Nelcast Ltd Management Discussions

INDUSTRY STRUCTURE AND DEVELOPMENTS

The Indian automobile industry delivered a steady performance in FY 2024-25 as reported by Society of Indian Automobile Manufacturers (SIAM). The growth was supported by healthy demand, significant infrastructure investments, supportive government policies, and a continued emphasis on sustainable mobility. Passenger Vehicles, Two-Wheelers, and Three-Wheelers all registered year- on-year growth compared to FY 2023-24, although the rates varied across segments. Passenger Vehicles and Three-Wheelers saw moderate growth due to a high base effect, yet they achieved the highest ever sales in these categories. In contrast, the Two-Wheeler segment registered a robust growth of 9.1%, with sales reaching 19.6 million units.

The Commercial Vehicles segment, however, faced a slight de-growth of 1.2%, with sales totaling 9.6 lakh units. Encouragingly, recent months have shown improved performance in the segment. On the exports front, a strong recovery was observed across all segments, particularly in Passenger Vehicles and Two-Wheelers, reflecting improved global demand and Indias growing competitiveness. The introduction of the PM E DRIVE and PM e-Sewa schemes by the Government of India highlights a continued commitment to advancing sustainable mobility and cleaner transportation.

Looking ahead to FY 2025-26, the backdrop of a stable policy environment, along with recent measures such as reforms in personal income tax and rate cuts by the Reserve Bank of India (RBI), is expected to boost consumer confidence and stimulate demand across all segments. This outlook is optimistic, as the industry continues to adapt to changing market dynamics and consumer preferences.

OPPORTUNITIES AND THREATS

The Company supplies castings for Commercial Vehicles, Tractors, Off-Highway Vehicles and Railways. The Company enjoys the confidence from its valued customers for providing quality products. Therefore, as newer and more advanced castings are developed, The Company has an edge over the competition due to its diverse capabilities. The company has made significant investments to increase capacity and is poised to take advantage from the growth from both the domestic automotive industry and the global market.

The Company continually reviews its business plan and draws out action plans to leverage on its opportunities and counter any threats. The main threat to which the industry is exposed to is volatility of the market which affects capacity utilization and volatility of commodity prices which impacts the input costs. However, the Company strives to create sustainable profitable growth by continuing to focus on technology and quality while offering wide range of products to diversified segments and customers, which will give us a competitive edge in the market.

SEGMENT WISE OR PRODUCTWISE PERFORMANCE

The Company deals in only one segment i.e., Iron Castings. Therefore, segment wise performance is not applicable for our Company.

OUTLOOK Global Economy:

Global economy faced significant growth challenges in 2024, prompting governments to reevaluate policy priorities. New tariffs from the United States and retaliatory measures from trade partners led to an unprecedented rise in effective tariff rates, reaching the highest levels in a century by 2^nd April 2025. This drastic shift has created major upheaval, marked by heightened uncertainty and volatility. The IMF forecast projects global growth to decline to 2.8% in 2025 and 3% in 2026, down from an earlier estimate of 3.3%. Advanced economies are expected to slow to 1.4% growth in

2025, with the U.S. at 1.8% and the euro area at 0.8%. Emerging markets may drop to 3.7% in 2025 and 3.9% in 2026. Global headline inflation is anticipated to decrease to 4.3% in 2025 and 3.6% in

2026. The outlook is clouded by risks from ongoing trade conflicts, which could hinder growth and lead to social unrest due to rising living costs. To restore stability, nations must foster a predictable trading environment, pursue debt restructuring, and refine monetary policies for financial stability while implementing structural reforms to adapt to changing demographics.

Source: International Monetary Fund

Indian Economy:

India continues to be the fastest-growing major economy, despite real GDP growth moderating to 6.0% in H1:2024-25 down from the previous year. Foreign direct investment (FDI) inflows have moderated, but foreign portfolio investment (FPI) inflows remain strong, boosting foreign exchange reserves to $644.4 billion by December 2024. The governments capital expenditure rebounded after initial contraction due to election-related restrictions. The Monetary Policy Committee (MPC) reduced the repo rate to 6.0%, supporting growth as CPI inflation fell to a 67-month low of 3.3% in March 2025. The current account deficit narrowed to 1.1% of GDP in Q3FY25, and merchandise trade showed positive growth in March 2025. Looking ahead, the IMF projects Indias FY26 growth at 6.2%, driven by domestic factors and infrastructure spending, with potential for 6.5% growth while keeping CPI inflation below 4%.

Commercial Vehicle Outlook:

The commercial vehicle (CV) industry is experiencing notable trends in domestic segment volumes. After a period of stagnation in the FY2024-25, the Indian commercial vehicle (CV) industry is gearing up for a modest recovery, with ICRA forecasting a 3-5 per cent year-on-year growth in wholesale volumes for FY2025-26. This projected recovery comes on the heels of a flat volume movement in FY2024-25, which was largely attributed to a demand slowdown during the first half of the financial year due to the general elections. According to ICRA, the anticipated growth will be fuelled by a confluence of factors, including the resumption of construction and infrastructure activities, consistent rural demand, and a surge in replacement sales driven by ageing fleets and government mandates. The push in infrastructure development, higher allocation in the recent Budget, steady mining activities, and improved highway connectivity will support volumes going forward. Additionally, replacement demand for medium and heavy commercial vehicles (M&HCVs), with an average fleet age of around 10 years, is expected to further aid industry expansion. Industry challenges include regulatory changes, such as the mandatory installation of air-conditioned cabins for trucks which is expected to increase vehicle prices.

Tractor Sales:

In FY2024-25, the Tractor & Mechanisation Association (TMA) reported a rebound in the Indian tractor industry, with domestic sales reaching 939,713 units, marking an 7.31% increase from the 875,724 units sold in FY2023-24. While this growth is promising, FY2022-23 still holds the record for the highest sales at 945,000 units. The industry is projected to surpass 1 million sales by 2026, driven by strong rabi and kharif crop seasons, favorable terms of trade, and increased government spending. According to Crisil Ratings, domestic tractor sales are projected to reach an all-time high of approximately 975,000 units in FY2025-26, driven by higher minimum support prices for key cash crops, improved replacement and construction demand, and expectations of an above-normal monsoon. Challenges remain, particularly with the upcoming TREM V emission norms set for April 2026, which may increase tractor costs and impact demand.

ABOUT NELCAST LIMITED

Incorporated in 1982, Nelcast Limited (“Nelcast” or “the Company”) is a leading producer of ductile & grey iron castings in India. Besides a strong position in the domestic market, the Company has a rapidly growing presence spread across North America, Europe and Southeast Asia as well with over 36% of its overall revenues generated from the export markets. The Company caters to a marquee clientele of Original Equipment Manufacturers (OEMs) and Tier-1 customers in Commercial Vehicle, Tractor, Off-Highway Equipment, Railways & Passenger Vehicle segments. Nelcast has an aggregate installed production capacity of 160,000 Metric tonnes per annum. Its factories are located at Ponneri in Tamil Nadu, and at Gudur and Pedapariya in Andhra Pradesh.

STRENGTHS

1. Diversified customer base with strong relationships: Nelcast has a distinguished customer base of over 50 customers that includes OEMs and Tier 1 companies. It serves as a strategic supplier and partner of first choice to TAFE, Tata Motors, DANA, Ashok Leyland, Escorts, Automotive Axles Limited, Meritor and American Axles & Manufacturing, among others. The Company is a one-stop shop for its customers for Grey Iron, Ductile Iron and Austempered Ductile Iron ranging from 0.5 kg to 500 kg. Awards received over the past few years for categories like- ‘Best in Class Supplier, ‘Best Delivery Performance, ‘Platinum Award for Best Quality, among others serve as a validation for its efforts to deliver value to its customers.

2. Strategic Location: Nelcasts manufacturing plants are in close proximity (37-140 km) to Chennai, which is a major manufacturing hub for automotive companies. Chennai forms both a key customer base for Nelcast and a reliable source of steel scrap, a crucial raw material for the Company. All 3 plants are within 15-110 km of Indias largest source of Silica Sand near Gudur. Moreover, Chennais International airport with direct flights to Europe, Middle- East & Southeast/East Asia make it convenient for customers to visit and see the Companys world class facilities first hand. The location also enhances Companys export business given it is close to Krishnapatnam & Chennai seaports that gives Nelcast easy access to reach its customers around the world.

3. Strong Export growth potential: India is being viewed as a key cog in the global automotive supply chain. Sourcing machined castings from India is now becoming an attractive option for global customers. Nelcast is among the few companies in the industry capable of meeting the requirements of top global OEMs & Tier 1 manufacturers. Currently, the Company exports machined castings to reputable corporates in North America, Europe and Southeast Asia. The Export turnover for the year 2024-25 is ? 445.22 Crores and contributes about 36% of the total turnover.

4. Strong product mix: Nelcast has a very differentiated product portfolio as it transitioned from manufacturing basic products to specializing in medium to high complexity products that will allow Nelcast to generate high margins. This helps the Company to compete against the local and Chinese suppliers, that mainly compete on low complexity products.

RISKS AND CONCERNS Economy and Market Risk:

External factors such as government policies and rainfall could have a significant impact on sales of Tractors and Commercial Vehicles, which are cyclical in nature. To mitigate the risk of seasonality & cyclicality in the domestic market, the Company has been developing its export segments and products in other segments viz. off-highway, railways etc.

Input Cost Risk:

Our profitability and cost effectiveness may be affected due to change in the prices of raw materials, power, and other input costs. While we are typically able to pass on these costs to our customers with a slight lag. This risk is significant and is carefully monitored.

Currency Risk:

The Companys exposure on foreign currency is primarily through earnings from exports. The company also might import some capital goods and raw materials only when prices are favourable. However, this exposure is typically short term. The company does selective hedging of imports and exports to hedge its risks associated with exchange rates. Any substantial long-term liabilities viz. ECBs are fully hedged by the Company.

Interest Rate Risk:

The Company is exposed to interest rate risk pertaining to funds borrowed from Banks. The Company works closely with our banks and using its working capital effectively to minimize the overall interest costs.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

Internal control systems in the organization are looked at as the key to its effective functioning. The Company has a proper and adequate system of internal controls to ensure that all assets are safeguarded and protected against loss from unauthorized use. The Companys internal controls are supplemented by an extensive programme of internal audit, review by management and documented policies, systems support, guidelines and procedures. The internal control is designed to ensure that financial and other records are reliable for preparing financial information and other data.

The Audit Committee reviews all the reports as prescribed under the regulations and compliance systems and suggests better internal control systems, policies and procedures as and when required. It also reviews Companys financial reporting processes, disclosure of financial information, related party transactions, etc.

INTERNAL FINANCIAL CONTROL

The Company has an established Internal Financial Control framework including internal controls over financial reporting and operating controls. The framework is reviewed regularly and tested by the internal audit team. The Companys business processes are enabled by the ERP for monitoring and reporting, resulting in financial discipline and accountability.

OVERVIEW

The financial statements have been prepared in compliance with the requirements of the Companies Act, 2013 and in compliance with Companies (Indian Accounting Standards) Rules, 2015. The estimates and judgments relating to the financial statements, wherever needed have been made on a prudent and reasonable basis, so that the financial statements reflect in a true and fair manner.

DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

During the year, the Company recorded Revenue from Operations of ? 1251.68 Crores as against ? 1266.94 Crores in 2023-24, with a marginal reduction compared to previous year on account of slowdown in the market. The Export turnover for the year 2024-25 is ? 445.22 Crores which is at the same level compared to previous year and contributes about 36% of the total turnover. Profit After Tax made during the year including exceptional item is ? 37.29 Crores as against ? 54.41 Crores in 2023-24. A reduction of about 10% excluding exceptional item. The sales and profit were affected due to slow down in the market across all sectors. The production during the year was 83,637 MT, compared to the previous years 85,366 MT.

THE DETAILS OF SIGNIFICANT CHANGES IN KEY FINANCIAL RATIOS

SI. No. Particulars	2024-25	2023-24
(i) Debtors Turnover Ratio (months)	3.10	2.65
(ii) Inventory Turnover Ratio (months)	1.79	1.66
(iii) Interest Coverage Ratio	2.29	2.61
(iv) Current Ratio	1.27	1.30
(v) Debt Equity Ratio	0.53	0.63
(vi) Operating Profit Margin (%)	8.81	9.88
(vii) Net Profit Margin (%) *	3.01	4.33
(viii) Return on Net Worth (%) *	6.74	10.48

* The reduction in Net Profit Margin and Return on Net Worth is due to reduction in profit.

MATERIAL DEVELOPMENTS IN HUMAN RESOURCES / INDUSTRIAL RELATIONS FRONT, INCLUDING NUMBER OF PEOPLE EMPLOYED

Human Resource is a continuous and ever evolving function in our Company. The Company believes that human resources enable the organisation to consistently meet customer requirements and deliver exceptional performance for all stakeholders. The Company continues to maintain its record on cordial industrial relations. The Company believes that human resources are its most valuable assets and is thus committed to the welfare of its employees and their families. The Company continues to invest in people through various initiatives viz. training programmes, upgradation of knowledge etc which enable the work force to meet out the challenges. As on 31^st March 2025, the employee strength of the Company was 1303.

HEALTH, SAFETY AND ENVIRONMENT

The Company is fully committed to the ultimate goal of employee safety. Safety management is integrated with the overall Environment, Health and Safety (EHS). The Company has been certified under Integrated Management System (IMS) which consists of Energy Management System (EnMS), Occupational Health & Safety (OHSAS) and Environmental Management System (EMS) to meet the compliances of the standards ISO 50001:2011, OHSAS 18001:2007 and ISO 14001:2015 respectively. The Company aims to be a preferred organization for all stakeholders through the scaling performance of Energy, Safety, Health and Environment.

CAUTIONARY STATEMENT

Statement in this Management Discussion and Analysis describing the Companys objectives, projections, estimates and expectations may be “forward looking statements” and based on certain assumptions/expectations and current scenario and the input available. Actual results might differ substantially or materially to those expressed or implied. Important developments including global or domestic trends, political and economic environment in India or Overseas might affect the Companys operations.