Simplex Castings

Simplex Castings reported Q3 FY26 with softer EBITDA margins, but PAT margins were maintained at 10%, aided by a non-recurring^📎 other income of 1.6 crores from a gratuity fund. Management emphasized that the quarter's performance reflected conscious efforts towards strategic initiatives, capacity readiness, and internal process strengthening rather than a lack of demand. The company remains confident in achieving its FY26 stated guidelines and noted that its 9-month performance is significantly better than the previous year.

The company's current quarterly order book stands above 100 crores, providing healthy revenue visibility. The order book composition is diversified, with steel plant bookings contributing nearly 50%, fabrication for the power industry (including BHEL and Gaja Engineering) accounting for 30%, and the remaining 20% distributed across gearbox, pump, and machine tool industries. Shipbuilding, including orders from Mazgaon Dock, represents 5-6% of the order book, marking a restart in this segment.

A key milestone in Q3 FY26 was the successful completion of a 50.15 crores fundraise. Approximately 50% (25.075 crores) of these proceeds are earmarked for capital expenses, specifically for the expansion of sheds, fabrication facilities, and the railway bogies business. The remaining 50% is allocated towards incremental working capital requirements to support the anticipated increase in turnover. The company also maintains a CC limit of 34 crores from Kotak.

Simplex Castings is actively re-entering and scaling its legacy railway bogies business, both fabricated and casted. While trial orders for fabricated bogies are underway, the casted bogies business is awaiting final RDSO approval, which is expected to bring significant fruit from prior investments. Management anticipates the railway sector to be the biggest contributor to future growth, with fabricated bogies components being added by 2027-28, potentially making railway products 50% of the topline.

The company is strategically moving 'up the value chain' by offering more complex, value-added products and services. This includes providing completely machined castings, such as Sinter Car assemblies and valve castings, which were previously imported. The goal is to evolve from being solely a foundry to a solution provider, capable of assembly and delivering complete products, thereby differentiating itself and improving margins.

Management sees tremendous growth opportunities in the power sector for the next 4-5 years, with significant orders from Adani and NTPC. The company is working with BHEL and L&T on fabricated equipment, castings, and structures for coal-based power plants. While considering a new unit in Vishakapatnam near Arcellor Mittal Nippon Steel, the company is prudently managing capacity expansion based on management and financial bandwidth, aiming for a 6-8 month timeline for fabricated bogies capacity.

Simplex Castings is focused on improving its working capital management, including deleveraging balance sheets and faster receivable realization. Enrollment in platforms like Invoice Mart and TREDs is expected to shorten the working capital cycle. Management targets a reduction to 30-45 days for new products and a blended average of 3 months (90 days) for the overall working capital cycle, enhancing cash flow efficiency.