Steelcast Ltd Share Price hits target. Target Revised.
Steelcast Limited (SCL) is engaged in the business of manufacturing Steel and Alloy Steel Castings catering to a host of OEMs for diverse industrial sectors.
We had recommended Steelcast(NSE: STEELCAS) at 645 for a target of 950 in our screener list. We recommend to continue holding the stock for a revised target of 1250.
Key Points from screener website.
Products
The company offers casting products like Carbon Steel, Low Alloy Steel, High Alloy Steel, Manganese Steel, and other Superior Grades of Wear and abrasive resistant Steel Castings produced by Bake and Shell Moulding Processes.
It is one of few casting companies to manufacture steel castings through the sand and shell molding process to produce 300+ parts ranging from 2.5 kg to 2,500 kgs.
Revenue Mix
Industry-Wise
Earthmoving: ~52% in FY24 vs ~41% in FY20
Mining: ~24% in FY24 vs ~33% in FY20
Others: 24% in FY24 vs 26% in FY20
The company earns 100% revenue from OEMs and 70% of its turnover is in the form of machined castings.
Geography-Wise
Domestic- ~42% in FY24 vs 38% in FY20
Exports- 58% in FY24 vs 65% in FY20
Export Sales FY24
America: 35%
Asia: ~48%
Europe: 17%
The company is a Two-Star Export House Status holder, it supplied to 10 countries in FY24. It is investing in its marketing across USA and Europe, and plans widen its presence in 15-18 countries by FY26.
Reasons for Lower Revenue in FY24
In FY24, the company reported a 14% decline in revenue compared to FY23 as buyers in North America and Europe liquidated their raw material inventory and staggered fresh purchases.
However, profitability improved due to lower raw material costs and power savings from solar and renewable power plants, which supply 80% of the company’s captive power needs.
Clientele
The company caters to diverse Industrial sectors like Earth Moving, Mining & Mineral Processing, Locomotives, Rail Road, construction, etc. Its clients include multinational companies both in India and abroad including Fortune 500 companies.
As of FY24, it has 38 customers and ~1,300 vendors, and the top 3 customers accounted for 75% of total revenues. 93% of its global revenues were generated from customers of 5+ years.
Manufacturing Facility
As of FY24, the company has a 30,000 TPA manufacturing facility comprising 3 production plants and 1 machine shop in Bhavnagar, Gujarat.
It reported a capacity utilization of 42% in FY24. It plans to incur a capex of Rs. 22 Cr on debottlenecking and adding machining capacities, during FY25.
R&D
The company’s R&D Team has developed a process to De-Sulphorise and De-Phosphorise the liquid metal In Induction Furnace.
It has also developed products in complicated Low Alloy Steel Track Shoe Castings with a Polymer quenching facility for OEM customers in the Earth Moving Equipment Manufacturing Industry.
New Product Development
In FY24, the company sold ~270 parts and developed 16 new parts. The company has a Short Product Development Cycle ranging from 4 to 6 months, it has developed ~600 products as of FY24.
Cost Rationalization Measures
The company has set up a 5 MW solar power plant in Bhavnagar, Gujarat, for captive consumption and commissioned a 4.5 MW hybrid power plant in July 2023.
Together, these plants meet about 80% of the total power requirement, resulting in Rs. 12 crore in annual power savings in FY24. It plans to add a 1 MW captive solar power plant to further reduce costs.
New Avenues
The company is foraying into new segments including Railways, Ground Engaging Tools, and Defence.
In FY24, the company entered the North American railroad market as a part of its de-risking strategy. It will increase tonnage sales and commence serial product supplies to this industry from Q3 FY25. The railroad segment is expected to account for 14% to 15% of total sales by FY26-27 from 2% of total sales in FY24.
It is also making endeavors to contribute to the defense sector by partnering with Indian Defence units. It expects an improvement in this sector considering the Government push through schemes like Atmanirbhar Bharat, Make in India, etc.
Outlook
The company expects to sustain EBITDA margins of ~25-26% on a longer-term basis. The company aims to make strategic investments in producing larger piece weights, which could expand its potential market while enhancing value-addition.
It plans to establish a dedicated facility to manufacture products targeting the replacement market. It will extend its presence from fifteen to eighteen countries in two years. It will invest in advanced process flows and automation that enhance productivity by at least 25%.
