Abha Power and Steel Navigates H1 FY26 with Strategic Investments Amidst Margin Pressures

Abha Power and Steel Limited, a key player in iron and steel manufacturing, recently shared its financial performance for the first half of fiscal year 2026 (H1 FY26), alongside strategic updates. The company reported a revenue from operations of 34.57 crore INR, with an EBITDA of 3.57 crore INR, reflecting an EBITDA margin of 10.3%. Profit after tax (PAT) stood at 2.03 crore INR, translating to a PAT margin of 5.9%. While these figures indicate a period of focused investment and operational adjustments, the management remains confident in its long-term growth trajectory, underpinned by significant modernization initiatives and strategic market positioning.

The H1 FY26 period saw the company actively pursuing several key strategic initiatives. A major highlight is the ongoing modernization and upgradation of its Bilaspur manufacturing facility. This project, which includes the addition of a new Electric Arc Furnace (EAF) and expanded processing infrastructure, is entirely financed through IPO proceeds. The company has committed approximately 18.5 to 19 crore INR for capital expenditure in FY26, primarily directed towards enhancing the steel plant's capabilities. This investment aims to boost productivity, improve product quality, and increase capacity utilization, particularly in the steel plant, which currently operates at a lower utilization rate of 20-30% compared to the SG Iron unit's 80-85%. The new EAF is expected to commence production in January 2026, with an estimated capacity utilization above 60%.

Financial Performance Snapshot (INR Crore)

The company's EBITDA margin experienced a notable decline in H1 FY26, a point transparently addressed by management. This was attributed to a confluence of factors, including increased operational expenses for new project work, engagement of consultants, higher travel costs, and several one-time charges. These one-time costs encompassed expenses related to the company's name change from Private Limited to Limited, associated legal fees, an upgrade in land lease, and a one-time electricity duty for the solar plant amounting to 12-13 lakh INR. While these factors temporarily impacted profitability, they are largely non-recurring and linked to the broader strategic expansion. The management emphasized that the gross profit and gross margin remained relatively stable, indicating that the core operational efficiency was maintained.

Strategic Focus and Market Opportunities

Abha Power and Steel's strategic direction is heavily influenced by its strong ties to the Indian Railways sector, which accounts for 70-80% of its revenue. The company is actively pursuing RDSO (Research Designs and Standards Organisation) approvals for several new critical railway parts, including components for wagon building and permanent way fittings. As an existing A-class certified vendor, these new approvals are crucial for scaling its presence in a segment poised for significant growth, given the Indian government's budgeted capital expenditure of 2.5 lakh crore INR for Indian Railways in FY26. The approval process is expected to conclude post-March 2026, with new revenue streams anticipated from the next financial year.

Furthermore, the company successfully completed the development of a significant OEM part, which is now transitioning into full-scale production. This achievement is expected to positively impact both the top and bottom lines. The company's order book remains robust, exceeding 20 crore INR, providing healthy near-term revenue visibility. The 2.99 MW captive solar power plant continues to be a strategic asset, contributing to cost savings by meeting 30-35% of the company's energy needs and cushioning the impact of energy cost inflation, despite a slight dip in production in H1 FY26 due to seasonal weather conditions.

Outlook and Management Confidence

Looking ahead, Abha Power and Steel anticipates a flattish to moderate growth in revenue for H2 FY26, with significant progress and double-digit revenue growth projected for FY27. The management is also targeting a return to historical EBITDA margin levels, expecting double-digit growth in margins as the one-time expenses subside and the benefits of modernization materialize. The ongoing CapEx is focused on upgradation rather than just capacity addition, aiming to correct existing mismatches in production facilities and enhance overall efficiency. The company's commitment to in-house processes, through its new machine shop, is expected to reduce dependencies on external vendors and improve lead times, ultimately delivering better products faster to customers.

Abha Power and Steel is strategically positioning itself to capitalize on robust domestic demand, particularly from infrastructure, railways, and heavy machinery sectors. With a clear focus on operational excellence, product diversification, and strategic investments, the company is well-prepared to capture upcoming opportunities and drive sustainable growth in the coming years. The current period of investment and adjustment is seen as a necessary step towards achieving higher efficiencies and stronger financial performance in the long term, reinforcing management's confidence in delivering value to its stakeholders.