Steelcast Limited (513517) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Steelcast Limited Q1 FY '17 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Arpit Mundra from EY team. Thank you, and over to you, Mr. Mundra.

Thank you, Renju. Good morning, everyone. We welcome you all to Steelcast Limited earnings call to discuss the Q1 FY '21 financial results. Today from the management side, we have with us Mr. Chetan Tamboli, Chair and Managing Director; Mr. Rushil Tamboli, Whole Time Director; Mr. Subhash Sharma, Executive Director and CFO; and Mr. Umesh Bhatt, Company Rector. Please note a copy of all the decisions is available in the Investor section of the website as well as on the stock exchanges. Further detailed safe harbor statement is given on Page 27 of the investor presentation of the company. Please note that anything said on this call, which reflects the outlook for the future or which could be consulted as a forward-looking statement must be reviewed in conjunction with the richer company faced. Now I shall hand over the call to Mr. Chetan Tamboli for his opening remarks. Over to you, sir. Thank you.

Thank you, Arpit Bhai and a very good morning to everyone. We welcome you to Steelcast's earnings conference call to discuss the company's performance for the first quarter ended 30th June '26. Our board meeting concluded yesterday and the financial results along with the investor presentation have been uploaded on the stock excel and the company's website. We trust you had an opportunity to review the same. Now let me begin by sharing an overview of the global and Indian economic environment. The global economy remains resident despite geopolitical tensions, trade policy shifts and supply chain realignment. Global GDP growth was estimated at 3.3% for the calendar year 2026. India continues to be the fastest-growing major economy supported by robust domestic consumption sustained government-led infrastructure spending and strong policy focus on manufacturing and localization. GDP growth is estimated at 6.5% to 7% for the calendar year '26. Industrial activity remains strong across manufacturing, infrastructure and mining, creating a favorable demand environment for key industrial sectors. Government initiatives such as Make in India, PLI schemes and infrastructure investments continue to support India's long-term manufacturing and industry growth story. Let me now briefly touch upon industry trends before moving on to our financial performance. The casting and forging industry continues to benefit from strong demand across mining, eating, construction, railways, defense and other industrial sectors, supported by increased infrastructure investments, manufacturing localization and global supply chain diversification. Demand fundamentals remain robust, driven by strong equipment utilization in the mining and confer sectors. Continued expansion in infracto project and growing requirements for ground-engaging tools were passed and high-performance steel castings you see excavators, loaders and heavy or machinery. The Indian foundry industry is projected to grow at a healthy pace, supported by investments in transportation, energy, mining, industry development, while the forging industry continues to benefit from opportunities across automotive, defense, railways and heavy engineering sectors. Let me now briefly highlight our quarterly financial performance for Q1 FY '27. During Q1 FY '27, the revenue from operation was at INR 124.82 crores, a growth of 17% from INR 1,06.69 crore in Q1 FY '26. EBITDA during the quarter was at INR 35.24 crores, a growth of 17.37% from INR 30.02 crores in Q1 FY '26. EBITDA margin was at 28.23% from 28.14% in Q1 FY'26. PAT during the quarter was at INR 23.71crore a growth of 19.6% from INR 19.88 crores in Q1 FY '26. Net margin was at 19% from 18.4 18.64% in Q1 FY '26. Ladies and gentlemen, as we look ahead, the company remains firmly committed to sustainable capacity-led growth in line with our increasing production requirements and our focus on reducing carbon images we are significantly strengthening our renewable energy footprint. Currently, 2 renewable power projects are under implementation, a 2.4-megawatt hybrid power plant comprising of wind and solar and 1.4 megawatt solar power plant. Both projects are progressing and are expected to be commissioned before 31st December '26. Simultaneously to cater to growing market demand and hence, our manufacturing capabilities the Board has approved the establishment of greenfield foundry with a capacity of 8,500 tonnes, this facility will manufacture steel castings across a wide range of applications from 5 kg to 1,000 kg and involved a planned investment of approximately INR 120 crores over the next 2 years. While energy costs have remained elevated due to the impact of global geopolitical developments and sustained pressure on fuel prices. We have successfully ensured adequate fuel availability to support uninterrupted production backed by these strategic investments and operational preparedness, the company is fully geared to meet the growing demand of the market and capitalize on emerging growth opportunities in the years ahead. With increasing input cost of various raw materials and natural gas, we would be having price correction on upward basis, and this will be effective first July '27. In the end, I would like to state that as communicated to you in the previous quarter, we remain confident in our ability to sustain growth momentum, maintain healthy profitability and deliver long-term value creation. Targeting a growth trajectory of approximately 20% CAGR over the coming years. And for FY '27, we expect a growth of 25% compared to last financial year. There will be a sequential improvement in top line from here on for several quarters. Margins will remain in guided range and focus is to drive top line. Operating leverage benefit should trickle with scale increasing. Increasing CapEx should give you a sense of how the demand scenario is low and how our existing clients are looking at increasing sourcing from us. With these remarks, I would like to thank all of our stakeholders for their continued trust and support. I now invite your questions and look forward to an engaging discussion. Thank you.

[Operator Instructions] The first question comes from [indiscernible] with Trinetra Asset Managers.

So my first question is that in, as you mentioned, that we are seeing high in fuel prices and other raw materials. So how much do you plan to pass on of that to the customers? And I think it started from July. So how much has already been done and how much will be done in the coming quarters?

As you all know that we have the sales price variation formula with all our customers. The input prices have increased from March onwards. So the price correction effective first April was very nimble. And most of it will come from effective of first July. And all the major raw materials are part of the formula, and we'll be able to pass on everything, all the increases.

Okay. And sir, this ground engaging tools, how much of the revenue contribution is coming from that segment?

As of now, it's less than 1%. But by FY '29, we expect this to reach 4.5% to 5%.

And sir, how much was it last year for FY '26?

I think more or less same as the current year, but we are in the midst of developing new parts. So once they are approved, we will go into serial supplies. And gradually, year-on-year, we will increase with FY '29 numbers at maybe about 4.5% to 5%.

[Operator Instructions] Next question comes from the line of [ Ankur Kumar with Alpha Capital. ]

Sir, you said this year, there will be a 25% growth. So that will be like volume or the volume plus price increase that you're talking about?

It will be see effect of price increase, it will happen whatever it has to happen but we will have a volume growth of 25%.

And sir, even in this quarter, our margins are quite good and is 22%, 20%, 26%, 27% types? And we have not got any price increase. So do you think margins will also go up in the coming quarters?

Yes, margins are likely to go up because of increase in input costs, which will be compensated to us -- and the operating leverage will also kick in as volumes increase.

So this increasing co pricing, what is the offer of numbers, sir?

See, it varies from component to component. It varies from customer to customer. But whatever increase we may have in all the input prices, we will be able to pass on everything.

So would you like to comment any raising of range at 5%, 10% range? How much?

I think it'd be difficult to project, but 1 can assume that all the increases in all major raw materials will be passed on, and this is part of the standard formula with our customer for many, many years.

Got it, sir. And sir, on the U.S. railroad side, we were expecting things to start flowing -- when can we expect that?

Lately, last several months, we have changed our track. We have changed our strategy. We are not pursuing the U.S. railroad for the time being because there are many opportunities in better markets, better products, better pricing. So we will address this rail road a little later and cash on the opportunity is available for the other industrial sectors.

Sir. And sir, on this new CapEx, when can we expect things to start in terms of capacity expansion? And when can we expect revenues to start paying?

Our internal target date to commission the plant is first -- 31st March FY '28. And as of -- as we speak, we are quite confident of achieving this. So we'll have some additional volumes for FY '29 also.

So this current utilization will go to around 100% to FY '28 is our expectation.

I think we already uploaded on the stock exchange. We plan to reach 90% by FY '29. So -- and planning above 90% is not advisable because you will have many, many bottlenecks when the utilization goes above 90%. So when we have this 90% utilization, the additional -- the new projects will also start kicking in and giving us higher volumes.

[Operator Instructions] Next question comes from the line of Harshil Solanki with Equitree Capital.

Sir, I have 2 questions I've list them all together. But in the annual report, our number of employees have gone up by to employees, which is only 3% increase. So I wanted to understand whether this strength will be able to help us achieve a 25% volume growth? Or do we need more employees to change them and get ready. This is my first question. The second is, as you mentioned, you have not got any price hikes -- but if you see our gross margins have improved in this quarter. So I wanted to understand what has driven this improvement in the gross margins, whether this is due to the lower cost inventory which we had? Or is there a product mix change, which has helped us such in this? And 1 is what could be the peak revenue potential that is possible from the new CapEx of INR 120 crores that we are doing. These are my 3 questions.

So as far as detail are concerned, we are adequately stack from for all levels. For the current year targets and our budgeted production, we have people available going forward, somewhere towards the middle of this year, we'll start recruiting people and train them and so they are ready for FY '28. And there is any more requirements, we will again recruit sometime in FY '28 or FY '29. Now -- so that takes care of your question on the people requirement. On the margins, there's a very minimal increase we have got effective first April. The major will come now is effective first of July. But probably the improvement in margins is because of scale, which has higher volumes. So as I said earlier, the operating leverage will kick in once volumes grow. And to answer your peak question of the revenue potential -- in the new facility, it will be about INR 300 crores.

Okay. Okay. Understood. I have more questions, I'll follow back on the queue.

The next question comes the line of [ Shah with Philip PCG. ]

Wanted to understand your order book is on current rate?

INR 140 crores.

And if you compare with, let's say, last year same time, what kind of growth it is there on the order book side?

We have generally booked for about forward 4 months and every month, the orders are replenished, but the -- I don't have the numbers now, but there will be increase this year compared to last year.

Okay. Okay. And sir, when you are guiding for planning to incur a CapEx of INR 120 crores in next 2 years, so which segment, you are seeing an incremental growth or which customers is giving you confidence to put up a new plant?

So as you know, we cater to 9 different sectors. -- which is, of course, part of the investor presentation. And so this will be coming from these 9 sectors only. And sorry, we will not be able to give names of the customers, but it will be from this end user industries, which we are catering now.

Okay. And sir, as you mentioned about the ground engagement tool that will contribute almost 5% of the revenue. How about in case of defense since you are also actively engaged in focusing on the defense side also?

Defense side, we are pursuing, but we are giving that lately past 1 year, a low priority because the opportunities, the pricing is far better than defense in what we are doing. So the -- we have shifted the focus to sectors other than defense.

Next question comes from the line of [ Krishna with Electrum PMS. ]

A couple of questions. So first, if you could elaborate more on the growth drivers in terms of segments that we are focusing on in order to drive this [indiscernible] cargo over the next 3 years. And secondly, some more color on the new parts that will have nothing, meaning which segment? Or is it even more export focus to domestic? Early, the new CapEx that we're doing. So are we focusing more on exports because what I see that in Q1, '27, although the tariffs and everything was there in the last 1 year, 1, 1.5 years, we have seen to increase our export mix year-on-year. So what are the reasons for the same? And if our exports is more focused towards Europe and other regions rather than U.S. so all help.

See, historically, if you see our exports have been anywhere from 45% to 50%. In the current year, we'll do exports of about if 50%. Next year, the domestic should be slightly better, maybe 53% and export 47%. So this has been the range several years. And the demand is coming from all the sectors, which we are catering now and from customers from each of these sectors. Sometimes the export mix increases, it goes as high as 60%, 62% also here. But if you see over a longer term is 45% to 50% exports and balance is domestic.

All right. So in terms of new parts, any color on what we're developing for the segment?

See I think if you've been attending our investor calls before, there is a continuous drive for new parts development. In last about 18 to 24 months, you would have developed more than 100 parts. So all these parts we will now be going into serious suppliers. Plus, in addition to that, the overall demand is also on an increasing trend. So the higher -- the increase in volumes will be coming from new parts as well as increase in the demand from the customer. It's a composite effect.

Next question comes from the line of Mosam Shah with [indiscernible].

Congratulations on the consistent margin generation. And I have a few questions. So basically, just wanted to know this 90% capacity utilization for FY '29 that we are targeting -- is it post commissioning of the new capacity that we are building or is it fully on the existing 29,000 tonnes?

No, no. This 90%, what we plan to achieve by FY '29 is on the existing capacities.

Because as you said, this would be commissioned in FY 31st of March of FY '28. So for FY '29, this would be already...

Being the first year of operations, we are not yet fully adding that capacity, but somewhere rowing the line, we will start seeing revenues from that facility also. So the reason of doing this is because we are reaching 90%. So we need to create additional capacity.

Okay. And just wanted to confirm this FY '26 capacity utilization was 48% and this quarter 1, capacity utilization is 63%.

But for the whole year, we plan to go about 63%.

Okay. Okay. And I also wanted to confirm on the order book number is INR 140 crores, right?

Yes, INR 140 crores.

Okay. And any update on the Israel Defense component that we had supplied?

I think -- but the trials are going on, we should hear something in the coming few months.

Next question comes from the line of Aman Srivastav with Bellwether Capital Private Limited.

Sir, I just wanted to know, over next 12 to 18 months, what would be our new port contribution to business from existing customers, which is currently not in the existing business? So yes, I just wanted to -- just want to feel in the next 2, 3 years, how big it can be.

Roughly, we can assume about 20% of revenues coming from the new parts on -- this is a very ballpark number, but you'll have to really deep dive and go and see component-wise, -- but over the next 2, 3 years, 20% of the business will come from new parts and 80% should come from the existing parts because of increase in demand.

Okay. Okay, sir. So sir, we have guided like 25% growth for FY '27 and 20% over the next few years. So qualitatively, can you tell us, sir, what is driving this demand?

So as I said earlier, -- this is a combination of the new parts into serial supplies and also increasing the demand from customers. It's a composite effective. And all our 9 sectors have been requesting us for improvement in supplies increasing orders. So overall, the engineering industry in general is doing good in India.

Next question comes from the line of [indiscernible] with Southern Ventures LLP.

I have a question to the new CapEx, whether the land is available for the new 1 and whether the raw material sourcing would differ from this greenfield expansion or we are tapping to the alarm ecosystem bucket?

See, the government of Gujarat has given this 100,000 square meters of land some months back, -- so we already had this land parcel available. Secondly, the new facility is exactly 12 kilometers from the existing facility. So the raw material procurement will have the same strategy as what we are doing now for our existing facilities. Have I answered your question -- 2 questions -- was there a third one?

The third 1 is just on -- if you can pay some light on the development in ship braking industry and whether the outlook looks positive from a raw material sourcing perspective for because lots of ongoing in the market?

Steelcast does not use any raw material from the ship racking because what we need is we make high strength, low loiteels carbon steels, and we need a much cleaner scrap very low sulfur, phosphorus and carbon. So we source our robots from elsewhere.

Okay. But your interpretation has been mentioning along ecosystem, the seed supplier?

So there are a lot of -- see, downstream industries which have come up because of this -- and we do buy from those downstream industries, not from [indiscernible], but rolling mills and some other industries which are downstream to ship breaking. So it's from the locational advantage point of view.

Okay. So you are using this ecosystem as a supplier base, but not strictly from a ship breaking?

Absolutely yes.

Next question comes from the line of [ Saket Saurav with Sage Capital. ]

So you've talked about 9 segments that you cater to, which is 6 plus 6 existing and new -- so what would be, say, a contribution of, say, different segments? Like how much artmoving segment would contribute and so on, sir, just wanted to get a sense of segmental contribution? And how has it trended say, over last 5 years, if there is a data around that. Just to get a sense how we have -- because 1 of the major, I think, the turnaround thing that we have managed this is reduced dependence on specific sectors and specific clients. So can you just help me with this data, sir?

See the major contributing industry sectors are mining or slowing in construction. All these 3 account for around 17% and for the other 6, it's about 30%. But over the last several years, we have added this new industry sectors to derisk our sales. So say, 10 years back, our sales to mining equipment industry was about 84%, which has dropped to about 54% now. Moving was near 0, which is now about 36%. Construction, we were at 15%, 16%. We are now at about 20%, 21%. In other sectors, as I said, so we have broadened our sales by adding customers or addition of new parts. And even the export geographies are earlier, there were 2 which are now -- we are now doing with about 16 countries here. So net-net, we have substantially derisked our score. This is not the end of the story. We'll continue working on this for the next several years. So this is what it is at.