Metal Ancillaries Sector Analysis - Strong demand; improved spreads | Q2FY26
With abnormally high steel production growth of 9% in 2QFY26, we expect an eventful quarter for our metal ancillary pack, supported by strong demand and improved spreads. We expect strong volume growth for several names in our coverage. However, adverse pricing (yoy basis) has led to adverse impact on revenue growth for players like Godawari Power & Ispat (GPIL) and Kirloskar Ferrous Industries (KFIL), except the pellet prices which have stayed cheerful. Flat steel and its supply chain products have also witnessed price corrections. However, we expect benefits on gross margins for the steel pack due to a much steeper correction in iron ore and coal price. The refractory pack is expected to report resilient performance due to strong steel production growth, price hikes & RM cost reduction. Pure play on stainless steel pipes like Venus is expected to report strong growth backed by tailwinds in demand. We prefer Vesuvius, IFGL and Venus in our coverage with a buy on dips for KFIL and GPIL.
Companies under our coverage from Metal Ancillaries sector:
RHI Magnesita India:
We have factored a 12% yoy growth in consol. revenues exceeding the crude steel production growth in India, supported by price hikes in flow control refractories and additional sales for iron making refractories. 2QFY26 is expected to be heavy on cement led refractory demand. Partial price hikes hikes is a positive but no meaningful impact of low RM cost in this quarter leads us to consol. margins of 11.2%, -112bps yoy.
IFGL Refractories:
We have factored a 10% 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 improve due to price hikes in the America business and domestic flow control business. Signs for improvement in performance of overseas subsidiaries will be a key monitorable.
Vesuvius India:
We expect 15% yoy growth in revenues mainly led by strong demand for flow control refractories, price hikes and ramp up of new capacities of Mould flux powder, Basic and Alumina monolithics. Margins are expected to largely remain stable at 17.5%.
Ratnamani Metals & Tubes:
We expect a 15.8% yoy growth in consol. revenues, driven by a modest volume growth in standalone pipes and flat realizations yoy,. Ravi Technoforge and Finow Spoolings are expected to report strong growth, providing meaningful boost to the topline. Margins are expected to remain closer to the bottom of the guided range. Order inflows in the CS pipe segment will be a key monitorable.
Venus Pipes & Tubes:
We expect ~23% yoy growth in revenues driven by strong order booking, specifically through the ramp-up of a large seamless pipe order (~Rs1.9bn) secured from a leading power equipment manufacturer, with management indicating that ~25-30% of this order value is expected to be executed during Q2. Despite global headwinds, exports would continue to display resilience however new orders to remain subdued on US tariffs’ pressure. 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. and Solapur phase 2 foundry) and seamless tubes to drive the revenue in 2QFY26, partially offset by decline in realisations for all products. This has resulted into a 2% yoy growth in consol. revenues. Benefits of yoy drop in coking coal, iron ore 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 12.7%. 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 2% growth in consol. revenue in 2QFY26, impacted by no volume growth, correction in realisation of long steel products except for some buoyancy in pellet realisation. Correction in iron ore, thermal coal and coking coal cost should lead to improvement in spreads, which along with higher proportion of pellet revenues should lead to resilient margins of 25.3%. Progress on EC for mining and other capex will be key monitorable.
Steelcast:
We expect a strong yoy growth of 41% for Steelcast in 2QFY26 backed by strong order backlog and end of destocking cycle by customers. Margins are expected to remain strong at 25% due to high exports and machining plus benefits of low operational expenses.
Sector Analysis by
- Sahil Sanghvi - Research Analyst, Institutional Equities
- Uvais Khatri - Research Associate, Institutional Equities
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