Steelcast Ltd – Tariff Risk Weighs on Near-Term Growth; Long-Term Outlook Stable | MNCL Research Company Update

We increase target price to Rs 215 (previously Rs208) and maintain HOLD rating for Steelcast Ltd. Increase in TP is due to valuation roll forward, partially offset by cut in earnings. Revenue in 2QFY26 was in-line with our estimates but beat on margins, driven by benefits on input cost and currency. Demand rebound post customer destocking, operational efficiencies, a new 2.4MW green power plant, and diversification into 40 new components including GET and defence are all expected to drive performance in long term. However, US tariff concerns are slowing despatch in short term, prompting 5% earnings cut for FY26/FY27.

Strong pickup in volumes:

Steelcast reported revenues of Rs1.07bn, +41% yoy, in-line with our estimates. Sales volumes grew by 35% yoy; to 3,411 tonnes for the quarter. Furthermore, realizations improved by 4% yoy to Rs3,12,666/tonne. The domestic to export split stood at 36%:64% for the quarter.

Margins spike due to input cost benefits:

Steelcast reported EBITDA margins at 28.3%; +254bps yoy, exceeding our expectation of 25.4%. The margin beat was largely led by lower stores and spares expense, cost saving measures and currency benefits in revenue. This resulted in an EBITDA of Rs302mn; +54% yoy; +11% qoq. Effectively, PAT stood at Rs233mn (+75% yoy; +17% qoq) supported by high other income.

Near-term moderation; structural growth intact:

Going forward, the margin outlook remains robust on account of higher operational efficiencies on scale up of utilisation and new 2.4MW green power plant leading to additional ~Rs45mn of savings annually. Steelcast is also developing 40 new components, including some for the Ground engaging tools and sub-assemblies which should further support diversification. It will also cater to defence sector through exports this year. However, Q3FY26 is expected to be weak due to tariff led impact from the US market (which form ~30% of total sales). Therefore, we have reduced the revenue growth in FY26 to 13% (from 20% earlier), though management remains confident of achieving a 20% CAGR over the 3 years as trade normalizes and geographic diversification fructifies. Effectively, we have accounted for earnings cut of 5% each in FY26E and FY27E.

Valuation & Risks:

We value Steelcast at 20x Sept’27E PE to arrive at a TP of Rs215/sh (Rs208 previously). Increase in TP is due to valuation roll forward, partially offset by cut in earnings. At CMP of Rs225, Steelcast trades at fair valuation of 24x/18.7x FY27/FY28e PE Ratio, limiting upside and therefore we retain the hold rating. Key risks: More than expected weakness in export demand due to the tariff, no breakthrough in GET and defence.

Company website: https://www.steelcast.net/

Click to download the full Steelcast Ltd. 2QFY26 Company Update

Analyst: 

• Sahil Sanghvi - Research Analyst, Institutional Equities (NISM-201900004744)
• Uvais Khatri - Research Associate, Institutional Equities (NISM-202300049054)

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