Steelcast Limited (STEELCAS.NS) Q1 FY2026 Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q1 FY '26 Steelcast Limited Conference Call hosted by PhillipCapital Private Client Group. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Dhiral Shah from PhillipCapital PCG Desk. Thank you, and over to you, sir.

Yes. Thanks, Bhavya. Good evening all. On behalf of PhillipCapital Private Client Group, I welcome you all to the Q1 FY '26 Earnings Conference Call of Steelcast Limited. Today from the management, we have Mr. Chetan Tamboli, Chairman and the Managing Director; Mr. Rushil Tamboli, Whole Time Director; Mr. Subhash Sharma, Executive Director and CFO; and Mr. Umesh Bhatt, the Company Secretary. I now hand over the conference to Mr. Arpit from EY. Over to you, Arpit.

Yes. Thank you, Dhiral. Good evening, everyone. We welcome you all to Steelcast Limited Earnings Call to discuss the Q1 FY '26 financial results. Today from the management side, we have with us Mr. Chetan Tamboli, Chairman and Managing Director; Mr. Rushil Tamboli, Whole Time Director; Mr. Subhash Sharma, Executive Director and Chief Financial Officer; and Mr. Umesh Bhatt, Company Secretary. Please note a copy of all the disclosures is available in the Investors section of the website as well as on the stock exchange. Further, a detailed safe harbor statement is given on Page #25 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 construed as a forward-looking statement must be reviewed in conjunction with the risks that company faces. Now I shall hand over the call to Mr. Chetan Tamboli for his opening remarks. Over to you, sir. Thank you.

Yes. Thank you, Arpit bhai. Good evening, and a very warm welcome to all of you for Steelcast earnings conference call to discuss company's performance during the quarter ended June 30, 2025. We concluded our AGM and Board meeting yesterday and uploaded the financial results as well as the investor presentation on the stock exchange as well as on our company's website. I believe most of you would have got a chance to go through the same. And I am joined today with my colleagues, Rushil Tamboli; Mr. Subhash Sharma, Mr. Umesh Bhatt. Now let me take you through the highlights of the financial performance for the current quarter Q1 versus Q1 FY '25. During Q1 FY '26, the revenue from operation was INR 106.7 crores, a 38% growth compared to corresponding quarter, INR 77.4 crores in Q1 FY '25. EBITDA during the quarter was at INR 30 crores, a 44% from INR 20.8 crores in Q1 FY '25. EBITDA margins was at 28.1% and an increase of 120 basis points from 26.9% in Q1 FY '25. PBT during the quarter was at 26.7%, a 52% growth from INR 17.5 crores in Q1 FY '25. This translated to PBT margin of 25%, an increase of 235 basis points from 22.6% in Q1 FY '25. PAT during the quarter was at INR 19.9 crores, a 54% growth from INR 12.9 crores in Q1 FY '25. PAT margin remained at 18.6% and an increase of 190 basis points from 16.7% in Q1 FY '25. During Q1 FY '26, we maintained a healthy and well-balanced revenue mix with domestic sales contributing 46% and exports for the remaining 54%. We witnessed a strong rebound in revenue across both domestic and export markets driven by continued customer inventory replacement and fresh orders for new components. This recovery not only reinforces the underlying demand trend, but also reflects the strength and resilience of our business model, enabling us to deliver profitable growth. Looking ahead, we anticipate the mining and earthmoving sectors to lead the momentum in FY '26 with construction and railroad industries expected to show meaningful improvement. We currently have over 3 dozen new components under development in the GET segment as well as other segments, which will be a key growth driver this year. Additionally, I'm happy to inform all that we expect to ship out initial orders of defense sector for exports, not for domestic markets, where we have already developed and shared product samples with prospective customers. As part of our cost optimization and sustainability initiative, we plan to commission a 2.4-megawatt hybrid power plant under the group captive mode by the end of this year. The initiative is projected to yield annual energy cost savings in the range of INR 3.5 crores to INR 4 crores. Our order book remains robust, with strong traction across all addressable segments. In response to rising demand, our capacity utilization improved significantly, reaching 53% in Q1, up from 32% in Q1 FY '25. With global supply chain challenges continuing to ease, we expect further tailwinds supporting our growth together with our OEM's China Plus One strategy. We also anticipate margins to remain stable at current levels, reflecting our disciplined cost management and operational efficiency. Overall, the company is well positioned to capitalize on emerging opportunities, meeting the growing market demand. Interest from both customers and investors remain strong and we are encouraged by the continued confidence in our strategy and execution. Since April 1, there has been uncertainty in the world economy due to imposition of tariffs by the U.S. government, which has to some extent slowed down decision-making by customers and other geopolitical issues. However, in spite of the above, we will have a growth of 18% to 20% this year compared to last financial year FY '25. With that, I would now like to open the floor for questions. Moderator, may I request you to please take it from here and thank you all very much?

[Operator Instructions] The first question is from the line of [ Naman Chandak ], an individual investor.

I just wanted to ask, at 25% tariff rate, how are you positioned to pass on these tariffs to our customer? Is it a full pass-on? Or do we have first taken from our side as well?

Naman bhai, do you have any other question or this is the only question?

No. This is the only question. Thank you for a good set of numbers.

Okay. Thank you, Naman bhai, and for everybody else, I think across India, there looks like a lot of anxiety about this additional tariffs being put by the U.S. government since yesterday. Now, all our sales, whether it is domestic or exports are all on ex-works basis. Our customers take the goods from Steelcast to the point of use irrespective of the geography. So any additional tariffs, whatever maybe there has to be paid by the customer. So that is -- so as such, there's no effect on us on additional tariffs. I would also like to share the initial analysis done by us. We have 2 sets of product groups under HSN codes. One is Chapter 7325 and other is Chapter 8487. In Chapter 7625, the total duties for China, for U.S. is 89%, while that of India is only 38%, which includes the 25% kept -- was applied yesterday. On the other product group, HSN code 84.87 the total duty on Chinese products is 79%, while for India it is 29%. So both the groups together, there is a difference of -- substantial difference of more than half. So we believe there should not be any effect going forward on our businesses.

As there is no response from the current participant, we will move to the next question. [Operator Instructions] The next question is from the line of [ Kaushal Sharma ] from Equinox Capital Ventures Private Limited.

Yes. So my question is on your margin side, right? Earlier, we are having around 31% margin. Now, we can if the [ steel ] is falling to 26%, excluding other income. So what was the key reason of this margin? And in quarter-on-quarter, it has increased from [Technical Difficulty].

Yes. See, we had this 32.8% EBITDA margins in the Q4 of FY '25. Now we have also explained this in the past that about INR 10 crores have come from foreign exchange, lower input cost and also cost optimization. So this all happened during the financial year FY '25. If you see the quarters before maybe 6, 7 quarters we were anywhere from 29% to -- 28% to 29%. So we have been consistent with whatever the business model we have. And that 32.8% in Q4 FY '25 was an aberration because of extraordinary gains because of input prices, cost reductions, power savings and exchange rates. But we expect for at least coming 2, 3 years to EBITDA levels to be sustained at this level.

At 28%, sir?

No, sir. The 28% is -- if you see 28.1% is the Q1 FY '26 numbers.

Yes. So sustainable margin you are saying is around 26%, right?

Yes. It should be sustainable. Now if you go back to the earlier investor calls, we have said that the designed EBITDA, what we target is about 21%, 22%. And then we end up getting another 4%, 5% from different cost optimization measures, lower input costs, power savings, some exchange rate gains. So if you see last 7, 8 quarters, I think even more, maybe 10 quarters, we have been managing around 25%, 26%. So hopefully, we should be able to sustain this.

Yes, so 25% to 26% over the next year will be sustainable?

Yes. It should be sustainable.

And there is -- yes, and there is one point as well that earlier in the earlier presentation, I can see that EBITDA margin is being shown in the presentation by excluding other income. Now we are including other income.

Yes. But see, in our case, the entire other income is from the income from operations only. We at Steelcast don't consider other income from any other source except the operation of the company. Let me explain you. The components of other income are, one is, the interest we are earning on our free reserves. Now those 3 reserves have been generated from operations only, a). B), even, the foreign exchange gains are now being considered part of other income. So now those gains are also come from income from operations here. So we at Steelcast consider EBITDA margins with respect to total income. We don't have any other dividend income or rental incomes or any other dividend income from some other companies. It's all operations of Steelcast. Hence, we consider total income at Steelcast including other income.

Sir, in the last presentation in Q4 financial '24, we are showing EBITDA excluding other income.

Sir, before it was like that, but when we realized that we have to put all this, all this is part of income from operations only, or incidentally coming from our operations. And hence, this other income has been added on the top line, which says income from operations as well as other income and then we have total income.

Okay. So now onwards the other income majorly contributing before it, that's why we are including. Correct, sir?

Yes, sir. Yes, sir. Yes, sir.

[Operator Instructions] The next question is from the line of Sahil Rohit Sanghvi from Monarch Networth Capital.

Yes. And congratulations, sir, on a good set of numbers. If you can give some more understanding on the defense export-related dispatch that you're going to do this year. What component is it? And I mean, what could be the scalability of this product? What is the prospect of this product? That is number one. My second question will be that if you can give me the volumes, the sales volumes for this quarter, that is number two. And number three, yes, number three, I'll have to do a follow-up after that -- after I get the volume number.

See, the volume numbers are part of the investor presentation. But nevertheless, I'll give the volume numbers were for Q1, 3,618 tonnes. And to answer your other question about exports. Now if you see historically, our exports have been ranging from 45% to about 60% or so. This trend should continue even going forward for at least another 3, 4 years. So while we get a lot of traction from the export market, but we also don't want to miss out the Indian market. So we will continue planning around 45%, 50% domestic business and equivalent export business.

Sir, my question is -- yes. Sorry, go ahead, please.

As far as scalability is concerned, some components have high volumes, some have medium volumes, some have low volumes. But our capacity utilization has given on the exchanges from last year to this year, we'll do 47% to maybe 53% or so. Next year, we'll do about 65%, 66% in FY '27. FY '28, we plan to do about 84%. So this is the forward trends we have been working on and we are quite on track to achieve these numbers. And sometimes towards the end of 2026, we will decide on new capacity additions because the throughput time required to put up new facility is about 2 years' time. So once we have very clear visibility on our FY '28 numbers of about 80%, 84% utilization, we will kickstart this new investments and then increasing of additional capacities.

Understood, sir. Sir, I -- correct me if I'm wrong, but I heard that we are going to cater some defense-related export order. Is that correct? Did you mention that in your opening remarks?

Yes. We have made a --

I was specifically asking about that. Yes.

Yes, yes. We have made a small breakthrough in defense exports. I will not be able to share on this call about the exact application in the country. But in the month of April, we supplied some prototypes. They went through field trials and the parts got approved. And now we are doing another lot and which we will ship by September. And hopefully, this should scale up in the coming months going forward.

And would you be able to name what component is this or you would avoid that?

No, that's what I said that I don't want to name the country and also the component and the application in this call. But maybe at a later date, we will see. At an appropriate time, we'll share this.

Sure, sir. No, no. And congratulations for that. Sir, just one follow-up on the volume thing. The quarter-on-quarter or the sequential decline, is it just the seasonality 1Q being a little bit soft for the sales volume? Or is there anything to read on that?

No, no. If you see historically over the last 15, 20 years of numbers, our Q4, whether it's domestic market or export market, the Q4 is always better. So when you see Q1, you -- one would see a degrowth compared to the preceding quarter. But we will have a sustained performance in the second quarter of the current year and then a ramp-up from third and fourth quarter and that's how we are seeing that compared to last financial year, we will have surely 18%, 20% growth over the previous year.

Got it, sir. Got it. And you did mention that you have a few dozen of components under development, new components.

Yes.

If you can throw some light on that, which particular segment is this? And if you can give some...

Yes. These are all mix of 5, 6 different industries and maybe 7, 8 different customers and that too going to about at least 6 to 7 different countries. But -- so these are all part of our base industries like mining, earthmoving, construction, locomotives, ground engaging tools and very little for defense. But -- so there are a mix of all this, the mix of industries, the mix of customers and also 6 to 7 countries here. So net-net, this is exactly as per our strategy where we are wanting to increase our base -- increase our base by way of end user industries, increasing our base by our customers and also different countries where we supply. So as far as the overall strategy is concerned, we are on track and we'll continue doing this, increasing our base.

Got it, sir. Got it. That's commendable. And lastly, just a clarification, the 2.4 megawatt hybrid power plant, that will get commissioned by December or March? I just want to clarify.

See, it will get -- it is designed to be commissioned on or before 31 March '26. And this 2.4 megawatt, as I said earlier, will give us some INR 3.5 crores to INR 4 crores of annual sales, which will add directly to the bottom line. And also this will meet our increased volumes for next financial year. So that is the -- and this is in line with our sustainability initiative also.

Amazing, sir. Amazing, sir. Congratulations and all the best, sir.

The next question is from the line of Mr. Dhiral Shah.

Sir, I have 2, 3 questions to ask. So first, I will ask, sir, what is our current order book as on date?

Next question, please.

Sir, on the railroad side, because in last call, you mentioned that within 90 days, there will be some, I would say, approval that we will be receiving. So what is the current status in that, particularly the remaining component where we were not able to crack the approval process. So now where are we in terms of the overall approval? And regarding, again, on the defense side, sir, how big that opportunity could be for us in terms of revenue? And lastly, on the ground engagement side, what is the overall outlook, sir, with this new component that we are adding up?

See, one is the current order book as of 1st of August is about INR 80 crores. On the railroad side, we don't have any good news to share with you. We are continuously trying to see that one component, how do we pass the test. I think it will still take a couple of more months. Regarding defense, this is just one small component of the whole thing. Maybe the revenue from this could be about INR 10 crores per year or so. But moment we start doing these volumes, the opportunities are quite high. I don't have any specific numbers to give you for additional opportunities at this point of time, but it is very encouraging. And then regarding ground engaging tools, see, as per our plan from FY -- from the current year, we will slowly keep increasing our sales to ground engaging tools. And we hope to reach about 5% of sales over the next 2-, 3-year period.

[Operator Instructions] The next question is from the line of Harshil Solanki from Equitree Capital.

So I'd like to ask few questions. One is from the annual report. So you have mentioned that you are trying to increase production of value-added products and venture into advanced stage products, or specialized area, which only few global foundries can do. So if you can elaborate what are you thinking and what can be the opportunity in this side is the first question? Second question is last con call, you mentioned that we are trying to achieve a 59% utilization this year. But this time you have told 53%. So what is changing? And why are you revising your estimates on the utilization, if you can highlight that point? Yes, these are my 2 questions.

Now I'll just answer your first question on lower utilization. If you recollect my today's earnings call speech that since April, since the U.S. government has started putting in these additional tariffs, decision-making across the world, means across all OEM or across bigger companies have slowed down, right? So with this, obviously, the utilization might go down a little bit. However, in spite of this slow decision-making and other geopolitical issues, we will still grow 18%, 20% more than compared to last year. So it's because of this, I have scaled down this from 57% to 53%.

Got it. And sir, the first question was, we are entering into advanced stage products, which is a specialized area.

So yes. So these advanced stage products in our line, it would mean that, see, so far, we have been doing casting and machining. We are taking one step forward in doing subassemblies also. Now this has just been started about 6 months back. The customer would give us additional few components which have to be assembled on our part. So those initiatives have started this. I don't have exact numbers, but very few people in the world in our line of business do this. We might be a few of them who have just started. But going forward, this will increase. So only giving casting or just one value addition of finished machining, this is one more area of doing additional value-added activities of assembling few components and then supplying a subassembly together. So we have initiated this. Maybe over next few quarters, we might come back that, okay, some percentage of our sales we do subassemblies. But -- so this is an initiative and that's why the comment on the -- in the annual report.

Got it, sir. So this will be higher margin, I'm assuming because they're moving up the...

Yes, obviously, there will be some extra thing we should get. No, no, nothing is free in life.

Okay. Okay. And this will help us improve our relations with our customers further?

This will also improve relations. You increase your competitive scenario. The business barrier also increases. And this is also you can call part of derisking strategy.

[Operator Instructions]

If there are no questions, we can close the call.

All right.

Hello. Yes, so...

Ladies and gentlemen -- please go on, sir.

So on behalf of Steelcast management, I want to thank each and everyone who are part of this earnings call and having participated in today's call. Thank you very much for your time and we appreciate your support and trust in us. We hope we've been able to address most of your queries. In case of further queries, you may reach out to our Investor Relations Advisor, Ernst & Young, and they will connect with you with us offline. Once again, I want to thank each and everyone who are on this call. And thank you for the...

Sorry to interrupt, sir. There's one last question from Mr. Dhiral Shah.

Okay.

Sir, is there any change in the CapEx guidance based on the uncertain global outlook?

Now as far as we are concerned, we are quite confident that we should be on track to achieve the numbers, the capacity utilization numbers as we have projected, maybe it could be a difference of 3%, 4% here or there. But we should reach about 80% in FY '28. And for that, we will decide, as we have said earlier, sometime towards the end of 2026. And with the China Plus One strategy in place with all OEM customers across the world and moreover, our duties are substantially lower, less than half than what of China is, as I said earlier on the investor -- on this earnings call, we don't see any change in our customer strategy or our strategy. We should progressively do well over time.

Okay. But sir, again, the CapEx that we have mentioned earlier for FY '26 where we were looking to acquire the land and also debottleneck some capacity, that is on track, sir?

Yes, yes, absolutely on track. Gujarat government is almost on the verge of allotting us this 100,000 square meters of land. Moreover, whatever CapEx we are envisaging for the current year, mainly for debottlenecking, that will be -- that is also in line. There is absolutely no change in our strategy or in our execution whatsoever.

Okay. So but sir, since you are running at 53% utilization, so this debottlenecking, is it for the particular product that we are looking for?

Yes. See, what happens is we, on an average now make about 350 different parts. And sometimes the volumes of some specific parts go high. So one option is to tell no to a customer, that sorry, we don't have capacity, but the other option is to, you add that capacity and you cater to that demand. So these bottlenecks come up on and off. And we sort out that by doing additional investments for debottlenecking.

Okay. And sir, is there any scope for revision -- revising our capacity utilization guidance? As of now, we are guiding for 53% utilization. But let's say, after September or October, the India gets lower duty compared to the current range. So is there any scope to revise the utilization guidance?

If you ask me personally, all this turmoil, whether it is because of tariffs or whether it is geopolitics will all get sorted out in the next 2, 3 quarters. Life will be very good. The world will grow and we will forget these kind of times where suddenly somebody throws us additional duties. So we will come over this, as a country, as a company and rest of the world will also take this in the full stride. Whatever each country has to do, they'll do, and life will go on.

Okay. Got your point.

Thank you very much. And once again, I want to thank each and every participant on the call. And hope to all see you...

Sorry to interrupt, sir. There's 2 more questions in the question -- 2 more participants are waiting in the question queue. Next question is from the line of Naman Chandak from -- an individual investor.

Sir, can you say about our geographies, worldwide geographies on order book, how it is split across the geographies? And the second -- another question was, can you speak more on the value-added product side? Like what kind of products are we developing? And how better the margins would be for the higher value-added products?

Yes. Like we have said in the past that we are doing 16 countries and we will add another 2, 3 countries in the next 1 to 2 years. Now I don't have exactly country-wise breakup as of now. But I can only tell you that whichever countries which has got lower sales volumes now will grow over the next 2, 3 years' time. Our major concentration now is between U.S. and Germany. So that should get diluted over time in the next 2, 3 years. And then you asked about the other value-added products. As I said, we have just initiated this and that is the reason for putting the remark in the annual report. It's too early to really say what could be the opportunities and what volumes we'll do for those sub-SMEs. But we have this focus. And once we have some clarity, we'll share with the stakeholders.

The next question is from the line of Sahil Doshi from Thinqwise.

My question pertains to the railroad component opportunity. So could you talk about what's the status on that? And what is the outlook? And is there any change vis-a-vis what we had expected earlier? And...

Yes, this railroad thing, we have been struggling to get this part approved, but the effort is on. When I'm saying that we'll grow 18%, 20% this year is excluding the railway thing, okay? If railway thing, if we are able to do in the next 1 or 2 quarters, there will be some additional increase in growth percentage. But excluding this railway thing, we'll still do 18%, 20%. And hopefully, we will sort this issue of railroad component development in the next 1 to 2 quarters there.

Sir, could you talk a little more what meaning taking so long and what's been the challenge? Because since last 3 or 4 quarters, we've been expecting an approval, but there's a constant delay. So could you just articulate what's really gone wrong or what taking this...

See -- yes, yes. Let me explain every component has got a specified chemistry and mechanical properties, okay? Now the component is designed to make sure that we give what customer needs. Now the component definitely has what is required in terms of the mechanical properties, in terms of composition and all. But when it goes into field trial, we get lesser life. Now our customers are investigating. We are investigating of why -- if the product is right, why are we getting lower life. So that's the mystery, we are working on it. But what we've also done is we are working on several other areas, several other verticals of our existing customers, that, okay, if this railroad thing happens, good. If it doesn't happen, there are enough of opportunities in the world where we could cater to and increase our capacity utilization. Railway is just one part of the bigger picture. So our efforts are on and we are focusing on how to increase our utilization, whether we do railways now or maybe 2 quarters later or a year later. But the opportunities are tremendous. And India is the favored nation in the rest of the world as a very, very strong competitor to China and the opportunities are tremendous.

Sure, sir. I appreciate the response. Just in terms of probability, if you had to put out, meaning is there a probability of this railroad order not converting?

I would say, probability of success will be close to more than 85%.

Okay. Understood. And secondly, sir, on the defense order, which you did talk about, could you talk about the size of opportunity? And is this like a Tier 1 or a direct kind of -- I'm not looking for names, but if I...

Yes. Yes. As I said for this one component alone, it could be a INR 10 crores business per year, but the opportunities are tremendous. We could do many other components. And as time goes, we will share this, what are the opportunities, which is the country, what is the application. Only thing is it's too premature really to share this. But the opportunity is good.

Understood, sir.

Thank you, sir. And thank you all. And once again, on behalf of Steelcast, I want to thank each and everyone who has spent their valuable time in coming for this Investor call. Thank you. Thank you.

Thank you. On behalf of PhillipCapital Private Client Group, we conclude this conference. Thank you for joining us and you may now disconnect your lines.