Release Date: May 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Steelcast Ltd (BOM:513517, Financial) maintained a strong EBITDA margin of 29.3% during Q4 FY24, despite challenging geopolitical conditions.
- The company achieved a PAT margin of 19% in Q4 FY24, consistent with the previous quarter and an improvement from 16.2% in the corresponding quarter of the previous year.
- Steelcast Ltd (BOM:513517) has been debt-free for the past three years, indicating prudent financial management.
- The commissioning of hybrid and solar power plants has led to significant savings in power and fuel expenses, contributing to strong EBITDA and PAT growth.
- The company is well-positioned to diversify into newer sectors such as railroad, ground engaging tools, and defense opportunities, anticipating substantial revenue growth in the coming years.
Negative Points
- Revenue for Q4 FY24 declined by 18.2% compared to the corresponding quarter of the previous year, primarily due to adverse geopolitical and business conditions.
- The overall revenue for FY24 decreased by 14.1% compared to the previous year, attributed to reduced economic activity in Western and North American countries.
- The working capital cycle increased to 90 days from 64 days, indicating potential inefficiencies or delays in the business process.
- The company anticipates a subdued Q1 and Q2 in the current financial year, with an uptrend expected only from Q3 onwards.
- There have been delays in the ramp-up of the North American railroad segment, which is expected to contribute significantly to future revenue.
Q & A Highlights
Q: Are you getting a feel that the destocking is coming to an end?
A: We expect destocking to be over by September '24. Demand should pick up from Q3 FY25 onwards, assuming geopolitical tensions ease.
Q: What was the contribution from the American railroads in FY24, and how do you see this moving ahead?
A: American railroads contributed about INR8 crores (2% of total sales) in FY24. We expect this to grow to 14%-15% by FY27.
Q: Can you provide details on the CapEx plans for FY25?
A: We plan to add a 1 MW solar power plant costing around INR5-6 crores, and additional CapEx for debottlenecking and machining capacities will be about INR22 crores.
Q: Have we seen some reduction in raw material prices in Q4, and will this translate into price corrections for our end products?
A: Input prices have been reducing since Q2 FY24, leading to marginal sales price corrections. However, input prices have started rising again in Q1 FY25, so sales prices will increase from Q2 onwards.
Q: What is the status of the supply for Arjun tanks, and have we received any repeat orders?
A: The recent supplies were completed in Q4 FY24. We are now waiting for new tenders to open for bidding.
Q: Are we seeing any pre-buying due to upcoming emission norms changes in January '25?
A: Emission norms changes mainly affect automobiles and MCVs, not our off-highway truck components. We do not expect significant impact on our business.
Q: Can you explain the increase in the working capital cycle to 90 days from 64 days?
A: The increase is due to a change in product mix and higher debtors. We expect the working capital cycle to stabilize at 75-80 days.
Q: How sustainable are the current EBITDA margins and return on equity?
A: We aim for sustainable EBITDA margins of 25%-26%. Return on equity is expected to remain in the range of 30%-35%, assuming continued profit growth.
Q: What is the status of the greenfield project, and how long will it take to get operational?
A: The greenfield project is on hold. It would cost about INR125 crores and take 24 months to commission from the go-decision date.
Q: How does the recent increase in commodity prices affect the demand for our products?
A: There is a correlation between commodity prices and demand. Higher commodity prices lead to increased mining activity and equipment demand, which should boost our product demand from Q3 FY25 onwards.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
