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Multi Baggers

Ashish Chugh

Investment Advisor

5.30 AM Jan 1st 1970

IFGL Refractory

BSE ID : 540774     NSE ID : IFGLEXPOR

RECOMMENDED PRICE 31.50

PEAK FROM RECO 527.00 1,573.02%

CURRENT PRICE 540.65 Resource id #18

With its planned expansion projects and overseas acquisitions, IFGL Refractories over the long term has the potential to emerge as a significant player in the world refractory market. With good financials for the second consecutive quarter, the worst may be over for the company, atleast in the short term. With operations in seven countries and consolidated revenues of over Rs 400 crores, the stock looks undervalued at the current Market Cap of Rs 110 crores.

IFGL Refractories

IFGL Refractories Ltd is engaged in the manufacture of Specialised Refractories and requisite Operating Systems for the Steel Industry. The company was promoted by Indo Flogates and the Bajorias. The Slide Gate Refractories Plant started in the year 1984. The company, earlier called Indo Flogates was a joint venture with Flogates Ltd, UK and an exclusive Indian Licensee of Flocon Slide Gate Systems, developed by US Steel Corporation through their wholly-owned subsidiary USS Engineers and Consultants Inc. This plant now manufacturers Slide Gate Systems and Refractories with the latest know-how from Krosaki Harima Corporation, Japan, a subsidiary of Nippon Steel Corporation. The Continuous Casting Refractories Plant in technical collaboration with Krosaki Harima Corporation, Japan, started production in 1993 manufacturing Isostatically Pressed Continuous Casting Refractories and Magnesia Carbon Tap Hole Sleeves. The Bajorias bought out the Flogates shareholding when the latter was acquired by Vesuvius.

The Bajoria family holds a 56.83% stake in the company and Sojitz Corporation, Japan and Krosaki Harima, Japan (a subsidiary of Nippon Steel Corp.) hold 14.47%.

IFGL acquired UK’s Monocon Group in September, 2005, for Rs.56 crores and added UK based Garicon group for Rs.7 crores in December 2006. Monocon Group has production facilities in the Brazil, China, UK, USA and Taiwan. IFGL also acquired German foundry ceramic filter manufacturer Hoffman Ceramics in June 2008 for Rs.42 crores having including its subsidiaries in Brazil, China and Czech Republic.

The company currently occupies the second place in the Indian refractory market, the largest company being Vesuvius.

Financials:
 
The latest financials of the company are given as under :-

Summary of Unaudited Consolidated financial results for three months ended on 30th September, 2009

(Rs. In lacs)

Particulars

 Three months ended

 Corresponding 3 months ended in the previous year

 Year to date figures for current period ended

 Year to date figures for previous year ended

 Previous accounting year ended

 

9/30/2009

9/30/2008

9/30/2009

9/30/2008

3/31/2009

 

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

(Audited)

 

(1)

(2)

(3)

(4)

(5)

 

Total Income

      10,847

      12,609

      18,686

      22,982

      40,055

 

Profit Before Tax

        1,471

        1,013

        2,479

        2,524

        1,277

 

Profit after Tax and Minority Interest

        1,024

           680

        1,740

        1,740

           611

 

Basic and Diluted EPS (not annualised) -Rs.

          2.96

          1.97

          5.03

          5.03

          1.77

 

Latest data as on 30/10/2009    
Latest Equity (Subscribed) 34.61  
Latest Reserve 51.58  
Latest EPS-Unit Curr 2.59  
Latest BookValue-Unit Curr 24.9  
Face Value 10  
Book Value-Unit Curr 25.64  
     
Stock Exchange BSE NSE
Latest Mkt price-Unit Curr 31.5 31.1
Latest P/E Ratio 12.16 12.01
Latest P/BV 1.27 1.25
52-wk high-Unit Curr 36.95 37
52-wk high date 5/6/2009 5/6/2009
All time high-Unit Curr 104.05 102.8
All time high date 17/12/2007 17/12/2007
52-wk low-Unit Curr 13.3 13.6
52-wk low date 3/3/2009 3/2/2009
All time low-Unit Curr 0.55 1.05
All time low date 15/11/2001 13/08/1998
Market cap 109.02 107.64
Dividend Yield-%    
Price date 30/10/2009 30/10/2009

Conclusion:

IFGL Refractories found itself caught on the wrong foot last year since immediately after the acquisition of Hoffman Ceramics in 2008, there was a crash in metal prices and steel companies got adversely impacted.  The profits of the company crashed from Rs 28.50 Crores in FY 08 to Rs. 6.11 Crores in FY 09. The top management voluntarily took a salary cut and the company, that was a regular dividend payer skipped dividend for FY 09.

The situation has improved considerably since then. If the financials for the first two quarters of current FY are any indication, the worst may be over for the company. The company has registered a PAT of Rs 17.40 crores for the first half of the current FY, which is same as first half of FY 09 but is considerably higher than full year FY 09 profit of Rs 6.11 crores.

The optimism of the management about the future of the company is evident from the following :-

1 The company is restarting the expansion project at Kandla which was stalled last year on account of recessionary conditions.

2 The company has started scouting for acquisitions outside India and is in talks with companies from South America, CIS and Europe.

3 The Top Management of the company which had voluntarily taken a cut in their salary in Feb 09 has restored their salary to pre Feb 09 levels.

In a recent development, Mr. Giancarlo Cozzani, former President and CEO of Vesuvius Group, Brussels has joined as a Non Executive Director of Monocon International Refractories Limited in the UK, a subsidiary of IFGL Refractories. Mr Cozzani will advise IFGL Group on future expansion of its refractory business. This talks of global ambitions of IFGL Refractories to emerge as a significant player in the business.

The company has ventured into high margin business of Bio Ceramics – the company has established a plant in Orissa to manufacture substitute for human limbs. The plant manufactures Hip Joints, Artificial bones, Orbital Implants for eyes and Dental Implants. This typically is a business which is low volume high margin business. The business is expected to add to the bottomline of the company as the scales go up.

IFGL Refractories has a current Market Cap of Rs 109 crores and a debt of Rs.100 crores and therefore commands an Enterprise value of around Rs.210 crores. With its enviable manufacturing and sales reach with manufacturing operations in 7 countries, marketing subsidiaries/offices in many other parts of the world and consolidated revenues of over Rs 400 crores, the valuation looks extremely low. Assuming the performance of the company in the first half of the current FY is maintained, the company can register an EPS of Rs 10. At the current market price, PE ratio therefore would be 3.2. The company’s Market Cap to Sales is just 0.25. Promoter’s holding of over 70% provides added confidence. The fact that the company has been able to attract a person like Mr. Cozzani as a Board member for its UK subsidiary and given the expansion projects which the company is restarting and the acquisitions the company is scouting for outside India, IFGL over the long term has the potential to emerge as a significant player in the world refractory market. The stock at its current Market Cap of Rs 110 crores and trading at a PE of 3-4 looks grossly undervalued.

Ashish Chugh is an equity analyst and investment consultant based at New Delhi, INDIA. At the time of writing this article, he, his firm and dependent family members have a position in the stocks mentioned above. The author, his firm or any of his dependent family members may make purchases or sale of the securities mentioned in the report while the report is in circulation. The author invites readers to send him email and welcomes comments, feedback & queries at nexgenfin@yahoo.com.

This report has been prepared solely for information purposes and the information contained herein may not be deemed to be an investment advice. Such information is impersonal and not tailored to the investment needs of any specific person. The information contained herein is not a complete analysis of every material fact representing any company, industry or security. The views expressed may change. While the information contained herein has been obtained from sources believed to be reliable, no responsibility (or liability) is accepted for the accuracy of its contents. Investors are advised to satisfy themselves before making any investments and should consult with and rely upon their own advisors whether and how to use such information in making any investment decision. Neither the author nor his firm accepts any liability arising out of use of the above information/ article.

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