Nelcast Navigates Global Headwinds with Domestic Resilience and Strategic Growth

Nelcast Limited, a prominent player in India's casting industry, recently shared its Q2 and H1 FY26 earnings, painting a picture of strategic navigation amidst a challenging global economic landscape. The company reported a total income of INR 303 crore for Q2 FY26, with the first half of the fiscal year closing at INR 639 crore. While Q2 saw a moderate performance, H1 revenue remained largely stable compared to the previous year's INR 637.4 crore. EBITDA for H1 FY26 demonstrated a healthy growth, reaching INR 53.7 crore against INR 48.4 crore in H1 FY25, reflecting an 8.4% margin. Profit After Tax (PAT) for H1 FY26 stood at INR 17.3 crore, a significant 23.2% year-on-year growth over the adjusted PAT of INR 14 crore in H1 FY25.

The quarter's performance was primarily influenced by a slowdown in the U.S. economy and the imposition of additional tariffs, which led to temporary production pauses for some export customers. Despite these external pressures, domestic demand remained robust, bolstered by strong sales in the tractor and Medium & Heavy Commercial Vehicle (M&HCV) segments. Recent GST rate reductions, a favorable monsoon, and strong rural demand further supported this domestic resilience.

Segmental Performance and Market Outlook

Nelcast's revenue mix for Q2 FY26 highlighted the domestic market's strength. M&HCVs contributed 37% of the revenue, while the tractor segment accounted for 31%. Exports, despite headwinds, still represented a significant 26.5% of the revenue. Railways and Off-highway Equipment contributed 1.1% and 3.4% respectively, with other segments making up 0.8%. The management noted that the tractor segment performed particularly well in Q2, with domestic tractor sales growing 31% year-on-year.

Looking ahead to FY26, Nelcast anticipates a year of consolidation, with demand expected to strengthen towards the end of the year. This recovery is projected to be driven by new product launches and a rebound in export markets. The tractor industry is expected to remain robust, supported by strong rural demand and government spending, while the commercial vehicle industry is set for a gradual recovery. Export demand is also expected to recover as customer schedules normalize and newly developed products target international markets. The company expects EBITDA per kg to improve, supported by high-margin products and better capacity utilization.

Strategic Initiatives and Capacity Utilization

Nelcast's strategy revolves around manufacturing value-added products, expanding export business, improving capacity utilization, and cost optimization. The company has successfully shifted its focus from low-complexity to higher value-add products, upgrading its moulding lines to state-of-the-art high-pressure systems. This includes installing a 2.1 x 1.2 m size line, making it one of the few global players with such capabilities. These new products, which are currently in the sampling phase, are expected to contribute 10-15% of overall sales and deliver stronger margins once manufacturing commences in H1 FY27.

In terms of exports, Nelcast aims to diversify its geographical presence. While the U.S. currently accounts for a significant portion of its exports, the company is targeting a 50% growth in the U.S. market and an even more ambitious 60-70% growth in Europe. The goal is to increase Europe's contribution to at least 30% of the total export business within the next 2-3 years. This diversification is crucial for mitigating risks associated with market concentration.

Nelcast's installed capacity stands at 160,000 metric tons per year, with the potential for an additional 50,000 MT expansion within existing plants with minimal investment. Current capacity utilization in H1 FY26 was around 52%, with an optimal target of 80%. The company aims to double its utilization within the next 18-24 months by eliminating operational inefficiencies and continuously launching new products. Cost optimization efforts include energy conservation, investments in renewable energy, and the installation of a 1 MW in-house solar power plant at its Pedapariya facility, contributing to sustainability and reduced power costs.

Outlook and Investor Confidence

Nelcast's management expressed confidence in the long-term picture, despite short-term volatility. The company believes that the worst of the short-term challenges are behind it, with gradual improvements expected in Q3 and Q4. The focus remains on developing high-value, complex products that require advanced capabilities and face minimal competition, which will drive margin expansion and better capacity utilization. The company's strong business foundation, strategic locations, and diversified customer base position it well for future growth. Nelcast's commitment to sustainability, through renewable energy and waste management, further enhances its long-term prospects and aligns with evolving industry standards.

Nelcast's Q2 and H1 FY26 performance underscores its ability to adapt to market dynamics. With a clear strategy for product innovation, market diversification, and operational efficiency, the company is poised for sustained growth, reinforcing investor trust in its long-term vision.