Release Date: July 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Nelcast Ltd (BOM:532864, Financial) reported a modest revenue increase of 2% year-over-year to INR302.3 crores amidst challenging market conditions.
- The company achieved a 10.5% year-on-year increase in export sales during Q1 FY25.
- Enhanced production efficiencies led to an increase in EBITDA per kilogram, contributing to a healthier EBITDA margin of 7.42%.
- Profit after tax rose to INR8 crores, showing strong growth of 10% year on year and 56% quarter on quarter.
- Nelcast Ltd (BOM:532864) is developing new products tailored for the electric vehicle sector, positioning itself for future market trends.
Negative Points
- There was a persistent softness in the demand for commercial vehicles in both domestic and export markets, attributed to macroeconomic headwinds and political uncertainties.
- EBITDA saw a slight year-over-year decrease to INR22.4 crores.
- The company had to reduce inventory levels, leading to a decrease in production volumes.
- Despite the revenue increase, the market for commercial vehicles remains soft, especially in light of upcoming elections.
- The US and European markets are expected to experience a decline in commercial vehicle demand, impacting future sales.
Q & A Highlights
Q: Sir, we say that FY25 is likely to be a consolidation year, but what makes us so hopeful for FY26? It looks like we are very, very optimistic about FY26.
A: We believe FY26 will see a rebound in the domestic market post-elections and a significant pre-buy in the North American market due to new emission laws in 2027. Additionally, new product awards and capacity reductions in Europe present opportunities for us.
Q: We have seen a very strong growth in exports. What is driving this, and can we expect more exports in FY25 and FY26?
A: Yes, we are becoming more competitive globally. While the US remains a significant market, we anticipate a substantial increase in exports to Europe due to capacity reductions and financial distress among European competitors.
Q: Can you explain the reduction in power and fuel costs despite flat production volumes?
A: The reduction is due to the installation of a 1-Megawatt solar power plant and increased wind energy utilization. We also anticipate further efficiency gains in power consumption over the next few quarters.
Q: What is the status of the FedEx orders you mentioned?
A: The orders have begun, but volumes are currently low at about 180-200 vehicles per week. We expect a gradual ramp-up to the full order of 590 vehicles per week by the end of the year.
Q: How do you expect the EBITDA per kilogram to improve?
A: We anticipate improvements due to increased capacity utilization, especially at the Pedapariya plant, and a more profitable product mix. Our overall strategy includes several initiatives to drive this improvement.
Q: What is the outlook for the commercial vehicle (CV) segment given the current muted demand?
A: We expect to outperform the market. While Q1 is typically stronger for tractors, we have done better year-on-year in both tractors and CVs. We anticipate continued market penetration and better performance in the second half of the year.
Q: Can you elaborate on the export opportunities and the potential impact of European decarbonization regulations?
A: We see significant potential in Europe due to capacity reductions and financial distress among competitors. We are confident in our compliance with upcoming European decarbonization regulations, which should not impact us negatively.
Q: What are the expected volumes for FY26, and what factors could drive demand revival?
A: We are targeting around 110,000-115,000 tons for FY26, a 30% increase from current levels. Demand revival could be driven by infrastructure projects, rural economic health, and new product wins in export markets.
Q: What is the margin profile and payment terms for exports compared to domestic sales?
A: On average, export margins are higher at INR15-18 per kilogram compared to INR10 per kilogram domestically. Payment terms for exports are around 150 days, while domestic terms are 45-60 days.
Q: What are the strategic initiatives for improving efficiency and performance at the Pedapariya unit?
A: We have completed five of six critical actions to improve operations at Pedapariya. We are also developing new products, such as cast axle housings for tippers, which could significantly enhance utilization and profitability.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
