Thread by @Singhalsourav04

Detailed analysis of #OrientRefractory - Mcap 3800cr (CMP - 316).

About the Company
1. In 2013, M/S RHI AG, an Austrian Company acquired 69.62% of the equity shares of ORL. M/s. RHI AG is a world market and technology leader in high grade ceramic refractory materials.

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2. In year 2016, ORL parent Company, RHI AG reached an agreement with controlling shareholding of another global refractory co., M/s. Magnesita, GP & Rohne.
3. RHI Magnesita is global player in high-grade refractory products, systems & solutions which are indispensable

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for industrial high-temperature processes exceeding 1,200°C in a wide range of industries, including steel, cement, non-ferrous metals and glass.
4. With a turnover of Euro 2.9 billion, 33 sites, 13,650 employees, RHI Magnesita serves customers in more than 125 countries.

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5. RHI Magnesita group has three flagship companies in India, RHI Clasil Private Limited, RHI India Private Limited and Orient Refractories Limited.

About the Product

1.The Company offers a wide range of Refractory and Monolithic products for the iron & steel industry.

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2. The demand of refractory product is primary driven by level of industrial production & infrastructure projects.
3. The refractory products are mainly used in high-temperature manufacturing processes in iron & steel industry, metal smelters, cement, glass industry, etc.

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4. Demand for the refractory is primarily dependent on the consumption of steel, which accounts for about 75% of the total value.

Investment Rationale -

1. Refractory products are used in all the world’s high-temperature industrial processes.

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Without them, the steel, cement, lime, non-ferrous metals, glass, energy, environment and chemical industries wouldn’t exist.
2. As we are seeing, steel sector has been rallying due to improvement in realizations & volume. Refractory companies will also be benefitted.

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3. On a longer term, it is expected that per capita steel consumption will be 160 kgs by 2030 from present level of 60 kgs. Refractories will be the beneficiary.
4. Promoter- RHI Magnesita N.V. is global leader in refractories with largest number of locations around
world.
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5. Technical Edge - RHI Magnesita has technological leadership with close to market R&D facilities and tailor made products for steel, cement and glass industries.
6. An intra-group technology transfer arrangement is being made with someof RHI Magnesita group plants in Europe
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and Brazil, as a result of which some of the specialized & high-end products would soon be made in the Indian facilities. So far, these set of products had to be imported to make it available to the Indian customers. This would further lead to an expansion and upliftment

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of the production capacities of the company in India in the near as well as mid-term.
7. Despite being in the cyclical business, the company has been able to grow consistently and has posted decent growth in the past decade which shows the competitive edge the company

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possess, enjoys industry leading margins. ORL’s strong supplier power on back of RHI AG’s large buying ability of raw materials, resulted in margin stability even during rising input price scenario.
8. Being supported by one of the largest global players, ORL’s entry to

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Tier‐I steel manufacturers became easy. Serving to most of blue chip companies like Tata Steel, JSW, Arcelor Mittal, SAIL, Nippon Steel, Lafarge, Severstal, etc. Company doesn't have client concentration risk.
9. Company has invested approx. 70-80cr in acquiring assets

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from 2 outsider small companies which will again aid to capacity expansion and foray into new products.
10.Amalgamation of unlisted companies with listed (ORL) –
a) Company has applied for amalgamation of RHI Clasil Private Limited, RHI India Private Limited with the company

b) This will create opportunities in getting turnkey projects, due to higher capacity and better expertise.
c) Company will be able to provide refractory solutions under one umbrella and will be able to cross sell the products.

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d) After the completion of amalgamation, ORL has proposed to be renamed as RHI Magnesita India Ltd. Though it does not have any say to the investment rationale but changing the name of the company after 8-9 year of acquisition and giving the flagship name shows the focus of

management in Indian business. Promoter have shown their intention to make India manufacturing, R&D hub for South & West Asia, Africa.
11. After merger, it is expected to have top line of 2200-2300cr and EPS of 13-15.
12. Debt free + ROCE > 30% + Net Cash company.

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Risk
1. De-growth of steel sector.
2. China is the major supplier of inputs to refractory material. India’s refractory industry sources half of its raw material from China.

Conclusion -
The company is well positioned to gain from the current trend in Steel sector.

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Management has done a decent job in the past and now bringing unlisted companies under one head, gives a lot of comfort about the thought process and have shown there motive to make India business as R&D and export hub.

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@varinder_bansal sir also talked about the company on Zee Business, couple of weeks which provided great insights about the industry and company.

@saketreddy what is your views on the company sir?
#OrientRefractory
#Refractory

@UnrollHelper