Revenue for the quarter stood at ₹106.69 crores, declining 11.16% quarter-on-quarter but surging 37.75% year-on-year, demonstrating strong underlying demand despite seasonal variations. Operating margins contracted to 25.60% from 31.27% in the previous quarter, reflecting rising input costs and operational challenges, though remaining significantly above historical levels.
The results present a mixed picture for the small-cap castings manufacturer. Whilst year-on-year performance remains impressive with double-digit revenue growth and substantial profit expansion, the sequential quarterly decline raises questions about margin sustainability and operational efficiency in the face of rising costs. The company's ability to maintain premium operating margins above 25% despite headwinds demonstrates operational resilience, but the sharp contraction from the previous quarter's exceptional 31.27% warrants close monitoring.
Financial Performance: Growth Trajectory Intact Despite Margin Compression
Steelcast's Q2 FY26 revenue of ₹106.69 crores marks the second-highest quarterly performance in recent history, trailing only the exceptional Q1 FY26 figure of ₹120.09 crores. The 37.75% year-on-year growth significantly outpaces the castings and forgings sector, which declined 13.66% over the same period, highlighting Steelcast's competitive positioning and market share gains.
The sequential 11.16% revenue decline from Q1 FY26 can be attributed to typical seasonal patterns in the castings industry, where the April-June quarter often represents peak demand. More concerning is the operating margin compression from 31.27% to 25.60%, a decline of 567 basis points quarter-on-quarter. This contraction appears driven by rising employee costs, which increased to ₹12.87 crores from ₹10.20 crores in Q2 FY25, alongside elevated raw material expenses in a challenging commodity price environment.
Despite margin pressure, the company's PAT margin of 18.63% remains healthy and shows year-on-year improvement of 194 basis points from 16.69% in Q2 FY25. The tax rate remained stable at 25.43%, in line with the effective corporate tax rate. Other income contributed ₹2.72 crores, more than doubling from ₹1.12 crores in the year-ago quarter, providing a cushion to overall profitability.
| Quarter | Revenue (₹ Cr) | QoQ Change | Net Profit (₹ Cr) | QoQ Change | Operating Margin |
|---|---|---|---|---|---|
| Jun'25 | 106.69 | -11.16% | 19.88 | -25.74% | 25.60% |
| Mar'25 | 120.09 | +17.96% | 26.77 | +39.34% | 31.27% |
| Dec'24 | 101.81 | +34.14% | 19.21 | +44.55% | 27.83% |
| Sep'24 | 75.90 | -2.00% | 13.29 | +2.78% | 25.78% |
| Jun'24 | 77.45 | -21.29% | 12.93 | -30.90% | 25.44% |
| Mar'24 | 98.40 | +8.96% | 18.71 | +7.40% | 29.30% |
| Dec'23 | 90.31 | — | 17.42 | — | 30.27% |
The quarterly trend table reveals a pattern of strong year-on-year growth but sequential volatility. The company achieved its highest-ever quarterly revenue in Q1 FY26, followed by a moderation in Q2 FY26, suggesting potential cyclicality in order flows. Margins have ranged between 25-31% over the past seven quarters, with the current quarter at the lower end of this range.
Operational Excellence: Strong Returns Despite Debt-Free Balance Sheet
Steelcast's operational efficiency metrics paint an impressive picture of capital deployment. The company's return on equity (ROE) stands at 24.29%, significantly higher than the industry average and demonstrating superior profitability on shareholder capital. This elevated ROE reflects the company's ability to generate substantial returns without relying on financial leverage, a hallmark of quality businesses.
The company's return on capital employed (ROCE) of 27.70% further underscores operational excellence, indicating that every rupee invested in the business generates approximately 28 paise in operating profit annually. This metric has remained consistently above 27% in recent periods, reflecting stable operational performance despite margin fluctuations.
Key Operational Strength: Zero Debt Company
Steelcast operates with a completely debt-free balance sheet, with long-term debt standing at zero as of March 2025. The company maintains a net debt-to-equity ratio of -0.11, indicating it holds more cash than debt. This financial prudence provides significant flexibility for growth investments and insulates the business from interest rate volatility. The debt-to-EBITDA ratio of just 0.35 times demonstrates minimal leverage and strong debt servicing capability.
The balance sheet as of March 2025 shows shareholder funds of ₹325.87 crores, comprising share capital of ₹10.12 crores and reserves of ₹315.75 crores. The substantial reserves, built through retained earnings, reflect consistent profitability over the years. Fixed assets stand at ₹141.94 crores, representing the company's manufacturing infrastructure, whilst current assets of ₹208.05 crores provide ample working capital cushion.
Working capital management appears efficient, with current liabilities of ₹51.92 crores well covered by current assets. Trade payables of ₹31.69 crores represent normal course of business obligations. The company's cash generation capability is evident from the cash flow statement, which shows operating cash flow of ₹73 crores for FY25, though this was partially offset by capital expenditure of ₹57 crores directed towards capacity expansion and modernisation.
Margin Dynamics: Cost Pressures Weigh on Profitability
The most significant concern emerging from Q2 FY26 results is the margin compression across all levels. Operating profit before depreciation, interest, and tax (PBDIT) excluding other income stood at ₹27.31 crores, yielding a margin of 25.60%, down from 31.27% in the previous quarter. This 567 basis point decline represents a substantial erosion in operational efficiency.
Employee costs surged to ₹12.87 crores in Q2 FY26 from ₹10.20 crores in Q2 FY25, a 26.18% year-on-year increase that outpaced revenue growth. As a percentage of revenue, employee costs rose to 12.06% from 13.17% in the previous quarter, suggesting wage inflation and potentially higher headcount to support expanded operations. This trend warrants monitoring, as sustained employee cost inflation without corresponding revenue growth could further pressure margins.
Margin Sustainability Concerns
The sharp sequential decline in operating margins from 31.27% to 25.60% raises questions about the sustainability of premium profitability levels. Whilst the Q1 FY26 margin of 31.27% was exceptionally high and likely benefited from favourable product mix and operating leverage, the reversion to 25.60% suggests challenges in maintaining pricing power or controlling costs. Investors should monitor whether margins stabilise around current levels or face further pressure in coming quarters.
Despite these headwinds, Steelcast's margins remain structurally higher than historical levels. The five-year average operating margin of approximately 28% provides context, suggesting the current 25.60% is below recent norms but not alarming. The company's ability to maintain double-digit PAT margins of 18.63% whilst operating debt-free demonstrates underlying business quality.
Industry Leadership: Outperforming a Challenging Sector
The castings and forgings sector has faced significant headwinds, with the industry declining 13.66% over the past year whilst Steelcast delivered 39.44% returns. This 53 percentage point outperformance reflects the company's superior execution, customer relationships, and product positioning. In a sector characterised by commodity-like pricing and intense competition, Steelcast's ability to command premium margins and grow volumes demonstrates competitive advantages.
| Company | P/E Ratio (TTM) | P/BV Ratio | ROE % | Div Yield % | Debt/Equity |
|---|---|---|---|---|---|
| Steelcast | 28.70 | 6.97 | 22.67 | 0.68 | -0.11 |
| AIA Engineering | 27.84 | 4.45 | 15.46 | 0.49 | -0.54 |
| Happy Forgings | 35.73 | 5.20 | 14.76 | 0.29 | 0.01 |
| Balu Forge | 32.06 | 6.90 | 18.65 | 0.02 | -0.05 |
| Amic Forging | 49.97 | 17.74 | 29.56 | — | -0.20 |
| Nelcast | 27.73 | 1.84 | 5.11 | 0.43 | 0.39 |
Steelcast's P/E ratio of 28.70 times trailing twelve-month earnings positions it at a moderate valuation relative to peers. The company trades at a premium to AIA Engineering (27.84x) and Nelcast (27.73x) but at a significant discount to Amic Forging (49.97x) and Happy Forgings (35.73x). This valuation appears justified by Steelcast's superior ROE of 22.67%, which ranks second in the peer group behind only Amic Forging's exceptional 29.56%.
The price-to-book ratio of 6.97 times reflects market recognition of Steelcast's strong return profile and growth prospects. Whilst this represents a premium to most peers, it remains reasonable given the company's debt-free status and consistent profitability. The dividend yield of 0.68% exceeds most competitors, with the company paying ₹1.80 per share in the latest dividend, demonstrating shareholder-friendly capital allocation.
Valuation Analysis: Premium Pricing Reflects Quality, But Limited Upside
At the current price of ₹224.50, Steelcast trades at a trailing P/E of 28.70 times, representing a 13% discount to the industry average P/E of 33 times. However, the company's valuation grade has been marked as "Very Expensive" by analysts, reflecting concerns that the stock has run ahead of fundamentals. The price-to-book ratio of 6.97 times significantly exceeds the book value per share of ₹161, indicating substantial goodwill and growth expectations embedded in the current valuation.
The enterprise value-to-EBITDA multiple of 19.83 times appears elevated compared to historical norms, suggesting limited margin of safety at current levels. The EV-to-sales ratio of 5.53 times reflects a premium valuation typically reserved for high-growth, high-margin businesses. Whilst Steelcast's 20.58% five-year sales CAGR and 51.01% EBIT growth justify some premium, the current multiples leave little room for disappointment.
The stock has delivered exceptional long-term returns, with a five-year return of 1079.72% and a ten-year return of 2327.03%, massively outperforming the Sensex. However, recent performance shows moderation, with the three-month return of -1.29% underperforming the Sensex's 3.39% gain. This suggests momentum may be waning as valuation concerns weigh on investor sentiment.
The 52-week range of ₹143 to ₹255.05 provides context, with the current price of ₹224.50 sitting 11.98% below the high and 56.99% above the low. The stock's recent retreat from highs reflects profit-booking after a strong run-up. Fair value estimates suggest limited upside from current levels, with the risk-reward equation tilted towards caution rather than aggressive accumulation.
Shareholding Pattern: Stable Promoter Holding, Marginal Institutional Interest
Steelcast's shareholding structure reflects a promoter-dominated ownership pattern with minimal institutional participation. Promoter holding has remained stable at 45.00% across the past five quarters, indicating strong management commitment and no dilution concerns. The promoter group, led by Chetan M Tamboli with 16.40% and Tamboli Trading LLP with 9.70%, maintains significant skin in the game.
| Quarter | Promoter % | FII % | MF % | Insurance % | Other DII % |
|---|---|---|---|---|---|
| Sep'25 | 45.00 | 0.19 | 0.31 | 0.00 | 0.80 |
| Jun'25 | 45.00 | 0.38 | 0.26 | 0.00 | 0.60 |
| Mar'25 | 45.00 | 0.23 | 0.00 | 0.00 | 0.30 |
| Dec'24 | 45.00 | 0.17 | 0.00 | 0.00 | 0.00 |
| Sep'24 | 45.00 | 0.11 | 0.00 | 0.00 | 0.00 |
Foreign institutional investor (FII) holding has shown volatility, declining from 0.38% in June 2025 to 0.19% in September 2025, a sequential reduction of 19 basis points. This modest exit by FIIs could reflect profit-booking or reallocation to larger, more liquid names. The absolute FII holding of 0.19% represents minimal foreign interest, with just 12 FII entities holding stakes.
More encouragingly, mutual fund participation has increased from zero in March 2025 to 0.31% in September 2025, indicating nascent institutional recognition. Other domestic institutional investors (DIIs) have also raised stakes from 0.30% to 0.80% over the past two quarters, suggesting growing domestic institutional confidence. However, total institutional holding of just 1.30% remains extremely low, highlighting the stock's small-cap nature and limited institutional coverage.
The non-institutional holding of 53.70% comprises retail and high-net-worth investors, providing a relatively stable shareholder base. The absence of pledged shares (0% pledging) eliminates concerns about promoter financial stress or potential forced selling. Overall, the shareholding pattern reflects a tightly held stock with limited free float, which can contribute to price volatility but also indicates strong insider confidence.
Stock Performance: Stellar Long-Term Returns, Recent Consolidation
Steelcast's stock performance over the past decade represents one of the most compelling wealth creation stories in the small-cap space. The ten-year return of 2327.03% translates to a compound annual growth rate exceeding 38%, far outstripping the Sensex's 214.89% return over the same period. This 2112 percentage point alpha generation reflects the company's transformation from a struggling castings manufacturer to a profitable, debt-free business.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | 0.49% | -0.32% | +0.81% |
| 1 Month | 4.83% | 3.65% | +1.18% |
| 3 Months | -1.29% | 3.39% | -4.68% |
| 6 Months | 29.17% | 4.61% | +24.56% |
| YTD | 32.57% | 7.42% | +25.15% |
| 1 Year | 39.44% | 5.73% | +33.71% |
| 3 Years | 150.50% | 38.18% | +112.32% |
| 5 Years | 1079.72% | 111.89% | +967.83% |
Recent performance shows signs of consolidation, with the three-month return of -1.29% underperforming the Sensex by 468 basis points. This near-term weakness follows a spectacular six-month rally of 29.17%, suggesting investors are taking profits after the sharp run-up. The year-to-date return of 32.57% remains impressive, demonstrating continued momentum despite recent softness.
Technical indicators present a mixed picture. The stock trades above all major moving averages (5-day, 20-day, 50-day, 100-day, and 200-day), indicating an intact uptrend. However, the overall technical trend recently shifted to "Bullish" from "Mildly Bullish" on October 30, 2025, suggesting momentum may be rebuilding. The stock's beta of 1.35 indicates higher volatility than the broader market, with volatility of 49.25% classifying it as a high-risk, high-return investment.
The risk-adjusted return of 0.80 over the past year compares favourably to the Sensex's 0.46, indicating superior returns relative to volatility. However, the high absolute volatility of 49.25% means the stock can experience sharp swings in both directions, requiring a strong risk appetite from investors. The 52-week range of ₹143 to ₹255.05 illustrates this volatility, with an 78% spread between the high and low.
Investment Thesis: Quality Business at Premium Valuation
Steelcast's investment case rests on several compelling pillars. The company has demonstrated consistent execution, growing sales at a 20.58% CAGR over five years whilst expanding EBIT at 51.01% annually. This operating leverage reflects improving margins and operational efficiency. The debt-free balance sheet with net cash provides financial flexibility and eliminates refinancing risks. Return metrics remain strong, with ROE of 24.29% and ROCE of 27.70% indicating efficient capital deployment.
However, the investment case faces headwinds from valuation and margin concerns. The "Very Expensive" valuation grade reflects stretched multiples, with P/E of 28.70x, P/BV of 6.97x, and EV/EBITDA of 19.83x leaving limited margin of safety. The recent margin compression from 31.27% to 25.60% raises questions about sustainability and pricing power. The small-cap nature means limited liquidity and higher volatility, with beta of 1.35 indicating amplified market swings.
✓ Key Strengths
- Debt-Free Balance Sheet: Zero long-term debt provides financial flexibility and eliminates interest burden
- Strong Return Metrics: ROE of 24.29% and ROCE of 27.70% demonstrate superior capital efficiency
- Consistent Growth: 20.58% sales CAGR and 51.01% EBIT CAGR over five years shows sustainable expansion
- Robust Cash Generation: Operating cash flow of ₹73 crores in FY25 supports organic growth
- No Promoter Pledging: Zero pledged shares eliminates governance concerns
- Sector Outperformance: 53 percentage point alpha vs castings sector demonstrates competitive edge
- Improving Institutional Interest: MF and DII stakes rising from zero to 1.11% shows nascent recognition
⚠ Key Concerns
- Margin Compression: Operating margin declined 567 bps QoQ from 31.27% to 25.60%
- Very Expensive Valuation: P/E of 28.70x, P/BV of 6.97x, EV/EBITDA of 19.83x limit upside
- Rising Employee Costs: 26.18% YoY increase in wages outpaces revenue growth
- Sequential Revenue Decline: 11.16% QoQ drop raises questions about demand sustainability
- Limited Institutional Holding: Just 1.30% institutional ownership indicates limited coverage
- High Volatility: Beta of 1.35 and 49.25% volatility means sharp price swings
- Small-Cap Liquidity: Limited free float and daily volumes constrain position sizing
Outlook: What to Watch in Coming Quarters
The trajectory for Steelcast over the next 12-18 months depends on several critical factors. Margin sustainability will be paramount – investors need to see stabilisation around 25-27% operating margins to validate the current valuation. Any further compression below 25% would raise serious concerns about competitive positioning and pricing power. Revenue growth sustainability is equally important, with the company needing to demonstrate that the 37.75% YoY growth in Q2 FY26 represents a sustainable trend rather than a temporary spike.
Positive Catalysts
- Margin Stabilisation: Operating margins holding above 25% would validate current profitability levels
- Sustained Revenue Growth: Maintaining 15-20% YoY growth would support premium valuation
- Capacity Expansion Benefits: ₹57 crore capex in FY25 driving volume growth
- Increased Institutional Coverage: Rising MF/DII stakes bringing broader recognition
- Sector Recovery: Castings industry rebound lifting all boats
Red Flags to Monitor
- Further Margin Erosion: Operating margins falling below 25% would be concerning
- Revenue Stagnation: Flattish or negative growth in coming quarters
- Rising Working Capital: Deteriorating cash conversion or inventory build-up
- Valuation De-Rating: Multiple compression if growth disappoints
- Institutional Exits: FII/MF selling indicating loss of confidence
The company's capacity expansion programme, evidenced by the ₹57 crore capital expenditure in FY25, should begin contributing to volumes in coming quarters. This could provide operating leverage if the company can maintain pricing discipline. However, any signs of pricing pressure or market share loss would be negative catalysts. The low institutional holding of 1.30% presents both opportunity and risk – increased coverage could drive re-rating, but limited analyst scrutiny means information asymmetry risks.
"Steelcast represents a high-quality business with strong fundamentals, but the current valuation leaves minimal margin for error. The recent margin compression and premium multiples suggest a 'wait for better entry' approach for fresh investors."
The broader castings and forgings sector outlook remains challenging, with the industry declining 13.66% over the past year. Steelcast's ability to continue outperforming this weak sector backdrop will be critical. Any sector-wide recovery would provide tailwinds, whilst further deterioration could pressure even well-run companies like Steelcast. The company's export exposure and customer diversification should provide some insulation, but macro headwinds cannot be ignored.
The Verdict: Quality Business, But Valuation Demands Caution
Score: 64/100
For Fresh Investors: Not recommended for fresh purchases at current levels. The "Very Expensive" valuation grade, premium multiples (P/E 28.70x, P/BV 6.97x), and recent margin compression create an unfavourable risk-reward equation. Wait for a meaningful correction towards ₹180-190 levels (20-25% downside) to establish positions with better margin of safety. Alternatively, consider small accumulation on dips below ₹200 with a long-term horizon.
For Existing Holders: Continue to hold with trailing stop-loss at ₹200 (11% downside protection). The debt-free balance sheet, strong ROE of 24.29%, and positive financial trend support retaining positions. However, book partial profits (25-30% of holdings) if the stock approaches ₹240-250 levels to lock in gains. Monitor quarterly results closely for margin trends and revenue sustainability. Consider full exit if operating margins fall below 23% or revenue growth turns negative.
Fair Value Estimate: ₹190-210 (15-7% downside from current levels). The stock has run ahead of fundamentals, with the recent rally from ₹143 to ₹255 representing an 78% surge in less than six months. A reversion to mean valuations around 23-25x P/E appears likely, suggesting limited upside and moderate downside risk from current levels of ₹224.50.
Rationale: Steelcast is fundamentally a quality business with strong return metrics, zero debt, and consistent growth. However, valuation has become stretched following the sharp rally, with multiples at the higher end of historical ranges. The recent margin compression from 31.27% to 25.60% raises sustainability concerns and suggests the exceptional Q1 FY26 performance may not be repeatable. The HOLD rating reflects this tension between business quality and valuation premium – the company deserves to trade at a premium, but the current premium appears excessive given near-term margin pressures and limited institutional participation.
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions.
