IFGL Refractories - Domestic muted; overseas subsidiaries shine | Q1FY27 Company Upda

IFGL’s 1QFY27 revenue was a beat to our estimates due to better than expected turnaround at subsidiaries, especially the US subsidiary EI ceramics. Margins were a miss to our estimate due to RM and gas cost pressure along with the Middle East war disruptions impacting the freight cost. The standalone business was also impacted by fierce competition and overcapacity in domestic markets. 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. Going ahead, we expect the Europe business to also achieve breakeven within a year due to improved demand from foundries, new product addition and restart of new steel plant. We remain positive on the long-term turnaround story at IFGL. However, the price increases in 1QFY27 have proved insufficient to elevate margins as per our expectations. We therefore have downward revised the margin estimates, leading to earnings cut of 18%/17% in FY27E/FY28E respectively. We value IFGL at 8x Jun’28E EV/EBITDA (unchanged) to arrive at a TP of Rs 265/share (previously Rs 275). The downward revision in TP is mainly on account of cut in earnings, partially offset by valuation roll forward. We maintain our BUY rating due to attractive valuations.

IFGL Refractories Ltd. Stock Price Chart

Overseas business lifts consol. revenues:

IFGL reported 8% yoy growth in standalone revenues at Rs 3bn; largely driven by 7% yoy growth in domestic revenues and 9% yoy growth in export revenues. Exposure to domestic market was stable at 77% in 1QFY27 vs 77% yoy. However, consol. revenues grew by 13% yoy (better than growth in standalone business) to Rs 5.1bn, driven by robust 32% yoy growth in America and 14% yoy growth in Europe. US operations continued to see improvement in prices and offtake due to benefits of reciprocal tariff on steel.

High input cost dent margins:

The standalone margins compressed by 300bps yoy to 9.8%, impacted by elevated RM cost and high gas cost. Exports were also impacted by elevated freight rates and logistics disruptions due to the Middle East war. Consol. margins also compressed by 70bps yoy to 7.2% with an EBITDA of Rs 370mn (+3% yoy), aided by recovery in overseas operations. EBIT margin improved materially in the US business (10.6% vs 7.8% yoy), while losses reduced in the Europe business (-6.4% vs -8.9% yoy) due to turnaround initiatives at Hoffman & Monocon. Effectively, IFGL reported a consol. adj. PAT of Rs 171mn, +58% yoy supported by end of goodwill amortization charge of Rs 67mn.

Domestic business on track, expect subsidiaries to augment profits:

IFGL’s 1QFY27 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, restart of steel capacities at British Steel and Liberty Steel, new product addition and expansion of sales team. We remain positive on the long-term turnaround story at IFGL. However, the price increases in 1QFY27 have proved insufficient to elevate margins as per our expectations. We therefore have downward revised the margin estimates, leading to earnings cut of 18%/17% in FY27E/FY28E respectively.

Valuation and Rating:

We value IFGL at 8x Jun’28E EV/EBITDA (unchanged) to arrive at a TP of Rs 265/share (previously Rs 275). The downward revision in TP is mainly on account of cut in earnings, partially offset by valuation roll forward. We maintain our BUY rating due to attractive valuations. Key risks: Longer than expected weakness in overseas business and failure to receive meaningful 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)

How did IFGL Refractories perform in Q1FY27?

Consolidated revenue increased 13% YoY to ₹5.1 billion, supported by strong growth from the US and Europe businesses. However, margins remained under pressure from elevated raw-material, gas and freight costs.

What drove IFGL Refractories' revenue growth?

Overseas subsidiaries were the key growth contributors. America revenue increased 32% YoY, while Europe revenue grew 14% YoY, helping consolidated growth exceed standalone performance.

How did IFGL's US business perform?

The US subsidiary, EI Ceramics, delivered robust revenue growth and record high-teens EBITDA margins, supported by price increases, demand improvement, new products and operating efficiencies.

Is IFGL Refractories' Europe business improving?

The Europe business reduced its EBIT loss to 6.4% from 8.9% YoY. The supplied research expects the business to potentially reach breakeven within a year, supported by improving foundry demand, new products and steel capacity restarts.

Why did IFGL Refractories margins decline?

Standalone margins were affected by higher raw-material and gas costs, while elevated freight rates and logistics disruptions also weighed on exports. Consolidated EBITDA margin declined to 7.2%.

What is the outlook for IFGL Refractories?

The medium-term outlook remains linked to the turnaround of overseas subsidiaries, particularly continued US momentum and a potential European breakeven. Domestic competition and pricing remain key monitorables.

What is the analyst target price for IFGL Refractories?

The supplied research maintains a BUY rating with a target price of ₹265 per share, based on an 8x June 2028E EV/EBITDA valuation.

What are the key risks for IFGL Refractories?

Key risks include prolonged weakness in overseas operations and an inability to secure meaningful price increases to offset input-cost pressures.

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