Summary of earnings call for Vardhman Special Steels Ltd published on 01 Aug, 2025
Vardhman Special Steels Limited
Q1 FY26
Call date · July 28, 2025
1 · Management Commentary
Key Positives
- Sales volumes increased 10% YoY to 55,500 tons; revenue up 5% YoY to INR433 crores.
- Kocks Block successfully commissioned and stabilized faster than anticipated.
- Aichi’s equity infusion of INR385 crores raised their stake to 24.9% and rendered the company debt-free.
- Greenfield steel plant project progressing; RFQs for equipment to be issued, land purchase underway.
- Forward integration into specialized forging business with Aichi, targeting a segment with minimal domestic competition.
Key Negatives
- Margin pressure due to aggressive price competition from larger players; EBITDA per ton at lower end of range (INR7,077).
- Inventory valuation loss of INR6 crores due to declining raw material prices.
- Delay in solar plant commissioning owing to a court case on transmission lines.
- Export volumes below expectations, particularly in Thailand.
Forward Guidance
- Capex: New steel plant (INR2,000 crores) targeted for commissioning in July 2029; new reheating furnace to be commissioned in last quarter of FY26; second NDT line by June–July 2026; forging capex details to be finalized in 6 months.
- New Products/Segments: Entry into specialized automotive forging in partnership with Aichi; pilot line of 12,000–15,000 tons planned.
- Expected Client Wins/Losses: No major client losses; new business expected from forging and green steel initiatives.
- Revenue/Margin Outlook: FY26 EBITDA/ton expected in INR7,000–10,000 range; margin improvement anticipated from FY27 (INR8,000–11,000/ton) as new projects come online.
- Strategic Initiatives: Focus on green steel (carbon footprint at 0.73, to improve to 0.45–0.48 post-solar); government green steel norms and carbon trading may provide future tailwinds.
2 · Q&A Highlights
Q 1 (Composite): Timeline, capacity utilization, and return expectations for the new greenfield steel plant and forging business?
A (Management):
• Steel plant commissioning targeted for July 2029; full utilization in 2–3 years post-commissioning.
• Targeting 20%+ return on capital employed at full ramp-up; forging capex and returns to be detailed in 6 months.
Q 2 (Composite): Impact and outlook on pricing pressure and margins; when will conditions improve?
A (Management):
• Pricing pressure unlikely to worsen; improvement timing uncertain.
• Margin tailwinds expected from green steel demand, solar plant, new reheating furnace, and Kocks Block approvals.
Q 3 (Composite): Volume growth and capacity expansion plans before new plant comes online?
A (Management):
• Targeting sales of 260,000–270,000 tons by FY29 (from 215,000 tons in FY25).
• Rolling and NDT capacity expansions underway; no production constraints expected from FY27.
Q 4 (Composite): Details and strategic rationale for forging business with Aichi; competitive landscape?
A (Management):
• No direct competition in targeted forging segment; pilot line of 12,000–15,000 tons for automotive customers.
• Modular, capital-efficient business model; further details in 6 months.
Q 5 (Composite): Capex funding structure, promoter/Aichi stake, and future equity plans?
A (Management):
• New plant capex to be funded with 1:1 debt/equity (INR1,000 crores each); targeting 0.5:1 debt/equity ratio.
• Promoters to retain >50% stake; Aichi to maintain 24.9% stake; QIP possible if needed.
Q 6 (Composite): Green steel regulatory environment and company’s positioning?
A (Management):
• Government norm for green steel is carbon footprint <2.2; VSS at 0.73 (to improve to 0.45–0.48).
• Major competitors at 3–3.2; VSS well positioned for future regulatory and procurement advantages.
Q 7 (Composite): Demand sustainability, export performance, and customer feedback?
A (Management):
• Domestic demand stable; FY26 sales budgeted at 225,000 tons.
• Export growth constrained by Thailand; Aichi may substitute with domestic forging steel uptake.
Q 8 (Composite): Product mix, margin differences, and revenue split between black bar and bright bar?
A (Management):
• Roughly 75% sales are black bar, 25% bright bar; bright bar capacity ~50,000 tons/year.
• Margin differences not disclosed.
3 · Other Key Numbers
- Sales volume Q1 FY26: 55,500 tons (up 10% YoY)
- Revenue from operations Q1 FY26: INR433 crores (up 5% YoY)
- EBITDA per ton Q1 FY26: INR7,077
- Inventory valuation loss Q1 FY26: INR6 crores
- PAT Q1 FY26: INR20 crores (vs INR26 crores YoY)
- Aichi equity infusion: INR385 crores (stake now 24.9%)
- Greenfield steel plant capex: INR2,000 crores
- Target sales before new plant: 260,000–270,000 tons by FY29
- FY26 sales budget: 225,000 tons
- Carbon footprint: 0.73 (to improve to 0.45–0.48 post-solar)
- Government green steel norm: <2.2; 5-star rating: <1.6
- Major competitors’ carbon footprint: 3–3.2
- Bright bar capacity: 50,000 tons/year
- Forging pilot line planned: 12,000–15,000 tons/year
- Debt/equity target for new plant: 0.5:1
- Promoter stake post-Aichi infusion: 51%
- Tax expense Q1 FY26: INR6 crores 20 lakh
- Advanced tax paid: Not disclosed
- Margin improvement factors: solar plant, reheating furnace, Kocks Block, NDT line
- Export market update: Thailand under pressure; domestic substitution planned
Note: This is an AI generated summary of the earnings call. There may be inaccuracies in the summary. Please refer to the original transcript before making investment decisions.