Steelcast Ltd Management Discussions

Company Overview

Steelcast Limited established itself as a prominent entity in the steel and alloy casting sector, renowned for its manufacturing prowess utilizing both No-Bake and Shell Moulding methodologies. The company remains steadfast in serving key sectors such as earth-moving equipment, mining and mineral processing, construction, railways, steel plants, cement, locomotive, and defense. Moreover, it has actively ventured into new regions, sectors, and clientele, thereby augmenting its production portfolio. The performance of the company during the year was muted, owing to the economic slowdown experienced by countries around the world.

The growth of export sales during the year was lower as compared to domestic sales of previous year. The expectations for the financial year 2024-25 are cautiously optimistic as we plan to expand our market, sectors and product offerings.

Global metal casting industry overview

The market size for the global metal casting industry was USD 155.22 billion in 2023 with aluminium accounting for the largest segment and the Asia Pacific region holding the largest market share of 55.60% in 2023.

The global metal casting industry is expected to reach USD 378.42 billion by 2033, growing at a CAGR of 8.77% from 2024 to 2033. During the forecast period, North America is expected to witness the fastest growth rate by geography, the steel segment is pegged to grow at the highest and the automotive and industrial segments are expected to grow considerably. During the forecast period, the Asia Pacific region is robust industrialization, substantial automotive production and rapid infrastructure development. The regions manufacturing prowess, particularly evident in countries like China and India, has spurred a high demand for metal castings across various sectors.

The expansion of the metal casting market is intricately tied to industrial growth. With industries experiencing global growth, there is a surging demand for metal castings spanning diverse sectors such as automotive, aerospace, construction, and machinery. Continuous technological advancements in metal casting techniques play a pivotal role in propelling market expansion. Through innovations in casting methods, materials, and automation, efficiency is heightened, production costs are trimmed and the overall quality of metal castings is enhanced.

The emphasis on sustainable practices and adherence to environmental regulations is steering the uptake of eco-friendly casting methods. As a result, metal casting companies that embrace cleaner and sustainable approaches are poised for growth, particularly as environmental considerations take center stage.

(Source: precedenceresearch)

Indian metal casting industry overview

The India metal casting market size reached US$ 12,473 Million in 2023 and is expected to reach US$ 21,252 Million by 2032, growing at a CAGR of 5.8% during 2024-2032. India represents one of the largest metal casting markets in the Asia Pacificregion and is the second largest producer of castings after China. The market is primarily driven by the rising demand for lightweight vehicles in the country due to the inflating incomes of consumers. The growing automotive industry and rapid urbanization and industrialization have also created a need for construction equipment. This is expected to increase the demand for metal castings across the country. Besides this, rising environmental concerns have prompted manufacturers to introduce electric vehicles as a result of the increasing environmental awareness, which is stimulating the market growth. Moreover, the process of metal casting forms an integral part in the goods and equipment industry to produce a wide variety of home appliances, surgical instruments and critical components for aircraft and automobiles. (Source: imarcgroup)

Growth Drivers to witness notable growth due to

Demographic dividend:

India is the most populous country in the world offering one of the cheapest labour rates in the world. Moreover, with nearly half the population under the age of 30 years with increasing disposable income, there is a growing demand for infrastructure that needs to be addressed.

Defence sector:

The government allocated over INR 6.21 lakh crore for the Financial Year 2024-25 in its interim budget, reflecting growing demand for state-of-the-art machinery for the defence sector

Railway sector:

The Indian Railways plans to invest a minimum of INR 7 trillion in the coming decade. This substantial investment aims to lay down an unprecedented 50,000 kilometers (km) of new railway tracks, with the goal of modernizing the network and enhancing train speeds.

Growing EV demand:

The proportion of electric vehicles (EVs) in Indias automotive market surged to 6.38% in 2023, marking a significant increase from 1.75% in 2021. This uptick reflects a rising inclination among consumers towards electric vehicles over the span of two years. Looking ahead to 2024, the industry anticipates a promising outlook, projecting sales to surpass 2 million units. This growth trajectory is supported by escalating demand and sustained governmental backing, which includes incentives aimed at promoting EV adoption.

Infrastructure investment:

The surge in infrastructure development projects throughout India has driven up the demand for cast products like door handles, curtain railings, and construction equipment, resulting in a positive impact on market growth.

Real estate:

The real estate sector is expected to attain a value of $1.3 trillion or 13.8% of the GDP, by fiscal year 2034. By 2047, it is expected to surge to $5.17 trillion, constituting 17.5% of the GDP. The demand for extra housing units is expected to rise to 70 million by 2030, giving a boost to the construction sector.

Increasing R&D investments:

The burgeoning technological progress in metal casting procedures, coupled with robust research and development (R&D) efforts undertaken by industry leaders, is expected to further boost the metal casting sector.

Conducive government policies:

Government policies like Make in India and production-linked incentive schemes are expected to boost manufacturing across sectors.

(Source: Business Standard, imarcgroup, Economic Times, Livemint)

1. Mining industry:

Mining Industry is expected to show steady growth in the coming year 2024-25 inline with current fiscal year 2023-24. a. Domestic sector showed an outstanding performance with sales of INR 2,365 Lakhs against of INR 814 Lakhs of previous year thus witnessing a growth of 190% in FY2023-24 as compared to 2022-23 b. Export sector showed a sales of INR 7,315 Lakhs in FY 2023-24, sales were INR 15,385 Lakhs in FY 2022-23; meaning a decline of 52% on YoY basis. This was mainly due to excessive stock built up at customers end.

2. Earthmoving equipment:

In line with mining machinery industry the earthmoving Industry is also expected to show a similar trend in the coming year 2024-25 inline with current fiscal 2023-24. a. Domestic Sector, against sales of INR 11,023.11 Lakhs in FY 2022-23, sales in FY 2023-24 were of INR 7,123 Lakhs, showing a decline of 35% YoY. This was mainly due to excessive stock built up at customers end. b. In Export Sector, against sales of INR 9,975 Lakhs in FY 2022-23, FY 2023-24 sales were INR 13,700 Lakhs showing a growth of 37% on YoY basis.

3. Construction equipment:

This industry is also showing a promising trend in FY 2023-24 as compared to FY2022-23. a. Domestic market is also showing good growth in FY 2023-24. Against sales of INR 5,772 Lakhs in FY 2022-23, sales in FY 2023-24 were of INR

6,955 Lakhs showing a YoY growth of more than 20%. b. Export market showed de-growth of 57% on YoY basis with sales of INR 143 Lakhs in FY23-24 as compared to sales of INR 332 Lakhs in FY2022-23.

4. Locomotive and railways:

With new customers and parts under development in this fiscal year and also AAR audit done and certificate received, expect good sales in the coming years. Against sales of INR 2,127 Lakhs in FY 2022-23, sales in FY 2023-24 were of INR 2153 Lakhs showing a marginal growth on YOY basis.

5. Cement and steel sector:

These are expected to remain steady in FY 2024-25. In FY 2022-23 we did sales of INR 770 Lakhs and in FY2023-24, sales were of INR 290 Lakhs showing YOY decline of 62%. The reason being most of the Coolers have converted to new design.

6. Ground engaging tools (GET): improvement in this sector We expect a significant in the coming year with the development of new customers and new parts.

7. Partnering with Indian defence units:

The Company is making its constant endeavour to contribute to the defence of the nation by partnering with the Indian Defence units. This effort is continuing and we expect improvement in this sector considering the Government push through schemes like Atmanirbhar Bharat, Make in India etc. The Company has completed the delivery of certain critical components for defence. The Steelcast is the first company to develop this component for the defence and thus paving the way for dispensation of importing the same and saving of foreign exchange for the nation.

Position of the company in the foundry market

Amidst a global economic slowdown, India is poised to achieve a 7.6% GDP growth in FY24, buoyed by escalating consumption, expanding urbanization, increasing disposable incomes, and favorable government policies.

Our company maintains a robust presence in the mining and earthmoving sectors, which have historically constituted the majority of our sales. Government investments in infrastructure and housing have indirectly bolstered the demand for our products. In line with our strategy to reduce reliance on any single industry, we have diversified and introduced new product lines into existing markets. This strategic expansion is anticipated to broaden our consumer base and enhance our competitiveness both domestically and internationally.

While facing stiff competition in the foundry industry from both domestic and foreign players, our company holds a competitive advantage in producing intricate steel castings, owing to our technological expertise and long-standing relationships with clients who preferus in as their strategic supplier.

The metal casting industry in India is characterized by fragmentation, with numerous small, unorganized businesses manufacturing the product. Despite this, our company leads in production capability, product diversity, parts development, and adherence to high-quality standards. However, entry barriers for new entrants into this industry remain substantial. Leveraging our operational efficiency, pricing strategies, and diverse product mix, we are well-positioned to maintain a competitive edge in the market.

Risk management

While every business inherently entails a degree of risk, our company recognizes the paramount importance of proactively identifying and mitigating these risks. To accomplish this objective, we have established a robust organizational risk management framework that continuously evaluates both our internal operations and the external environment, pinpointing potential risks and formulating effective strategies to mitigate them. These risk management measures are seamlessly integrated into our strategic plans to ensure comprehensive implementation across the organization. into new sectors We encounter a spectrum of risks, including geopolitical developments such as conflicts or natural disasters, travel restrictions, industry-specific risks, fluctuations in foreign currency exchange rates, client concentration, technological hazards, and financial risks. Our company has already implemented measures to address these risks at various management levels. Furthermore, we regularly assess and monitor our risk efficacy mitigationplans,ensuringtheirsustained safeguarding our business

Changes in the financial performance

Quality Assurance

As part of our corporate ethos, we pledge to ensure complete customer contentment through high-quality products and services, while maintaining a healthy, safe, and environmentally conscious approach. Our commitments include:

- Providing products that excel in performance and affordability.

- Adhering to relevant laws and regulations

- Implementing initiatives to prevent pollution, enhance health and safety standards, conserve resources, and minimize waste.

- Striving for ongoing enhancement in quality, environmental sustainability, and occupational health and safety through streamlined systems and protocols.

In consultation of workers we encourage teamwork, co-operation, education and training of all our people to fulfil our commitment to quality, environmental and OH&S management system in our operations. During FY24, we undertook following initiatives to further strengthen our quality parameters: a) Development of Alumino silicate coating to prevent metal mould reaction and sand fusion in heavy section casting. b) Study of Oil quenching behaviour to prevent quench crack in high strength low alloy steel. c) Welding process layer audit has been initiated to ensure quality welding. d) In house welding training carried out by external agency to educate welder and supervisor.

Human resources and industrial resources

At our organization, our central focus revolves around attracting and retaining top-tier talent to cultivate a dynamic work environment conducive to innovation. We are deeply committed to recognizing and rewarding ongoing learning, collaboration, and professional development, ensuring our preparedness for the ever-evolving market dynamics. Our workforce stands as our most invaluable asset, and we remain steadfast in empowering them through our processes, enabling innovative approaches that add substantial value. We maintain strong ties with our employees, emphasizing both safety protocols and initiatives aimed at enhancing productivity. With a direct workforce comprising 1561 individuals, we are acutely aware of our corporate reputation and the positive impact we can achieve by prioritizing environmental, health, and safety (EHS) considerations.

In our EHS management approach, we uphold stringent standards, acknowledging the pivotal role these aspects play in our operations. We have implemented comprehensive metrics to track our performance in these domains, with our dedication lying in continually refining our employees takes precedence, as we consistently endeavor to maintain a secure workplace by setting and upholding high safety standards.

Internal control system

Your Company has an adequate and effective Internal Control Mechanism in place to ensure efficient conduct of its operations, security of assets, prevention and detection of frauds/errors, accuracy and completeness of accounting records and the timely preparation of reliable financial information as per its Management Information System (MIS). These controls have been designed to provide reasonable assurance about maintaining proper accounting controls for ensuring the reliability of financial reporting, monitoring of operations and protecting assets from unauthorized use or losses, compliance with regulations. The Company has continued its efforts to align all its processes and controls with global best practices.

Apart from strong internal control, your Company has also appointed external and independent Audit Firms as its Internal auditors for periodical checking and monitoring of the Internal Control Measures for its plants. Internal Auditors are present at the Audit Committee Meetings Where Internal Audit Reports are discussed alongside management comments and the findings and observation of the Internal Auditors. The Terms of Reference of the Audit Committee inter alia include reviewing the adequacy of the internal control environment, monitoring implementation of the action plans emerging out of Internal Audit findings including those relating to the strengthening of the Companys Risk Management Systems and discharge of statutory mandates.

Your Company has a Comprehensive Budgetary Control System in operation and its Key Performance Indicators (KPI) are set for all-important operational parameters. These are monitored and reviewed regularly by the management in Management Committee Meetings, which are chaired by the Executive Director of the Company and participated by all departmental heads and necessary corrective and preventive actions are being initiated.

Cautionary statement

Statement in this "Management Discussion and Analysis" describing the Companys objectives, projections, estimates, expectations or predictions may be "forward-looking statements" within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include global and Indian demand and supply conditions, finished goods prices, input materials availability and prices, cyclical demand and pricing in the Companys principal markets, changes in Government regulations, tax regimes, economic developments within India and the countries within which the Company conducts business and other factors such as litigation and labour negotiations. The Company assumes no responsibility to publicly amend, modify or revise any forward-looking statements, based on any subsequent development, information or events or otherwise.