Alicon Castalloy Limited

The quarter was marked by a complex and dynamic operating environment, globally navigating volatility. New US tariffs were announced, including a 25% tariff on goods from India and an additional 25% penalty for trade involving Russia, effectively a 50% tariff. These measures, rolling out from August 7th and 27th, have prompted widespread caution across industries, with customers reassessing purchasing decisions and re-evaluating supply chain strategies. This has already led to a slowdown in demand from export customers in the US and Europe.

China's restriction on rare earth materials exports, ostensibly for national security but believed to be a response to US tariffs, is a significant global development. This has created complex procedural requirements and extended clearance processes, particularly impacting the supply of magnets for EV motors. OEMs are urgently exploring alternative sources, but these disruptions are causing production delays and shutdowns, with effects expected to intensify in Q2 and beyond, leading to a likely decline in EV volumes.

Alicon Castalloy reported revenue of ₹419 crore in Q1 FY26, a 5% decline year-on-year from ₹440 crore in Q1 FY25, and a 1.4% sequential decline from ₹425 crore in Q4 FY25. Gross margin for the quarter was 45.9%, a 165 basis points decline from 47.5% in Q1 FY25, attributed to aluminum price increases and sales mix. Despite headwinds, EBITDA improved to ₹50 crore (11.9% margin) from ₹48 crore (11.2% margin) in Q4 FY25, and pre-tax profit increased by 16% QoQ to ₹15 crore. An exceptional item^📎 of ₹2.5 crore was recorded due to a legal settlement.

The company added seven new parts from five customers, including two new logos, with five parts for international business and two for domestic. New business includes structural solutions for a prominent European luxury sports car manufacturer and a structural part for a domestic two-wheeler OEM. Alicon also secured a cylinder head business from an Indian OEM for the non-auto segment, showcasing its capacity and capability.

Production issues for a prominent Japanese OEM's cylinder heads have been resolved, with steady ramp-up expected over the next three months. Manpower issues for an Indian operation of a European OEM have also been resolved, with production stepping up from 40-50 sets per week to 150 sets, targeting 600 sets per week from January 2026. The company is integrating digital process controls and AI/IoT technologies to enhance productivity and reduce rejection rates, supported by a casting expert from Germany.

Alicon's strategy focuses on increasing higher-value products for passenger vehicle (PV) and commercial vehicle (CV) customers, with PV and CV contributions to revenue increasing to 39% and 15% respectively. The company maintains a healthy order book of ₹9,100 crore, executable up to FY28-29. The composition of this order book is 51% from PV, 30% from CV, 12% from two-wheelers, and 4% from non-auto, with a geographical split of 48% domestic and 52% export. However, some EV business projections were reduced and eliminated from the order book.

In Q1 FY26, Alicon deployed ₹30 crore towards CAPEX, and the target for FY26 remains unchanged at ₹165-170 crore. These investments in machinery, tooling, and automation are crucial for future capabilities, supporting new orders and the ramp-up of existing businesses. Depreciation increased to ₹24.8 crore in Q1 FY26 from ₹22.3 crore in Q4 FY25, reflecting these planned investments.

The Indian automotive industry experienced only 1.5% growth in volumes, with two-wheelers at 0.7%, passenger vehicles at 3.4%, and commercial vehicles at 2.6%. This subdued demand is lower than OEM predictions, influenced by financing constraints, early monsoon, and persistent inflation. While some customer segments show good demand, the overall market remains challenging, and the company is dependent on OEMs' sales performance.