Vesuvius/ RHI Magnestia are in the business of refractories which form the lining material for furnaces which operate at very high temperatures. It is mainly used in steel, cement or glass industry.
Refractories form the protection layer between furnaces and molten metal. The molten metal is typically heated to 1000s of degree Celsius. Refractories need to be heat resistant as well as not affect the chemical properties of the metals.
Refractories are mostly made of bauxite, dolomite, aluminum oxide or alumina and being a specialist business, very few players are present in it who can make such refractories with very high precision and reliability (though there are a few unorganized players, they are not very reliable and hence are mostly avoided by large steel plants).
Being a critical item both for the operations as well as safety of the plant, it forms approximately 2% of the raw material cost of steel manufacturing.
Most of the industry of refractories in India are dominated by RHI Magnesita, Vesuvius, IFGL and Tata Krosaki, though there are some smaller players. RHI Magnesita and Vesuvius are both global leaders in this business and command a lion’s share of India business of refractories as well.
RHI Magnesita supplies the complete set of products from basic refractories to specialist refractories which are used in the blast furnace and rolling mills. Vesuvius, on the other hand is more focussed on specialist refractories. These refractories are replaced very often and hence the supply chain is very critical as well. RHI Magnesita owns mines of raw material, whereas Vesuvius sources it from other vendors.
Given that steel production in India is slated to grow 3-fold in the next 10 years, refractories is an interesting space to look at, especially given that the price of refractories is not as volatile as steel and hence their revenues and margins are much more predictable.
I would recommend a deep dive into the capex plans, strengths and weaknesses of both these companies to figure out which company you would like to invest in.
