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RHI Magnestia India

Magnified growth ahead

Benefits of group consolidation, wide product basket and capacity expansion plans bode well for this MNC associate

RHI Magnestia India (formerly Orient Refractories) is a subsidiary of RHI Magnestia of Austria. It is a leading manufacturer and supplier of high-grade refractory products and solutions. The refractory products are mainly used in high temperature manufacturing processes in iron and steel industry, metal smelters, cement, glass industry and other industrial products. Demand for refractory is primarily dependent on the consumption of steel, which accounts for about 75% of the total value and the remaining is used for glass, cement, non-ferrous, petrochemicals etc. RHI Magnesita Group is the leading global supplier of high-grade refractory products, systems and solutions. RHI Group has recently integrated all three legal entities i.e. RHI India, a wholly owned subsidiary of RHI Group; RHI Clasisl, a subsidiary where it held 53.7% stake and Orient Refractories (ORL), a listed subsidiary where the group had 69.6% stake. Subsequent to order dated May 5, 2021 the two subsidiary companies of RHI Magnesita in India – RHI Clasil and RHI India merged into the public listed entity ORL. Post amalgamation the shareholding of RHI Magnestia through Dutch US Holding B.V., Dutch Brasil Holding B.V. and VRD Americas B.V. is 70.19% in ORL (recently renamed as RHI Magestia India). The integration in to one legal entity would now enable the RHI Magnestia Group to synergize, simplify and consolidate its strengths in India and serve its ever-growing customers better. The company is expanding capacity and modernising all its plants and is bringing in some high-end new products into the Indian markets. It is also pushing for digitisation, automation, robotics etc. The company has embarked on expanding the capacity of Odisha plant from 10000 tonnes per annum (tpa) to 18000 tpa and the expanded capacity will be commissioned by end of 2021 and cater to local demand. The company plans to spend Rs 350-400 crore in next four years expanding its total capacity by around 35%, which will be funded through internal accruals. The company currently serves customers in more than 70 countries apart from India. The parent, RHI Magnestia, through its strong network across the world, is also the key driver for the company’s exports growth. The company expects its current export contribution to total income to increase from around 26% to 32-35% in 3-4 years. Export margins are better than domestic margins. Net sales for the fiscal ended March 2021 decreased 1% to Rs 1370.38 crore. Net profit was up 1% to Rs 136.62 crore. Net sales for the quarter ended March 2021 increased 20% to Rs 407.34 crore. Net profit was up 33% to Rs 42.54 crore. Demand for steel in India in 2021 is expected to be extremely strong as Government has unveiled various infrastructure investments, production linked incentives, support for rural people through infra development in rural areas, complemented by restarting of construction activities across India & recovery of auto industry. India per capita steel consumption at 60 kg is just about one fifth of the world average and the National steel policy 2017 aims to increase the per capita steel consumption of the country to 160 Kg. by 2030-31 which require 300 tonne steel production capacity. During second wave of Covid pandemic in March-Jun 2021 period, the diversion of industrial oxygen for medical purpose has impacted the operations of steel plants and the local lockdowns to control the pandemic has affected the steel demand. However the Indian steel industry is expected to come back strongly from Q2FY22. Similarly the other user industries are also expected to see demand recovery from Q2FY22 strengthening refractory demand. Significant rise in logistics cost makes domestic production of refractories more competitive. This has resulted in demand shift to domestic players especially in case of moderately valued products that were imported from China. Global demand for steel and hence refractories is also bouncing back, in line with progress on vaccination in different countries. The company expects to grow in double digit in revenues in next two years. We expect the company to register consolidated EPS of Rs 10 in FY22 and Rs 11.5 in FY23. The scrip was trading around Rs 326 at BSE on July 19, 2021.