NELCAST LTD

One-stop shop for world-class castings

South-based Nelcast, with its registered office at Guntur in Andhra Pradesh and its corporate office at Chennai in Tamil Nadu, is a leading castings and forgings sector player with four decades of undisputed leadership in iron castings. It was promoted by first-gen entrepreneur Radhakrishna Reddy, a metallurgical engineer who built the company brick by brick, initially handling all the key functions – production, human resource development, marketing, after-sales service and even financial management. Over the years, the company has delivered value to customers by continuously updating technology, improving skills, increasing productivity and enhancing infrastructure.

It is engaged in the manufacture of ductiles and grey iron castings. It also produces castings for various domestic and global industries, including automotive, construction, mining, railways and general engineering.

The company has fared very well on the financial performance front. During the last 13 years, its sales turnover has more than doubled from Rs 545 crore in fiscal 2015 to Rs 1,328 crore in fiscal 2026, with operating profit advancing two and a half times from Rs 45 crore to Rs 111 crore and the profit at net level more than doubling from Rs 22 crore to Rs 48 crore. Its future prospects are even brighter. Consider:

C.V. GROWTH

Going ahead, the medium and heavy commercial vehicle sector is expected to remain strong, driven by a gradual recovery in economic activities, a thrust in infrastructure spending, favourable freight rates and improved utilisation of fleet capacities, once current global geopolitical tensions come to an end. The tractor sector is expected to show moderate growth in the current fiscal year on the back of a normal monsoon.

On technical grounds, the outlook for Nelcast is bullish. In terms of moving averages, the company’s stock is trading above its 5-day, 20-day, 50-day, 100-day and 200-day averages, indicating a strong upward trend in its price performance. The daily, weekly and monthly strength indicator, RSI (relative strength index), indicates rising strength. The daily Bollinger band ‘Buy’ signal indicates increased momentum.

The share price has moved up to Rs 175, indicating a three-year investor return of around 150 per cent. The stock price is expected to cross the Rs 200-mark by the end of the current fiscal year.

FARM DEMAND

The domestic commercial vehicle (CV) industry volume is still short of its FY19 peak, but with the current recovery in CV demand, boosted by infrastructure investment, scrapping of old vehicles and efforts to reduce total cost of ownership, the company is expected to see strong volume growth in the domestic market. An improvement in rural sentiment, and increased agricultural income on the back of good agri-output and higher prices for produce, are set to drive demand for tractors. This is expected to boost domestic volumes for the company. A strong order backlog, addition of new customers, and new products will drive export volumes for the company.

Rating agency ICRA has maintained an (ICRA) A rating for long-term instruments and (ICRA) A1 for short-term instruments for Nelcast, and has upgraded the outlook from stable to positive across long-term instruments. This change reflects ICRA’s improved assessment on Nelcast’s credit profile and future prospects.

The only dampener is the current downward drift in the stock market on account of growing geopolitical tensions, with Nelcast declining to the Rs 105-110 range.

LONG-TERM CHOICE

However, prospects for the company are highly encouraging once geopolitical tensions ease. Needless to say, no one knows when the US-Iran conflict will end, but investors with a long-term appetite can certainly consider the stock at the current price.

PERFORMANCE INDICATORS (Rs. in crore)

IDBI BANK

At interesting point of transformation

IDBI Bank, converted from an industrial development finance corporation into a commercial bank, is today one of the largest scheduled commercial banks in the country. It is jointly owned by LIC (49.24% stake) and Government of India (45.48% stake), while the balance is held by the public.

The bank was in financial difficulties, with high NPAs and serious capital adequacy issues. But it has turned the corner and has emerged as one of the largest commercial banks in the country. Revenues during the last 12 years have remained more or less steady at Rs 28,000-29,000 crore, with operating (financing) profit zooming during the last 12 years from a loss of Rs 2,647 crore in fiscal 2015 and a loss of Rs 18,178 crore in fiscal 2019 to a profit of Rs 3,217 crore in fiscal 2026. What is more, in fiscal 2026, the bank earned a net profit of Rs 9,237 crore, in striking contrast to a net loss of Rs 14,970 crore in fiscal 2020. As a whole, for fiscal 2026, the bank has earned a financing profit of Rs 10,328 crore and a net profit of Rs 9,237 crore on sales revenues of Rs 29,020 crore. What is more, prospects for the bank going ahead are all the more promising. Consider:

The bank has started the new year (fiscal 2027) on a buoyant note. Net profit in the first quarter (April-June 2026) amounted to Rs 2,115 crore, suggesting a 5% improvement over the corresponding quarter a year ago, while net interest income rose by 10% to Rs 3,486 crore. The bank’s asset quality is also on the path of correction, with gross NPAs declining from 2.93% to 2.30% and net NPAs from 0.21% to 0.16%. Capital adequacy has become very strong at 26.92%. The provision coverage ratio has remained exceptionally high at approximately 99.31%.

GOING PRIVATE

More importantly, future prospects of the bank are at an interesting point in its transformation. The bank’s proposed strategic sale could potentially change its ownership status from a public sector bank to a private sector bank, as well as its operating model. The government which holds – directly as well as indirectly – around 95% equity stake in the bank has decided to disinvest a 60% stake to bidders like Fairfax Financial, Emirates NBD, Oak Capital and Kotak Mahindra Bank. The matter has now entered the negotiation stage, with Canada-based Fairfax Financial, a member of the Prem Watsa group, which is seeking a 60.72% stake (Government of India 30.48% and LIC 30.24%), emerging as the front-runner. The revised bid is for around Rs 81 per share, with the total deal value amounting to Rs 53,000 crore.

Now, a formal cabinet approval and final pricing alignment are awaited to conclude what would be India’s largest-ever investment by a foreign bank.

NEW STROKES

If and when the deal is finalised and there is a change in ownership, it could potentially result in:

• New management strategy.
• Greater private sector orientation.
• Technology investment.
• Faster product innovation.
• Stronger retail/SME expansion.

In short, a successful strategic sale of IDBI to a private bidder can certainly change the fortunes of the bank and its shareholders as the bank’s potential growth engines can start working. For example, in the case of retail banking, a 70% retail share of gross advances gives personal loans, vehicle financing and other retail products. As far as SME banking is concerned, India’s growing formalisation of small businesses creates a potentially attractive market for loans with a nationwide franchise in the case of digital banking. IDBI has an established branch network and customer base, and combining that franchise with stronger digital capabilities could improve customer acquisition and operating efficiency.

The change in the ownership of IDBI Bank will lead to rerating of the bank and push up its share price. Discerning investors will do well to include these shares in their portfolio with a long-term perspective.

PERFORMANCE INDICATORS (Rs. in crore)