Steelcast Limited (STEELCAS.NS) Q2 FY2026 Earnings Call Transcript & Summary

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

Thank you, Vishal. Good evening, everyone. We welcome you all to Steelcast Limited Earnings Call to discuss the Q2 and H1 FY '26 financial results. Today from the management side, we have Mr. Chetan Tamboli, Chairman and Managing Director; Mr. Rushil Tamboli, Wholetime Director; Mr. Subhash Sharma, Executive Director and CFO; and Mr. Umesh Bhatt, Company Secretary. Please note that a copy of 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 in 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 risk that the company faces. With that said, now I will hand over the call to Mr. Chetan Tamboli for his opening remarks. Over to you, sir.

Thank you, Kanav bhai. Good evening, and a warm welcome to everyone for the earnings call of Steelcast Limited for the second quarter and half year ended 30th September '25. We concluded our Board meeting today and uploaded the financial results and the investor presentation on the stock exchanges as well as on our company's website. I believe you must have got a chance to go through the same. I will start off by giving a highlight of financial performance for the current quarter versus corresponding quarter Q2 of FY '25. During Q2 FY '26, the revenue from operations was INR 106.7 crores, a 42% growth from INR 75.4 crores in Q2 FY '25. EBITDA during the quarter was at INR 34.2 crores, a 62% growth from INR 21.1 crores in Q2 FY '25. EBITDA margin was at 32%, an increase of [ 408 ] basis points from 28% in Q2 FY '25. PBT during the quarter was at INR 30.9 crores, a 73% growth from INR 17.9 crores in Q2 FY '25. This translated to a PBT margin of 29% and an increase of 527 basis points from 23.7% in Q2 FY '25. PAT during the quarter was at INR 23.2 crores, a 75% growth from INR 13.3 crores in Q2 FY '25. Debt margin came in at 21.8%, an increase of 413 basis points from 17.6% in Q2 FY '25. While the first half of FY '26 has been healthy, we expect a slight moderation/softer Q3 due to softer demand and near-term visibility due to geopolitical uncertainties, mainly driven by disruption in export markets, especially U.S. markets. Our teams are actively executing existing orders and maintaining strong engagement with key customers. However, given the global situation, there remains some uncertainties. Should geopolitical conditions stabilize and trade deal with the U.S. gets concluded in coming weeks, we expect Q4 FY '26 to perform better than Q3 FY '26. Taking all these factors into account, we currently estimate that FY '26 will still deliver double-digit growth over FY '25. On the subject of U.S. tariffs, I would like to highlight that our products continue to remain competitive position compared to other competitors and also Chinese suppliers. Despite recent tariff-related challenges impacting global trade flows, Steelcast maintains a solid cost advantage. For three of our key product categories supplied to the U.S., our prices are lower by approximately 5%, 12% and 13%, respectively, compared to other Chinese suppliers. This cost edge not only supports our export competitiveness, but also position us well to capture incremental opportunities as customers diversify their sourcing requirements amid this ongoing geopolitical shifts. We have been informed by all our customers that they will not change supply chain, and they expect the trade deal to be concluded in coming few weeks. At the same time, we continue to focus on derisking through geographic and sectoral diversification, expanding our footprint across newer regions and customer segments. Last quarter, we shared that over 3 dozen new components were under development in GET and construction industry segment. We are pleased to inform you that execution of these initial orders in both segments began in Q2 FY '26, and we remain optimistic about the growth potential going forward. Just for everyone's information, we have grown at 24% CAGR up till now in 4 years. We are confident that we'll grow 20% CAGR in the coming 3 years. One has to see us over a longer perspective with a 2-, 3-year horizon. Our core segments, mining and earthmoving recorded strong double-digit year-on-year growth in Q2 FY '26. In addition, our 2.4-megawatt hybrid power plant, our project to meet our increased volume requirements in FY '27 is expected to be commissioned by June 30, '26. This will further enhance cost efficiency and sustainability, generating estimated annual saving of INR 3.5 crores to INR 4 crores. We also expect margins to remain stable at current levels, reflecting our disciplined cost management and operational efficiency. Overall, your company is well positioned to capitalize on emerging opportunities and meet growing market demand over longer term. During Q2 FY '26, domestic sales contributed 36%, while exports accounted for 64%. Apart from the U.S., where we have seen some moderation due to tariffs and other geopolitical factors, interest from both our customers and investors remain strong, and we are encouraged by continued confidence in our strategy and execution. With that, I would now like to open the floor for questions. Thank you very much.

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

So I have 2 questions. I'll list them all together. So our domestic sales have degrown by 33% and 5% of Q-o-Q and Y-o-Y basis. So if you can highlight what is the challenge in the domestic market? That would be very useful. Next is on the defense part. If you can share any update on the defense export component that was expected to scale up in September. So what is the status on that? And similarly, if you see in the Indian market, there is a lot of demand for artillery shell. And we have also developed some components like [ diesel bombs, motor bombs ]. So are we looking to participate in that opportunity? And the third question is on the financial side. So other financial effect line item in the electrical increased from INR 22.64 crores to INR43.67 crores from March to September. So if you can highlight what is the jump and what all is included in that INR 43.67 crores.

Yes. Thank you, Harshil bhai. In terms of the contribution of exports to domestic sales, if you see historically, these proportions keep on changing. The lower number will be domestic, 35% and export 65% or sometimes we may have on a 50-50 basis. Sometimes is 45%, 55%. So this keeps happening, and these are cyclical in nature. But there is no strong reason to explain why domestic has gone lower with respect to exports. So if you see historically, this is the range we keep working on. Regarding defense sales, to be honest, we have lost interest in defense segment. We are not putting in any more efforts. We have done enough efforts over the last 3, 4-year period. And so what we have decided is, whatever comes to us without any efforts, we will do. Otherwise, we will not go out of our way because we've been waiting for last couple of years on whatever products we have developed, either the tenders are delayed or somebody becomes L1 and the tender goes to them. So moreover, we believe defense is a highly risky segment. So with all this in mind, we are not going to pursue, we'll do whatever comes off our way. Now regarding this artillery shells and all, some part of artillery shells are forging components. We make only steel castings. Regarding Bombshells and all, in between some tenders came and they went away to somebody who quoted L1. And regarding combat vehicle parts also something similar happened. So with all these factors in mind, we are going to do defense only whatever comes without any effort from our side. And we also see a tremendous amount of opportunities elsewhere in the world where bureaucracy is near zero, opportunities are tremendous. And there is no one segment we need to focus. Defense becomes a highly riskier segment. So this is our strategy going forward. Now regarding your question on other financial assets. Yes. So these are free reserves parked in fixed deposits, so they have gone up from INR 22.64 crores to [ INR 42.67 crores ].

Just one follow-up. You mentioned about the challenges in defense, but if you can highlight on the defense export component, which you won recently and that was expected to scale out in September and onwards. So what's the status on that?

So for those defense exports, the first prototypes we supplied in June, which were approved. Then in the month of September, we shipped additional quantities, which have been exported. It will be received at customers end sometime in mid-November, and they'll do another testing for at least 10 to 12 weeks thereafter. And then we expect some reasonable business from there. But as of now, this is the status.

Okay. Next year can we.....

To be exact, we shipped the first 250 numbers in June, which were approved. And then we have shipped 2,000 numbers in September, which will reach the customer end outside India in mid-November. And hopefully, we should get some additional business from this segment.

[Operator Instructions] The next question is from the line of Hemant, an Individual Investor.

Sir, I have 2 queries. In our last concall, we had guided for 18% to 20% kind of revenue growth in FY '26. But I had a look at the, I mean, PPT, which was uploaded, I mean, the presentation which was uploaded recently, there we are guiding for early double-digit growth in FY '26. So I mean we are some sort of lowering the guidance. Is it?

Hemant bhai, do you have any other questions?

Yes. I have 2 more questions.

You may please give out all your questions. I'll answer them together.

Yes. And the second thing which I wanted to ask you is, in our, I mean, opening remarks, we have just guided for 20% CAGR over the next 3 years. So are we kind of a little conservative in the guidance? And the third one, which I have from my lot is, earlier, I mean, we were guiding a capacity utilization of 59% in FY '26, then we trimmed it to 53%. So what sort of capacity utilization we are expecting in FY '26 now, post-Q2? And what was the -- will Q3 and -- will H2 be better with respect to H1?

Yes, we were targeting 18%, 20% growth in FY '26. But because of the tariff issues with the U.S. and the Indian government, we started off in April '26, so that there are disruptions, though our customers tell us that there is -- they will not change the supply chain but in the near term, there is a slowdown. And that's the reason we have trimmed our guidance from 18%, 20% to about double-digit growth and hopefully, we should grow by about 12% this year. Your second question on 20% CAGR. I think you can consider this as conservative and realistic estimate that we have grown over the last 4 years with 24% CAGR and the coming years, we aim to grow at 20%. Because of the disruption, because of the U.S. tariffs, we have trimmed our guidance from utilization of 53% in FY '26 to now about 48%, 49% in the current year post Q2 results. And hopefully, we should be back to normal from Q4 of this year onwards, sir.

So I mean, due to the -- sir, in a nutshell, I can just sum it up that maybe due to tariff little uncertainties, we are lagging by 1 year, right?

Yes, you can say that as 1 year or the growth, which was -- which we were forecasting is being trimmed down from 18%, 20% to 12%. And this kind of massive disruption in tariffs is not only -- companies will not only suffer with the U.S. market, but elsewhere in the world also, the geopolitical situations have also been disturbed. But if you see on a very macro point of view, that our customers are not changing the supply chain. And we have to see always with a 2, 3-year horizon. And we expect to do a 20% CAGR in the coming 2, 3 years.

So sir, can you tell me one thing, sir, what is the contribution from U.S. in export?

Total sales of U.S. share will be about 30% of our total sales.

30% of total sales or 30% of exports?

30% of total sales.

30% of total sales. How much it will be in percentage terms with respect to exports?

We have already given the numbers, Hemant bhai, you need to figure this out, our quarterly sales is with you, our export component is with you. So you should figure out this. I would request everybody then this has to be seen in context of the uncertainties prevailing, the geopolitical situations and disturbance throughout the world.

And so sir, the capacity, I mean, enhancement, which we were thinking about, I mean, which we were supposed to think about post FY '26, it may be postponed to 1 year, right?

We may consider this once again, somewhere around end of FY '26. We'll review it. We are reviewing this on a constant basis. And at an appropriate time, we will trigger this.

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

Hello.....

Harshil, sir. Could you please repeat your question?

Yes. I'll repeat it. I wanted a clarification, you told that your prices are 5% to 13% cheaper than Chinese counterpart and the supplier customers are also not looking to change suppliers. So are you trying to say that because of the tariff, the end demand from the end users has slowed down. And hence, we are lowering our guidance? I just want to understand what is the challenge? Because we are still competitive in terms of pricing. So what is the issue?

If you -- see, we are competitive compared to the -- our other competitors around the world and also competitors from China. But with this additional tariffs put by U.S. government, the cost to the end customer will go up, and it has gone up. So in the short term, there will be softness in demand and that is why our third quarter is likely to be softer. Now the supply chain is going to be intact, but at least the cost increases to the end customer, means our customers' customer, it takes time for it to stabilize. So hence, in the short term, we are seeing softness in performance.

Okay. Just one small thing. I was reading Caterpillar's concall. So this quarter, they have done good volume. And the commentary is also positive for Q4. So they are saying that the end demand is still strong. So I'm thinking what is the mismatch here. Caterpillar is quite bullish.

Yes. Caterpillar is a $60 billion company. They have more than 15, 20 different verticals. They have done exceptionally well this quarter because of strong output from their energy sector. So -- and while we supply to the mining and earthmoving and the ground engaging tool sector. So overall, Caterpillar may be upbeat on the future guidance, but we would also see how the different other sectors move. So what we have been guided by our customers is Q3 will be a little softer and Q4 onwards, we'll be back on track.

[Operator Instructions] Next question is from the line of Sahil Sanghvi from Monarch Network Capital.

Congratulations on very good margins. My question is pertaining to GET. So if you can give us some more details on what were these development orders up to what quantum? And how do you see this scaling up? What kind of time line do you see on this product line?

Any other questions, Sanghvi bhai?

That's it.

Yes. The ground engaging tools segment is one of our future for us. We want to really develop this. At this point of time, our sales to GET segment is very miniscule. Over next 2, 3 years, we want to do at least 5% of our revenue into ground engaging tools. We are quite bullish on this. We have more than 1 dozen components under development in ground engaging tools. And hopefully, from Q3 and Q4 onwards, we should see a steady increase in sales in ground engaging tools.

Okay. So where are we selling these products right now? And how many variants are these? And if you can just give some kind of numbers to this?

Yes. These are sold from our customers. The countries which we are exporting now are U.S., Singapore and some places in Europe -- I think somebody is typing this, may I request to please stop this, please.

The next question is from the line of Rahul, an individual investor.

Congratulations for a very good set of numbers. Sir, my question was that in the current situation of higher tariffs, are the customers like you esteemed customers from long, are they requesting you to take some tariff hit into your P&L? Or for the orders in the Q3, are they telling you to take some tariff hit or are they bearing all the tariff?

Do you have any other questions?

No, sir, only this one, sir.

Okay. Since the tariff issue started on April 1, initially, we got request from, I think, 3 customers of whether we can share this extra cost to them. So we explained to everyone that this is a B2B business model. And when prices are settled, there is a very stringent and tight negotiations. And there's very -- there is practically no room for any price reductions. So we have not passed on a single percentage price reduction to any of our customers. And customers are trying to mitigate this extra cost in their own way. And I think since June, we have not requested -- we have not been requested by any customers for price reduction. And our customers understand this that it's very difficult for suppliers to mitigate this heavy cost increase.

The next question is from the line of Shubham Thorat from Perpetual Capital Adviser.

So sir, I'm a little newer to the company. So I just wanted to know what products do we supply to U.S.A and other export markets except U.S.A? That was one. The second thing is what kind of growth are you seeing in the mining and earthmoving division of yours. Third, in last quarter, you had mentioned that a few of the approvals from the railroad division are pending. So what is the status on that? And fourth and the final question is what is our current CapEx utilization? And what is our guidance regarding that? How do we expect to ramp up?

Rushil, are you there? Rushil?

Yes. I can hear you.

Yes, Rushil, can you just give guidance on the capacity utilization part, which Mr. Shubham is asking, then I'll answer the other 2 questions.

Sure. So based on the conversion that we are seeing of our samples being developed, currently, we are at about 48%, next financial year, we see ourselves at about 68% -- I'm sorry, 58%. And the following year, we expect to be above 75%.

Yes. Now, we now export to about 15 countries and likely to go to 18 countries in another 1 or 2 quarters. Regarding these railways, there is not much movement in our development stage. And we are focusing on many other opportunities, which we believe are more lucrative. And as and when we have operations in railways, we'll shortly cater to that requirement. But the exports apart from U.S. are to additionally 15, 16 countries.

Okay. And any comments on mining and earthmoving divisions?

Mining, earthmoving, we have already said in my speech that we have seen more than 10% growth in the current year and we expect overall growth from this year to next year to about 20%.

Okay. And sir, can you please mention all the products that you supply in the export market?

Yes, these are steel castings. And these steel castings are used in different equipments like mining equipment, earthmoving equipment, construction equipment, railroad equipment, steel plant equipment and other end user industries. So these are components which go into a machine and we cater to 9 different industries from mining, earthmoving, locomotive, transport, construction, railroad, ground engaging tools, cement, steel and defense. So these are steel castings going into this different equipments in different industrial segments.

Okay. And sir, so these products are directly supplied to end user industries? Or are they sold through any channel partners?

No, these are all -- goes to the end customers who are all OEMS, and these OEMs are anywhere from $5 billion to $70 billion, $80 billion companies. We give directly to our customers who are all original equipment manufacturers.

Can you name some of them?

Due to confidential reasons, we don't give out names of our end customers. We are only talking about the industrial segments.

The next question is from the line of [ K Manjunath ] from Canara Bank.

Chetan bhai, congratulations on a wonderful set of numbers in this challenging situation. I just have 3 questions, sir. number one, in the last conference, you had indicated that they have developed some components for the export defense market. What is the present situation? And number two, what about the -- you're focusing generally in the OEMs, so you had also plan to enter the replacement market in exports. And my last question would be how many years will it take to cross that INR 1,000 crore turnover, considering the present and future estimates?

I think during the beginning of the call, I did answer this that for defense exports, we got the first trial order, and we shipped about 250 different quantities in June, which were approved by the end customer. Then we got development order of 2,000 numbers, which we have shipped in September, they will reach the end customer by mid-November. And hopefully, we should see some additional volumes coming maybe from Q4 or maybe Q1 of next year. Regarding sales to OEMS, as of now, all 100% of our sales are to OEMs only, we are not going into a replacement market and even for the future, we will work through OEMs only and not directly in the replacement market. And your question about INR 1,000 crores, when we'll reach? I'm also equally interested as you are. But everything if still goes well as planned, maybe FY '29, we might cross INR 1,000 crores.

What's our orders on hand as in date, sir?

Orders on hand in terms of value terms is about INR 108 crores.

The next question is from the line of [ Shaizad Shroff ] from Demeter advisers.

I had only 1 question on the EBITDA margins. We've done 27% in H1. And given we are seeing H2 will be slightly softer, so can you guide to anything on the margin front for H2?

See, if you see EBITDA margin for the current quarter, it is about 32% and this is higher by 4 basis points compared to the corresponding quarter. In this quarter, beginning July, the input prices went down. So we saved on input cost around INR 2.86 crores. Then cost reduction measures, which we do on an ongoing basis, we saved about INR 5,300,000 and then there was a gain of INR 1.98 crores due to foreign exchange. So all put together, we got onetime EBITDA gain of 5 basis points and INR 5.37 crores. I think I've been always saying from past 3, 4 quarters that our sustainable margins will be 25% to 26%. And then we might end up saving another 1% or 2% from exchange rates cost reductions, improvement in productivities, et cetera. So on a longer term, 25%, 26% looks on a sustainable basis. And then maybe we end up saving another 2%, 3% here or there. So we might do about 28%, 29%.

[Operator Instructions] The next question is from the line of Srinath V. from the Bellwether Capital.

Congratulations on the good set of numbers. I wanted to understand more from a 3-year window, what are the kind of interesting new opportunities or product developments at a sector level or directionally subsector level that you could share just for our understanding as to what are the opportunities you're pursuing, sir?

I can say with all the disruption because of tariffs, but if you really see through the overall strategy of customers to find a replacement of China is still in vogue. We are seeing people coming to us as to reduce the dependency on China. So on a macro level, the opportunities are tremendous. Second, all the OEMs who have facilities other than U.S. are also contemplating sourcing products for some other countries other than U.S. So if they produce the equipment in some other countries, they will bypass the higher tariff issue of U.S. So we are seeing our sales increasing elsewhere other than U.S. in the current quarter. Third, Japanese markets are highly dependent on China, and we are seeing some good traction from Japanese market that they also want to reduce dependence on China. So if you consider the present geopolitical situation, and the tariff issues, I think going forward in another 2, 3 years, there may be tremendous opportunities other than U.S. Moreover, trade agreement with U.K. has been finalized and our tariffs on steel castings are lower in U.K. The tariff agreement with -- the bilateral trade agreement with EU is almost being finalized. And of course, the U.S. also. So net-net, across the world, India will be far more competitive than what we were a couple of years back. And people do see with us with a lot of respect, and want to consider India in general and maybe a company like Steelcast as a replacement toward dependent on China.

Got it, sir. One more follow-up on this. I wanted to understand some of the wins that we had in the last few years came from existing customers, but new parts and new facilities, different facilities that we are not addressing. So do we continue on that part? Are there more opportunities with the existing customers for newer products in different facilities that we may not be working in?

I think a very good question. In the past 3 months, we have received development orders for parts which are from existing customers but not for the U.S. market, but these are for French -- France markets and Brazil. So those parts are under development now. So going forward, the customer is from U.S., but we'll be supplying to their facilities in France and Brazil. So there are a lot of opportunities. And that is one reason we have been saying that we have grown CAGR of 24% in last 4 years, and we'll shortly do 20% plus CAGR growth in the coming 3 years. This is because of the different opportunities what we see on the horizon and what we have already in our hand.

Got it. Got it. Thank you, sir. Thanks for the clarification. And congratulations on the good set of numbers.

As there are no further questions, I would now like to hand over the conference over to management for closing remarks.

Thank you to each one of you for being part of our earnings call and participating well. We appreciate your support and trust in us. We hope we've been able to address more of your queries. In case of any further queries, please do not hesitate to contact our Investor Relation adviser, Ernst & Young, and they will connect with you off-line. Thank you again, and thank you to E&Y for supporting in our endeavor. Thank you.

On the behalf of Steelcast Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.