“BUY” This Small Cap Industrial Stock For ~109% Upside: Monarch Networth(MNCL)

Monarch Networth Capital Limited (MNCL) a leading retail brokerage company has placed a buy call on the stock of IFGL Refractories with a target price of Rs. 585. The brokerage anticipates a 109 percent growth from the stocks current market price. The stock was trading at a market price of Rs. 279 at the time of the brokerages buy call, but it is currently trading at a market price of Rs. 304 per share on the NSE. IFGL Refractories Ltd. is a supplier of specialised refractories as well as the requisite operating systems for the Iron and Steel Industry. It is also an Indian Multinational Company from the S K Bajoria Group, and it is listed in India on both the BSE and the NSE. According to the brokerages research report IFGL is expected to deliver strong earnings growth with Consolidated EBITDA to double to Rs1.9-2bn (in FY23E/FY24E) vs Rs0.9-1bn range for last 3-4 years. This is led by the addition of customers especially mini-mills (10-11% of the revenue now as compared to no presence before), recruitment of industry veterans from peers at key positions, market share gains in domestic refractory business and favourable demand scenario from both domestic and global steel industry. We expect an improved performance by IFGLs overseas subsidiaries on recovery in demand in EU and USA along with higher acceptability of products sold by Hoffman. Additionally, location benefits of the new plant in south and product additions (precast at Vizag) should help IFGL achieve revenue growth of at least 12% CAGR over FY21-FY24E. The brokerage has also said that IFGL has maintained Net cash for the last 3 years, thereby financing expansions through internal accruals as also ensuring higher returns to shareholders (FY21 dividend yield 5.8%). IFGLs cash flow generation is also very efficient due to the tight working capital cycle leading to OCF/Cash PAT > 1 for the last 5years. Despite such compelling financials, IFGL currently trades at 4.1x FY23E EV/EBITDA vs 14-17x for peers. We believe that the stock certainly qualifies for a re-rating.Advertisement The brokerage has claimed in its research report that We initiate on IFGL Refractories Ltd. (IFGL), a highly undervalued business in the booming refractory sector, with a TP of Rs585 (~109% upside) and BUY. We value the overseas subsidiary business at 4.2x Sept23E EV/EBITDA, which is a 40% discount to its global peers and domestic business at 10.2x Sept23E EV/EBITDA which is a 40% discount to leading domestic peer to arrive at the fair value of Rs585/share. At a CMP of Rs292, the stock trades at 3.9x FY23E EV/EBITDA. Key risks: RM cost risk impacted by sea freight inflation, change in management. The stock has been picked from the brokerage report of Monarch Networth Capital Limited (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.