Detailed Narrative
Strong Performance in Drum Closure and Scaffolding Segments
The Drum Closure segment achieved its highest ever EBIT margin of 43% in Q1 FY27, significantly exceeding the long-term sustainable target of 30%. This performance was driven by increased volumes and favorable realization, partly aided by rupee depreciation. The Steel Scaffolding segment reported revenues of ₹240 crores, while the Aluminum (Mach One) segment contributed ₹165 crores. The US Scaffolding market is experiencing strong demand from long-term CAPEX projects, leading to 95% capacity utilization in the segment.
Engineering Services Division's Consistent Growth
The Engineering services division continues its fast growth, supported by buoyant demand in the US market across machinery, transportation, and plant engineering verticals. The company has enhanced its capabilities in high-tech areas like AI-based vision systems, embedded systems, and industrial automation, which has helped secure large orders. Management targets a sustainable margin of 15% for this division, indicating confidence in its long-term profitability despite continuous investment in technology.
Strategic Moves in Textile Division and Capital Allocation
The company has fully exited the Fabric business within its Textile division, selling machinery for ₹25-30 crores and releasing ₹15-20 crores in working capital. The Yarn business remains profitable, with an EBITDA of 13% in the last quarter. However, the Garment business is currently loss-making, and management aims to restructure it to achieve break-even within the next two quarters. For FY27, no significant new CAPEX is planned for capacity additions, with focus solely on maintenance CAPEX across divisions. Phase 2 of the CSN plant and further Extrusion capacity expansion are slated for FY28.
Nascent Defence Vertical Secures Initial Orders
The Defence vertical is progressing, with the JT Cooler product fully developed and approved by DRDO and an Israeli sensor-making company. Initial orders for JT Coolers worth ₹20-21 crores have been received. Additionally, the company has supplied missile canisters and secured repeat orders, with a current order book of ₹10 crores for canisters. While the market size for Defence products is difficult to estimate due to indirect sales channels, management sees good prospects for this segment.
Challenges in International Markets and Competitive Landscape
The Middle East Scaffolding sales experienced a decline in Q1 FY27 due to ongoing geopolitical conflicts and shipping difficulties, though this region contributes a minor 2-3% to total sales. The European market, particularly Germany, also remains slow due to the Russia-Ukraine war, impacting construction activity. In the Scaffolding segment, Chinese manufacturers pose a competitive challenge with aggressive pricing, often selling at lower rates despite higher tariffs, leveraging their significant steel price advantage.