Alicon Cast.

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.

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.

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.

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.

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.

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.