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Prabhudas Lilladher Report
We visited Alicon Castalloy Ltd.'s plants in Chinchwad, Pune. The company highlighted clear strategy for reducing mix of highly competitive and lower margin two-wheeler business by-
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increasing share of four-wheelers,
increasing presence in electric vehicles,
scaling up revenue from global markets, and
focusing on technology products and solutions.
Alicon aims to ramp-up new business segments for strong revenue growth, while its existing business is expected to decline over the medium term. The company has received big orders from JLR for e-axle, cylinder heads from Toyota, PSA, Maruti Suzuki India Ltd., Daimler, etc. which will increase four-wheelers mix.
Also, substantial jump in content per vehicle from ICE to EVs can provide much higher revenue potential. The company expects two-wheeler volume to grow at low single digit, with higher growth in two-wheeler EV and premium segment and thus is reducing focus on the segment.
We believe ramp-up of new businesses and change in mix will help expand revenue and margins for medium term. Alicon aims to reach revenue of Rs 16 billion in FY24 and Rs 22 billion in FY25 with Ebitda margin of 14% over next three-four years.
A strong and expanding order book gives confidence in the company's ability to achieve its targets of revenue and mix. The stock trades at 20.2 times price-to-earning FY24 Bloomberg consensus.
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