Nelcast may set up unit in Uttaranchal

Nelcast, a leading producer of machine-moulded graphite iron castings for the automotive and other segments of the manufacturing industry, is looking at setting up a castings factory in Uttaranchal, to cater to the needs of the north Indian market and existing customer original equipment makers.

While the exact capacities or an investment timeline for the planned machined castings facility was not available, Nelcast is said to be looking at a nominal capacity of 30,000 tonnes per annum (tpa) at the plant, once it is fully operational, sources said.

The company is in the process of finalising land for the castings plant and the process should be complete in the coming months.

Ashok Leyland, a longtime customer of Nelcast, is presently setting up an automobile components manufacturing unit at Uttaranchal and is said to be keen to widen its procurement undertakings with Nelcast, if the latter sets up shop in the state.

Nelcast raised about Rs 95.27 crore by way of an IPO, via 25 per cent equity dilution, in June this year. This has contributed to the working capital for the latest wave of capacity expansions, which the company has undertaken till September 2007.

The company raised its annual castings production capacity to 1.26 lakh tpa with the commissioning of its second plant at Gudur in September.

This facility will initially have a production capacity of 2,000 tpa. Nelcast now operates two foundries at Gudur in Andhra Pradesh, besides its first plant started at Ponneri, Tamil Nadu, in 1996.

The capacity expansion undertaken by the company this year from the IPO proceeds is expected to help it achieve a 30-40 per cent increase in net sales in fiscal 2008, with the PE ratio expected to prevail at 20 times the projected 2008 earnings of Rs 450-Rs 500 crore.

Nelcast has also invested Rs 10 crore in purchasing new machinery since March 2007. It plans to increase the share of high-margin machined castings in the total production to 20-25 per cent, over the next two years, from the present 10 per cent.

The current production run rate of 1.26 lakh tpa has Nelcast well on its way to surpassing the targeted 1.50 lakh tpa by 2008-09.

The increase in the company's casting and machining capacities is clearly reflected in a higher offtake from auto OEMs between March and November this year. Almost 60 per cent of Nelcast's production is now routed to the automobile industry, compared with 51 per cent in February this year.

Nelcast has about 1,000 people on its rolls presently, and is in talks with a few companies for a strategic acquisition, a part of is capacity augmentation through inorganic growth. Talks in this direction are still in the nascent stage, sources said.

Established in 1982, Nelcast posted a turnover of Rs 350.10 crore and profit after tax of Rs 19.77 crore in 2006-07, compared with Rs 270.32 crore and profit after tax of Rs 7.02 crore in the previous fiscal.