Steelcast ltd

Current market price on the date of publishing this report-: 520 Rs

Introduction

Incorporated in 1972, steelcast is engaged in casting manufacturing business. Company is is engaged in the business of manufacturing Steel and Alloy Steel Castings catering to a host of OEMs for diverse industrial sectors.

Steelcast Limited is a popular manufacturer of high-quality steel and alloy casting products ranging in weight from 2.5 Kg to 2,500 Kg. To manufacture its excellent goods, the business uses cutting-edge sand-based and shell moulding technologies.

Carbon Steel, Low Alloy Steel, High Alloy Steel, Manganese Steel, and other Superior Grades of Wear and Abrasion Resistant Steel Castings made by No Bake and Shell Moulding Processes are among the items offered by the company. The company is one of the handful in India and throughout the world that produces steel castings using the Sand and Shell Casting Process.

Steelcast has made significant investments in its infrastructure to improve its capacity, quality, and efficiency. This involves considerable improvements to its manufacturing processes as well as the implementation of new manufacturing technologies. As a consequence of these efforts, the company’s manufacturing capacity has expanded from 13,000 to 30,000 MTPA, allowing it to fulfil rising demand for its goods.

As of March 31, 2022, the Co’s production facility in Bhavnagar, Gujarat, has a total casting capacity of 30,000 MTPA. It has installed the greatest foundry equipment from M/s. IMF in Italy and M/s. OMEGA in the United Kingdom, which assists the company in maintaining repeatability at every workstation.

The Company has a 240-part portfolio, one of the largest in India’s speciality castings industry; 25% of the portfolio was created and commercialised in the five years ending in FY 2021-22, accounting for 16.5% of the Company’s sales in FY 2021-22.

Company’s infrastructure facilites include Design & Engineering, No Bake Molding, Shell Molding Process, Heat Treatment, Quality Assurance & CNC Machine Shop with 30,000 Sq. Ft. area and total of 27 machines.

Besides that company has received several different awards such as Best Foundry Award from the Institute of Indian Foundrymen for the best import substitution record among all foundries in India etc as well as accreditations and certifications which include Approved as a Class ‘A’ foundry by RDSO, India, Approved by Association of American Rail Roads (under renewal), An ISO:9001-2015 Company certified by TUV NORD, Germany (for Quality) and many more.

Steelcast is dedicated on discovering value-added niches within the big castings sector. One such niche includes the employment of advanced metallurgical processes to produce delicate and challenging castings. This provides the company with a significant competitive edge, allowing it to keep demanding clients in the long run and prevents them from searching out alternative suppliers merely on price.

Steelcast is committed to addressing the needs of downstream OEMs worldwide. The quality of the company’s solutions has been internationally recognised, with exports accounting for 54% of its income. In fiscal year 2021-22, 95% of the company’s global revenues came from clients with whom it had a five-year or longer connection. Furthermore, no one client contributed more than 23% of the company’s global revenues, demonstrating the varied variety of consumers that the company serves on a global scale.

The products of the Company are employed in high-demand downstream heavy engineering areas that are critical to national prosperity. The goods of the company have been distinguished by their excellent quality, efficiency, customization, and service. As a result, the Company has become inextricably linked to the expansion of its diversified downstream businesses.

Steelcast has firmly established itself as a key player in the casting sector, with the capacity to make over 300 distinct parts. Its dedication to quality, along with investments in cutting-edge technology and production methods, ensures that the company remains at the forefront of the industry and is well-positioned for future development and success.

Company has around 65% dependence on the export sales.

Business products

Company caters to a host of OEMs for different Industry Sectors such as

Earthmoving Equipment Manufacturers

Mining Equipment Manufacturers

Construction Equipment Manufacturers

Steel Plant Equipment Manufacturers

Cement Plant Equipment Manufacturers

Railway

US Rail Road

Ground Engagement Tools (GETs)

Locomotives

Transportation

Exports Business

Company currently is a Two-Star Export House Status holder and over the next 5 years company plans to grow its export footprint to 15 or more countries. Currently about half of the company’s products are exported to the United States, Germany, Thailand, Singapore, Denmark, Mexico, Brazil, China, South Korea, and Japan.

Capex

Company currently operates at 50% capacity utilization and ging forward it is planning to operate at 100% capacity utilisation.

As previously indicated, the company is actively attempting to increase its capacity. This includes designing the layout and calculating the required capacity figures. Company will not, however, quickly raise output by 50% of current capacity. Instead, it will use a modular approach, with annual increments of 5,000 tonnes. This strategy will safeguard the company in the event of a sudden downturn or recession, which, while not currently anticipated, may occur in the future. While the macro plan calls for an increase in capacity of 50,000 tonnes, the micro plan calls for yearly increments of 5,000 tonnes.

Financials

For Q3FY23

• The company increased its revenue from operations by 52% during the quarter compared to the same time previous year, bringing to a turnover of INR 119.7 crores.
• The company recorded an EBITDA of INR 30.7 crores for the quarter, a growth of 84% year on year, with an EBITDA margin of 25.7%.
• In compared to the same quarter the previous year, the company’s EBITDA margins increased by 450 basis points.
• This has resulted in a 124% rise in PBT, totalling INR 25.8 crores with a PBT margin of 21.5%.
• Furthermore, the company reported a PAT of INR 19.3 crores in Q3 FY ’23, reflecting a phenomenal year-on-year rise of 126% with PAT margins of 16.1%.
• In the most recent quarter, exports accounted for 65% of revenue, with domestic sales accounting for the remaining 35%.
• The company has a strong order book across all of its serviceable segments and was running at a capacity utilisation level of 55% till Q3 FY ’23, a considerable improvement from 40% in Q3 FY ’22. Between FY ’26 and FY ’27, the company intends to reach full capacity utilisation.
• The company has secured bookings for the next three months with an anticipated value of INR 125-130 crores, which would be on a quarterly basis.

For the year ended March 22

• During the fiscal year ended March 31, 2022, the company generated INR 302.04 crores in total revenue from operations, up from INR 157.73 crores the previous year, showing a remarkable rise of more than 91%.
• The company generated a Profit Before Tax (PBT) of 14.81% of sales in the fiscal year ended March 31, 2022, up from 9.92% in the preceding fiscal year ending March 31, 2021.
• In addition, the company generated a Profit After Tax (PAT) of 11.00% of sales during the fiscal year under review, which is greater than the 7.67% earned in the previous fiscal year, which concluded on March 31, 2021.

Margin difference between iron castings and steel castings

Iron castings are less complicated than steel castings and are commonly utilised in the automotive sector for two-wheelers, three-wheelers, four-wheelers, and similar vehicles. Iron castings need fewer resources and have fewer production requirements than steel castings. Furthermore, the iron casting business is crowded, resulting in razor-thin margins. As a result of these variables, the margins for steel castings are often bigger than those for iron castings.

Sectorial Outlook

• India’s crude steel output is predicted to rise by 18% in FY22, hitting 120 million tonnes, due to rising consumer demand. The availability of raw materials such as iron ore and low-cost labour in India has contributed to the growth of the Indian steel industry. As a result, the steel sector has contributed significantly to India’s industrial production.
• According to the Directorate General of Commercial Intelligence and Statistics, iron ore exports reached US$ 2.23 billion in FY22 (through August 2021), an increase of 21.8% year on year.
• According to a recent study by the Indian Construction Equipment Manufacturers Association (ICEMA), the construction equipment sector grew by 47% in the second quarter of FY2021-22.
• According to a recent study by the Indian Construction Equipment Manufacturers Association (ICEMA), the construction equipment sector grew by 47% in the second quarter of FY2021-22.
• The building sector in India is expected to grow modestly over the next four quarters. The growth rate is expected to continue over the forecast period, with a CAGR of 9.5% between 2022 and 2026. The country’s building output is expected to reach INR 60,508.9 billion by 2026.
• The freight income of Indian Railways increased to INR 1,17,386 crore (roughly) (US$ 16.04 billion) in fiscal 2020-21, up from INR 113,488 crore (US$ 16.10 billion) in fiscal 2019-20.
• As urbanisation and prosperity (both urban and rural) expand, so does the passenger sector. India is predicted to contribute for 40% of total global rail activity by 2050.
• During 2022, 73.6% of metalcasting companies will make capital investments, with 5.45% planning new plant building and 21.8% expanding or adding to existing facilities. During 2022, 60.9% will invest in new capital equipment for their activities.
• The company is always striving to contribute to national defence by collaborating with Indian Defence organisations. This endeavour is ongoing, and we anticipate development in this area as a result of government initiatives such as Atmanirbhar Bharat, Make in India, and others. Company already has outstanding purchase orders from government defence facilities.

Going Forward

In the next three years, the company plans to develop 100 more parts, increasing its portfolio by one-third.

The company intends to launch new items for existing clients, expand into new markets, and create new products. To diversify away from traditional markets (mining, earthmoving, and construction), the Company negotiated a long-term supply arrangement with a big OEM in the United States to supply steel castings for the North American railway industry. The Company seeks to strengthen its R&D expertise in order to improve product launch, quality, and productivity.

The hybrid and solar power plants of the company are progressing as per schedule, and the company expects to commission them on or before 31st March 2023. Upon commissioning, the company anticipates significant savings in power costs, which will become effective from April ’23. The expected annual savings from these power plants are projected to exceed INR 10 crores. The successful implementation of these initiatives will not only result in significant cost savings for

Because the company competes in a specialised industry, it estimates its EBITDA to be in the 20 to 25% area. However, management has said that their primary focus is on increasing sales rather than EBITDA margins.

Over the last two to three years, the company has focused on emergent sectors in India, such as locomotives, ground engaging tools, the railway industry, and defence.

Conclusion

Steelcast, a 51-year-old microcap company with a market cap of around just 1000 crores, is well positioned to take advantage of the current economic climate, with an expanding capital expenditure cycle in India and a revival of global downstream sectors. The company has paid off substantial debt and has a robust financial sheet, in addition to a variety of certifications and long-term client ties. Steelcast is an intriguing business prospect for long-term growth, with a predicted 20% increase in volume and EBITDA margins ranging from 20-25% as per the management’s guidance. Steelcast’s free float in the market, however, may be constrained as a microcap business. Furthermore, while management controls a major amount of the company’s shares, it is probable that they also own additional stakes which may not be visible in plain sight. One significant danger of investing in such companies is that stock success is frequently dependent on management’s activities, and there is a high likelihood that it will turn out to be a dead investment. As a result, while contemplating an investment in Steelcast, investors must exercise care and have a long-term investment perspective. While Steelcast looks to be well-positioned for development, investors should be aware of the dangers involved with investing in microcap companies.