Alicon Castalloy hosted a conference call on Nov 8, 2023. In the conference call, company was represented Mr. Vimal Gupta – Group CFO and Mr. Veera Babu – Group COO.

Key takeaways of the call

In Q2 FY24, auto business contributed 94% to total revenue and Non-auto 6%.

In Q2 FY24, 2W contributed 43% to total revenue, PV 29% and CV 20%.

With festive season extending to November, there was lower YoY volume growth in Q2 FY24.

Healthy momentum in CV demand continued during Q2 FY24. 2W demand has been mixed with premium motorcycles seeing good volumes, entry motorcycles declining and scooter volumes remaining flat.

Although 2W exports appear to have reached a bottom, recovery is expected to be slow due to adverse geopolitical trends.

Management indicated strong demand for UVs, but other cars demand has slowed down, contributing to a favorable mix for most OEMs in the PV segment.

Company intends to scale up business in PV and CV segment. Going forward, management expects its business mix to tilt towards these segments.

99% of new business won by the company relates to four wheelers.

Company has expanded its portfolio by adding new components.

Company is de-risking the business by adding diverse growth vectors such as technology agnostic parts, machining and value addition as well as light weighting to its business mix.

Management expects favorable commodity costs to persist, supporting margin improvement.

In Q2 FY24, exports contributed 20% to total revenue and domestic 80%.

In Q2 FY24, the Company has booked 9 new parts from 5 customers including 1 new customer. This includes 3 parts from EV/CN, 4 parts from ICE, 1 part from Non-Auto and 1 part from structural segment. 8 parts are for international business and 1 part is for domestic business.

Company expects capex of about Rs 90 crore in FY24. Out of which 50% is already spent in H1 FY24.

Company expects to deliver revenue of about Rs 2200 crore in FY26. This will be accompanied by improved EBITDA margin of 14%.

None of the customers contributes greater than 15% of turnover.

In Q2 FY24, Manufacturing facilities operated at utilization levels of around 68-70%.

Company has enhanced its machining capability.

Company is ready to tap opportunities arising from Preference for Carbon Neutral tech such as hybrid, EV, fuel cells and hydrogen cells and thrust on higher fuel efficiency.

Management commentary: Mr. Rajeev Sikand, Group CEO, Alicon Castalloy said, “I am pleased to share that we have delivered a resilient financial performance this quarter, achieving total income of Rs. 381.79 crore, growing by 1% YoY. Despite subdued trends within the industry, we have successfully expanded our portfolio by adding new components and welcoming new customers, enabling operational momentum. Notably, we continue to enrich our revenue mix as new products and new logos are from focus categories of EV and 4W capturing higher value addition. The highlight for the quarter has been the improved profitability as EBITDA growth continues to outpace revenue growth. Our strategic initiatives have positioned us well for a more favorable margin profile, which is evident even after absorbing higher manpower costs due to wage increases and the one-time cost in this financial year on account of the ESOP Scheme. Our steadfast dedication to value engineering, refined product mix and cost optimization efforts will enable us to build on this further. There is significant change underway across the auto industry landscape. Multiple new technologies appear promising and are being pursued by various stakeholders even as established technologies are witnessing enhanced competitiveness. Our business model is agile and flexible allowing us to cater to a variety of components required by these diverse technologies. With several opportunities opening up, we are pursuing those which offer us greatest ‘right-to-win’ based on established niches, enable us to move up the chain in terms of innovation and value addition while contributing to an enriched product and customer profile. Amidst this, we are de-risking the business by adding diverse growth vectors such as technology agnostic parts, machining and value addition as well as light weighting to our business mix. Amidst the dynamically evolving trends in the global auto industry, we remain cautiously optimistic about our future prospects."