), while losses reduced in the Europe business (-2.6% vs -10.2% yoy) due to turnaround initiatives at Hoffman. Effectively, IFGL reported a consol. adj. PAT of Rs 147mn, +74.3% yoy. For FY26, standalone EBITDA stood at Rs 1.2bn with margin of 10.7% (-175bps yoy), while consol. EBITDA increased 6% yoy to Rs 1.4bn with margin of 7.2% (-60bps yoy). Consol. adj. PAT declined 7.1% yoy to Rs 399mn.

Domestic business on track, expect subsidiaries to augment profits:

IFGL’s 4QFY26 performance was a mixed bag with weak performance on standalone business, more than compensated by improved revenue growth and margins across the overseas subsidiaries. While the standalone business struggled with peak competition and overcapacity, the EI ceramics business achieved record high teens EBITDA margins and witnessed robust revenues growth due to price hikes, rising demand from steel post safeguard duties, introduction of new products and efficiencies of scale. We expect the Europe business to also achieve breakeven within a year due to improved demand from foundries, new product addition and expansion of sales team, in turn leading to new customer approvals. We have increased our margin estimates to account for the turnaround in the overseas business, leading to upward revision of 8.8%/ 3.6% in FY27E/FY28E earnings respectively. 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 in the domestic business. Ongoing negotiations for price hikes in the domestic markets should further complement volume with value growth in FY27E.

Valuation and rating:

We value IFGL at 8x FY28E EV/EBITDA (unchanged) to arrive at a TP of Rs 275/share (previously Rs 230) and maintain BUY rating. The upgrade in TP is mainly on account of upward revision in earnings and valuation roll forward. Key risks: Longer than expected weakness in overseas business and failure to receive price hikes.

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)

Frequently Asked Questions (FAQ)

What are the key growth drivers for IFGL Refractories?

Growth is expected from overseas subsidiary turnaround, domestic price hikes, new product launches, expansion in non-ferrous applications, and increasing demand from global steel and foundry industries.

How did overseas operations perform in Q4FY26?

The US business delivered strong revenue growth and improved profitability, while the European business significantly reduced losses and is expected to reach breakeven within the next year.

Why is the company positive on future margins?

Margin expansion is supported by overseas recovery, operational efficiencies, new high-value products, anticipated domestic price increases, and the cessation of annual goodwill amortization expenses.

What are the major risks for IFGL Refractories?

Key risks include prolonged weakness in overseas markets, inability to implement price hikes, raw material cost inflation, and slower-than-expected demand recovery in domestic industrial sectors.

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