Release Date: May 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Nelcast Ltd (BOM:532864, Financial) achieved substantial export growth, with a 35% year-on-year increase, reaching INR445 crores in FY24.
- The company launched a one-megawatt solar power plant at its Pedapariya facility, contributing to sustainability and cost savings.
- Despite a forecasted downturn in the US commercial vehicle market, Nelcast Ltd (BOM:532864) remains committed to maintaining strong export business growth.
- The company expects a strong rebound in the domestic commercial vehicle industry in H2 FY25, driven by public investment in infrastructure.
- Several new product launches are planned for the North American and European markets, indicating potential for future growth.
Negative Points
- Total revenue for Q4 FY24 was down 5% year-on-year and 7.3% quarter-on-quarter, impacted by a significant drop in demand due to ongoing general elections.
- The medium and heavy commercial vehicle segment's subdued performance negatively affected overall revenue growth.
- The tractor market experienced a downturn in Q4 FY24, although some recovery is expected in Q1 FY25.
- Current capacity utilization at the Pedapariya plant is approximately 25%, below the targeted 30%, impacting overall efficiency.
- The company faces challenges in ramping up production at the Pedapariya plant, which has been a drag on profitability.
Q & A Highlights
Q: How do you see export revenue as a percentage of total revenue in the next two to three years, and what will drive this growth?
A: We believe exports will continue to be a growth driver in the medium and long term. The US market has been a significant contributor, and despite a current slowdown, we expect a strong FY25 and potentially a record FY26 due to legislative changes. Additionally, we see a big opportunity in Europe due to challenges faced by local casting companies.
Q: Are you getting into any new sectors like defense or aerospace for your casting division?
A: Currently, we are not working on anything in defense or aerospace but will evaluate opportunities as they come along. We will continue to focus largely on auto components casting.
Q: What is your current capacity utilization for the Pedapariya plant, and what actions are being taken to increase it?
A: The current capacity utilization for the full year was approximately 25%. We reduced the number of working days to lower inventory levels, and the market downturn also impacted utilization. We expect a bounce back and aim to achieve 30% utilization, driven by new product launches and ramp-ups.
Q: How do you see the impact of the shift towards hybrid and electric vehicles on your business?
A: We don't see significant impact on tractors, and while commercial vehicles will see a reduction in castings per vehicle, the complexity and weight of remaining parts will increase. We believe this will benefit us. The pace of electrification seems to have slowed down, and we expect a more gradual transition over the next 15 years.
Q: Do you have any major CapEx plans for the next two to three years?
A: No major CapEx plans. We will focus on optimization and debottlenecking with smaller projects. We expect cumulative CapEx of around INR60 crores for FY25-26.
Q: What is your outlook for the export market in FY25, especially given the forecasted downturn in the US commercial vehicle market?
A: We expect some reduction in existing product volumes but anticipate growth from new product launches. While the US market may see some slowdown, we expect overall growth driven by new programs and opportunities in Europe.
Q: What are your projections for the CV and tractor industry growth for FY25?
A: We expect mid-single-digit growth for tractors and around 10% growth for the CV industry, with a stronger second half driven by pent-up demand and infrastructure investments.
Q: What are your revenue and margin targets for the next two to three years?
A: We aim to achieve around INR1,800 crores in turnover, representing significant growth. We also target an EBITDA margin of INR15 per kg.
Q: How do you plan to address the high exposure to cyclical industries like M&HCV and tractors?
A: We aim to diversify our product mix to mitigate cyclicality. This includes increasing exports, expanding into off-highway segments, and exploring new opportunities in Europe.
Q: What is the status of your EV-related products, and how do you see their contribution to revenue?
A: Production for delayed EV products has started, and we expect ramp-up over the next few years. Based on customer projections, we anticipate EV-related products to contribute over INR100 crores annually in the next two years.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
