Nelcast Ltd Q1 FY27 Earnings Call Summary

Event Participants

Executives

3 P. Deepak (Managing Director & CEO), S.K. Shivakumar (Chief Financial Officer), Abhishek Bhatt (Investor Relations, EY)

Analysts

6 Abhishek Chaudhuri (Niwaka Ventures), Ankur Gulati (January Capital), Ganesh (Motilal Oswal), Praneeth (SJ Investments), Rohan Shah (RS Investments), Saket Kapoor (Kapoor Company)

Financials & KPIs

Geographic & Segment Commentary

Domestic — Tractors & CVs: Tractor industry had a strong Q1 with continued growth in the four-wheel drive segment, driven by cost economics vs higher horsepower tractors under stricter emission norms. Commercial vehicles also grew, albeit on a lower base, and management expects both segments to grow for the full year. Cast axle conversion from fabricated housings for heavy tippers is a key domestic growth driver — part numbers developed have moved from 2 to 12, catering to all major Indian truck OEMs.

Exports: Revenue improved sequentially to ₹113.3 crores, supported by tariff regime stability, pent-up demand and pre-buy effects ahead of January emission norm changes in export markets. Management expects strong export momentum over the next couple of quarters. New export contracts are being negotiated with lower credit days to improve working capital.

Europe: Won business from a large European truck OEM (traditional parts, not large castings) driven by an existing European supplier going bankrupt. Management views this as a "foot in the door" — Europe moves slower, but once performance is proven, pace of new business improves significantly.

Company-Specific & Strategic Commentary

New Product Ramp-Up (Large Castings): Production commenced in Q2 FY27 for three new programs — larger, heavier, more complex castings with limited domestic competition. Revenue potential at maturity is ₹200–250 crores annually, expected to reach that run-rate by Q4 FY27. These programs will improve product mix, profitability and capacity utilization.

Cast Axle Opportunity: Sequential conversion from fabricated to cast axle housings for heavy tippers — from 2 part numbers a year ago to 12 now, all single-source. The four-wheel drive tractor segment in India is growing rapidly as 45 HP 4WD tractors substitute for 50+ HP 2WD units.

Working Capital Discipline: For all new contracts (especially exports), management is actively negotiating lower credit days. Existing contracts are harder to change, but new product ramp-ups will progressively bring receivables days down.

Renewable Energy Leadership: Currently at 65–70% renewable power share with a long-term goal of 80%. Most committed investments are now complete; management plans to let it stabilize this year before charting next steps. One MW of on-site solar exists at the plant, with space for another 2–2.5 MW (possibly more with improving solar technology).

Land Bank: Land located near the new ISRO facility in Tamil Nadu is strategic; management is waiting for the right monetization opportunity, though nothing is imminent. No formal valuation done yet.

Guidance & Outlook

Risks & Constraints

Q&A Highlights

New Product Ramp-Up and Scale

• Question: When will the large order ramp up to full capacity? What's the volume? (Praneeth, SJ Investments)
• Answer: Ramp-up will take about 9 months — mature volume expected by Q4 FY27. It's three different programs with multiple parts, representing ₹200–250 crores annual revenue run-rate at maturity (P. Deepak).

Cast Axle Expansion

• Question: We were already supplying 80–90% share — what's incremental here? (Praneeth)
• Answer: Broken into two segments — 4WD tractor front axles (market itself growing dramatically as 45 HP 4WD substitutes 50+ HP 2WD) and CV cast axle housings converting from fabricated (better stress distribution for heavy tippers). Part numbers developed went from 2 to 12 in a year, all single-source, covering all Indian truck OEMs (P. Deepak).

FY27 Guidance (Tonnage, Revenue, EBITDA)

• Question: Where do we end the year on tonnage, revenue and profitability? (Praneeth)
• Answer: ~1 lakh tonnes for FY27; realization around ₹150/kg implying ~10%+ revenue growth; EBITDA per kg of ₹15 for the full year — Q1 is a blip (P. Deepak).

Working Capital Days on Exports

• Question: Progress on reducing receivable days? (Praneeth)
• Answer: Hard to change existing contracts; focusing on new contracts — negotiating lower credit days is now an active area of focus and will show as new products ramp (P. Deepak).

Industry Tailwinds and Margin Outlook

• Question: What tailwinds support growth, and can EBITDA margins sustain? (Abhishek Chaudhuri, Niwaka Ventures)
• Answer: Domestic tractor/CV volumes strong; exports benefiting from tariff clarity, pent-up demand and pre-buy before January emission norm change; plus company-specific drivers (4WD tractors, cast axles, new exports). EBITDA/kg of ₹9.48 is an aberration — should return to ₹15/kg goal (P. Deepak).

New Product Profitability and H2 Contribution

• Question: How will new products improve EBITDA/kg and what revenue contribution in H2? (Rohan Shah, RS Investments)
• Answer: Larger, heavier, more complex castings command premium pricing with little domestic competition. Mature revenue of ₹200–250 crores/year, achieved by year-end. Ramp-up curve will vary — difficult to project exact H2 impact (P. Deepak).

Europe Progress and Diversification

• Question: How is customer diversification towards India progressing, and Europe specifically? (Rohan Shah)
• Answer: RFQ pipeline and technical discussions very positive. Europe moves slowly — won business from a large European truck OEM only because their existing supplier went bankrupt. "Foot in the door" — once performance is proven, pace accelerates. Additional European wins are traditional parts, not large castings (P. Deepak).

Q1 Production Drop and Plant-Wise Utilization

• Question: Why were production volumes lower YoY and QoQ? Plant-wise numbers? (Ankur Gulati, January Capital)
• Answer: Two reasons — industry-wide manpower shortage in April–May (recovered by June; normalized in July) and a short planned stoppage for plant improvements to handle new product ramp-ups. Gudur at 53%, Plant 2 at 100%, Plant 3 at 21% utilization (P. Deepak).

Realization and Pass-Through Timing

• Question: Realization at ₹161/kg (slippage) — is this partial pricing? When does full pass-through happen? (Ankur Gulati)
• Answer: Realization was ~₹152/kg for Q1 (vs ₹146 in Q4 FY26, ₹150 in Q1 FY26) — some price increase already passed through. Full pass-through expected in Q2; the ₹4/kg raw material impact should recover in current quarter's pricing (P. Deepak).

Labour Issue Timeline and Margin Floor

• Question: Scale of labour issue and expected timeline for normalization? Realistic FY27 margin floor? (Ganesh, Motilal Oswal)
• Answer: Impact was only April–May; recovered in June and fully normalized in July. No further compression expected — Q2 should be back to normal levels, with ~₹15/kg for the year (P. Deepak).

Quantification of One-Off Impact

• Question: Can you quantify the one-off impact (labour, shutdown, freight) that lowered EBITDA per kg? (Saket Kapoor, Kapoor Company)
• Answer: Raw material effect alone expected to add ~₹4/kg recovery in Q2 pricing. Q1's production number was 21,184 tonnes (vs 22,038 last year), sales 22,442 tonnes (vs 22,073) — flattish like-to-like (P. Deepak).

Conservative Tonnage Guidance

• Question: FY26 did 91,304 tonnes (~9% growth) without new products — is 1 lakh tonnes too conservative? (Saket Kapoor)
• Answer: Being deliberately cautious on new product volumes because ramp-ups historically face delays on both company and customer sides. ₹200 crores is the addition from new businesses; tonnage split was not available on the call (P. Deepak).

EBITDA Growth Expectations

• Question: Given better per-kg EBITDA and higher tonnage, will FY27 EBITDA growth repeat or exceed FY26's percentage growth? (Saket Kapoor)
• Answer: Yes — expecting a "reasonably good double-digit EBITDA growth rate" for FY27 (P. Deepak).

Renewables Strategy and Land Bank

• Question: With battery storage mandates, how is the 70% renewable share moving higher? Land bank status? (Saket Kapoor)
• Answer: Long-term goal is 80%; currently 65–70%, which is already a global benchmark. Investments committed are now complete — will let it stabilize this year. Land bank is near the new ISRO facility in Tamil Nadu; waiting for the right opportunity, nothing imminent, no formal valuation done (P. Deepak).

Debt, Capex and EBITDA per kg Exit Rate

• Question: Current debt, repayment and capex numbers? Is ₹14–15/kg EBITDA an average or exit rate? (Saket Kapoor)
• Answer: Long-term debt ~₹187 crores as on June 30; ~₹30 crores repayment due this year (₹10 cr already repaid, ~₹20 cr more by year-end). FY27 maintenance/improvement capex ~₹35 crores. The ₹15/kg is a full-year average — factoring in the Q1 blip implies a higher exit rate (P. Deepak, S.K. Shivakumar).

Renewable Capex — Group Captive vs On-Site

• Question: Any possibility of doing our own solar/wind instead of group captive? IRR difference? (Praneeth)
• Answer: Only 2–2.5 MW additional space on-site (beyond current 1 MW net-metered). Group captive makes more sense — partners specialize in large wind/solar parks, and at ~26% equity stake with ~70% debt funding, capital outlay is lower. On-site generation saves wheeling charges (₹50/unit depending on state). Existing investments are grandfathered under old, favorable rules (P. Deepak).

Realization Drivers — Exports vs Domestic

• Question: Will the ₹15/kg EBITDA be driven mainly by exports? (Praneeth)
• Answer: Both — exports will drive it, but domestic also improves via higher capacity utilization, which significantly drives per-kg metrics (P. Deepak).

Long-Term Capacity Utilization Timeline

• Question: When do we reach full utilization of 180,000 tonnes? (Praneeth)
• Answer: 2–3 years for full utilization. Target ~1,30,000 tonnes in the next 2–3 years; 20%+ volume growth beyond FY27 is "on the cards" if everything goes well (P. Deepak).

Key Takeaway

Nelcast reported Q1 FY27 revenue of ₹345.4 crores (+2.8% YoY) with EBITDA at ₹20.1 crores and PAT of ₹5.1 crores, both hit by temporary factors — elevated raw material and sea freight costs, industry-wide labour shortages (normalized by July), and a planned plant stoppage to ready facilities for new product launches. Management characterized the ₹9.48/kg EBITDA as a "blip" and guided to ~₹15/kg for FY27, with ~₹4/kg raw material pass-through already expected in Q2 pricing. The strategic inflection point is anchored on three large casting programs commencing production in Q2 FY27, targeting ₹200–250 crores annual revenue run-rate by Q4, cast axle conversions (2 to 12 part numbers, all single-source), and sequential export strength (₹113.3 crores) driven by tariff clarity and pre-buy ahead of emission norm changes. Management guided FY27 production at ~1,00,000 tonnes with ~₹150/kg realization, targeting ~1,30,000 tonnes in 2–3 years. Key watch items include steel price trajectory ("depends on Mr. Trump"), new product ramp-up execution, and Europe's slow diversification pace, though the company's 65–70% renewable power share, low leverage (₹187 crores debt with ~₹30 crores repayments), and conservative guidance provide downside cushion.