Alicon Castalloy

Mkt cap 428 Crore
P/E 20.70
P/B 2.85

Headoffice: Shikrapur, Maharashtra
Capacity: 24,000 metric tons
Capacity Utilization: ?

Alicon Castalloy Limited is an India-based manufacturing company. The Company is involved in designing, engineering, casting and machining, painting and surface treatment of aluminum components. The Company offers end-to-end solutions across the entire value chain and delivers gravity and low pressure aluminum casting (gravity die casting and low pressure die casting) to its customers. The Company is categorized into two sectors, which include auto sector and non-auto sector. The auto sector includes two wheeler, passenger vehicle/utility vehicle and trucks. The non-auto sector includes Agriculture, Aero and Marine, Locomotive, Infrastructure, Energy, Defense, and Medical and Health.

Recent acqusition: Atlas Castalloy
Atlas Castloy has 44% market share in 2 wheelers.

Managements background:

  • Shailendrajit Rai is the MD and a promoters of the Company. He holds a degree in Economics from the University of Kent U.K. and is a Chartered Accountant from England and Wales.
  • Mr. Rajeev Sikand is CEO. He holds an MBA degree. He has 29 years of experience. His Last Employment - Motherson Sumi Systems Ltd.


  • Promoter’s stake has increased
  • Steady Sales growth of 19.78% for last 3 years
  • trading at 2.85x the book value
  • Managements vision of 1000+ Crore sales in 2016-2017.(Lets do a Feasibility analysis of this ?)


  • Whyinvestin gives a slighly below sector average rating. (Lets discuss which are above average then ?)
  • The stock corrected in 2015, BSE Metal index is not doing well either. (Lets discuss Is its growth sustainable ?)

Disc: Not Invested

You need to disclose your holding in the stock. It is very sad that members repeatedly miss this. Please do so today itself or this thread will be deleted.


Alicon Castalloy Ltd

Highlights Of Q2 FY19 and H1 Results

Key Highlights

  • Company is one of the largest integrated manufacturers of Aluminium castings. The Company enjoys a rich legacy of over 50 years and was a pioneer in low-pressure die-casting technology, gravity die-casting technology and alloy wheel technology in the domestic markets.
  • Company provide end-to-end casting solutions to a diversified base of clients within and outside India, catering to various sectors such as automobile, infrastructure, aerospace, energy, agriculture, defence and healthcare
  • Company robust and innovative product pipeline, spanning 16 segments is delivered from manufacturing facilities located in Shikrapur in Pune; Chinchwad in Pune, and Binola in Delhi, in India.
  • Company also one subsidiary name Illichmann Castalloy in Europe
  • Company developed foundries at strategic locations to key markets, enabling increased speed-to-market and better cost efficiencies
  • Company enjoy long-standing relationships with major, local and international OEMs, including leading two wheeler OEMs, four-wheeler OEMs, as well as several tier-I and other non-auto brands.
  • Customers are viewing company as a partner rather than a product vendor. This transformation is due to two key factors,
    • The first is, with changing technology company has embraced cutting-edge technology by deepening its design capabilities and through better integration of simulation and software into the design process. Then company enhanced the prototyping process and deepened its tool room capabilities, which have compressed the design and production lifecycle. With these enhanced capabilities now company engage with customers starting at the technical specification stage itself. Company is now regularly providing clients with inputs on technical design and ergonomics so that the components meet the specified function in the most efficient manner. This is then elevated with recommendation for the right mix of alloy and ideal composition of raw materials, which will optimize performance, weight, energy efficiency, while driving down the cost. The approach has allowed company to more deeply engage with clients and emerge as a one-stop shop providing solutions from designs, ergonomics, raw material composition, selection of best manufacturing process, up to manufacturing and delivery of components at any global location.
    • The second is transformation is widening the industries and geographies that company serve. In FY2018, company registered 91% of revenue from the auto industry and about 9% from the non-auto industry. Company aim is to take the share of the revenues from non-auto sector to 14% in four years; similarly, the global business revenues in FY2018 were 18.5% of the total revenue. Company aim to grow this by about 2x in next four years. This includes revenues from Illichmann Cast alloy, which is company European subsidiary which company acquired in 2010. Now that Illichman has completed a gestation period over seven, eight years, and strongly believe it is ready to move into the next orbit. It is one of most important imperative to extend leadership in core domestic markets, while also tapping opportunities in a high potential yet under penetrated global market.


  • H1 Results
    • Revenue grew by 31 % to 602 Cr from 459 Cr last year H1
    • Domestic revenue grew by 30 % to Rs 495 Cr while export, including overseas revenues delivered a strong growth of 38% to Rs. 107 Cr. Export business contributed 18 % of total revenue in H1FY19 , while domestic contribution stood healthy by 82%.
    • EBITDA grew by 42 % to 73.3 Cr compare to last year H1
    • EBITDA margins were up by 99 basis point at 12.1% compare to last year H1
    • PAT grew by 67 % to 26.1 Cr compare to last year H1
    • PAT margins were at 4.3 % for the H1 FY19
  • Quarterly Results
    • Revenue grew by 17 % to 306 Cr compare to last year same quarter.
    • EBITDA grew by 34 % to 38 Cr compare to last year same quarter
    • EBITDA margins stood at 12.4 % for the quarter
    • PBT grew by 44 % to 13.8 Cr compare to last year same quarter
    • PBT margins stood at 4.5 % for the quarter.

Segmental Performance

Auto revenues contributed to 89% of the total revenue in H1 FY19. Company has been continuously augmenting contribution from the non-auto and e-mobility segment. In-sync with this strategy, contribution from non-auto segment stood at 11% in Q2.


  • Does increasing non-auto, auto and e-mobility revenue portion is a risk mitigation strategy or also trying to improve margins as well ?
    • It is for both but basic is to have the sustenance at operational level. If any sector is going up and down, or any one industry is going up and down, then as per company strategy it should not hamper company operational sustenance. That is one of the key look out for doing all these strategic changes. From the point of view of financials, it will add to an additional benefit of bottom-line.
  • What were the key drivers behind the top-line growth and margin expansion? Kindly brief on performance stability and trend, going forward?
    • In last two quarters company is seeing robust growth in manufacturing sector and that has helped to upgrade its top line. The two wheeler and four wheeler industry has picked up good speed in the first two quarters. That has driven company top line. Secondly, the customer sentiments have improved. There is a transition taking place from BS-IV to BS-VI, and while taking a BS-IV to BS-VI, the existing models are in the running phase, and there are the new models, which are going into the phase of development as well as certain ramp up of volumes. There will be some parallel phase going on. So, based on this, basically company have seen growth in top line.
    • There is also an addition of new business that company had done in last year and also some ramp up has seen in the global business, which are taking place, which is another factor that has led to an increase in the top-line
  • What is company current capacity and CAPEX plan going forward over the next two to three years ?
    • The capacity of the plant is 36,000 metric tons, which company is augmenting it to 42,000 metric tons. In CAPEX company work with a strategic capacity planning , every quarter company look for the next two quarters. The market is dynamic today and some sectors are growing, while some sectors are not growing. So, each quarter company plan for the next two quarters, that is the visibility what company get from customers and that give company a flexibility to adjust the existing capex, the sector which is going down, whatever the existing capacities are reallocated. Company think of two quarters specifically because the equipment laying down or the increase of the capacity, it normally takes four to six months to indulge into this.
  • What are the products company have in E-mobility portfolio and what is the scope going forward?
    • E-mobility is a disruption coming into the market. Whatever the components or engine peripherals company supplying right now will be replaced by the three components - the motor housing, the battery housing and the transmission. So, engine will be replaced by these 3 parts. Company started E-mobility 3 years back taking advantage of European subsidy. Today company is ready for any such type of component requirement from the OEMs. All these three parts have been developed by Illichmann facility in Slovakia and if a domestic customer or any global customer is looking at it, then company will be ready to bring it in Indian facilities. Company can develop the component in the shortest time possible to support the customer at that point. Today company have identified 71 different customers, out of that w company have approached 31 customers and in last 60 days company would able to generate 8 valid RFQs. One of these RFQs has been converted into a physical opportunity for the sales.
  • Why company staff cost has gone by 50 % in last two years ?
    • There is a cost of ESOPs, which is involved in this. So, in the first half, Rs. 11 Cr cost was towards this and that was not there earlier in last year. Secondly, company have started hiring some new talent in the Company to take care of future expansion and future growth.
  • What were the volumes for the H1 FY19 ?
    • Company work on tonnage and that is around 17,500 metric tons of aluminum castings that company supplied. With this company is running on 78-80 % capacity utilisation for the full year.
  • Company revenue has grown by 30 % in H1FY19 so how much of this is grown by volume and how much is from realisation price increase ?
    • In most of the cases with the OEMs and the global businesses, there are price contracts. So majority of growth for first half is basically from the business increase. And maybe whatever the new business which is having an higher VA which company are targeting as strategy, so that has contributed to the increase of top-line. Very few percent of this will be from price increase or any correction in prices. It is very negligible
  • Company margin is similar to few other iron casting companies margins However, one would assume that aluminium castings is higher technology-driven or has higher barriers to entry. So, is that assumption correct? Secondly, if it is then in spite of that why aren’t company able to capitalize on it by having a higher margin?
    • There are two things, foundry business is finally foundry business whether it is cast iron or whether it is aluminium. The top-line of aluminium business is on the higher side, because the material content as compared to the cast iron is on the higher side. Even if this is a very specialized process what company is using , that advantage on a macro level, there is a definite advantage of aluminium foundry as compared to the cast iron foundry. So company is already capitalizing on the same at this moment.
  • How does company enter into pricing ? Is the raw material predominantly passed through or does it get negotiated? And if there is a lag, how much of a lag is there in passing on the raw material prices?
    • For all the customer there is a definite formula of raw material indexing that has been finalized and decided before the start of the business. Only thing is that it lags by 30 days - last quarter average prices of raw material are implemented to the next quarter. But in totality on span it averages out And there is no as such an impact as far as raw material pricing is concerned on company.
  • Since Enkei Japan is holding about 15% in company what is the role of Enkei Japan in development of company ?
    • Two things
      • The association with Enkei is to improve company face value in market.
      • Company is getting support from Enkei, having a long experience in this field, towards technology up gradation, productivity improvements and third is the reduction of the scrap rate at company end. For this company got the partners representatives of Enkei on long-term basis associated with company. Also company is taking support from them to making out layouts. , he existing space how predominantly and how precisely company can use. , increasing the per square meter area of manufacturing to increase sales These are the two areas company is significantly being supported.
  • In last two months, there are some media reports about the slowdown in demand in two-wheeler and four-wheeler in domestic market in India. So does company feel any pinch of slowdown in two-wheeler or four-wheeler?
    • Yes , the sales figure at the Dussehra time , they were flat. Diwali sales was not very good. The three main reason behind this is Fuel prices, which have grown up almost by around 20% in last three months. Secondly, uncertainty into the market and the banking sector what have seen in last six months, because of that the free money available for the pockets of the consumers is not available. This moment it looks like there is some dip in this sector. There will be some decrease in sales in this quarter.
  • Looking at previous growth, company can achieve more than 2000 Cr sales growth target by 2020 so does company see some slow down in the industry ?
    • Today’s growth is after a long halt – the growth that is seeing in last two quarters. Company is suspecting that this speed of the growth of the market will not be there and there will be some rationalization and correction into this growth. So growth target of 2000 Cr will be realistic growth rather than anticipating something more, with this growth, some hype has come because of the BS-IV to BS-VI transformation taking place.
  • In domestic sales what is company difference between two wheeler and four wheeler percentage in domestic market?
    • In two wheelers , specifically one product what company is selling is a cylinder head. Today company share of business in two-wheeler cylinder head market in domestic is 42%. That means irrespective of the brand every alternate two-wheeler vehicle on Indian roads has company cylinder head. So, in totality company got 42-43 % of business is coming from two-wheeler industry. And whereas around 27% to 28% business is from the four-wheeler industry.
  • When you were talking about the 8 RFQs, in which one was physically converted, any idea on what percentage of new customers will be contributing to company percentage of revenue in the current cycle going ahead, when the current metric is Rs. 600 Cr and company targeting Rs. 2,000 Cr turnover?
    • E-mobility is the future and of the 2000 Cr E-mobility is very small percentage of it, but going ahead from 20-21 or 21-22, this will be the new trend of company business. , as the chunk of the business will come from this. Company is always proactive to be in the market with market readiness for whatever is needed in future for the market and company get itself ready for that. So, really it will not hamper the figures what company is talking off in real sense the e-mobility for next four years.
  • Is there any acquisition in the current pipeline ?
    • No
  • As E-mobility is coming does it will reduce the sales of cylinder sales ?
    • According to the market reports, such as Morgan Stanley has published vision of e-mobility 2030, NITI Aayog report, which is published by the Government of India for 2030 vision for e-mobility, or the global report by one of the renowned house of 2050 vision for e-mobility. The population of e-mobility vehicles in 2030 looks to be around 30% to 35%. So, balance 65% need will come from the existing ones. And whatever the figures projected through all these reports, the existing requirement of fuel engines which itself will grow by almost three to four times of what company is supplying today. There will be a major focus on 30% to 35% in e-mobility. So, really this disruption is coming into but it will be very difficult to count it today that technology which is going on today will be totally vanished from the market. Rather, there is a trend that traditional vehicles will also increase in future and company should make itself ready to combat that.
    • Now specifically on cylinder head whatever cylinder head business company is doing once it converts into e-mobility, that will be stopped or that will be reduced from its existing basket. But company is ready because that will be replaced by three components, which company has already developed and ready for that market, if customer need it today then company ready for today also. The total component requirement, one vehicle today is around 1,357 kgs. If it goes to e-mobility, the weight of the car or the vehicle is going to increase by 200 plus kgs, that means the weight of the vehicle with hybrid or the e-mobility will weigh around 1,500 kgs. So company is anticipating that the weight of these three components in aluminium will be more than what company is contributing today to the weight of the component supplied to the regular engines. So definitely from the tonnage point of view, there will be increase in that business. So, that disruption is there and company is ready for that also. It will not hamper company top line as well as bottom line.
  • On standalone basis, in Q1 FY19, company expense was Rs. 58.7 Cr, this year it is Rs. 64.0 Cr, up by 10% in three months. What is the reason for this?
    • Due to the change in the sales mix, more processes are required. Another is that the increase in energy cost increase by the government , so increase from the government side and minimum wage that company have to pay to the people, that has impacted other expenses. So, energy had major impact in the cost increase and the sales mix.
  • What led to massive growth of 200 Cr sales to 1200 Cr sales from last eight years and how will transforming come place in company ?
    • Company has started its journey as aluminium casting and component manufacturer. By 2007, 2008, company came to know that sticking to only auto sector is going to be a problem as far as the top-line is concerned or the bottom-line is concerned. Company was auto component manufacturer and supplier without an umbrella of any OEM. Company is standalone in the market of own supplying to 76 different customers with 685 live parts that is the bandwidth of the business today. Doing this, while the growth was going on, it was mandatory for company to accept whatever was coming into its way till it get the sustainability at operational level.
    • In 2015 company accepted a new strategy of fewer , bigger and bolder. In this company will be producing few components which will be bigger in size and which will have a signature component. And for that, strategy of G5 2022 has been brought in into existence and is in execution from 2015. it is purely based on the technology and innovations, up gradation at company and company could be one of the top-five foundries, who is able to make most complicated component which top global foundries are making. So base on this company have nominated 16 different sectors, which comprises company business strategy to go into. Now since 2015, company started going into this strategy of operating on a niche marketing of 16 specific sectors which will increase company top line as well as it should give benefit at the bottom-line, with technological up gradation, with capabilities and capacities which company have got. So this is the basic strategy of company.
  • Why the margins have not changed for the past Eight years at 200 Cr company was having about 50 % gross margin , 11 % EBITDA margin. At 1200 Cr it is same ?
    • it is a foundry business and it is a very labour-oriented as well as cost oriented organization. In all the foundries in the globe, the outgoing prices are controlled by the market and the incoming raw material prices are also controlled by the market, where company done have any control on it. What in company control is how efficiently company can run operations to generate margins. So, this is one of the reasons the margins were in the same line, which company is projecting. That is why when company realise that there is some level of sustenance at the top line than company change its strategy to fewer , bigger and bolder.
    • In current year there is some improvement happening now at margins and management is focusing on that.
  • How is the competition both in domestic and globally from a business perspective ?
    • Company is trying to come out of the competitive business. Company want to set itself on G5 2022 vision that company should stand by the innovations and the technology what company is bringing in advance in India for customers. This will give advantage in commercial perspective where company get a premium value for the technologies, which are not available. If company get that than company can charge some premium for that from customers also.
  • What will be the traction on the export business ?
    • There is a lot of enthusiasm with the global customers, who are approaching company and there is a positive response from these customers, which was not there earlier, four or five years back. The global business should be a prime business in future for company coming down the years.
  • Is there any update on the Greenfield project that company is doing at Khed district in Pune ?
    • Company is ready with its plan the land is already acquired, company is ready with all the sanctions and everything from every corner. Also, the layouts in the final stage are getting authenticated and validated by partners in Japan by Enkei. Capacity calculation will depend on market moves. Because once the investment is made into the foundry project, that investment value once you open the box of an equipment, the value reduces to 25% because the foundry equipment is not a general purpose equipment, these are all very specialized and special purpose machines.
  • In Khed plant what would be company capacity ?
    • To start with, it will be around 10,000 metric tons per annum in the first phase. But in the total run, it will be 20,000 metric tons when the full capacity of that plant is utilized.
  • What developments company have taken on defence segment ?
    • Company is supplying to defence wheels which is called as rim wheels and that goes to the battle tank. And initially these wheels were in forged cast iron or steel forged wheels, but at that time, the tanks were plying at the rate of 35 kilometres per hour and now the total war technology has been changed and it requires fastest movement of equipments. So, in the first phase, this has been increased from 35 kilometre per hour, now it has been augmented to 75 kilometre per hour. So, there is a revamping of all the vehicles to convert those wheels into aluminium wheels. There are three technologies defence has nominated - one technology through aluminium forging, one through aluminium machined from the bar stock and the other is through low pressure die casting. In low pressure die casting, company is the only one of the supplier for this technology today to supply to defence.
    • In the last two years government has started looking outsourcing and they are discussing - a lot many OEMs have entered into this, i.e. Tata Motors, L&T, Ashok Leyland, Mahindra & Mahindra, these are the big players who entered into this business. These businesses, from the point of view of defence, will open company for these new business . In battle tank also they are thinking of making a light weight vehicle so that it can travel at a higher speed with an efficient weight. For doing this, a lot many projects are undertaken by the defence industry, where it will be very premature or early stage to open out and discuss, because there is some secrecy to be kept from defence point of view. But at this moment, company is working on three projects which are the conversion projects from cast iron to steel pressing components to be converted into aluminium castings. So, definitely, company is looking at this because the market has opened out for the defence business. And more and more opportunities company is working it out.
  • Does company have any order book in defence ?
    • 3,340 rim wheels needs to be supplied in next 2.5 years to Indian defence. And company has already got the LOI for that. It comprises to around Rs. 70 million business.

Alicon Castalloy:

Result for Q3 19

Q3 19.pdf (1.8 MB)

Presentation Q3 19

Presentation Q3 19.pdf (2.3 MB)

In a weakening market of Indian automobile due to liquidity crunch, one time upfront insurance payment and general lack of consumer confidence, Alicon results are encouraging especially when 81% revenue comes from domestic market.

Their sales break up is 45% from 2W, 22% from 4W passenger vehicle, 20% from CV & LCV and rest from other applications in non automotive segment. The company exports 19% and aims to take overall export to 33% of revenue (on Consolidated basis) over three years. Their present revenue is Rs. 1000 Cr and aim for Rs. 2000 Cr in coming 3 years with about 15% EBITDA Margin.

The Aluminum Casting business may see a structural growth over long term if E-Mobility picks up as in place of Engine the vehicle would be replaced by Battery Housing, Motor Housing and Transmission Housing and all of which are presently being designed by major players on low density Aluminum Manganese alloys and similar other Aluminium alloys. Apart from that Vehicle weight reduction efforts by different OEMs to increase efficiency can improve prospects of Aluminium Castings.

In their road to Rs. 2000 Cr revenue in three years, the company claims to generate 85% of its Rs. 2000 Cr revenue from its current base businesses and 15% from proposed businesses of E-Mobility. Company also comes out with newer products regularly and 24% of present revenue comes from products developed in last 2 years.

In last quarter company added two new customers … Tata Pumps and UQM Technologies (they work in E-Mobility). They would begin supplying Motor Controller Housing weighing about 6 kg per piece to UQM. It’s a small but important development for Alicon. They also have got contracts from Samsung and Bosch for some components to be supplied to E Mobility solutions for JLR and Fiat respectively.

The company will need about 250 Cr capex over next 2 years and take the capacity up from 36000 T to 54000 T and will set up a new facility in Khed, Pune. The debt / equity ratio is not expected to cross 1:1. The project is postponed for 6 - 9 months looking at benign current demand environment in domestic market. But it may be temporary slowdown IMHO.

Asset Turn (Gross Block basis) to be about 1.8 times and EBITDA is expected to be in range of 15% as going ahead the new products may attract higher margins.

There are about 140 companies worldwide working on components of E-Mobility and as yet, the company contacted about 45 players and received RFQ from 25 and converted one (UQM Tech). But since they are working on this space for last about 4 years, there is possibility for them to clinch few deals.

The company has association with Enkei Wheels (they work from adjacent premises) who owns 14% here and took preferential allotment couple of years back.

On the flip side, we feel, the 2W business growth (45% of Revenue) would be muted as growth of 2W in India is projected to be about 7% - 8% only over next few years and not much extra Aluminium component requirement is there in 2W business.

The long term ROE can be expected to be about 18% ++

Present Price is Rs. 522/- (11/02/2019)

Disclosure: Author SEBI Registered Investment Advisory and CEO of
The stock is owned by close relatives in the family. Purchased at an average price of Rs. 570/-. No trading done is last 30 days.


Result Q4 19

Presentation Q4 19

Dividend declared Rs. 5/- … Adding Rs. 2/- dividend declared earlier, total dividend is Rs. 7/- per share with payout ratio appx 20% (including DDT)

Takeaways from concall (for me) …

Result seems to be good when there is a slowdown in domestic automotive sector. Serving 81 customers with 674 different types of parts of Aluminium.

80% revenue from domestic and 20% from exports. Exports grew 25% in Q4 19 on YoY basis.

89% of revenue from Automotive sector (48% from 2W; 18% from Passenger 4W & 23% from CV and Light CV.

11% revenue from non-automotive segment.

They have started supplying to Ather, the Indian electric 2W company, who buys most components from China. If Ather becomes a success, they can pillion ride it.

BS VI has more stringent safety and emission norms and management expects good traction from this change in industry needs.

Present capacity can do a turnover up to Rs. 1400 crs to Rs. 1500 crs. Additional Rs. 150 crs to Rs. 170 crs capex will be needed to take the revenue to Rs. 2000 crs from present Rs.1000 crs (in earlier concall they had higher estimate of capex). Management guiding for a while that their target is to take revenue to Rs. 2000 crs by FY 2022. Present net debt is Rs. 268 crs. Also they expect EBITDA margin to improve from current 13% level to about 15% level. The capex would need further debt but the overall debt : equity ration won’t change for worse from current level as capex would be done gradually. They expect to improve asset turn ration going ahead.

Presently most of the components or electric scooters are imported from China by many players. Management expects this trend may change over time and they can compete on prices with the Chinese supplies. How much they can deliver on this promise, the time only can tell.

In FY 20 the sector uncertainty may persist but management is confident of growth in their niche areas. Till date,they walked the talk. They have delayed work on commencement of new plant in Khed, Pune by few months.

The floating stock is less, as almost 82% is owned by promoters and technology partner Enkei Corporation and key managerial personnel.

Disc: Invested and advised (details in previous post on this company made earlier)


Annual Report 8af6f47e-6543-487d-96f6-feb73dcbc4de.pdf (3.3 MB)

Have warned for challenging year.


Disc. Invested

Q2FY20 Concall Summary

Business Updates

  • The operating environment in auto industry continues to be challenging
  • Focusing on improving efficiencies and lowering costs
  • Has won multiple orders from global OEM’s and domestic OEM’s which are for newer models and platforms
  • Anticipating a rise in BSVI orders considering the deadline for BSIV is fast approaching
  • Have built a strong team for emobility and confident of winning a sizeable business in this space
  • Heavily investing in acquiring better talent in the company during this downturn


SMC Global

EMKAY Global



Vriddhi Capital

Capital Markets


  • Have been focusing a lot more on cost reductions which has led to Other expenditure coming down
  • The market has become very wary as even global OEM’s suddenly ask to hold stock back so companies have to focus on managing costs
  • The company is continuing to supply to Ather energy as per original estimate
  • The recent order wins are for newer product lines and not from existing business that is being replaced
  • The company needs to invest continuously as orders keep coming and is investing Rs 50-60 crores in FY20 which includes maintenance capex
  • Assessing till Q4FY20 what tax structure would the company most likely follow
  • Margins are different as per different parts and in whichever year higher margin parts are sold the margins move up and vice versa
  • The reduction of costs will remain at almost 70% through future years as well
  • Currently looking at generating more revenue from existing facilities and the Greenfield capex is on hold as of now
  • On average the capacity utilization across segments is around 40-45%
  • The management is focused on managing working capital better and is working towards reducing the debtors
  • The two wheeler sales in the total sales mix will come down and growth in four wheelers will pick up for the company

Observations for rejecting Alicon.pdf (600.0 KB)
It seems all of the growth would be coming from development of new products.
The development of new products themselves will get delayed as the Co. has delayed greenfield CAPEX expansion due to current slowdown in the Auto Industry.
Currently Alicon has too many unknowns especially when we are on the brink of a possible EV disruption.

Please reference the above pdf I have prepared in which I have listed the reasons to reject this Co. Please feel free to contact me if further clarifications are required or if you have any counter points.

‘’ The Co.’s core product ie cylinder heads(65% of revenues) is under threat of EV disruption. ‘’
The company is always mentioning that the cylinder heads are technology agnostic Products and will not get impacted by EVs. Am i missing something? Also, i read that low pressure die casting is better at making complex shapes but your Report says the opposite.

Here is the link - Low-Pressure vs. High-Pressure Die Casting - McDonald Diecasting.

This company could be a good play for EV theme, considering aluminium is required 3-4 times in EV more then normal ICE Car

Cylinder heads are not required for 2W EVs because cylinder heads are ICE components. Doesn’t matter what the company says. HPDC is costly and capital intensive. Also as it states in your report, the machinery required for HPDC is sizeable compared to LPDC. While this can be overcome by bulk orders, remember that currently Alicon is only a number 2 supplier for 2W incumbents who have their in-house companies that form bulk of their supply.

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Following are my notes from the Investor Call transcript - Q2/FY21 ( pertaining to EVs…

The trend from ICEs to EVs seems to be beneficial for Alicon, as explained by the management below… In fact they have increased the target share of EV business from 25% to 36% by 2025 (Aspirational is 45%)

  • partnership with OEMs by providing lightweight solutions, HPDC to LPDC conversion by giving customer advantage of lower CAPEX, thermal solutions for the components like battery housing and motor housing, the future technology, and further solutions for a structural relevant EV part.
  • We are working with the OEMs as well as the tier-1 suppliers for scaling up our EV business. We have already built up a portfolio of over 65 parts catering to EV…
  • we are in touch-base with 20 such startups… We have already RFQs like Ola, UltraViolet, SimpleEnergy, and many more, and we are hoping to get some breakthroughs going forward
  • Customers
    • we are actively engaging with Tata Motors who is the fast emerging as a leading PV supplier… through TACO who are developing and supplying the battery packs and motors for EV platform to Tata Motors. TACO is correctly sourcing components from China in a CKD mode, but due to FAME-4 regulations, they plan to transition to local suppliers before 31st of March 2022. Alicon has got the RFQ for more than 15 parts from TACO and we are in an advanced stage for getting nominated for these parts by December 2021.
    • working extensively with Dana Corporation on both domestic and international orders and the portfolio with Dana stands expanded to 48 parts
    • We are also engaging with ARRIVAL, a leading global EV company, which plans to set up a plant in Bengaluru in India. There is an RFQ of 40 components for which we are actively engaged
    • We are also happy to share that we are an exclusive supplier for Ather Energy in India
      • content per vehicle with Ather for Alicon is around 17 kg which is very promising. It was somewhere around 2 to 3 kg when it was ICE vehicle
      • 3% of the total turnover
    • We are also engaged with Tork Motors which has seen the project being revived after a pause due to the pandemic
    • earlier order wins from Garrett, MAHLE, Eaton, Samsung (Danfos) have all gone into the mass production mode now. We continue to work alongside with our customers in EV space and believe there are massive opportunities here
  • Competitors
    • we started with our European entity in 2016. It gave us a much more headroom and whatever we learned from our development there, we have been able to bring that to India both for Indian OEMs as well as global OEMs
  • Forward Looking
    • Our earlier stated target was to bring the wallet share of EV business to 25% of the overall revenue by FY2025-26. However, given the order booking on hand and we are already on the track for 18% of revenue share from EV, we are now raising our target for EV business to 36% of the overall revenue by FY2025-26.
    • we have an aspirational target of 45% by FY2025-26.

I had attended the Q3 FY22 concall and summarized my findings here

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The company continues to march ahead, particularly in the EV space. It is also a beneficiary of the PLI scheme.

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