Vardhman Special Steels Limited Q1 FY27 Earnings Conference Call

Financial Performance Summary

Vardhman Special Steels reported financial results for Q1 FY27 with sales volume of 59,000 tons, representing a 6.5% year-over-year increase. Revenue from operations stood at INR486 crores, showing 12% growth compared to the corresponding quarter of the previous year. The company achieved EBITDA of INR68 crores and Profit After Tax (PAT) of INR41 crores for the quarter. After adjusting for non-business income from surplus funds deployment, the EBITDA per ton was INR10,760.

Operational Highlights and Capacity Updates

The company highlighted strong demand conditions with difficulty meeting customer requirements. Several operational improvements are underway:

  • New reheating furnace has been stabilized
  • New NDT line scheduled for commissioning by September-October 2026
  • New peeling line scheduled for commissioning by September-October 2026
  • Current production bottlenecks in testing capacity causing material pile-up
  • Solar plant generated 2.3 crore units this quarter, covering 43% of total power consumption
  • Carbon footprint maintained below 0.5, positioning the company favorably for European exports

Expansion Projects and Capital Expenditure

Brownfield Expansion: Applied to Environment Ministry for approval to increase melting capacity from 300,000 tons to 360,000 tons. Approval expected in 3-4 months.

Forging Project: Technical Assistance Agreement signed with Aichi Steel, Japan. Project cost expected to be lower than initial estimate of INR475 crores, with savings exceeding 10%. Commissioning expected in last quarter of FY28, with revenue generation beginning in FY29-30.

New Steel Plant: Partially reconfiguring to reduce carbon footprint and improve energy efficiency. Considering additional continuous testing lines. Project cost expected to increase due to metal price inflation and rupee depreciation. Commissioning target remains FY29-30.

Solar Expansion: Government policy changes enable 50% capacity expansion of solar plant, expected in 1-1.5 years.

Guidance and Outlook

Management revised EBITDA per ton guidance range from INR8,000-11,000 to INR8,000-12,000 for next year, with confidence to further improve to INR9,000-12,000 range subsequently. Key drivers include:

  • Increased production spreading fixed costs
  • Operational cost reductions
  • Reduced job work and outside processing
  • Solar plant expansion savings

Business Diversification Strategy

The company is actively diversifying into non-automotive segments:

  • Ingot casting capability establishment targeted for Q3 FY27
  • Entry into die steels market (INR1,000 crores import substitution opportunity)
  • Expansion into railway axles and windmill shafts
  • Future plans for aerospace and nuclear plant steels through dedicated JV

Export Performance

Total exports account for 6-7% direct and 5% indirect through trading arms. Aichi represents approximately 40% of total exports. European OEM supply expected to commence commercial operations in H2 FY27.

Customer Concentration and Approvals

No significant customer concentration risk, with Maruti accounting for approximately 10% of business. Received global approval from Toyota through Aichi partnership. Well-positioned for green steel demand with approvals in place.

Volume Guidance

FY27 target: 255,000 tons

FY28 target: 270,000 tons (subject to environmental approval)

With approval, FY28 target could increase to 290,000 tons, reaching 330,000-340,000 tons by FY29

Funding and Capital Structure

Funding not considered problematic for expansion projects:

  • Existing cash reserves available
  • Large shareholders (Vardhman Group and Aichi) committed to capital infusion
  • Institutions showing appetite for investment
  • Bank debt availability
  • Punjab government support assured

Price Realizations and Cost Structure

Q1 saw price revisions due to increased costs. Some OEM settlements still pending, potentially spilling over to Q2. Q2 prices expected to be higher than Q1. Q3 pricing dependent on raw material trends.

Manufacturing Capacity

After Kocks Block and Reheating Furnace commissioning, rolling mill reached 300,000 tons input capacity. Team confident of achieving 330,000 tons capacity despite license constraints.