Steelcast Ltd

At first glance, your company may seem disappointed with its performance during the last financial year. Your company reported a decline in revenues and profits, the second successive annual decline in its surplus. However, the management of your company had not only expected such a decline but had responsibly communicated the same to stakeholders in advance.

This decline must be seen as a normal cyclical correction in the Company's operating markets, which the management of your company has experienced on previous occasions during its multi-decade journey.

I must assure stakeholders that there has been no change in the long-term business model or prospects of our company. During the relatively flat performance of the last financial year, your company continued to generate attractive cash flows, strengthen the business through progressive reinvestment and enhance its financial liquidity. In view of this, it would be reasonable to assume that your company strengthened its competitive advantage, the sectorial sluggishness notwithstanding, during the last financial year

The strengthening of the Company's business model was reflected in an evident financial year under review, the Company's operating revenue declined from INR 409.81 Cr in FY 2023-24 to INR 376.18 Cr in FY 2024-25, whereas the operating margins improved from 29.25% to 29.44% in the same period. The primary reason for the revenue decline was the inventory liquidation undertaken by the downstream sector, particularly in North America and Europe, which led to deferred purchases during the first half of FY 2024-25. This provides the optimism for profitable when the recovery is reflected during the whole year, wherein the profit increase in percentage terms is higher than the corresponding percentage increase in revenues. Your company finished the challenging year under review with no long-term debt on its books, cash liquidity of INR 75 Cr (after having expensed INR 18.28 Cr in capital expenditure during the last financial year). Your company's relative strength was also derived from an easing in resource costs as well as the weakening of the Indian currency.

The revenue decline was primarily driven by inventory liquidation by downstream sectors, particularly in North America and Europe, who deferred fresh procurement in favor of consuming previously acquired inventory. This is a normal reality in a business cycle, whereby they would rather consume all that we have sold to them earlier rather than engage in fresh procurement. This did not come as a surprise; given the stable B2B engagement with our customers, we had been informed in advance of the impending slowdown. Based on this intimation, the Company had put out a guidance that the revenues slowdown would extend across the first two quarters of the last financial year.

The guidance proved fair, which is evident if one analyses your company's quarter-on-quarter performance during the last financial year. As anticipated, revenues rebounded sharply in the second half of FY 2024-25, growing by 18% year on year as the customers looked at replenishing the inventory. This rebound reflected not only the resilience of demand but also the robustness of our business model, leading to profitable growth. Your company strengthened its business during the last financial year, the full impact of which will become visible from the current year onwards.

One, your company continued to develop new parts, strengthening its overall products pipeline of machined value-added products. The maximum weight of casting products that the Company can presently manufacture is 2.5 tons by weight.

Two, your company mined more customers from its sectors and also expanded our presence with long-term clients into new markets like Poland, Slovakia, Brazil, and Canada which should translate into synergies .Duringthe related to customer understanding, sales and brand.

Three, your company is focused to reduce sectoral dependence. We have consciously expanded beyond earthmoving and mining into railroads and are taking early steps into sectors like Ground Engaging Tools and Defense wherein we will test the waters first with fewer orders and then take our learnings forward.

Four, your company continued to focus on cost moderation through process simplification, focusing on generating superior material yield and prudent replacement of expensive resources without compromising product quality. Our respect for capital is also reflected in our investment in projects like Hybrid and Solar power plants which are reaping us benefits in terms of cost reduction. Our existing Hybrid and Solar Power Plants, which have a capacity of 4.5 MW and 5 MW respectively, are saving us around INR 14 Cr of cost saving in a year.

Five, your company continued to protect talent attrition, which was contained at less than 1%. Your company protected its knowledge capital through a supportive work environment, long-term growth clarity, quality-driven environment, established processes, extensive delegation, ongoing training and fair remuneration.

Your management is optimistic of its prospects.

The Company reported an attractive surplus even though capacity utilisation was only 45%. This indicates the capacity of the Company to remain profitable even at low asset utilisation levels, which should conventionally have turned operations unviable. Based on our engagements with customers, the Company's capacity utilisation is expected to increase attractively year on year across the next two years, strengthening capital efficiency. Even as the global geo-political climate remains uncertain, the tailwind for a company like ours comes from the fact that the business remains labor-intensive and will always gravitate to countries like India with a demonstrated metallurgical and demographic competence. With its cost-efficient, power-intensive manufacturing capabilities, the Company stands to benefit significantly from this realignment, especially as OEMs seek alternatives.

There is a traction in customers seeking alternatives to China, benefiting India (and your company) in the process.

Looking forward, the global economic outlook is modest with World Economic Outlook projections of 2.8% and 3.3% GDP growth in 2025 and 2026, respectively. However, India is expected to remain a high-momentum market. Your company's well-balanced domestic-export mix provides a natural hedge against geo-economic fluctuations.

We are now preparing to proactively expand our capacity before we hit peak utilisation, anticipated by FY 2027-28. A corpus will be built through internal accruals in the coming years, setting the stage for a new capex cycle starting 2026. We believe that the US government will make a decisive investment in that country's infrastructure, which should benefit exporters like your company. Customer supply chains remain stable; no major changes are expected.

There are some levers that we are actively working on to ensure that we are positioned for sustainable and high-quality growth.

One, Steelcast will continue investment in international markets from 15 countries to 18 over the next 1-2 years. This broader geographic footprint is expected to enable the Company to tap into a wider array of growth opportunities while reducing dependence on a few markets.

Two, Steelcast will maintain its focus on improving operational efficiency through automation and streamlined process flows, with a targeted productivity enhancement of at least 10%. This investment is particularly critical in an industry characterised by high labour intensity and will serve as a competitive differentiator. In view of this, we believe that your company is attractively placed to capitalise on an emerging industry buoyancy that resumed from the second half of the last financial year and should sustain across the foreseeable future.

Steelcast stands at a compelling inflection point. Backed by long-term customer relationships, a diversified product portfolio, and a disciplined cost structure, the Company is well-positioned to deliver superior stakeholder value. We believe this strong foundation will not only accelerate value creation but also elevate our brand across global markets.

I will repeat what I had indicated in my overview last year: Steelcast is positioned at a sweet spot, secured by multi-year customer relationships, broad-based products portfolio and competitive cost structure that should generate superior stakeholder value.

Chetan Tamboli,

Chairman