Alicon Castalloy Limited — Q3 FY25 earnings call

Call held 13 Feb 2025

Management summary

Alicon Castalloy Limited reported a challenging Q3 FY25 with revenue declining to Rs. 393 crore and significant margin compression, primarily due to subdued demand in export markets, customer-specific production issues, and an adverse sales mix. Gross margin fell by 543 bps to 45.81%, and EBITDA margin dropped to 9%. Despite these headwinds, the company secured new orders worth Rs. 500 crore, bringing the total order book to Rs. 9,000 crore, and anticipates sequential improvement in Q4 FY25 and FY26, driven by new product ramp-ups and a recovery in demand.

Highlights

  • 9M FY25 total revenue increased 14% to Rs. 1,298 crore from Rs. 1,142 crore in 9M FY24.

  • 9M FY25 EBITDA increased 7% to Rs. 150 crore from Rs. 140 crore in 9M FY24.

  • Order book stands strong at Rs. 9,000 crore as of today, with Rs. 500 crore added this quarter.

  • Added 7 new parts from 7 existing customers, including 5 domestic and 2 international.

  • Anticipates volume pick-up from a leading Japanese OEM in Q4 FY25, with monthly supplies of cylinder heads expected to increase by roughly 80% over the next two years.

Concerns

  • Q3 FY25 revenue declined to Rs. 393 crore from Rs. 406 crore in Q3 FY24.

  • Gross margin for Q3 FY25 declined by 543 basis points to 45.81% from 51.24% in Q3 FY24.

  • EBITDA for Q3 FY25 declined to Rs. 35 crore from Rs. 53 crore in Q3 FY24, with margin at 9% vs 13%.

  • Net profit for Q3 FY25 was Rs. 0.78 crore compared to Rs. 17 crore in Q3 FY24.

  • FY25 revenue guidance of Rs. 1,800 crore revised downwards, and FY26 target of Rs. 2,200 crore pushed to FY27 due to market softening and EV OEM delays.

Key financials

  1. Revenue ₹393 Cr -3.2%YoY
  2. Gross Margin 45.8%
  3. EBITDA ₹35 Cr -34%YoY
  4. EBITDA Margin 9%
  5. Depreciation ₹23.5 Cr +17.5%YoY
  6. Net Profit ₹0.78 Cr -95.4%YoY

What they filed

Q1 FY27: revenue up 38.3%, net profit up 22.2% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue464 392 425 418 428 −8%430 +10%495 +16%578 +38%
EBITDA56 34 47 49 55 −2%44 +29%46 −2%54 +10%
Net profit17 1 9 9 14 −18%3 +200%8 −11%11 +22%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

SegmentTwo-wheelerPassenger VehicleCommercial VehicleExports
9M FY25 Sales Mix40%38%15%24%
9M FY24 Sales Mix42%32%20%28%
Q3 FY25 Sales Mix43%———

Order book

high confidence

Total value

₹9,000 Cr

as of 2025-02-13 quantified

Inflow this quarter

₹500 Cr

Execution

executable over next 5 years, till 2028-29

The company has a healthy order book position, providing good visibility for future growth, with new orders added this quarter.

Source: Q&A

Capital allocation

medium confidence
  • Capex ₹42 Cr this quarter · ₹160 Cr (FY25) planned
    • Machinery and new product development
    • Automation and advanced manufacturing technologies
    • EV parts development (eAxle)
    Our capital expenditure for Quarter 3 stood at Rs. 42 crore while for nine months of FY25, it was around Rs. 140 crore with investments directed towards machinery and new product development. For Quarter 4, we expect further CAPEX of around Rs. 20 crore to Rs. 25 crore aligned with our growth initiatives.

Guidance & targets

Revenue

  • FY25 Revenue Revenue · FY25 · High confidence lower than Rs. 1,800 crore

    Previously Rs. 1,800 crore → lower than Rs. 1,800 crore

    As we started FY25 with as guided for Rs. 1,800 crore in revenue targeting 15% growth for the full year... the full year's performance will be a bit lower compared to expectations.

    — Vimal Gupta

  • FY26 Revenue Target Revenue · FY27 · High confidence Rs. 2,200 crore

    Previously FY26 → Rs. 2,200 crore

    So, Yash, we feel that because now we have to just keep our fingers crossed and how the geographical challenges we are seeing. So, let's see how things are moving. But definitely, it looks difficult because now the numbers are softening in this year. And when what we were talking about, those were the original. I think 3-4 years back, we have put the target. And due to some delays, what we are seeing from the EV OEMs. So, maybe that we need to post by at least one year.

    — Vimal Gupta

Capex

  • Q4 FY25 Capex Capex · Q4 FY25 · High confidence Rs. 20-25 crore
    For Quarter 4, we expect further CAPEX of around Rs. 20 crore to Rs. 25 crore aligned with our growth initiatives.

    — Vimal Gupta

Volume

  • Japanese OEM Cylinder Head Volume Growth Volume · next two years · High confidence roughly 80%
    In fact, over the next two years, the expectation is that the monthly supplies of cylinder heads will increase by roughly 80%.

    — Shyam Agarwal

  • European OEM Volume Growth Volume · by the end of this year (FY25) · High confidence double
    We are now in discussion to scale up the capacities to align with the 2nd Phase investment by this OEM, which will see them double the monthly volume offtake.

    — Shyam Agarwal

Performance

  • Sequential Performance Improvement Performance · Q4 onwards into FY26 · High confidence improvement
    This will ensure that our revenue and margins performance will improve going forward, starting with sequential improvement in Quarter 4 and further building up into FY26.

    — Vimal Gupta

What to watch in Q4 FY25

Sequential improvement in Q4 FY25 performance (revenue and margins)

next quarter (Q4 FY25 results)
Current Q3 FY25 revenue Rs. 393 crore, EBITDA margin 9%
Target Improved revenue and EBITDA margin

Why it matters

Management explicitly stated Q3 was the bottom and expects sequential improvement, which is crucial for validating the company's recovery trajectory.

We also believe the Quarter 3 marked the bottom of the cyclicity in the industry and that there will be an improvement in export markets of Europe and US as well as an enhanced demand environment in India. This will ensure that our revenue and margins performance will improve going forward, starting with sequential improvement in Quarter 4 and further building up into FY26.

Risks & concerns

  • Subdued demand in key export markets, particularly Europe

    high

    Top-line was impacted by subdued demand in key export markets with severe weakness in Europe, and sustained weakness persists.

    Management acknowledged

  • Customer-specific production shutdowns and challenges

    high

    Incidents included a production shutdown at an India plant of a leading Japanese OEM and challenges with a European two-wheeler OEM, impacting volume offtake.

    Management acknowledged

  • Volatile macroeconomic environment and persistent inflationary trends

    medium

    Performance in Q3 FY25 was influenced by a volatile macroeconomic environment which impacted demand across key segments and geographies.

    Management acknowledged

  • Suboptimal recovery of fixed costs due to new plant investments not yet scaled

    medium

    Upfront investments in new technologically advanced plants, yet to scale, led to suboptimal fixed cost recovery, impacting gross margins.

    Management acknowledged

  • Global EV slowdown and uncertainty around US tariffs/regulations

    medium

    EV is not doing good globally, and uncertainty around evolving dynamics of tariffs and regulations in the US has made buyers and OEMs adopt a cautious stance.

    Management acknowledged

Q&A highlights

7 direct, 1 evasive
Margins compression and one-off costs Direct
So, yes, if you review the results, so major impact has come from the gross margins, where this is due to the change in the sales mix, where we have seen the reduction in the volumes of high value addition parts and some increase in the volumes from the two-wheeler parts, where margins are low. That is the major impact. But when we are talking about the expenses, so definitely as a company we are taking a lot of actions for further cost reductions but one time yes there is some cost we have absorbed due to some issues we have seen with one global customer. So, there we have to absorb one time cost there.

Management explained the significant Q3 margin drop was due to an adverse sales mix (lower high-value parts, higher low-margin two-wheelers) and a one-time cost related to a global customer.

Asked by Yash Bharat Dalal

Impact of development costs for advanced technology/new lines Direct
Yes, when we are talking about this, so earlier we were discussing the new EV parts, the eAxle that we are developing. So, that development is in now full swing. And it is a very critical part and due to that a lot of challenges we faced in this development. So, due to criticality, so failures, rejections, all this, and then we have to do a lot of experiments on that to further development. So, those costs are there.

Clarified that upfront costs for critical EV eAxle development, including challenges, failures, and rejections, contributed to the cost impact in the quarter.

Asked by Yash Bharat Dalal

FY26/FY27 revenue target revision Direct
So, Yash, we feel that because now we have to just keep our fingers crossed and how the geographical challenges we are seeing. So, let's see how things are moving. But definitely, it looks difficult because now the numbers are softening in this year. And when what we were talking about, those were the original. I think 3-4 years back, we have put the target. And due to some delays, what we are seeing from the EV OEMs. So, maybe that we need to post by at least one year.

Management explicitly revised the ambitious FY26 revenue target of Rs. 2,200 crore, pushing it to FY27 due to current market softening and delays from EV OEMs.

Asked by Yash Bharat Dalal

EV and export business outlook Direct
Yes, so as you know, the EV is not doing good globally. You know that we have taken lots of new order from the EV and currently we are seeing the demand is not very good in India and also on the export market. But we are very hopeful that in 1 or 2 years, the demand should pick up. And there we will see the good numbers from the EV for which we have put lots of effort from our side and also lots of CAPEX investment which we have done.

Provided a realistic assessment of the current global EV slowdown impacting their business, while maintaining long-term optimism for demand recovery in 1-2 years.

Asked by Yash Bharat Dalal

Capacity utilization Direct
Yes, Jyoti, currently we are running if we specifically see Quarter 3, so we are running at the capacity of around 70%-75%. Because we have dedicated facility for different parts, so, some parts which we have developed, but it is still in the ramp up phase. So, there the capacity utilization will be less. Some of the parts which are running in the full swing, the capacity utilization is more. So, if you see on the average term it will be around 70%-75%.

Gave insight into current operational efficiency, indicating an average capacity utilization of 70-75% with room for growth as new projects ramp up.

Asked by Jyoti Singh

EBITDA margin outlook Direct
Definitely. This is a short-term jerk that we can say that we got in Quarter 3 due to the change in the sales mix and maybe some one-time costs. So, then you will see quarter-on-quarter improvement and very soon that will catch up the numbers.

Management expressed confidence that the Q3 margin dip is a 'short-term jerk' and expects sequential improvement to catch up to previous levels.

Asked by Devang Shah

Tata Motors order book Evasive
So, Jyoti, generally we avoid with the specific customer details on con-call. So, maybe we can take your call offline. So, specifically to the customer, we would like not to answer in this con-call.

Management declined to provide specific details on a major customer's order book, indicating sensitivity around client-specific information.

Asked by Jyoti Singh

Explanation for significant gross/EBITDA margin fall Direct
Mainly, the raw material cost is going up when you see comparison for the last 3-4 years. So, when you are talking about from FY2021, the prices of aluminum have gone up, but not the value additions have not grown in the same proportion. So, automatically the ratio goes up of the raw material and as a percentage the margin goes down and when we have built up in the last year, the last 2-3 years, we have started building up the margins bringing the new businesses from Commercial Vehicles and Passenger Vehicles. So, that is the main reason that we have built up and reached up the gross margin of more than 50%. And when we go to the two-wheeler, maybe in that mix also when we are talking about it is not like that, only two-wheeler and four-wheeler. In the four-wheeler also, there is a mix, so in some parts, especially the commercial vehicles, we are having a very good value addition, the gross margins. So, that has given us a big hit when we saw that approximately 30% decline in this quarter, so that has given a major impact.

Provided a detailed explanation for the margin decline, citing rising raw material costs (aluminum), adverse sales mix with lower high-value CV parts, and increased two-wheeler contribution.

Asked by Manas Jain

3 min read 6 chapters

Detailed narrative

Q3 FY25 Performance Overview

Alicon Castalloy reported a challenging Q3 FY25 with revenues declining to Rs. 393 crore from Rs. 406 crore year-on-year. This was primarily due to subdued demand in key export markets, particularly Europe, and customer-specific incidents. These incidents included a production shutdown at a leading Japanese OEM's India plant and challenges with a European two-wheeler OEM, impacting volume offtake. Despite robust domestic two-wheeler demand, it was insufficient to offset the broader revenue impact.

Macroeconomic Environment & Market Trends

The global macroeconomic environment remains volatile with persistent inflationary trends and slowing growth, especially in Europe, where demand weakness persists. While the USA is holding up, Europe continues to experience demand weakness. In contrast, the Indian auto industry showed healthy 6.6% volume growth, driven by an 8% increase in the two-wheeler segment, 2.8% in PV, and a 1.8% degrowth in CV. The company believes the near-term challenges are temporary, with industrial production expected to bottom out in Calendar Year 2024 and revive in 2025.

Financial Performance Deep Dive

Gross margin for Q3 FY25 significantly declined by 543 basis points to 45.81% from 51.24% in Q3 FY24, mainly due to shifts in sales mix towards lower-margin two-wheeler volumes and reduced high-value Commercial Vehicle and Carbon Neutral product sales. Upfront investments in new technologically advanced plants, which are yet to scale, also led to suboptimal fixed cost recovery. Consequently, EBITDA fell to Rs. 35 crore (9% margin) from Rs. 53 crore (13% margin) YoY, and net profit dropped to Rs. 0.78 crore from Rs. 17 crore. Depreciation increased to Rs. 23.5 crore due to investments in new machinery and automation.

Strategic Initiatives & Business Wins

The company secured 7 new parts from existing customers in Q3, adding approximately Rs. 500 crore to its order book, which now stands at Rs. 9,000 crore, executable over the next 5 years. Strategic initiatives focus on product diversification, market research, and strengthening leadership in hybrid technologies. Alicon expects significant volume increases from two Japanese OEMs, with one anticipating an 80% rise in cylinder head supplies over the next two years, and another European OEM planning to double its monthly volume offtake by year-end.

Outlook & Guidance Revision

Alicon Castalloy has revised its FY25 revenue guidance downwards from the initial Rs. 1,800 crore due to the demand softening. The previously targeted Rs. 2,200 crore revenue for FY26 is now anticipated to be achieved by FY27, reflecting delays from EV OEMs and current market conditions. Management remains confident that Q3 FY25 marked the bottom for both revenue and margins, expecting sequential improvement in performance from Q4 FY25 onwards, building into FY26.

EV and Export Business Challenges & Opportunities

The global EV market is currently experiencing a slowdown, impacting demand for Alicon's EV parts despite significant CAPEX investments. However, management is optimistic about a demand pick-up in 1-2 years. Export markets, particularly Europe, continue to face sustained weakness, while North America shows better recovery. The company is strategically focusing on hybrid models and leveraging its Indian facilities as engine manufacturing hubs for global supply to mitigate risks and capitalize on emerging opportunities.

This is an AI-generated summary of a publicly available earnings call transcript.
View original transcript

More Automobile and Auto Components earnings calls