Diversification Into Defense And Aerospace Will Secure Long-Term Stability

Key Takeaways

• Expansion into non-automotive sectors and partnerships with global OEMs support revenue diversification and enhance long-term stability and growth prospects.
  
• Advanced automation and technology adoption drive productivity and margins, while strategic CapEx and a strong order book ensure future revenue visibility and operational leverage.
  
• Exposure to protectionism, raw material volatility, and tech transition risks threaten revenue growth, margin expansion, and returns due to heavy reliance on traditional automotive castings.

Catalysts

Engages in providing engineering solutions for aluminium alloy castings, low pressure and gravity die casting in India and internationally.

• Alicon's deliberate expansion into non-automotive segments (defense, aerospace, railway)-supported by the formation of a dedicated vertical and appointment of a sector expert-positions the company to diversify revenue streams beyond the cyclicality and structural headwinds of traditional auto, supporting long-term revenue and earnings stability.
  
• Ongoing ramp-up in production for high-margin products with new and existing leading global OEMs, along with technology-agnostic component wins (structural parts relevant for both ICE and EV platforms), signal a favorable shift in revenue mix that is likely to improve margins and topline growth over the coming quarters.
  
• Implementation of advanced automation, digital process control, and AI/IoT-based operational enhancements is expected to yield material gains in manufacturing productivity, reduce rejection rates, and lower breakeven points, with a direct positive effect on EBITDA margins and operating leverage as volumes recover.
  
• Commitment to large-scale, forward-looking CapEx (₹155–170 crores targeted in FY'26), even amid temporary demand uncertainty, highlights Alicon's confidence in long-term growth opportunities for lightweight aluminum castings as global OEMs accelerate the use of such components to meet tightening emission and fuel efficiency standards, underpinning future revenue expansion.
  
• A robust and actively managed order book spanning ₹9,100 crores through FY '29-weighted toward passenger and commercial vehicles and international markets-offers high revenue visibility, while Alicon's recognized engineering and design capabilities are likely to drive margin expansion as their value-added solutions become a larger portion of sales.

Alicon Castalloy Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Alicon Castalloy's revenue will grow by 20.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.1% today to 9.6% in 3 years time.
• Analysts expect earnings to reach ₹2.8 billion (and earnings per share of ₹176.68) by about August 2028, up from ₹363.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.0x on those 2028 earnings, down from 37.4x today. This future PE is lower than the current PE for the IN Auto Components industry at 29.2x.
• Analysts expect the number of shares outstanding to grow by 0.76% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 15.12%, as per the Simply Wall St company report.

Alicon Castalloy Future Earnings Per Share Growth

Risks

• Escalating global trade protectionism, particularly the newly announced 25–50% U.S. tariffs on Indian imports, have already led to a slowdown in export demand; if finalized and sustained, these tariffs may reduce Alicon's export volumes, hurt revenue growth, and put pressure on net margins as customers reassess supply chains.
  
• Volatility in key overseas markets – with the company's served geographies (excluding fast-growing China, South Asia, and South America) declining 3.8% year-on-year – adds to revenue growth risk, making Alicon more exposed to regional slowdowns and missing out on secular automotive growth elsewhere.
  
• Raw material price fluctuations, especially recent increases in aluminum prices, combined with a less favorable sales mix (due to lower export volumes), are already compressing gross margins; ongoing price volatility and inability to fully pass on increased costs could further erode profitability over time.
  
• Rising capital expenditure and depreciation from investments in new plants, automation, and technology – without commensurate demand recovery or optimal scale utilization – could depress near-term and long-term returns on capital employed and weigh on earnings if current sluggish market conditions persist.
  
• High dependence on automotive castings, particularly cylinder heads and other ICE (Internal Combustion Engine)-linked parts, leaves earnings vulnerable to the accelerating shift towards electric vehicles (which need fewer such components) and to disruptions in the supply chain for EV parts (e.g., rare earth magnets), thus posing structural risks to future revenue streams and net margin expansion.

Valuation

• The analysts have a consensus price target of ₹1391.0 for Alicon Castalloy based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹29.5 billion, earnings will come to ₹2.8 billion, and it would be trading on a PE ratio of 12.0x, assuming you use a discount rate of 15.1%.
  
• Given the current share price of ₹830.8, the analyst price target of ₹1391.0 is 40.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.