Steelcast Ltd Q3 FY26: Strong Profitability Amid Revenue Moderation

The company's performance reflects a tale of two narratives: exceptional year-on-year growth driven by favourable base effects and strong operational execution, juxtaposed against sequential revenue stagnation that raises questions about near-term demand momentum. Steelcast's ability to expand operating margins by 274 basis points quarter-on-quarter to 28.34% demonstrates robust cost management and operational efficiency, even as topline growth has plateaued. The castings manufacturer, which specialises in austenitic manganese steel, carbon steel, and high chromium ferrous alloys with an installed capacity of 4,500 tonnes per annum, continues to benefit from strong profitability metrics with a return on equity of 24.87% and return on capital employed of 29.96%.

Financial Performance: Margin Expansion Drives Profitability

Steelcast's Q2 FY26 financial performance showcases the company's ability to enhance profitability even amidst revenue stagnation. Net sales of ₹106.65 crores remained virtually unchanged from Q1 FY26's ₹106.69 crores, declining marginally by 0.04% on a quarter-on-quarter basis. However, the year-on-year comparison reveals substantial growth of 41.54%, reflecting the company's recovery from a weak base in Q2 FY25 when revenues stood at ₹75.35 crores. On a half-yearly basis (H1 FY26), the company generated revenues of ₹213.34 crores, representing robust growth of 39.60% compared to H1 FY25's ₹152.80 crores.

The standout feature of the quarter was the remarkable margin expansion across all profitability metrics. Operating profit (PBDIT) excluding other income surged to ₹30.22 crores from ₹27.31 crores in Q1 FY26, translating to an operating margin of 28.34%, up 274 basis points sequentially. This improvement was driven by better cost management and operational efficiencies, with employee costs rising modestly to ₹12.96 crores from ₹12.87 crores despite flat revenues. Year-on-year, operating margins expanded by 310 basis points from 25.24% in Q2 FY25, demonstrating sustained operational leverage.

Net profit for Q2 FY26 stood at ₹23.21 crores, marking a 16.75% increase from Q1 FY26's ₹19.88 crores and a substantial 74.62% surge from Q2 FY25's ₹13.29 crores. The PAT margin expanded to 21.76%, up 313 basis points quarter-on-quarter and 412 basis points year-on-year. This margin expansion was facilitated by minimal interest costs of ₹0.04 crores (down from ₹0.15 crores in Q1 FY26) and stable depreciation of ₹3.18 crores. The effective tax rate remained consistent at 25.01%, in line with the company's historical tax rates.

On a cumulative basis, H1 FY26 witnessed net profit of ₹43.09 crores, representing growth of 34.77% compared to H1 FY25's ₹31.97 crores. The quality of earnings remains robust, with other income contributing ₹3.95 crores in Q2 FY26 (up from ₹2.72 crores in Q1 FY26), primarily reflecting treasury income from the company's net cash position. The gross profit margin for Q2 FY26 stood at 32.00%, up from 28.01% in Q1 FY26, indicating improved realisation and cost efficiency.

Operational Excellence: Capital Efficiency and Debt-Free Status

Steelcast's operational metrics underscore a business model characterised by exceptional capital efficiency and financial prudence. The company's return on equity (ROE) stands at an impressive 24.87% on average, with the latest annual ROE at 24.75%, significantly higher than the industry average. This strong ROE reflects efficient capital allocation and the company's ability to generate superior returns for shareholders. The return on capital employed (ROCE) is even more remarkable at 29.96% on average and 35.15% for the latest period, demonstrating the company's ability to generate strong returns from its operating assets.

The company's balance sheet remains fortress-like, with zero long-term debt as of March 2025, maintaining its debt-free status since FY22. This positions Steelcast in a unique category amongst manufacturing companies, with a net debt-to-equity ratio of -0.12, effectively making it a net cash company. The absence of financial leverage has resulted in negligible interest costs, with Q2 FY26 interest expense of merely ₹0.04 crores. The company's EBIT-to-interest coverage ratio averages an exceptional 62.09 times, providing substantial financial flexibility for growth investments and shareholder returns.

Working capital management has shown improvement, with current assets of ₹208.05 crores as of March 2025, up from ₹165.62 crores in March 2024. Trade payables stood at ₹31.69 crores, reflecting healthy supplier relationships and manageable payment cycles. The company generated operating cash flow of ₹73.00 crores in FY25, though this was lower than FY24's ₹81.00 crores, primarily due to working capital adjustments of -₹11.00 crores. Capital expenditure of ₹57.00 crores in FY25 (investing cash flow) indicates ongoing capacity enhancement and modernisation efforts to support future growth.

The company's asset turnover, measured by sales-to-capital-employed ratio, stands at 1.42 times on average, indicating efficient utilisation of invested capital. Fixed assets have grown modestly from ₹138.18 crores in March 2024 to ₹141.94 crores in March 2025, suggesting measured capacity additions aligned with demand outlook. The company's installed capacity of 4,500 tonnes per annum positions it as a specialised player in high-quality castings, serving industries requiring austenitic manganese steel, carbon steel, low/high alloy steel, and high chromium ferrous alloys.

Growth Trajectory: Strong Historical Performance Faces Near-Term Headwinds

Steelcast's long-term growth trajectory has been impressive, with sales compounding at 26.38% over the past five years and EBIT growing at an exceptional 65.85% CAGR during the same period. This growth acceleration reflects both volume expansion and margin improvement, with the company successfully scaling operations from ₹157 crores in FY21 to ₹376 crores in FY25. However, FY25 witnessed a revenue decline of 8.10% compared to FY24's ₹409 crores, primarily due to cyclical demand pressures in the castings industry and competitive intensity.

The current fiscal year FY26 has started on a stronger note, with H1 revenues of ₹213.34 crores representing 39.60% growth compared to H1 FY25. However, sequential revenue stagnation in Q2 FY26 (flat compared to Q1 FY26) and the decline from Q4 FY25's peak of ₹120.09 crores raises concerns about demand sustainability. The company's financial trend is currently classified as "Positive" based on nine-month performance, with net sales of ₹310.74 crores showing 22.05% growth year-on-year. However, quarterly net sales at the lowest level of ₹97.40 crores (likely referring to a specific quarter in the trend analysis) indicates volatility in order book execution.

Profitability growth has outpaced revenue growth significantly, with net profit expanding from ₹7.00 crores in FY20 to ₹72.00 crores in FY25, representing a compounded annual growth rate exceeding 58%. This disproportionate profit growth reflects multiple factors: operating leverage from capacity utilisation improvements, favourable product mix shifts towards higher-margin specialty castings, better raw material cost management, and the elimination of interest costs through debt reduction. The company's operating margin (excluding other income) has expanded from 18.50% in FY20 to 28.20% in FY25, a gain of 970 basis points over five years.

Industry Context: Navigating Cyclical Headwinds in Castings Sector

The castings and forgings industry in India operates within a cyclical framework, closely tied to capital goods demand, infrastructure spending, and manufacturing activity. Steelcast's performance must be contextualised within this broader sectoral environment, which has witnessed mixed trends over the past year. The company's 41.54% year-on-year revenue growth in Q2 FY26 significantly outperforms the sector average, reflecting either market share gains or specific end-user industry strength. However, the sequential revenue stagnation mirrors broader industry challenges related to delayed project executions and inventory corrections in downstream industries.

Steelcast's specialisation in high-quality specialty castings—including austenitic manganese steel, high alloy steel, and high chromium ferrous alloys—positions it in the premium segment of the castings market. These products find applications in critical industries such as mining equipment, cement machinery, power generation, railways, and heavy engineering. The company's ability to maintain operating margins above 28% reflects its differentiated product positioning and technical capabilities, which command premium pricing compared to commodity castings. The installed capacity of 4,500 tonnes per annum suggests a focused, quality-oriented approach rather than volume-driven strategy.

Competitive intensity in the castings sector remains elevated, with numerous organised and unorganised players competing across different product segments. Steelcast's competitive advantages include its technical expertise in complex alloy compositions, established relationships with marquee customers in infrastructure and capital goods sectors, and its debt-free balance sheet enabling competitive pricing during industry downturns. The company's consistent operating margins above 25% over the past seven quarters demonstrate pricing power and customer stickiness despite competitive pressures.

Peer Comparison: Attractive Valuation with Superior Returns

Steelcast's valuation metrics present an interesting contrast when compared to its peers in the castings and forgings sector. Trading at a P/E ratio of 21.08 times trailing twelve-month earnings, the company commands a significant discount to the peer group average of approximately 36 times. Only Balu Forge trades at a comparable or lower P/E multiple of 19.92 times, whilst larger peers such as AIA Engineering (32.23x), Happy Forgings (37.32x), Amic Forging (38.94x), and Synergy Green (51.94x) trade at substantial premiums. This valuation gap appears inconsistent with Steelcast's superior return on equity of 24.87%, which exceeds most peers except Amic Forging's 25.00%.

The price-to-book value ratio of 5.22 times for Steelcast is in line with sector averages, positioned between AIA Engineering (5.10x) and Happy Forgings (5.17x) at the lower end, and Amic Forging (9.47x) and Synergy Green (7.21x) at the higher end. Given Steelcast's superior ROE of 24.87%—significantly higher than AIA Engineering's 15.94%, Happy Forgings' 14.49%, Balu Forge's 17.02%, and Synergy Green's 15.17%—the current P/BV multiple appears reasonable and potentially undervalued relative to return generation capability. The company's net cash position (debt-to-equity of -0.12) provides additional valuation support compared to leveraged peers.

Dividend yield of 0.87% for Steelcast is amongst the highest in the peer group, exceeded only by AIA Engineering's 0.40% and substantially higher than Happy Forgings (0.28%), Balu Forge (0.02%), and Synergy Green (0.19%). The dividend payout ratio of 19.43% suggests a conservative distribution policy, with significant retained earnings being reinvested for growth. This balance between shareholder returns and growth investments appears prudent given the company's expansion plans and capital-intensive nature of the business.

Steelcast's market capitalisation of ₹1,907 crores positions it as the fourth-largest company in the peer group analysed, indicating mid-tier positioning within the sector. The company's relative undervaluation on P/E basis despite superior ROE metrics suggests potential for multiple expansion if revenue growth momentum sustains and the company demonstrates consistent quarter-on-quarter topline expansion. The key differentiator remains Steelcast's zero-debt status and superior capital efficiency, factors that should theoretically command valuation premiums rather than discounts in a risk-adjusted framework.

Valuation Analysis: Expensive Territory Despite Peer Discount

Despite trading at a discount to sector peers on P/E basis, Steelcast's absolute valuation appears stretched based on multiple metrics. The company's proprietary valuation grade stands at "Very Expensive," having been upgraded from "Expensive" in September 2024. This assessment reflects the stock's significant appreciation over the past two years, with the price rising from ₹146.41 (52-week low) to current levels of ₹185.50, though still 27.27% below the 52-week high of ₹255.05 achieved earlier in the fiscal year.

The P/E ratio of 21.08 times, whilst lower than peer averages, represents a premium to the company's five-year historical average and reflects optimistic growth expectations. The PEG ratio of 0.49 suggests the valuation is reasonable relative to growth rates, calculated based on the five-year EBIT CAGR of 65.85%. However, this metric may be misleading given the recent deceleration in revenue growth, with FY25 witnessing an 8.10% decline and sequential quarterly revenues showing stagnation. A forward-looking PEG calculation based on near-term growth expectations would likely yield a less favourable ratio.

Enterprise value-based metrics provide additional perspective on valuation. The EV/EBITDA multiple of 14.85 times and EV/EBIT multiple of 16.54 times appear elevated for a cyclical manufacturing business, particularly given the recent revenue deceleration. The EV/Sales ratio of 4.21 times reflects premium positioning but also suggests limited margin for disappointment on topline growth. The EV/Capital Employed ratio of 5.81 times, when compared to the ROCE of 35.15%, implies an earnings yield of approximately 6.05% on enterprise value terms, which appears modest relative to risk-free rates and equity risk premiums.

The price-to-book value of 5.22 times, when juxtaposed against the ROE of 24.75%, suggests a justified P/BV ratio closer to 4.0-4.5 times using traditional valuation frameworks (assuming cost of equity around 12-14%). This implies potential downside of 15-20% to reach fair value, though the company's superior capital efficiency and growth potential could justify the premium. The current market price of ₹185.50 compares to a book value per share of ₹161, implying shareholders are paying ₹24.50 per share for future growth and intangible competitive advantages.

Shareholding Pattern: Institutional Interest Building Gradually

Steelcast's shareholding structure reveals a stable promoter base alongside gradually increasing institutional participation. Promoter holding has remained constant at 45.00% over the past five quarters through December 2025, demonstrating management's long-term commitment and confidence in the business. The promoter group is led by Chetan M Tamboli with 16.40% holding, followed by Tamboli Trading LLP (9.70%), Manali C Tamboli (7.06%), and Rushil Industries Limited (6.72%). The absence of any promoter stake reduction during the stock's appreciation phase reflects alignment with minority shareholders and suggests promoters view current valuations as reasonable for long-term wealth creation.

Institutional shareholding, whilst modest in absolute terms at 2.45%, has shown encouraging trends. Mutual fund holdings witnessed a significant jump in December 2025 to 1.33% from just 0.31% in September 2025, marking a sequential increase of 102 basis points. This substantial increase suggests growing institutional recognition of the company's fundamentals and potential. Prior to June 2025, mutual funds held no stake in the company, making the recent accumulation particularly noteworthy. The number of mutual fund investors stands at one, indicating a concentrated institutional bet rather than broad-based participation.

Foreign institutional investor (FII) presence remains minimal at 0.22% as of December 2025, with 14 FII entities holding stakes. The sequential increase of 3 basis points from September 2025's 0.19% suggests marginal interest, though the decline from June 2025's 0.38% indicates some profit booking at higher price levels. Other domestic institutional investor (DII) holdings have shown consistent sequential increases, rising from zero in December 2024 to 0.90% in December 2025, adding 10 basis points in the most recent quarter. This steady accumulation across institutional categories reflects growing awareness of Steelcast's fundamentals amongst professional investors.

Non-institutional holdings, comprising retail and high-net-worth individual investors, stood at 52.55% in December 2025, declining 115 basis points sequentially from 53.70% in September 2025. This reduction corresponds with the increase in mutual fund holdings, suggesting a compositional shift from retail to institutional ownership. The pledged shares figure of 2.85% is relatively low and concentrated within the promoter group, indicating minimal financial stress and adequate liquidity for promoter entities. The absence of insurance company holdings presents an opportunity for future institutional diversification as the company scales and meets size thresholds for insurance mandates.

Stock Performance: Near-Term Weakness After Strong Multi-Year Run

Steelcast's stock price performance presents a study in contrasts across different timeframes. The long-term trajectory has been exceptional, with the stock delivering 582.99% returns over five years, 192.31% over four years, and 102.11% over three years, significantly outperforming the Sensex across all these periods. The five-year alpha of 505.25 percentage points and three-year alpha of 63.84 percentage points demonstrate substantial value creation for long-term shareholders. The stock's journey from levels around ₹10-12 a decade ago to current prices of ₹185.50 represents a 10-year return of 1,506.06%, an extraordinary wealth creation story.

However, near-term performance has been concerning, with the stock entering a bearish technical trend on January 30, 2026. Over the past six months, the stock has declined 25.10%, underperforming the Sensex by 26.07 percentage points. The three-month return of -19.28% (versus Sensex's -2.53%) and one-month decline of 8.10% (versus Sensex's -2.84%) reflect deteriorating sentiment and profit booking after the stock touched its 52-week high of ₹255.05. Year-to-date, the stock has fallen 11.88% compared to the Sensex's 3.46% decline, resulting in negative alpha of 8.42 percentage points.

Technical indicators paint a uniformly bearish picture in the near term. The stock currently trades below all key moving averages: 5-day MA (₹189.72), 20-day MA (₹201.37), 50-day MA (₹208.49), 100-day MA (₹213.92), and 200-day MA (₹211.85). This alignment of moving averages in descending order signals strong downward momentum. The MACD indicator shows bearish signals on both weekly and monthly timeframes (mildly bearish), whilst Bollinger Bands indicate mildly bearish to sideways price action. The KST indicator is bearish on weekly charts and mildly bearish on monthly charts, confirming the negative technical setup.

The stock's beta of 1.40 indicates high volatility relative to the broader market, classifying it as a "High Beta" stock. The one-year volatility of 47.74% is substantially higher than the Sensex's 11.21%, reflecting the stock's susceptibility to sharp price swings. The risk-adjusted return of 0.03 over one year (compared to Sensex's 0.64) and the classification as "HIGH RISK LOW RETURN" underscore the challenging risk-reward profile at current levels. The Sharpe ratio, whilst positive, remains modest given the elevated volatility.

Delivery volumes provide insights into investor conviction. The one-month delivery change of 57.99% and one-day delivery percentage of 56.65% (versus five-day average of 52.58%) suggest moderate delivery-based buying, though substantially lower than the previous month's average of 74.82%. The trailing one-month average delivery volume of 32,650 shares compares unfavourably to the previous month's 77,720 shares, indicating reduced institutional and long-term investor participation. The immediate support level stands at the 52-week low of ₹146.41, whilst resistance is expected at the 20-day moving average zone of ₹201.37, with major resistance at the 100-day and 200-day moving averages around ₹213.

Investment Thesis: Quality Business Facing Valuation and Momentum Challenges

Steelcast's investment case rests on several fundamental strengths that position it as an "Average" quality company with specific competitive advantages. The company's five-year sales CAGR of 26.38% and EBIT CAGR of 65.85% demonstrate a track record of sustained growth and margin expansion. The zero-debt balance sheet with net cash position provides financial flexibility rare amongst capital-intensive manufacturing businesses, eliminating refinancing risks and enabling opportunistic growth investments. The average ROCE of 29.96% and ROE of 24.87% reflect superior capital efficiency and competitive positioning within the specialty castings segment.

However, several concerns temper the investment thesis at current valuations. The "Very Expensive" valuation grade, despite trading at a discount to peers on P/E basis, reflects the stock's significant appreciation and limited margin of safety. The recent revenue deceleration, with FY25 witnessing an 8.10% decline and Q2 FY26 showing sequential stagnation, raises questions about demand sustainability and order book visibility. The bearish technical trend across all timeframes and the stock's position below all major moving averages suggest continued near-term pressure. The proprietary Mojo score of 43/100 with a "SELL" rating reflects the confluence of negative technical momentum and stretched valuations.

The financial trend classification of "Positive" based on nine-month performance provides some optimism, with net sales of ₹310.74 crores growing 22.05% year-on-year and half-yearly PAT of ₹43.80 crores expanding 34.77%. The company's ability to expand operating margins to 28.34% in Q2 FY26 demonstrates operational excellence and cost discipline. The gradual increase in institutional holdings, particularly the 102 basis point jump in mutual fund stakes in December 2025, suggests growing professional investor recognition. The stable promoter holding at 45.00% and minimal pledging of 2.85% indicate management confidence and alignment.

Key risks include cyclical demand volatility in end-user industries, competitive intensity in the castings sector, raw material price fluctuations (particularly alloy steel and specialty metals), and execution risks related to capacity utilisation and order book conversion. The company's relatively small scale with market capitalisation of ₹1,907 crores limits institutional participation and creates liquidity constraints. The low institutional holding of 2.45% suggests limited analyst coverage and reduced visibility amongst mainstream investors. The one-year sector underperformance of 0.46 percentage points indicates company-specific challenges beyond broader industry trends.

Key Strengths & Risk Factors

Outlook: What Lies Ahead for Steelcast

The outlook for Steelcast over the next 12-18 months hinges critically on the company's ability to demonstrate sustained revenue growth momentum. The current fiscal year FY26 presents an opportunity to validate the strong year-on-year growth rates witnessed in H1, but sequential quarterly trends will be closely scrutinised by investors. Management's commentary on order book visibility, capacity utilisation trends, and end-user industry demand will be crucial in shaping sentiment. The company's participation in infrastructure and capital goods sectors positions it to benefit from government spending programmes, though execution timelines remain uncertain.

From a valuation perspective, the stock requires a period of consolidation or time correction to align multiples with growth expectations. The current P/E of 21.08 times and P/BV of 5.22 times appear reasonable only if the company can demonstrate 15-20% sustained revenue CAGR with maintained margins. Any disappointment on topline growth would necessitate multiple compression towards 15-18 times P/E, implying downside to ₹150-160 levels. Conversely, successful demonstration of revenue momentum recovery could support current valuations and enable gradual appreciation towards ₹200-210 zones, though significant upside appears limited from current levels.