Electrosteel Castings Limited (ELECTCAST.BO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q2 and H1 FY '26 Earnings Conference Call of Electrosteel Castings Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Hiral Keniya from EY LLP. Thank you, and over to you, sir.

Thank you, Sagar. Good evening, everyone. On behalf of Electrosteel Casting Limited, I welcome you all to the company's Q2 and H1 FY '26 Earnings Con Call. To discuss the performance of the company, we have with us from the management team, Mr. Madhav Kejriwal, Whole-Time Director; Mr. Sunil Katial, Whole-Time Director and CEO; Mr. Ashutosh Agarwal, CFO; and Mr. Gaurav Somani, General Manager, Finance. Before we proceed with this call, I would like to draw your attention to the fact that today's discussion may contain forward-looking statements that are subject to various risks, uncertainties and other factors, which will be beyond management's control. We kindly request that you bear in mind that there may be uncertainties while interpreting such statements. We will now start the session with opening remarks from the management team. Afterwards, we will open the floor for interactive Q&A session. I will now hand over the conference over to Mr. Madhav Kejriwal for his opening remarks. Thank you, and over to you, sir.

Thank you, Mr. Hiral. A very good afternoon to all. Thank you for joining us. The environment over the past few quarters for the ductile iron pipe industry has been challenging, and this quarter reflects the same. The ductile iron pipe segment continues to face demand slowdown due to delays in government spending. Consequently, production levels have been moderated, costs have increased and there's a downward pressure on pricing. Collectively, these factors have impacted profitability and created a challenging operating environment. That said, despite these headwinds, our other business segments such as cast iron pipes, ferroalloys, DI fittings and exports, along with the higher other income have supported the overall performance. Our balance sheet continues to remain strong, underscoring the company's inherent financial resilience. We are certain that the current phase is a temporary adjustment rather than a structural shift. The sector fundamentals remain strong, and we are optimistic about the medium- to long-term outlook. The nation's development vision is deeply linked with the creation of robust infrastructure, and we see the government's continued commitment to expanding drinking water and sewage networks as a major driver for growth. With this, I'd like to hand over to Mr. Sunil Katial.

Good afternoon to all. The extension of the Jal Jeevan Mission to 2028, coupled with the expected demand from river interlinking projects, irrigation through pipe networks and the replacement and maintenance work, which is coming for the old pipelines and all that underpins our confidence in the long-term growth trajectory of the sector but the pace of recovery may take a quarter or 2 at the most as it looks. We anticipate a strong rebound beginning in calendar year 2026. Additionally, I'm pleased to share that following our acquisition of the T.I.S valve business in Europe, we are progressing with plans to integrate valves into our product portfolio overseas as well as in India. To conclude, while the challenges we face are transitional, the opportunities ahead are transformational with robust demand drivers, government initiatives gaining momentum and our expanded product portfolio, we are confident that Electrosteel Casting is well-positioned to deliver sustainable growth and create long-term value to all our stakeholders. Thank you, and we are looking forward for sharing more details as we proceed. With this, I would like to hand over the floor to Mr. Ashutosh Agarwal, our Whole-Time Director and CFO, for taking you through the financial highlights.

Thank you, Katial Ji and Madhav Ji. Good afternoon, and warm welcome to all the investors joining for this call. Sales volume of DI pipe, fittings and CI pipe during the quarter stood to 1.39 lakh tonnes, down by 28% year-on-year, which impacted the overall financial performance of the company as intimated by Madhav Ji and Katial Ji. For the half year, sales volume was 3.02 lakh tonnes, a 25% decline compared to H1 of 2025. Decline in volume was primarily due to shut down in the domestic -- slowdown in the domestic market. However, export market volume grew by 8% year-on-year partially offsetting the weakness in domestic demand and providing support to overall business performance. During the quarter, other income stood -- include provision written back to the extent of INR 64 crores following the settlement of entry tax matter of West Bengal government, which was a onetime payment only. This provision has been created in the books during the year financial year 2013 to 2018 and the following settlement, it was no longer required. The reversal issue -- reversal also resulted in a corresponding reversal deferred tax amounting to INR 21 crores. Net debt at a stand-alone level stood INR 1,626 crores. The utilization increased by around INR 230 crores compared to June 2025 mainly due to cash outflow relating to acquisition of valve company and other business requirements. Interest cost more or less remained stable in spite of high utilization, supported by lower borrowing cost. Now I will take you through consolidated financial results for Q2 2026. The total income stood to INR 1,491 crores lower year-on-year, primarily due to reduced sales volume. EBITDA, including other income, stood to INR 188 crores with a EBITDA margin of 12.6%. EBITDA excluding provision of write-back of INR 64 crores as intimated to you earlier in this statement stood to INR 124 crores. PAT was at INR 78 crores, translating to PAT margin of 5.3%. Now I'm highlighting our consolidated performance of H1 2025-'26. Total income stood to INR 3,077 crores EBITDA was INR 386 crores with an EBITDA margin of 12.6%. EBITDA excluding write-back stood to INR 322 crores and PAT reported INR 167 crores. Moving to stand-alone results of this quarter. Total income stood to INR 1,283 crores lower year-on-year due to sales volume implemented by Madhav Ji. EBITDA was INR 174 crores with an EBITDA margin of 13.5%. EBITDA excluding the provision written back of INR 64 crores stood to INR 110 crores. PAT stood to INR 76 crores, translating to PAT margin of 5.9%. Now I am highlighting our stand-alone performance of H1. Total income stood to INR 2,709 crores. EBITDA was INR 360 crores with an EBITDA margin of 13.3%. EBITDA excluding provision write-back stood to INR 296 crores. PAT reported INR 162 crores. With this, I would like to open the floor for the question and answers, if any. Thank you very much.

[Operator Instructions] Our first question comes from the line of Pujan Shah from Molecule Ventures.

Sir, my first question pertains to -- so as we expect that the demand would be revived or rebound in calendar year -- starting calendar year '26. So just wanted to understand on your part, sir, what makes us so confident enough that the demand will rebound because like in last 12 to 15 months, the JJM has been slowed down, and we are witnessing challenge in terms of fund flow. So just wanted to understand your view.

Sir, as we are -- there is definitely work pending to be done, which is evidenced from the fact that there is adequate order book in the market. It's about whether that order book materializes to material getting dispatched. Now the level of activity that is taking place, if you see even in the news, it's highlighted that the central government is working towards getting clarities on certain issues that have been shown -- that has been reported to them. And they are doing this because they are -- they have a clear intention that they need to clarify these issues and continue with the project and implement whatever is remaining to be implemented. So this Jal Jeevan Mission is definitely something that is there at the center of the government's attention, and they want to move on with it and tick mark the complete box. So, for that to take place, they will have to allow the projects to finish, and that will require funding, and they are quite keen on that once they get clarity on certain issues that are -- that have been highlighted and reported to them through the local authorities and by the society and population in general.

Got it. So just wanted to understand the second thing is -- so we have seen some key challenges also by the government. And -- so there was a key notification also mentioned by the government that there are some work has not been done as per the guided time lines. So, is that outcome has been considerable from by the government or it is still under purview by the government?

Sir, there are multiple issues that have been highlighted to the government, one of which is non-timely completion of projects. So, in certain cases, that is a fact. Now some of the delays have happened due to funding constraints. Some delays have happened due to operations. Some delays have taken place due to administrative problems. So, it's kind of a mixed bag of a lot of things. And the problem is that water being a state subject, the administration is very much distributed and diluted at the ground level. So, to accumulate and come to a conclusion for something like that takes time. And that's why they're taking a little longer than what it should to come to conclusions for the underperformance. Once that clarity is there, I'm very certain that things will restart. I'm sorry, you'll have to forgive me, I'm a little unwell. So, I might not be able to -- I might break in my sentences.

Not at all an issue sir.

So, the long and short story is that they will take a little bit of time to come to conclusions of why certain delays or certain incorrect laying and other such problems have happened. But most definitely, corrective action and further implementation of the program will happen. If that was not in the interest of the center, then they would have probably not extended it with an enhanced budget. And they wouldn't be following up so aggressively to draw conclusions. It's because they can restart the process.

Got it, sir. My last question would be, so the government is representing that they have done a work of around 81% around of what they have been planned to commit it. So just wanted to understand on the ground reality, how much percentage of work has already been laid off or how much percentage of work has been done considered to what they have been stating out?

Sir, functioning household PAP connection would be close to 50% -- between 50% to 60%.

So still 40% work needs to be done, than what is stated.

I would say from the supply of pipe perspective, around 40% and from the work on ground perspective, probably 50%, 55%.

Our next question comes from the line of Sailesh Raja from B&K Securities.

Sir, there was an article in the Indian Express today mentioning that the central government, as you rightly pointed out that they have been taking actions against several officials and contractors across multiple states and union territories also following the complaints that they have received regarding the financial irregularities and the poor quality of work under the JJM. So, some states still they have not shared complete details with the central government. So do you think that once this review process is fully completed, then the government will resume, or they will accelerate fund deployment under this JJM program. You are confidently saying that from the beginning of the calendar year, it will start -- the government will deploy the fund. So can you give clarity on this? What gives you the strong feel that it will start?

Sir, there is -- based on the progress they have made so far and the further inquiries that they've shared with the states, that makes me feel that starting calendar year, they would have reached their conclusions and they will start opening up the funds. And as and when they do that, there's always a delay of 2, 3 months for it to show in your books, in your performance because there is the buildup of stocks and everything that's associated with it, like how when there's a slowdown, it took a quarter to take effect. So I'm -- based on those movements that I see, I'm fairly confident that starting next calendar year, things will start moving. Right now, there's a deadlock because of dissipation of information and scrutiny. Once that scrutiny comes to a conclusion, based on the conclusions of the scrutiny, maybe some states will start much faster. Some states will require further scrutiny. But definitely, it will start.

Okay. Okay. Sir, what -- can you give volume guidance in this year? And also if demand comes back, can we expect double-digit, in terms of kg I'm asking. So in this quarter, it is around INR 6, INR 6.5. Can we expect this is bottom? Or do you see further correction in next 2 quarters? And next year, with expected improvement in the demand, can we expect double-digit EBITDA per kg next year because the supply -- there is an increased supply in the market. If you please give clarity on this?

Sir, starting next year -- I think starting quarter 2 next year, we can start seeing a dramatic improvement in the production levels and also in the margins per tonne. So definitely, I think a double-digit margin per tonne is very much achievable starting Q2 next year. Q1, things will start moving. Q2, there will be a pickup. And then by Q2 -- sorry, by Q1, there will be a pickup in Q2, we will be pretty much established at...

This is financial year, you are talking?

FY yes, sir. First quarter 4 this FY and then quarter 1, quarter 2, next FY will be -- you'll see an incremental improvement as per our assessment.

Okay. Okay. Okay. So what is the total volume you are expecting this year?

This year, possibly, it could be 550,000 around that.

Okay. Okay. Sir, what about the next year, sir? How much you are expecting with whatever that you are saying that it will come back? So in that case, what could be the number for the next year?

Next year, as of now, we are thinking that we should get to possibly between INR 8 lakhs to INR 8.5 lakhs in that range.

Okay. Okay. Great, sir. Sir, what is the CapEx plan we have, sir, this year and next year?

For this year, predominantly, we are focusing on sustenance CapEx like at Chhirkala, we are rebidding one of our battery. And apart from that, the major focus is definitely on, I mean, sustenance-based CapExes. Figure, it may be difficult for me, but possibly around INR 300 crores or so, everything put together.

This would include minor debottlenecking capital expenditures as well. So a mix of maintenance and debottlenecking. There is no major CapEx per se that is planned for this financial year or the next.

Our next question comes from the line of Rudraksh Raheja from ithought Financial Consulting.

Sir, could you throw more light on the gross margin expansion in H1 FY '26? We have seen some revenue contraction, but gross margins have expanded.

Yes. So gross margins was around 48% for the first half. It has been more in line with what it was last year because the prices of the products have come down, but also at the same time, raw material prices have also come down. And hence, gross margins have been intact. Revenue has come down, yes, because what we said, as we mentioned, the volumes were lower. So revenue got impacted during the first half.

Got it, sir. And sir, the other income component is higher in H1 of FY '26. Could you provide more details on that?

Other income increase is just because of reversal of our previous liability, which I've said in my opening remarks on account of this entry tax matter. Entry tax matter got resolved, and there was a case going on with the government of West Bengal, INR 64 crores amount has been reversed. That is why the other income has increased in the P&L.

Got it, sir. The employee expenses, I'm assuming that since we have added some capacities since last year, so employee expenses have increased in line with that. So going forward, do we see this INR 150 crores, INR 160 crores as the quarterly rate? Or do we expect more increase in employee expenses?

There might be a marginal increase in the employee expenses as we expand our business in the valves product portfolio. In fact, this increment is largely related to that portion. So there will be a marginal increase, but it will not be substantial enough really. It might be that it goes to INR 165 crores or something like that.

Understood, sir. I think I may have missed on the volumes part. You said you were expecting around INR 5.5 lakhs in FY '26.

Between INR 5.5 to 6 lakh, somewhere between that.

Yes. And how much have we done in the first half?

2.7.

Okay. Understood, sir. And sir, do we have like a sustainable maintenance CapEx that we have to incur every year? Let's say, we are not expanding in any year, but still we have to incur some maintenance CapEx. Do we have a number for that?

No. In fact, we had a broad plan for next 3, 4 years. We had planned that possibly it could be around, say, INR 500 crores for next 4 years.

So -- and any kind of capacity addition would be over and above this INR 500 crores?

Yes, please. This is, as already clarified, it is predominantly for sustenance and some component of that is for debottlenecking only.

Our next question comes from the line of Deepesh Agarwal from ICICI Prudential AMC.

I can see there's a dramatic increase in your overall cash and bank balances on a consolidated basis, we have gone up by more than INR 400 crores -- so is this on the back of the subsidiaries or anything else?

So it's -- there were some fixed deposits, which as per Ind AS, beyond 12 months were clubbed in other noncurrent assets, which are now supposed to get matured and hence, has been transferred to current assets. So it was always there in the books.

All right. Where is our current capacity standing? I think we had plans to scale up to 1 million tonnes by the end of this year. So where are we standing? And are there any plans to incur any more capacity addition?

So we were looking at the capacity expansion to 950 million to 100 -- to 1 million 950,000 to 1 million. At the moment, our installed capacity remains at 850,000 tonnes, and we are hoping to get to 90%, 95% of that figure next financial year. Due to the slowdown in the domestic market, this financial year, we have had to moderate our tonnages. As mentioned, we will be getting somewhere between 5.5 lakh to 6 lakh tonnes, 550,000 to 600,000. As for the CapEx for the expansion from 850,000 to 950,000, at the moment, we have kept it on hold till there is a cleanup of inventory and pickup of capacity to 850,000 tonnes. And after that, we shall take a decision.

Right. Just a couple more questions. During previous calls also, I think you have highlighted that in order to reduce the dependency on JJM and expand more revenue streams, there were certain other investments being done in terms of gaskets, in terms of the acquisitions and even the subsidiary we had and even acquisition we made in Vietnam. So any update on or any progress that has been made in all of these areas?

So acquisition in Singapore, I think you mean?

I mean the Singardo . Yes, at Singapore, yes.

Yes. So sir, Singardo , we have seen positive results for the quarter and half yearly. There is a slow increase in the other product portfolio within Singardo , where we are seeing that almost 40%, 45% of its revenue is coming from other items that we are buying and selling over there for the water and gas companies. As for T.I.S, it has only been merged. It's been 2 months. We are very much deep into the integration process. And I think by the end of this FY, we will be pretty much in tune with them. And there are aggressive expansion plans that have been put in place for that. Of course, once they are concrete, we will be able to share them exactly with you. But definitely, these 2 factors are going to play -- especially the valve is going to play a big role in diversifying our portfolio and our -- both geographic and customer base.

[Operator Instructions] The next question comes from the line of Rajesh Agarwal from Moneyore.

Sir, out of the pending order of 6 to 7 months, how much is government order of Jal Jeevan and private orders? Can you quantify that?

A round 60% would be JJM. If you include domestic, it will be around 50% to 55%. And the rest is non-JJM and export.

Okay. So we'll continue to getting -- how is the traction in non-JJM orders that is good for this balance 40%?

So that is -- even Amruth at the moment is a little slow, slower than the pace that it had at the beginning, but it's not poor in the sense that it's not on hold like it is with JJM. But irrigation has picked up quite well. And at the moment, the entire industry is largely operating on irrigation and a fair bit of Amruth.

Is the traction in irrigation orders?

Good, decent traction in irrigation, please.

Okay. And sir, my next question is that Indus Water, whatever is the government is moving very fast that project DPR reports and everything has been called. So can that be a big opportunity for us?

I'm sorry, you weren't very clear which water?

Indus Water treaty, which was scrapped. I think government is moving fast, they are called for a DPR and all. In fact, the next 6 months, they will be started allocating orders. So whether that is a good opportunity for sir, big opportunity for us?

Sir, it will be a good opportunity, no doubt. I mean, the River Link project as a whole, this will be a similar nature project as the River Link. It will be a diversion of huge volumes of water. So this, along with the River Link seems like a good opportunity. Of course, the initial movement or divergence of the route is done through canal. But then all the distributor of that, which go into irrigation and drinking water will use piped. So with a slight delay, there will be good opportunity coming up from that.

And the government was saying the next areas which have been played, that also is a good area of opportunity for irrigation if the work starts there?

That actually is something that is going to probably scrutify even before the River link.

River Linking, Okay. Sir, our payments also got stuck with the EPC contractors?

A little bit, sir. There is a slight increase, although we've been very disciplined about it. So it's not shot up too much. But our -- there have been delays through the EPC contractors. A couple of major delays had happened with the government departments, but that is slowly clearing up now.

Sir, what I heard from the other players, there are a lot of orders pending in the system, old orders, not the new. The payment for that has not been released. So people are going slow on that order.

So as I was mentioning earlier in this call, there is no dearth of order. It's the dearth of dispatchability of that order because of the stoppage of the fund.

So any particular reason for stoppage of funds because this year also government has spent only 4% of the allocated in the budget. Sir, any particular reason?

They want to try and understand why there are certain delays and why there are certain complaints and reports that have gone to them, which are negative in nature. And only -- it's like a check-back mechanism, sir. So they're trying to course correct before it gets too late. So there is a temporary slowdown or temporary shutdown for that reason.

And sir, one question, whether a lot of hydroelectricity projects will come in Brahmaputra and whether that also are opportunities for us?

I'm sorry, sir, many what projects?

A lot of hydroelectricity projects will be also coming in.

Sir, that will give a slight push to our pipe business, but it will give a good -- a very good push to our valve business.

And sir, now there are 2 bookkeeping questions. Whether this quarter, the acquisition which we have done, it includes the revenue for that acquisition, Italian acquisition?

2 months revenue.

That is how much, sir?

That is INR 55 crores.

Okay. And that EBITDA level, we are breaking even, we're making money?

Yes, it is more than breakeven.

More than breakeven. So that business has the opportunity to scale up?

Definitely, yes.

Okay. And sir, last question, when you said INR 60 crores was the other income extra for the entry tax, and you said below what is the net effect? I want to understand the net effect on other income.

Basically, INR 60 crores is on account of our entry tax there was some income on account of FD interest. On the fund we got from the railway department, we got the income on the FD. And some INR 6 crores refund we got from the department that is also included there.

Okay. So the net effect is how much? That is what I wanted.

Net effect is around INR 65 crores.

INR 65 crores is extra other income.

No, the interest on FD is not extra other income. It is a regular income since last 2 years.

Our next question comes from the line of Saket Kapoor from Kapoor Company.

Hope I’m audible, sir.