Alicon Castalloy Limited (ALICON.BO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Alicon Castalloy Limited Q2 FY 2026 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Mayank Vaswani from CDR India. Thank you, and over to you, Mr. Vaswani.

Thank you, Renju. Good afternoon, everyone, and thank you for joining us on Alicon Castalloy Limited's Q2 and H1 FY '26 Earnings Conference Call. We have with us on the call today Mr. Rajeev Sikand, Group CEO; Mr. Sumit Bhatnagar, CEO Designate; Mr. Vimal Gupta, Group CFO; Mr. Manish Kapoor, Group COO; and Mr. Shyam Agarwal, Chief Marketing Officer of Alicon Castalloy Limited. Mr. Vimal Gupta will present an overview of the operating and financial performance for the quarter and half year. Mr. Shyam Agarwal will then take us through developments in global markets and insights on domestic business trends, and Mr. Manish Kapoor will share updates on key strategic initiatives driving growth. Before we begin, I would like to point out that some of the statements made in today's call may be forward-looking in nature, and a disclaimer to this effect has been included in the earnings documents that have been shared with all of you earlier. I would now like to hand over the floor to Mr. Rajeev Sikand, our Group CEO, who will make a brief statement. Over to you, sir.

Thank you, Mayank. Good afternoon, everyone. As I enter the final few months of my tenure with Alicon, I want to express my sincere gratitude to all our employees, customers, suppliers and shareholders. It has been a privilege to lead this organization through a phase of strong growth, capability expansion and globalization. Over the years, we have transformed Alicon from a primarily domestic-focused company into truly multinational organization with presence in 18 countries, serving a distinguished customer base that includes some of the most respective names in global automotive industry. Together, we have built a solid foundation, one that positions the company exceptionally well for the next phase of growth. The Board and I have worked closely to ensure a smooth and a well-structured leadership transition. I'm pleased to share that Mr. Sumit Bhatnagar will assume the role of Chief Executive Officer with effect from 1st April 2026, following the conclusion of my tenure upon attaining superannuation. Sumit brings with him deep industry experience, a collaborative leadership style and a strong focus on operational excellence and customer value. I have every confidence that he will lead Alicon to even greater heights in the years ahead. With this, I would like to invite Sumit to share his thoughts.

Thank you, Mr. Sikand, and good afternoon, everyone. It's an honor to take on this responsibility and to be the part of an organization with such a strong legacy of engineering excellence and customer trust. Alicon has built a reputation for quality, reliability and innovation, and I'm committed to carrying this forward. The automotive industry continues to evolve rapidly, and Alicon is well-positioned to participate in this transformation. whether through advanced materials, process innovations or expanding the partnerships with global OEMs. Our strength lies in our people, our technology and the relationships with marquee customers and the key stakeholders that have been built over decades. I want to thank Rajeev for his leadership and the culture he has fostered, one that encourages teamwork, accountability and continuous improvement. I look forward to working closely with the leadership team, our customers and all the stakeholders to build on this momentum and drive the next phase of growth. Thank you for your continued trust and confidence, and I will now hand over to Mr. Vimal Gupta, our Group CFO.

Thank you, Mr. Bhatnagar. So good afternoon, everyone, and welcome to Alicon Castalloy Quarter 2 and H1 FY '26 Earnings Conference Call. I would like to begin by acknowledging the strong groundwork laid by Mr. Sikand. Thank you for your leadership and contribution. At the same time, we are pleased to welcome Mr. Bhatnagar, whose appointment signals a new chapter for Alicon. We look forward to his strategic vision as we build on our strength and pursue new growth avenues. The quarter began in a period marked by continued volatility in the global business environment. Demand trends across major markets remained uneven and supply side challenges persisted. On the global front, U.S. trade policy remains a key variable with the 50% tariff on Indian export introduced in August, proving to be a setback for stakeholders across the Indian automotive sector. We continue to closely monitor the evolving situation and await greater clarity on the long-term sustainability of these tariffs. While the prospects of an impending Indo-U.S. trade agreement offer some optimism, our customers remain cautious as they reassess their sourcing, export and supply chain strategies in response to the changing trade dynamics. In the near term, we have observed a moderation in export volume, particularly from U.S.-based customers as the imposition of tariff has dampened demand from end users who are the one who have to pay the tariff. At the same time, China's restrictions on rare earth materials, coupled with the ongoing shortage of semiconductors continue to weigh on global supply chain visibility. We believe these developments will have a short-term impact on demand patterns, but they may also create opportunities for greater localization and value-added manufacturing, areas that align well with Alicon's core capabilities and strategic strength. Towards the end of the quarter, the announcement of GST rate rationalization provided a much needed boost to the domestic auto industry, which had been experiencing sluggish volume uptake earlier in the period. This policy move acted as a strong catalyst reinvigorating customer sentiments and driving a visible uptick in the market activity. All our OEM customers have reported a notable increase in inquiries accompanied by improvements in production and sales across vehicle segments. In fact, a few domestic customers have indicated that limited semiconductor availability is now the primary constraint for -- to further ramping up production. Now let me turn to our financial performance for quarter 2 and H1 FY '26. During the quarter, we reported revenues of INR 429 crores, an increase of 2.4% compared to INR 419 crores in quarter 1 of FY '25. This marks the third consecutive quarter in which we have grown revenues on a sequential basis, reaffirming that the business has stabilized after the dip seen in quarter 3 of FY '25. On a year-on-year basis, revenues degrew by 7.7% compared to the revenues of INR 464.5 crores in quarter 2 FY '25. This is due to some projects undertaken in the base period, which were onetime in nature and hence not budgeted in operating plan for the current period. Further, there have been some customer-specific issues in Europe as well as the weaker demand from our CV customers in U.S. Gross margin for the quarter was 48.9% as an improvement of 300 basis points compared to 45.9% in quarter 1 of FY '26. Aided by improved product mix and our measures to enhance operational efficiency, our newer plants and advanced automation are still scaling up. So fixed cost absorption is yet to reach optimal level, so we will endeavor to improve this further. On a year-on-year basis, gross margins increased 130 basis points from 47.6% in quarter 2 FY '25. Employee costs have increased due to annual increments and new hirings, but our continued cost discipline efforts have helped offset part of this. Further, other expenses were higher by about 9% sequentially. This is on the back of higher sales, which resulted in cost for additional processes and machining for higher value-added parts. We have also inducted some German experts to help us further improve our processes. On a year-on-year basis, other expenses were lower by nearly 11%. As a result, EBITDA for the quarter stood at INR 55.5 crores, translating to an EBITDA margin of 12.9%, an increase of 100 basis points from 11.9% in quarter 1 of FY '26. Depreciation stood at INR 26.6 crores, reflecting ongoing investments in new machinery, tooling and automation, which are critical to our technology road map. Finance costs was stable during the quarter, adding profitability. Consequently, profit before tax pre-exceptional rose 51% quarter-on-quarter to INR 19 crores. For H1 FY '26, total income was INR 848 crores with EBITDA of INR 105.3 crores, margin of 12.4% and PAT of INR 23 crores. CapEx for the quarter was INR 32 crores, taking total spending for the half year to INR 63 crores. We anticipate full year CapEx of INR 125 crores to INR 130 crores. Looking ahead, we are focused on ramping up volumes with existing customers while onboarding new programs added this quarter. The newly established defense, aerospace and railways, the DAR vertical is shaping up well, and we have also received new orders in our non-auto business this quarter, ensuring that diversification of revenues is set to increase. At the same time, we are investing steadily in R&D, automation and digital process controls to enhance productivity, offset raw material cost pressures and strengthen long-term competitiveness. We believe prospects in the global industry are set to improve, while the GST rationalization in end September will ensure positive momentum in the domestic industry in the months ahead. Alicon continued to demonstrate resilience and operational progress with a healthy new order book of about INR 9,100 crores strong customer relationships and disciplined execution approach, we are confident of sustaining our growth trajectory and creating long-term value for all stakeholders. With that, I will now hand over the call to Mr. Shyam Agarwal, who will take you through the operational highlights and business developments for the quarter.

Thank you, Mr. Gupta, and good afternoon, everyone. Let me start with a quick overview of the industry environment during the quarter. In quarter 2 FY '26, the global auto industry witnessed moderate growth of 2.6%, while the Indian auto industry reported an improved performance. As per ACMA, domestic production volumes grew modestly by around 9.9% Y-o-Y, led primarily by the 2-wheeler and the commercial vehicle segments. The domestic 2-wheeler segment has been a bright spot, registering around 10.6% Y-o-Y growth, driven by festive and marry season demand and added by improved sentiments following the rationalization of GST. With improving affordability and also sign of healthier demand in both rural and urban markets, the momentum is expected to continue. The commercial vehicle category in India grew by 10.9% Y-o-Y, added by higher demand of LCVs and for last mile logistics. There are signs of improving spending on infrastructure, mining and construction in the months ahead, which will serve to firm up demand. In the passenger vehicle segment, volumes were higher by 4.2% Y-o-Y, with the GST rationalization contributing to improving affordability and better customer sentiments. There has also been an increase in export volume by many of the OEMs, adding the uptick in volumes. So overall, quarter 2 FY '26 represented an improving landscape for the domestic auto industry. Compared to the growth witnessed in the global and the domestic industry, Alicon has witnessed degrowth of 7.8% in revenue on a Y-o-Y basis. This is due to a combination of 3 factors. Firstly, some onetime projects undertaken in the base period. Secondly, a U.K.-based OEM customer was impacted by a cyber-attack which impacted production at its plant for up to 5 weeks, during which they asked us to pause supplies and thirdly, due to headwinds faced by our CV customers in the USA who have been stated that in some cases, volumes have dipped by approximately 25% to 26%. Given the skew of our business towards these different factors, our numbers differ from the trends in global and domestic industry. However, the silver lining in our performance is that we continue to rebuild our trajectory from the disruption we witnessed in quarter 3 FY '24. Q2 revenue of INR 429 crores are 2.5% higher than those of quarter 1, and this is the third time successive quarter of improvement in revenue and enhanced profitability. Apart from the sudden dip in quarter 3 FY '25, Alicon has now reported revenues of above INR 400 crore run rate for 7 of the last 8 quarters, demonstrating operational stability and improved trajectory despite a variety of external challenges. Our domestic business benefited from volume ramp-up with the few key customers in the EV and the 2-wheeler space. The contribution from the 2-wheeler segment increased further in quarter FY '26, supported by new program additions and higher share of business with the existing OEMs. As a result, 2-wheeler business has increased by 18% quarter-on-quarter and 8% Y-o-Y. In the EV segment, we saw positive trends from all our customers. For one of our Japanese OEMs, we have ramped up the production of a cylinder head of 1.5-liter engine. Since the market preference is shifting strongly towards SUV and this product find application for larger-sized EVs, we have witnessed strong increase in volume for these parts. Another prominent Japanese OEM in India with a successful portfolio of hybrid vehicles continue to do well. As we enjoy 100% share of business for cylinder head that are used in their hybrid vehicles, we have witnessed strong growth. Further, this OEM is also experiencing healthy growth in export, and we believe there is scope to improve volume further. One of our European OEM customer who has established India-based operation as a key export hub has successfully ramped up production. For this customer, we have witnessed sharp revenue growth in quarter 2, higher by 53% on quarter-on-quarter basis and 257% on a Y-o-Y basis. With this, we have witnessed healthy growth of 7% Q-on-Q and 16% Y-o-Y in the EV business, contributing to growth and improved profitability. Coming to the order wins during the quarter, we won 7 parts from 6 customers. This includes 1 part from ICE, part from carbon neutral vertical, 1 part from structural business and 4 parts from non-auto businesses of the part one. One part pertains to the global business and 6 parts are from domestic customers. For the global business, we have won an order to supply a part to the prominent Italian supercar manufacturer. This is follow-on order having successfully provided a part earlier, and we are encouraged with their faith in us. An OEM whom we have catered to in the U.S. and European operation has now given us business from the India operations. This is for a high potential part that we feel as I scope to open the door for new received a development order from a prominent German OEM. This part has potential to be scaled into fairly large-sized business if the initial trials are successful. For a domestic PSU player, we won an order of supply of cylinder head, which will find application in the defense segment. Another part that we are supplying to the India operations of a global leader in the off-highway construction and earthmoving equipment industry has a potential for future growth. With that, I will now hand over to Mr. Manish Kapoor, our Chief Operating Officer, who will share updates on key order wins, progress in our new business initiatives, development under the defense, aerospace and railway verticals. Over to you, Mr. Kapoor.

Thank you, Shyam, and good evening, everyone. I will build on what Shyam just outlined about the industry backdrop and Alicon's related performance by sharing some highlights from our operations, key customer developments and strategic initiatives during the quarter. From an operational standpoint, Q2 was marked by continued efforts to stabilize the improved throughput across our plants. Given uneven demand patterns in certain export geographies, we work closely with our customers in India to maintain healthy production levels and improve overall equipment efficiency through tighter process discipline and better manpower planning. Our digital process controls are now active across the majority of lines, and we are already seeing tangible gains in cycle time efficiency, scrap reduction and machine uptime. These improvements are beginning to translate into stronger operational leverage, which will support margin in the coming quarters. We are also progressing well on our automation road map with new robotic cells commissioned at our Pune facilities. These are helping us enhance consistency, reduce manual intervention and improve worker safety, all of which are part of our broader goal of becoming a truly smart foundry organization. Alongside, we are increasing the use of data analytics and IoT monitoring to predict machine health and optimize energy consumption. In our pursuit of operational excellence, we have onboarded a team of German experts to further enhance practices and processes in our casting operations. Leveraging their deep technical expertise and global experience, they will help us to refine our methods, identify opportunities to reduce costs, improve yields, enhance output and throughput and optimize capacity utilization. The objective is to build on our already high-performing casting operations and elevate them to globally benchmarked standards. All of you are aware of the successful induction of solar power generation across our facilities in India and Europe. Our sustainability initiatives continue to deliver meaningful results with nearly 50% to 55% of our total electricity requirements now being met through solar energy. Let me also take a moment to speak about our defense, aerospace and railways, DAR vertical. We have already initiated pilot discussions with leading defense and aerospace companies for lightweight aluminum and hybrid casting applications. The interest from these sectors is encouraging. Driven by India's localization push, higher indigenization targets and demand for advanced precision cast components, the DAR vertical is being developed as a stand-alone business pillar with dedicated technical and program management teams and will play an important role in diversifying the Alicon's revenue base over the medium term. In parallel, we continue to explore opportunities in rail and metro applications, especially for structural and powertrain-related castings, which require high strength to weight ratios and design complexity, areas where Alicon already has strong know-how. Overall, our focus remains on consistent execution, efficiency improvement and diversification. The combination of new program wins, technology-led productivity gains and expanding sector participation will support both revenue growth and margin improvement going forward. With that, we have covered the key business and operational highlights for Q2 and H1 FY '26. We will now open the floor for questions. My colleagues and I will be happy to address any queries you may have. Thank you.

[Operator Instructions] The first question comes from the line of Umesh Matkar with Sushil Financial Services Limited.

I have a few questions. There has been a strong 300 basis points improvement in the gross margins during the quarter. Could you please elaborate whether this improvement is driven by favorable product mix or price increases to the customers? Also, do you see this margin level as sustainable going forward?

Yes. Thank you, Umesh, for the question. So as explained by Mr. Vimal, so this is the result of the product mix, what we are focusing as a part of the long-term strategy, which we are following over the year. So we are focusing more on the 4-wheeler business. So if you see in this quarter, the EV industry growth is 4.2%, while other growth in the EV is 16%. So there, we are focusing more on the EV business, which fetches more high VA part. Secondly, as explained by Mr. Kapoor, we are working a lot on the operational efficiencies. We are utilizing more robos automation and also we are taking the support of the industry experts, especially the German foundry expert, which we have hired. So we are working with the product mix change on a long-term strategy basis. And also, we are working on the operational excellence, which is fetching us the higher margin.

Umesh, that one part is you're about talking about the sales mix that has explained. And second, you have asked about the price increases. So that is not being factored here. That is not the part of this improvement in our gross margins.

Okay. Another question I had. Can you share the details of the key order wins and new customer additions during Q2? And also additionally, are there any significant new production developments or technology programs under execution or expected to launch in coming quarters?

Yes, I think I have already covered in my speech. So, we have got the 7-part order from the 6 customer and the sale over 5 years will fetch INR 257 crores, so that is the new order which we have got in the quarter 2. And here, more focus what we are giving on the structural part, what I mentioned in my speech. And second, also on the non-auto, where we have got the 3 parts, and it also give us the risk mitigation because our 4% revenues comes from the non-auto, and we are focusing more on the non-auto so that we have the risk mitigation plan.

Right. My third question is, as mentioned in the previous con call, several new programs such as e-axle for JLR and new structural components for European OEMs are expected to commence production from Q3 onwards. Could you please update us on the status of these SOPs? And what would be the estimated revenue contribution from the programs over the next few quarters?

Yes, Umesh. So, for the e-axle program for the European customers, so we have already started the production. They are now in the ramp-up phase. So, we are continuously improving the volume, ramping up the volume for these programs. And also, for the structural part for the European customer. So, as I said, the -- initially, we got a few orders, which we have updated in the last con call. And in this quarter, again, we have got one order. So those orders are already in place. Particular order value, generally, we don't disclose in the con call, Umesh.

Okay. No problem. Just a second. So since these new programs are largely in the 4-wheeler segment and we have higher value addition, should we expect the corresponding improvement in EBITDA margins, say, from 13% to 14%, 14.5% once this SOP stabilize?

So, Umesh, this is -- all these are the forward-looking statements what you are asking. But definitely, what in every con call we are explaining now, maybe we had a bad quarter like the quarter 3 of the last year. But now you can see there is an improvement quarter-on-quarter in the margins. And definitely, you will -- it will continue in coming 2 quarters as well as you will see in the coming year also.

Okay. That's great to hear. Finally, could you share your medium-term outlook, particularly FY '27 in terms of revenue trajectory, expected capacity utilization and of course, margin you have covered it. So these 2.

Umesh, the same again, I think it is too early in giving these forward-looking statements, maybe because many factors are there that we have to incorporate because we are seeing that the domestic market that will do well. But still, we are not clear about the tariff issue with the U.S. because we have a big exposure in the U.S. market also and maybe dependency on U.S. market through some other countries' exports. So I think -- but definitely, there will be an improvement in the good -- maybe double digit, we can expect growth in the next year in the top line. But maybe I think in quarter 4, we will be able to give a clear picture.

[Operator Instructions] Next question comes from the line of Rahul Kumar with Nuvama.

I have 2 questions. First, on the order book side. So, you mentioned that the order book is at INR 9,100 crores. So could you tell us what is the execution time line for this? And also what would be the contribution of new orders to revenue in FY '26 and FY '27?

Okay. The time line for this order book is from FY '24 to FY '29. So this is the execution time frame. But for the revenue generation, as Mr. Vimal has explained, that is a forward-looking statement, and we are seeing lots of uncertainty in the global market. So it will be better if we give you some numbers in quarter 4. That will be much better.

Okay. Okay. The second question is on the -- if you could tell us the revenue share from U.S. in FY '25 and first half of FY '26? And what is the tariff applicable on U.S. exports in Q2? Is it 25% on passenger vehicle parts and 50% on other parts? And has the tariff reduced on commercial vehicle parts to 25% in November?

As far as we are aware, you are right. On the passenger vehicle, the tariff is 25%, while on the commercial vehicle, it is 50%, but I have not heard that it is reduced to 25%.

Okay. Sir, if you could tell us the revenue share from U.S. in FY '25 and H1 FY '26?

Roughly around 7% to 8% revenue, comes from the North America.

Next question comes from the line of Jyoti Singh with Arihant Capital Markets Limited.

Overall, congratulation on the decent set of numbers. And just wanted to ask a few of the questions. Like you mentioned about 7 new parts that booked in Q2. So could you quantify potential annual revenue that we are targeting and expected to start of production? And also what portion of new wins are EV or hybrid related? And how much of the 27 pipeline is tied up to future mobility platform?

Okay. Jyoti. So from this 7 parts, our average annual revenue will be INR 53 crores and the total potential out of this part is INR 257 crores, okay? And if we see out of this, 1 part is for carbon neutral. And then we have 3 parts from the non-auto on this.

Jyoti, only one more thing I would like to add to what Shyam is explaining that maybe like carbon neutral or some other customers. So we have added a very big, what we can say, the giant in automotive industry. So that is the start and maybe we are starting with a small volume, but there is a potential of big business with those customers.

Okay. And sir, just wanted a few clarity on the EBITDA margin side, like we have posted decent EBITDA margin this quarter, 12.7% -- so what's our target going forward in H2 and per se for '27 and '26?

So I think the same thing, Jyoti, you're asking. But hopefully, those should be the better one in quarter 3 and quarter 4 against the quarter 2.

Okay. And sir, like also mentioned in the PPT like for the CEO transition that is expected to happen from March '26. So how will leadership ensure the growth-wise and what our expectation? And if you can guide us on the future growth front and also any potential client that we are looking to add, if we can update on it?

Yes. So that one is that maybe you know Mr. Sikand, I think you have already -- you had meeting with him. So he has built up this and brought this Alicon up to this level. But Sumit, who is coming as a new CEO. So he's having a huge experience and his background is the automotive industry and having a good experience on the production side as well as a good relationship with the customers. And we are expecting that he will take the Alicon to a new height. That is what I can say at this moment.