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Abha Power and Steel H2 FY26: Pricing Shock, Margin Compression, and a Bet on Automation

Abha Power and Steel Limited closed H2 FY26 with a clear gap between operational activity and financial outcomes. Consolidated revenue from operations fell to INR 27.65 crore in H2 FY26 from INR 34.57 crore in H1 FY26. EBITDA declined to INR 1.78 crore, translating to a 6.45% margin, while profit after tax dropped to INR 0.43 crore with a 1.55% margin. For FY26, the company reported revenue of INR 62.22 crore, EBITDA of INR 5.35 crore (8.6% margin), and PAT of INR 2.46 crore (3.95% margin).

The management narrative was consistent across the investor presentation and the earnings call: volumes in both foundry segments were broadly stable, but realizations and input costs moved sharply against the company. The company also reiterated that order deferrals occurred, but cancellations did not, and that its order book remained around INR 20 crore-plus, offering near-term visibility.

What drove the H2 FY26 slowdown

The most material driver was a steep correction in the “insert” segment, which management described as a core product linked to the railway sleeper ecosystem. Management stated that inserts typically contribute around 40–60% of turnover and saw a roughly 20% price correction during the period. In the concall, management attributed 60–70% of the revenue and profit decline to this single factor.

The second factor was raw material inflation, which the company linked to geopolitical disruptions that caused sudden supply chain shocks. The challenge was amplified by fixed-price structures on legacy contracts, which restricted pass-through and compressed margins. Management attributed around 20–30% of the H2 pressure to raw material cost inflation.

Financial summary (consolidated)

Note: INR crore values are converted from the company’s INR lakhs table.

The operational response: removing the manual bottleneck

The company’s main strategic response is a plant upgradation program funded through IPO proceeds and subsequent execution. Management positioned this capex as a structural fix to a long-standing constraint: while liquid metal availability from furnaces defined a high rated capacity, downstream moulding processes were historically manual and slow, limiting throughput.

The centrepiece is an automated moulding line that is expected to increase sand processing capability from 1,000 kg per hour to 35,000 kg per hour. The company also highlighted a pneumatic sand reclamation system to reuse 75–80% of sand, alongside tighter control of additive consumption. In the presentation, the company stated that the elimination of manual processes creates a path toward 80% or higher utilisation, depending on product mix.

Management also said that certain assets are already operational, including an Electric Arc Furnace and a 6MT heat treatment furnace. Other components, including the automated moulding line and a 20MT heat treatment furnace, were described as being in final stages, with full commissioning targeted by August 31, 2026.

Qualification and new market steps: railways, RDSO, and defence

On the demand side, the company continues to prioritise the railways ecosystem. It highlighted an OEM breakthrough where two railway coach components moved into commercial production after receiving formal approval from a major OEM, resulting in standing orders. Management indicated that RDSO qualification efforts are expanding, with applications submitted for around 8–9 products and one product reportedly in the final stage of approval, expected within weeks (as of the call date).

The company also framed defence as a new strategic vertical. It disclosed a prototype casting order for two critical parts, which management described as four parts in total. However, management expectations were measured: production completion was expected within one to two months from the call, followed by field trials of around three to four months. Management stated it does not expect meaningful defence contribution in FY26–27 and expects single-digit contribution for the next three years.

Risk controls and balance sheet signals

A practical mitigation step announced was the introduction of automatic raw material price escalation clauses in newly booked orders. In the concall, management said around 20–30% of orders had already moved to such clauses, with a target of at least 50% in the coming weeks or months.

The FY26 balance sheet showed mixed signals. Total equity rose modestly to INR 53.30 crore. Capital work-in-progress increased sharply, consistent with ongoing upgradation. At the same time, cash and cash equivalents fell to INR 0.08 crore from INR 15.42 crore in FY25, and trade payables increased to INR 5.52 crore from INR 1.74 crore. Management explained the payables increase as timing-linked, noting vendors supported the company through a weaker cashflow period.

Takeaways

Abha Power and Steel’s H2 FY26 performance was defined by a sharp realization shock in a high-share product and a temporary inability to pass through raw material spikes under fixed-price contracts. The company’s response is twofold: operationally, it is attempting to unlock throughput through automation, with commissioning targeted by end-August 2026; commercially, it is pushing escalation clauses to limit recurrence of margin compression.

The next key checkpoints are straightforward and measurable: commissioning by August 31, 2026; conversion of a larger share of orders to escalation clauses; and progress on RDSO approvals and repeat railways and defence orders. The company has described the pipeline as intact, but FY27 execution will determine whether the upgradation translates into sustained margin recovery.