ELECTCAST - Electrosteel Castings Ltd. Share Price

Management provided a positive outlook for Electrosteel Castings Limited, emphasizing strong industry demand and the company's strategic position to benefit from governmental initiatives in water infrastructure, particularly the Jal Jeevan Mission (JJM). The JJM has been allocated Rs. 67,000 crores for FY'25-26 and extended to FY'28, aiming to provide safe drinking water to rural households.

Key forward-looking points include:

• Production Capacity Expansion: The company is set to increase its production capacity from 6.8 lakh tons to 10 lakh tons by FY'26, with current capacity already enhanced to 9 lakh tons. Rs. 500 crores of the planned Rs. 700 crores CAPEX had already been incurred by FY'25.
• Demand Drivers: The response to the JJM, river linking projects, and urban infrastructure enhancement initiatives (AMRUT) will drive demand for ductile iron (DI) pipes. The government has approved 8,998 projects valued at Rs. 1,89,000 crores under AMRUT, expected to contribute to pipe procurement.
• Financial Performance: For FY'25, consolidated total income was Rs. 7,443 crores, with EBITDA of Rs. 1,159 crores and a margin of 15.6%. The PAT was reported at Rs. 710 crores. Performance was impacted by two maintenance shutdowns, resulting in a production loss of about 50,000 tons.
• Long-term Prospects: The company anticipates that demand will outpace supply by 10-12% over the next two years, indicating a favorable market environment.
• Exports and International Market: The Middle East and Africa markets, expected to grow from Rs. 8.13 billion in 2023 to Rs. 11.56 billion by 2031, also present opportunities for increased sales, despite challenges from tariffs on Indian exports to the US.

Overall, management remains optimistic about recovery in demand and the company's ability to capitalize on upcoming opportunities in water infrastructure projects.

1. Question: "Sir, what capacity do we have, and can the same plant make different sizes and different diameters of pipes?" Answer: Our expanded capacity allows a flexibility of 10% to 15% between different pipe sizes. Therefore, we can adjust our production based on market requirements.

2. Question: "How do you see OPVC affecting DI pipes?" Answer: In the short to mid-term, OPVC won't significantly impact demand, as existing projects are set to use DI pipes. Over the long term, while OPVC usage is growing in markets like North America, DI pipes will retain demand for larger applications.

3. Question: "Have you received cash from JJM projects recently?" Answer: We have seen ongoing movements despite some central halts. Cash flow may not mirror previous levels, but work continues in states with strong financial resources such as Odisha and MP.

4. Question: "What has been the price volatility for coking coal and iron ore in the last three months?" Answer: Coking coal prices have remained stable, fluctuating around $20. Iron ore has seen a slight rise of about Rs. 200 to Rs. 300 per ton, but overall prices have steadied.

5. Question: "What's your view on the ongoing shrinkage of JJM allocation?" Answer: The requirement for JJM is substantial. While certain struggling states may delay progress, better-funded ones should continue receiving support. I remain confident that the initiative will progress toward completion.

6. Question: "How has our capacity utilization been affected?" Answer: Current utilization sits around 60% due to shutdowns. However, I anticipate a ramp-up of 10% to 15% each quarter as we return to full operations and market demand improves.

7. Question: "What's your expectation for EBITDA margins moving forward?" Answer: We aim to maintain EBITDA margins between 15% and 18%. Current market conditions have weighed on margins, but as demand increases, we anticipate a rebound in pricing and margin restoration.

8. Question: "What's the expected production increase from recent shut-downs?" Answer: We experienced a loss of about 50,000 tons due to shutdowns. Going forward, with our improved capacity, we anticipate recovering that lost production and achieving an output of 8.3 to 8.5 lakh tons in FY'26.

9. Question: "Are there any planned further shutdowns?" Answer: We don't foresee any additional shutdowns shortly, as recent maintenance was essential and strategically timed to coincide with lower market demand.

10. Question: "What's your perspective on the settlement of coal mine compensation?" Answer: I am hopeful for a resolution this financial year as interactions with authorities have increased. While I can't provide specific amounts, we expect to recover a significant portion of our claims.