ALICON - Alicon Castalloy Limited Share Price

Management Outlook:
Alicon Castalloy anticipates a recovery starting Q4 FY25, with Q3 marking the bottom for revenue and margins. While near-term challenges persist (e.g., weak European demand, customer-specific disruptions), long-term growth is expected via diversification, hybrid/electric vehicle (EV) opportunities, and recovery in global industrial production (post-CY24). Margins are projected to improve as new automated plants scale and fixed costs normalize. FY25 revenue guidance is revised downward from the initial Rs.1,800 crore target due to soft Q3 performance.

Key Points:

1. Financial Performance (Q3 FY25):

   • Revenue: ���393 crore (↓3% YoY), impacted by weak European exports and customer shutdowns.
   • Gross Margin: 45.81% (↓543 bps YoY) due to unfavorable product mix (lower CV/high-margin sales) and upfront costs for new plants.
   • EBITDA: Rs.35 crore (↓34% YoY), margin at 9% (vs. 13% YoY).
   • PAT: Rs.0.78 crore (↓95% YoY).

2. Operational Highlights:

   • Challenges: Sluggish CV demand in Europe/India, production halts at a Japanese OEM and European two-wheeler customer.
   • Growth Drivers: Robust domestic two-wheeler demand; new orders (7 parts added in Q3) and volume ramp-up with Japanese/European OEMs (80% growth expected over 2 years).
   • CAPEX: Rs.140 crore invested in 9M FY25 (automation, EV projects), with Rs.20"“25 crore planned for Q4.

3. Strategic Initiatives:

   • Focus on hybrid/EV tech (eAxle development) and AI/automation to boost margins.
   • Order book: Rs.9,000 crore (5-year visibility), with 18% EV contribution and 30% exports.
   • Capacity expansion for European OEM's India hub (double volumes for global markets).

4. Market Trends:

   • Domestic auto growth (6.6% YoY) led by two-wheelers; weak global CV demand.
   • Hybrid demand resilient in India/US; EV growth expected post-CY25.

Management remains confident in margin recovery and long-term revenue growth (targeting Rs.2,200 crore by FY27) driven by order execution and market diversification.

Question 1:
"Firstly, in terms of the margins, of course, they've been compressed this quarter. So, I want to understand from the expenses, are there any one-offs in this quarter that we won't be seeing in the coming quarters?"
Answer: Gross margin decline was due to adverse sales mix (lower high-margin CV/export volumes and higher low-margin two-wheeler sales). One-time costs (~Rs.4-5 crore) were absorbed from disruptions with a global customer. These are temporary, with gradual recovery expected.

Question 2:
"In terms of exports, the share of exports has gone down to 24% versus 28% last year. Within exports, what would be the rough share of Europe and North America and how much has the decline been in both these regions, YTD?"
Answer: Europe and UK contribute 65-70% of exports, USA 30-35%. Europe saw sharper YTD declines due to weak demand. North America is stabilizing faster, while European recovery may lag.

Question 3:
"Could you please provide an outlook on your EV and export business?"
Answer: EV contributes 18% of turnover; demand remains subdued globally but expected to improve in 1-2 years. Exports (30% of turnover) face Europe-led headwinds. Focus on hybrid tech and customer diversification to drive recovery.

Question 4:
"What is the kind of SOP that can get added for FY26 based on your current understanding?"
Answer: Volume from Japanese OEMs (80-100% growth in 1-2 years) and European OEMs (doubled capacity by end-FY25) will drive FY26 growth. New projects (eAxle development) and automation investments aim to boost margins.

Question 5:
"How much like currently capacity utilization across the plant, if you can give us the average?"
Answer: Q3 capacity utilization averaged 70-75%, impacted by slower ramp-up of new lines. Dedicated facilities for high-margin parts are underutilized, but scaling up is expected in Q4.

Question 6:
"Are we planning to shift any plan to India [due to weak Europe/US demand]?"
Answer: Resourcing to India is challenging due to validation costs and long lead times. However, geopolitical shifts may boost India as a sourcing hub. Current focus is on domestic OEMs and hybrid/EV projects.

Question 7:
"What is explaining the gross margin decline to 45.81% from 51.24% YoY despite prior resilience?"
Answer: Lower CV/export volumes (high-margin), raw material inflation, and upfront costs for new automated plants (underutilized) drove margin erosion. Sales mix and fixed-cost absorption are key drags.

Question 8:
"Is there one customer contributing >20% of order book?"
Answer: No single customer exceeds 20% of turnover. Order book (Rs.9,000 crore) is diversified across domestic/export markets, with 7 new parts added in Q3 (Rs.500 crore potential).

Question 9:
"Will the Rs.1,800 crore FY25 revenue target hold?"
Answer: FY25 revenue likely below guidance due to Q3 CV/export slowdown. Revised targets (post-budget finalization) and FY26-27 growth drivers (new OEM projects) will be detailed next quarter.

Question 10:
"How will tariff wars impact US exports?"
Answer: Monitoring US tariff policies; India's strong bilateral ties may offer advantages. Clarity expected in 1-2 months, with potential indirect gains from European OEMs' India-based exports.