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Buy IFGL Refractories For 75% Upside Potential Says Monarch Networth (MNCL)

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Monarch Networth Capital Ltd (MNCL), a brokerage company, has issued a buy call on IFGL Refractories' stock. IFGL Refractories Ltd. is a multinational manufacturer of specialised refractories and also has operational technologies for the iron and steel industry. The brokerage has set a target price of Rs. 585 for the stock, implying a 75.14 percent growth from the current market price of Rs. 334.15 as of 3:30 p.m. IST on 11 January. On 09 August 2021 and 01 February 2021, the stock reached a 52-week high of Rs 439.00 and a 52-week low of Rs 221.75 respectively, according to NSE. This small-cap company has a market cap of Rs 1,204.79 Cr and currently, the stock is trading 23.91 percent below its 52-week high and 51.13 percent above its 52-week low.

 

Key investment triggers for IFGL Refractories according to Monarch Networth (MNCL)
 

Key investment triggers for IFGL Refractories according to Monarch Networth (MNCL)

  • Strong revenue growth (earnings before interest, taxes, depreciation, and amortization (EBITDA) to double over FY21-FY24E) due to product addition (monolithic and precast - import substitution), continuous customer addition (large steel plants and mini-mills now 11% of revenue) supported by capital expenditures (CAPEX) for capacity expansion.
  • Massively undervalued - 4.6x FY23E EV/EBITDA - 1/3 rd of comparable peers which leaves large room for re-rating. Net cash balance sheet since last 6years along with best in industry FCF yield and large cash balance leading to high dividend yield (5.8% in FY21) and appetite for inorganic expansion.
  • Volume growth from existing and new customers backed by growth in steel demand (25-30mnt of new steel capacities in India in next 3years) and new product addition - precast.
  • Price hikes from customers as a pass-on of high raw material cost to elevate margins. New Vizag capacity is superior in terms of cost vs. Kandla and Kalunga due to freight benefits, port location and a modern and efficient plant.
  • One-time writeoff of goodwill amortisation to magnify profit and return ratios, thereby warranting a re-rating.
  • We expect growth of 11.5%/ 10%/ 28.6% CAGR for revenue/ EBITDA/ PAT over FY21-FY24E driven by strong growth in steel demand, new product (capacity expansion) and customer addition.
  • EBITDA margins are expected to elevate to ~14% sustainable basis from the historical average of 10-12% due to pass-on of RM cost hikes, high margins at the new Vizag facility and permanent cost improvement at old facilities.
  • This along with a one-time goodwill write-off will elevate return ratios.
Buy With A Target Price of Rs. 585

Buy With A Target Price of Rs. 585

The brokerage has said in its research report that "We value the overseas subsidiary business at 4.2x Sept'23E EV/EBITDA, which is 40% discount to its global peers and domestic business at 10.2x Sept'23E EV/EBITDA which is 40% discount to leading domestic peer to arrive at the fair value of Rs 585/share."

RM cost risk impacted by sea freight inflation, change in management, tepid steel demand are the key risks for the stock according to Monarch Networth.

Disclaimer

Disclaimer

The above stock has been picked from the brokerage report of Monarch Networth Capital Ltd (MNCL). Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.

Story first published: Wednesday, January 12, 2022, 9:03 [IST]
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