File - IFGL Refractories LTD

COVER STORY
Indian refractory sector is
mature & technologically
upgraded: Bajoria
I
FGL Refractories Ltd, manufacturer of specialised refractories and requisite operating systems for the steel
industry, offers total solutions for flow control in steel teeming and continuous casting of steel.
The company 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
set up in technical collaboration with Krosaki Harima Corporation, Japan (then known as Harima Ceramics
Corporation) started production in 1993, manufacturing isostatically pressed continuous casting refractories
and magnesia carbon tap-hole sleeves.
In 2005, it acquired the Monocon Group, with production facilities in Brazil, China, the UK, the US and
26 Steel Insights, September 2014
COVER STORY
Taiwan, for tundish spraying mass,
refractory darts, monolithic lances,
robotics for electric arc furnaces
(EAF), ladle and tundish lining
maintenance and monolithics for
EAF. In 2006, the Monocon Group
acquired Goricon Metallurgical
Services Ltd, Wales (UK) and
Goricon LLC, Ohio (US) engaged
in manufacture of darts, lances,
ladle powders etc used by the steel
industry. In 2008, the Hoffman
Group, with manufacturing
facilities in Germany and Czech
Republic, was acquired to
consolidate position in foundry
ceramics – casting filters, feeders,
SiC chill plates, pouring systems
and monoblock stoppers, high
grade fire-proof refractory shapes
and drawing tools and tread
guides.
In 2010, IFGL acquired
EI Ceramics LLC and CUSC
International Limited (CUSC), both
Cincinnati, Ohio-based companies
engaged in the manufacture of
isostatically pressed continuous
casting refractories. IFGL’s
subsidiary is IFGL Exports Limited,
which is also engaged in the
manufacture of continuous casting
refractories in new areas of the
Kandla special economic zone
(SEZ) in Gujarat. IFGL now has
manufacturing facilities in China,
Czech Republic, Germany, India,
the UK and US. In 2013-14, the
company reported `777.64 crore
of consolidated income from
operations on a consolidated
net profit of `64.01 crore,
representing considerable growth
in performance.
Pradeep Bajoria, Managing
Director, IFGL Refractories, tells
Tamajit Pain of Steel Insights how
the refractory industry in India has
matured over time and upgraded
itself technologically. The best
players of the world have already
entered or are looking to penetrate
the Indian market in a bid to set up
a manufacturing or trading base.
Excerpts:
What is the current status of the refractory
industry in India?
I would put it this way… the refractory
industry in India is now very matured. It
has really upgraded itself, technology-wise.
The best players of the world are now
here... Biggies like Vesuvius, RHI, Krosaki...
Other large players are exporting to India
… for instance, Pohang Refractories which
manufacturers from China and Chosun
Refractories from South Korea. Other
players are looking to enter the Indian
market to set up their manufacturing or
trading base. The Indian steel industry has
really matured and upgraded technologywise.
What is the most important concern of the
refractory industry in India?
The refractory industry anticipated an
increase in steel production. Unfortunately,
the refractory industry has expanded but
steel production has not done so in a similar
manner. Moreover, steel plants are not
doing well. Most of them are in the red. So
the biggest concern is capacity utilisation
and price pressures. If the steel plants are
not doing well, refractories will face price
pressures.
How is IFGL placed in the current
scenario?
The situation at IFGL is not as alarming
because of the group’s diversified location.
IFGL is not only located in India but
Europe and America as well. The European
and American steel industry is going
steady – so our overseas operations are
steady. Of our Indian operations, we export
almost 55 percent, which has been helped
by the devaluation of the rupee. So that is
the scenario at IFGL, compared to other
The refractory industry in India is now very matured. It has really
upgraded itself, technology-wise. The best players of the world are
now here... Biggies like Vesuvius, RHI, Krosaki... Other large players
are exporting to India … for instance, Pohang Refractories which
manufacturers from China and Chosun Refractories from South Korea.
Other players are looking to enter the Indian market to set up their
manufacturing or trading base. The Indian steel industry has really
matured and upgraded technology-wise.
Steel Insights, September 2014
27
COVER STORY
Africa and America. We have our own
company in America which caters to those
markets.
Where are IFGL’s production units
located? What is your total production
capacity in India and abroad? What is the
status of capacity additions at Kandla?
If you see our main product line – it
continuous casting refractories. So, currently,
at our Kalinga plant we have capacity of
around 300,000 pieces per annum. At
Kandla, about 84,000 pieces per annum and
in the US, another 84,000 pieces per annum.
We are already doubling capacity at Kandla
which should be ready by the next financial
year. Similarly, we are doubling capacity in
the US. This will also be ready by the next
financial year.
manufacturers. We are in a niche market,
not in the project segment, like TRL or
ACE. We are very positive at present, and
the sentiment across the country is also
positive that the steel industry will pick up
and thus it will be good for the refractory
industry.
What are the other negative factors
worrying the refractories sector?
As I have said earlier, capacity utilisation
and price pressures are the two challenges
being faced by the industry. I would say
capacity utilisation at present in India is no
more than 60 percent. This is true for the
overall industry as well.
What is the percentage of raw material cost
in the cost of production of a refractory
maker?
The Indian refractory industry continues
to import raw material from China and
currently raw material prices in China are
steady. So there is not much to worry about
on this aspect. The Chinese industry is also
on the downtrend, so with regard to raw
materials availability and prices, the pressure
is not that much.
To what extent is quality manpower
available in the refractory industry?
One of the biggest worries in the refractory
28 Steel Insights, September 2014
industry in India is the quality of manpower.
This is because less and less people are
taking up ceramics. Quality students are
going into information technology (IT) and
mechanical engineering. So this industry
needs to train people and develop quality
manpower. This is one of the biggest
concerns in the industry.
What would be the likely investment in this
two capacity expansion plans?
What are main technology forms adopted
by refractory makers in India and who are
the technology providers?
Who are your main competitors?
With the advent of Krosaki, RHI, Chosun,
Pohang, India is getting rich in technology
and the aim is to reduce more and more
per kilogram consumption of refractories
per ton of steel from the point of view of
environment as well as production costs.
The refractory industry, keeping these two
points in mind, has taken up recycling of
material. It is beneficial in terms of both
environment and costs. This means that
used refractories are re-utilised. They are
crushed, grounded and re-used.
It is not very big. In India it is about `5
crore and in US about half a million dollars.
Are these being funded mainly through
internal accruals?
Mainly, yes.
Our main competitors in this product line
are Vesuvius and RHI. In India, they are
Vesuvius, Orient Refractories and OCL.
What do you have to say about the growth
prospects of the refractory industry in India?
The growth prospect of the refractory
industry in India will depend entirely on
growth of the steel industry which is entirely
dependent on growth in the infrastructure
sector. I think, eventually, that has to happen
and, therefore, the refractory industry should
have good prospects.
What are the important export markets for
IFGL?
What is the current growth rate in the
industry and what are the expectations like?
IFGL is mainly into functional refractories.
Globally, our share in this category is
5 percent. So we have a huge upside to
grow. In India, in this area, we probably
have around 20 percent share. Our export
markets are mainly Europe, Middle East,
It depends on the steel industry. It can
double or triple if the steel shows very high
growth rate. Today, all the major players
have a presence in the Indian refractory
space and those not present are looking for
an entry and are ready to pay any price for
COVER STORY
it. Calderys is among the top five in the
world. There are Vesuvius and RHI as well.
Krosaki, technology-wise, is the strongest
with Tata Refractories. Chosun and Pohang
are exporting in large volumes to India.
Pohang has set up shop here. Everyone is
eyeing a presence in India, which seems to
be THE destination. On the foundry side,
Allied is doing big business. It is setting up
shop in Gujarat. Saint Gobain is expanding.
Major players like TRL and Vesuvius too
are expanding.
One major factor is the expansion
in ports since the refractory industry is
dependent to a large extent on imported raw
materials. This is one of the main reasons
why the major players are expanding in
ports. Logistics costs are very high these
days.
Tell us something about yourself. How
you have grown over the years, what are the
challenges you faced during your early years
in business and how you inspire others?
My passion is sports. In my early days, it
was tennis, now it is golf. Whatever you
do in life you have to enjoy. My advice
to youngsters would be that, for anyone
to succeed you will have to concentrate
on customer satisfaction. Success will
automatically follow.
Tell us about your growing up years, when
you just entered this industry. How did you
take up challenges and what vision did you
work towards?
30 Steel Insights, September 2014
IFGL Refractories posts 24% rise in Q1 PAT
IFGL Refractories has posted a 24 percent rise in its April-June profit after tax (PAT) at
`18.4 crore as against the same period last year.
Total revenues stood at `205.2 crore, recording a growth of 13 percent.
EBITDA stood at `31 crore, registering a growth of 24 percent.
Rationalisation of costs and a stable rupee against major foreign currencies helped
improve margins, the company said in a statement.
Subsidiaries in the US, UK and Germany continued to record satisfactory
performance. Revenues from operations outside India increased by `20.2 crore (growth
of 20 percent) on a year-on-year basis.
The Indian subsidiary, IFGL Exports Ltd, stabilised its operations in FY14.
“We continue to remain positive on this division and are doubling capacity by
year-end. We are seeing early signs of recovery in the Indian economy. We believe the
commitment of the government towards infrastructure building which, in turn, will
improve the demand for iron and steel in the country, and lead to increased consumption
of refractories, thereby making IFGL a direct beneficiary of the infrastructure impetus,”
the company said in a statement.
“On the global front, we are seeing a steady recovery led by the US and Europe. Our
cost-efficient production and presence in more than 50 percent of the steel-producing
countries will enable us to enhance our performance. Our capacity expansion programme
in the US continues to be on track and we are positive of incrementally improving our
sales performance from America,” the statement said.
When I started my career, ie, in the early
‘80s, the most challenging factors in this
industry was technology and, availability of
good quality raw materials. But the Indian
industry has overcome this. Technologywise, we have become quite strong and
because of the relaxation in imports, the
industry has full access to quality raw
materials.
When we started out, the import duty
was 100 percent. But now the duty is only 5
percent. So the problems of technology and
raw material are now overcome.
So what is the next biggest challenge?
The challenge is refractory management, ie,
installation and managing the refractory at
the customer plant-end. We have to interact
with the customer, provide manpower for
maintaining the products. This has become
the most challenging factor in the refractory
industry.
COVER STORY
Import duty
anomaly must be
removed
T
he refractory industry is inextricably
linked to the iron and steel sector, which
consumes 75 percent of its production.
There are more than 100 players in this space
in India but only around 14 are major and 33
medium-sized. The slump in steel markets in
the US and Europe has led to a global scenario
of oversupply in refractories, making domestic
producers contend with increased import
volumes. Domestic production has not grown much during the last
couple of years, dropping to around 1.28 mt in 2012-13 against 1.42
mt in 2011-12. Though production decreased, the industry’s turnover
increased due to demand for more specialised items. Moreover, the
import duty on the finished products is almost on par with that on
raw materials, rendering domestic players even more uncompetitive.
However, with the passage of time, the industry has matured and
has been doing reasonably well and the presence of leading global
players will only help competition to hot up in relation to supplying
quality refractory material, Kamal Sarda, Committee Member and
ex-President, Indian Refractory Makers Association (IRMA) and CEO,
IFGL Exports Limited, tells Tamajit Pain and Madhumita Mookerji of
Steel Insights.
Excerpts:
How has the refractory industry been faring
against the backdrop of the fact that the steel,
cement and other user-industries have been
performing poorly over the last few years?
The industry has been doing fairly well of
late, essentially because Indian refractorymakers have also been exporting a great deal
over the last few years. I would say… the
industry has been doing reasonably well.
How big is the refractory industry in India
and what is its growth rate?
At IFGL, over the last five years, we have
seen a compound annual growth rate of
15-16 percent. I think, most of the large
refractory companies have also registered
similar growth. Vesuvius India, Orient
Refractories etc have also grown quite well.
The refractory industry for steel
and non-steel together has a turnover
of around $1 billion. Indian Refractory
Makers Association (IRMA) has industry
representation of close to 70 percent of the
total refractory industry.
What are the key issues plaguing the sector
at present?
Globally, there is an oversupply scenario in
refractory manufacturing. Supply is more
than demand because, apart from India,
China and a few other countries, Europe
and the US have not grown to that extent in
steel manufacturing. So, there is a challenge
of imports of refractories into India.
And one key reason for this is that the
duty on imported finished refractory is
almost at par with refractory raw materials.
The government has not given any sort
of protection regarding this. IRMA has
represented to the government but, I think,
the steel industry also has to support this
representation.
Could you elaborate further on the duty
structure?
If we import finished refractory, the
customs duty is around 5 percent. But if the
refractory- makers import refractory raw
materials, then the duty is 5-7.5 percent,
which means, the customs duty on refractory
raw material duty is more than that on the
finished refractory.
What about the dumping aspects from
China?
I do not think there are no such major
issues here. Apart from magnesia products,
imports from China are not much.
Magnesia products are imported from China
because India does not have a good quality
of this particular raw material. Only few
players manufacture magnesia carbon bricks
in India. Some refractory manufacturers
have magnesia carbon brick manufacturing
plants in China -- like Vesuvius, RHI, Tata
Krosaki Refractories, OCL etc. Also, there
are players in India who import from China.
Thus, dumping is not a big issue.
How can the challenges be resolved?
First, the duty anomaly must be corrected
to protect Indian refractory makers. The
duty on finished refractory should be at least
same, if not higher, than that on imported
refractory raw materials, so that the Indian
manufacturers are protected.
Secondly, the steel industry has to grow
faster, the new projects in the pipeline have
to be completed on time, and government
expenditure on infrastructure has to increase
substantially and quickly. This is essential
because around 75 percent of the volume of
refractories manufactured go into the steel
industry.
Steel Insights, September 2014
31
COVER STORY
The third point is export incentives.
Indian manufacturers export good quality
refractories. Earlier, they used to get duty
entitlement passbook (DEPB) which was
6-8 percent, which has been withdrawn and
replaced with the duty drawback, which is
very low, barely 1-2 percent. So, this was a
big blow to refractory exporters.
IRMA has made a presentation to
the government with regard to the duty
structure. But there has been no positive
feedback so far.
The steel industry consumes almost 75
percent of the total refractory manufactured.
The steel industry is expected to grow by
almost 30-40 million tons in five years’
time. That will help the Indian refractory
industry.
good as anywhere in the world. We are
increasingly progressing towards better
manufacturing, qualitatively and so exports
volumes should increase.
How do you see the refractory industry
faring over the next 3-5 years?
This depends on the quality of the steel
plant. An efficient steel plant would use
8-10 kg of refractory per ton of steel and
this could go up to 15 kg per ton of steel at
other plants.
How has the rupee devaluation impacted
the industry?
In a steel mill, where exactly do refractories
find usage?
Out of the total $1 billion refractory
requirement in India, around 25-30 percent
is imported. To that extent, the steel
industry would be affected.
About 50 percent of the refractory raw
materials are also imported. So the Indian
refractory makers are affected by the rupee
devaluation.
Starting from coke oven to steel-making, in
every step, refractories are required.
In that case, have margins been squeezed?
Yes, margins have been squeezed. But this
happens is the short to medium term. Over
a period of time, we try to convince the
customers and pass it on…
In composite refractory management
contracts too, which are generally fixedprice contracts and where players import a
part of the refractory and supply together
but they get paid in the Indian currency. In
such instances, for a short to medium term,
players have to absorb that cost.
But, for refractory exporters, this will
have a positive impact.
What is the total installed capacity in the
refractories space and capacity utilisation
level at present? How much of steel
manufacturing volumes can this installed
capacity support?
I think the capacity utilisation level is not
more than 60 percent.
We should be looking at 6-10 percent
volumes increase over the next five years in
line with the growth in the steel industry.
Is the domestic refractory industry selfsufficient in technological know-how?
Most of the world leaders are in India at
present – Vesuvius, Calderys, RHI, Krosaki
Harima etc. Other manufacturers have
either purchased or developed technologies
to meet the requirements of the user
industry. Large international players
who have the technology are coming to
India directly. So, technology is not a big
challenge anymore.
Where exports are concerned, which
geographical locations are these sent to?
Overall, what is the share of exports in the
total production basket? Going forward, to
what extent is this likely to increase?
Domestic players export to various parts
of the world. Except China and Japan. A
big chunk of exports goes to the European
region.
Many players also sell in the US, Middle
East, CIS countries and South East Asia as
well.
Refractory exports will be around `1,000
crore, which would be 15-20 percent of the
overall industry turnover.
The Indian refractory quality is as
Indian refractory industry in volume and value terms
Item
2008-09
2009-10
2010-11
2011-12
2012-13
Total Production (ton)
1255270
1267175
1346159
1415081
1284654
Sales Turnover (` lakh)
322706
385474
485966
545822
569559
Source,50$
32 Steel Insights, September 2014
How much of refractory is required to
manufacture 1 ton of steel?
How does the future of this industry look
like? Any newer challenges likely to crop up
in terms of customer support etc?
The scenario is not going to change
substantially. Global players like Vesuvius,
RHI, Krosaki etc have been in the Indian
market for quite some time. RHI, Krosaki
and Calderys have now acquired units in
India. So, basically, these players will operate
in the same market. The scenario is not that
post-acquisition of the Indian units, their
topline will double or triple!
May be, a scenario will emerge where
this new structure will help improve
the quality of refractories. Good quality
refractory manufacturers will continue to
remain in a strong position in the market
and the steel industry can expect better
quality refractory material.
Has the presence of global players made
the market more competitive for domestic
players?
The global players have been in India for
quite a long time now and very few have set
up their own manufacturing units. Rather,
they have acquired Indian plants.
Competition has always been there. I
do not think, there will be a major shift in
the competitive scenario in India. Going
forward, because of the experience and
expertise of the global players, the quality
of refractories will improve… The steel
industry has been demanding good quality
refractories and the industry will have to
supply such material.
I think the competition would be
with regard to supplying good quality
refractory.