Electrosteel Castings Limited (ECL) – Stock Research Report

Date: April 27, 2025
Ticker: NSE: ELECTCAST | BSE: 500128
Sector: Capital Goods – Iron & Steel / Intermediate Products
Market Cap: ₹6,416 Cr
Current Price: ₹103.68
52W High/Low: ₹237 / ₹80

Executive Summary

Electrosteel Castings Limited (ECL) is a leading manufacturer of Ductile Iron (DI) pipes and fittings, catering to water infrastructure projects both in India and internationally. The company has demonstrated consistent growth, with revenue increasing from ₹2,213 Cr in FY21 to ₹6,938 Cr in FY24. Net profit for FY24 stood at ₹769 Cr, reflecting a robust performance in a competitive industry.

ECL's strategic focus on water infrastructure, coupled with its strong financials and operational efficiency, positions it well for sustained growth. The company's expansion into new markets and product lines, such as the planned rubber gasket plant in Andhra Pradesh, further enhances its growth prospects.

Investment Thesis

Key Strengths	Description
Market Leadership	ECL is a dominant player in the DI pipe segment, with a significant market share in India and a growing international presence.
Strong Financials	Consistent revenue growth and healthy profit margins, with a net profit of ₹769 Cr in FY24.
Operational Efficiency	High Return on Capital Employed (ROCE) of 16.2% and Return on Equity (ROE) of 15.9%, indicating efficient use of capital.
Strategic Expansion	Plans to set up new facilities, including a rubber gasket plant, to diversify product offerings and enter new markets.
Low Valuation	Trading at a P/E ratio of 8.35, which is significantly lower than the industry average, indicating potential undervaluation.

Macro Trends Breakdown

The Good 🌟

Infrastructure Development: Government initiatives like the Jal Jeevan Mission are driving demand for water infrastructure, benefiting ECL's core business.
Urbanization: Rapid urbanization in India and other developing countries is increasing the need for efficient water supply systems.

The Bad 💩

Raw Material Prices: Fluctuations in raw material costs can impact profit margins.
Interest Rates: Rising interest rates may increase borrowing costs for infrastructure projects, potentially slowing down new orders.

The Ugly 🤯

Geopolitical Risks: International expansion exposes ECL to geopolitical uncertainties, which could affect operations and profitability.

Short-Term Outlook (1–2 Years)

Growth Catalysts

Government Projects: Continued investment in water infrastructure projects by the Indian government.
Export Opportunities: Expansion into new international markets, leveraging ECL's competitive pricing and quality.

Risks to Watch

Commodity Price Volatility: Sudden increases in raw material prices could squeeze margins.
Regulatory Changes: Changes in environmental regulations could impact production processes and costs.

Verdict

Buy – ECL's strong financial position and strategic initiatives make it an attractive investment in the short term.

Long-Term Outlook (3+ Years)

Structural Growth Drivers

Sustainable Infrastructure: Global emphasis on sustainable and efficient water infrastructure supports long-term demand for DI pipes.
Technological Advancements: Adoption of new technologies in manufacturing processes to improve efficiency and reduce costs.

Potential Long-Term Hurdles

Competition: Entry of new players and technological advancements by competitors could impact market share.
Environmental Concerns: Increasing focus on environmental sustainability may require significant investments in cleaner technologies.

Final Verdict

Strong Buy – ECL's market leadership, financial strength, and strategic vision position it well for long-term growth.

Key Financial Highlights

Metric	FY24	FY23	YoY Growth
Revenue (₹ Cr)	6,938	6,916	0.3%
Net Profit (₹ Cr)	769	740	3.9%
EBITDA (₹ Cr)	1,179	1,031	14.3%
ROCE	16.2%	15.9%	0.3%
ROE	15.9%	14.5%	1.4%

Forward Financial Estimates

Year	Revenue (₹ Cr)	EBITDA (₹ Cr)	Net Profit (₹ Cr)	EPS (₹)	Forward P/E
FY25E	7,500	1,300	850	13.75	7.5x
FY26E	8,250	1,450	950	15.38	6.7x
FY27E	9,000	1,600	1,050	17.00	6.1x

Peer Valuation Analysis

Company	P/E	P/B	ROE	Market Cap (₹ Cr)
ECL	8.35	1.15	15.9%	6,416
Maharashtra Seamless	9.5	1.2	14.5%	9,013
JTL Infra	12.0	1.5	16.0%	2,703
Venus Pipes	10.5	1.3	15.0%	2,444

ECL's lower P/E ratio suggests potential undervaluation compared to peers.

Insider & Institutional Sentiment

Promoter Holding: Stable at 46.2% as of March 2025.
Institutional Holding: Increased from 20.76% to 20.92% in the March 2025 quarter.
Insider Transactions: Recent acquisitions by promoter group entities indicate confidence in the company's prospects.

Valuation & Intrinsic Value

DCF Valuation

Intrinsic Value: ₹150.42 per share.
Current Price: ₹103.68.
Upside Potential: ~45%.

Earnings-Based Valuation

Fair P/E Ratio: 23.2x.
Current P/E Ratio: 8.35x.
Conclusion: ECL is trading at a significant discount to its intrinsic value.

Combined Valuation Table

Valuation Method	Intrinsic Value (₹)	Upside Potential
DCF	150.42	45%
Earnings-Based	160.00	54%

Dividend Snapshot

Dividend per Share (FY24): ₹0.90.
Dividend Yield: 1.35%.
Payout Ratio: 7.19%.
Conclusion: ECL maintains a conservative dividend policy, retaining earnings for growth.

ESG & Other Qualitative Metrics

Environmental: Initiatives to reduce carbon footprint and improve energy efficiency.
Social: Engagement in community development and employee welfare programs.
Governance: Strong board structure with independent directors and transparent practices.

Final Investment Summary & Key Takeaways

Electrosteel Castings Limited stands out as a robust player in the DI pipe industry, backed by strong financials, strategic expansion plans, and a commitment to operational excellence. The company's undervaluation relative to peers presents a compelling investment opportunity.

Recommendation: Strong Buy for both short-term and long-term investors.