Metal Ancillaries Sector Analysis - Muted Quarter; Selective Winners | Q1FY26
We expect a muted quarter for our metal ancillary pack, impacted by tepid demand and price correction. The long steel pack has witnessed pricing correction leading to drag in revenues for players like Godawari Power & Ispat (GPIL) and Kirloskar Ferrous Industries. Flat steel and its supply chain products have witnessed price hikes due to the safeguard duties imposed on imports of steel. However, we expect benefits on gross margins for the steel pack due to correction in coal prices. Kirloskar Ferrous Industries (KFIL) and Steelcast are expected to perform well due to improved demand from tractor and off highway vehicles. The refractory pack is expected to report muted performance due to competitive pressure and absence of price hikes. We expect Vesuvius to be an exception here due to its specialised product portfolio. Pure play on stainless steel pipes like Venus is expected to report strong growth backed by tailwinds in demand. We prefer GPIL, Venus in our coverage with a buy on dips for KFIL and Vesuvius India.
Companies under our coverage from Metal Ancillaries sector:
RHI Magnesita India:
We have factored a 7% yoy growth in consol. revenues mirroring the crude steel production growth in India, slight dragged by lower growth in Dalmia OCL business. Absence of any price hikes or meaningful decline in RM cost leads us to consol. margins of 12.8%, slightly lower than the standalone margins. We expect the growth to pick up in 2QFY26, as the refractory industry receives price hikes.
IFGL Refractories:
We have factored a 9% yoy growth in consol. revenues at Rs4.5bn, largely driven by a 14% growth in the standalone business. We expect this to be driven by increasing penetration in the domestic market, partially offset by the weak performance in overseas subsidiaries in Europe and America. Margins are expected to remain stable at 8-9% due to no major change in expenses. Signs for improvement in performance of overseas subsidiaries will be a key monitorable.
Vesuvius India:
We expect 14% yoy growth in revenues mainly led by strong demand for flow control refractories and ramp up of new capacities of Mould flux powder, Basic and Alumina monolithics. Margins are expected to largely remain stable at 17%.
Venus Pipes & Tubes:
We expect ~20% yoy growth in revenues driven by strong order booking and solid traction in the export markets. Margins are expected to stay at the same levels of 16-17% due to high employee cost and other expenses.
Kirloskar Ferrous Industries Ltd.:
We expect substantial improvement in casting sales volumes (led by improved demand from tractor and start of volumes at Oliver engg.) to drive the revenue in 1QFY26, partially offset by marginal decline in realisations for alloy steel and seamless tubes. This has resulted into a 10% yoy growth in consol. revenues in 1QFY26. Benefits of yoy drop in coking coal and scrap cost along with savings from PCI and captive iron ore is expected to result in improved gross margins translating into EBITDA margins of 12.5%. The sustenance of tractor demand and order book for seamless tubes along with direction on pig iron spreads will be key monitorable in KFIL.
Godawari Power & Ispat:
We expect a 7% decline in consol. revenue growth in 1QFY26, impacted by correction (7% yoy for pellets) in realisation in long steel products. Correction in both thermal coal and coking coal should lead to improvement in spreads, which along with higher proportion of pellet revenues should lead to resilient margins of 28%. Even after accounting for profit from Jammu pigments, we expect a degrowth on PAT. Progress on EC for mining and other capex will be key monitorable.
Steelcast:
We expect a strong yoy growth of 60% for Steelcast in 1QFY26 backed by strong order backlog and end of destocking cycle by in customers. Margins are expected to remain strong at 28% due to high exports and machining plus benefits of low operational expenses.
Sector Analysis by
- Sahil Sanghvi - Research Analyst, Institutional Equities
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