Vardhman Special Steels Limited (VSSL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q4 FY 2022 Earnings Conference Call of Vardhman Special Steel, hosted by IIFL Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Shreya Manivannan from IIFL Securities Limited. Please go ahead, ma'am.

Thank you. Good evening, everyone. On behalf of IIFL Securities, I welcome you all to the earnings call -- conference call for the fourth quarter and FY '22 for Vardhman Special Steels Limited. We are pleased to have with us Mr. Sachit Jain, Vice Chairman and MD, and his team. We will have the opening remarks from the management, followed by a question-and-answer session. Thank you. And over to you, sir.

Thank you. Good afternoon, everybody, and thank you for joining our call today. And it's been a very interesting year. It's been a record year of sorts. We have had all-time high sales, all-time high production, all-time high operating profit, all-time high net profit, and also being able to increase the dividend from INR 1.5 a share to INR 3.5 a share. Apart from -- that's the financial performance, it's been a very turbulent year in terms of the rockiness of raw material prices. Raw material prices shot up continuously through the year, then corrected. And it crazily shot up again towards the end of the year. We also had the Russia-Ukraine war. Because of that, raw material prices shot up further. There is also a demand turbulence because 2-wheelers were slowing their demand as well as cars. Where the demand is good, there is the chip shortage. We have had a problem in the production, and therefore, demand for steel is low. So overall basis, fourth quarter of the year ended on a low demand. But we were able to more than cover our targeted and our guidance of sales of beyond, we said, will be 165,000 to 175,000 tonnes, and we -- if -- we reached 173,000 tonnes. So moving ahead. Because of the high priced raw materials, the kind of prices -- price increase that we need from April is huge. But we also understand auto companies will not be able to get those kind of price increases in terms of -- especially in the view of soft sales. So these various steel companies have sent out letters of between INR 22,000 to INR 25,000 per tonne price as of 1st April. Discussions are on. Obviously, no one can give those kind of price increase. But we still are hoping for about INR 15,000 to INR 20,000. But again, what I -- what we've we learned is some of the auto companies are sitting between INR 10,000 to INR 12,000 and somewhere between this figure and INR 18,000 is where the settlements will happen. One, OE has already given a price of INR 17,000. So one large Tier 1 has given a price of INR 17,500. So those are the kind of levels that have happened. Other discussions are going on. So we don't know where things will settle down. Meanwhile, for this year, we expect to have sales -- increase further on our sales. From 173,000 last year, we hope to be between 180,000 to 185,000. Again, if the auto market -- the 2-wheeler market takes off, of course, we'll be able to up the target from the current levels. Our EBITDA guidance for last year we said was between INR 7,000 to INR 10,000 per tonne, will remain this year also. Last year was higher at fourth quarter. Results were better than what we had guided, because of 2 reasons primarily. One, we got this passed government incentive which has elements of the previous year, which is '21, '22 as well as 2021 and part of '19, '20, a small part of '19, '20. So it has some elements of annual performance and some element of -- partly incentive schemes. And second, because of a massive increase in raw material prices, we also had big valuation gains, which are part of the fourth quarter comp. So of course, we could not visualize those things when we were giving the guidance for the fourth quarter in our January call. As regards to Aichi. Our first order with Aichi is -- has come in. It is to be dispatched in May. And we seem to be on track in terms of the development orders. As we said earlier, again, '22, '23 is the area of trial orders; '23, '24, we start getting production orders; and '24, '25, we should get the current plan that we see, which is between approved up to 50,000 tonnes of export orders. It would be 30,000 to 50,000 tonnes of export orders that we can visualize at this point. First of all, it depends on reaching the quality levels, establishing ourselves, creating lots of consistency. So it's still not a worse ahead for us. The other thing I wanted to share is that the way we see, we will be running short of capacity in the year '24, '25. Till then, we have capacity. And once our collaborators come in, they plan to come in, in this month itself, we will start serious discussions again for the need for capacity enhancement. The other question you will be asking is overall the CapEx plans. So the CapEx plan, which was INR 250 crores earlier have been up by INR 50 crores, so it'd be INR 300 crores for the 5-year period, which began 1.5 years ago. So out of that, about INR 40 crores have already gone in, still about INR 260 crores is to be spent in the remaining period. So I think these facts is enough for the opening remarks. We remain excited about the business, the kind of interests that our -- for the customers have with us is only increasing. The interest IT has in us remains very strong. And we've had a very serious discussion with them this time. In the domestic market also, our customers are happy with us. We have been able to make serious inroads into the EV market. This year onwards, we will be -- we will start reporting our shares to the EV segment as a percentage of total sales. The other -- sorry, before I hand over to Singla for some very brief numbers. ESG has become a very big area. So though it is not required, mandated to us, but we have hired a consultant to measure our carbon footprint. As you all are aware, that global customers everywhere have become conscious of the carbon footprint. And in steelmaking, very clearly, the secondary steel manufacturers, people like ourselves, who makes steel from electric arc furnace route had a much lower carbon footprint than the primary steel producers who produce blast furnace. So this is an area we will have a huge advantage in time. So initially, it will be in terms of just preference, I would think. And later at some stage, as Europe will increase the carbon tax, Singapore introduce the carbon tax, at some stage in the future, maybe 5 years later, 7 years later, one doesn't know when, that there could be possibility of India also have a carbon tax. But one doesn't know about that. The point is, very clearly, presence towards electric arc furnaces could go up. That seems to be the global trend. That is enough from my opening remarks. So Singla, very quickly, if you can cover some very key numbers very briefly. And then we are open for question, please.

Thanks. Thank you, sir. Good afternoon, everybody. During the quarter ended 31st March 2022, our total volumes stand at 41,596 tonnes. And in terms of rupees, our total revenue stands at INR 343 crores. This is 2.65% higher than the corresponding quarter of last year. This is despite lower volume by 13%, mainly because of the price increases which we have received during the year. And in terms of EBITDA, we ended this quarter with about INR 60 crores of [indiscernible] as against INR 55 crores last year. And it also includes electricity duty exemption granted by the Punjab government and rates industrial policy amount to INR 18.65 crores, which partly pertains to the current year and partly pertains to the previous year -- previous 1.5 years. So quarter 4 PAT stood at INR 29 crores as against INR 26 crores, with an increase of 10.74%. And for the full financial year, the PAT stands at 100.75 -- it is more than INR 100 crores as against profit of INR 44 crores in the corresponding year last year. So that's all from our side. And just one thing I wanted to add to the opening remarks of Jain, sir, that during the quarter, we have switched over to natural gas in place of furnace oil, just a step towards betterment of environment and in compliance with the requirements under our Ministry of Environment. Thank you. And now we are open for the question and answers.

And again, sorry, before the question, one more thing. We had said that we will target a 25% EBITDA to capital employed by '24, '25. And we are lucky, this year, we happen to have hit that figure. I'm not saying we'll be able to hit it next year onward every year. But at least, I'm happy to see that once, before our targeted year '24, '25, we've hit the figure of 25% EBITDA to capital. [ Jack ], open to questions, please.

[Operator Instructions] Our first question is from the line of Sudhir Bheda with Right Time Consultancy Services Private Limited.

Congratulations for a good set and very elaborative investor presentation, sir. Sir, I missed that figure, when you said, our total production and sales would be 1,82,000 to 1,85,000 for FY '22...

1,80,000 to 1,85,000 steel.

What is the EBITDA figure. What would the EBITDA per tonne would be?

Included, INR 7,000 to INR 10,000, which is our guidance.

Pardon?

We expect INR 7,000 to INR 10,000 a tonne EBITDA.

Okay. INR 10,000, okay.

Yes. We are not changing the guidance.

Okay. And sir, as you said, IT order will be discussed this year, trial orders.

Yes. For May. No. This month.

This month Itself?

The first, the first trial order.

This year would be the trial year. And then next year from onward, we will be dispatching bigger quantities, right? .

Correct.

So with -- will that -- orders will come at a higher EBITDA? Or how this...

See, we don't discuss too much our pricing across customers. But I had a CNBC interview today morning, where also they asked the same question. So IT is an investor and a partner. For us, pricing is at arm's length basis. So the pricing formulas will be as remunerated, if not better, for the company. And sorry, just to add to that. As remunerative, in a longer-term sales growth, you see the pricing formulas in terms of when prices change are different for very different companies. So there will be times where Indian market will be more profitable and there will be a time when Indian market will be less profitable and these customers will be more profitable. I'm just saying, on an overall basis, the profitability would be of a similar order or better.

Our next question is from Dewang Sanghavi with ICICI Securities.

Congratulation on a good performance for FY '22 as a whole. My first question is on the demand side, sir. In terms of segment-wise, how is the demand? And currently from 2-wheelers, passenger vehicles and commercial vehicles, can you throw some light on the same?

So demand is still low from 2-wheelers. Cars is picking up. Commercial vehicles is fine. Tractors also seems to be okay. And you see, we are also in a position that we are pushing to take orders. There is certain -- because now we have more capacity this year so we are not constrained by capacity. So we are pushing to take some orders. And I expect first quarter to be reasonable, definitely better than the fourth quarter of last year in terms of OEMs.

Right, sir. And we have a volume guidance of 1,80,000 to 1,85,000. And in the opening comments, you suggested there's an upside bias of 2-wheelers for prices. So how much additional volume can we expect of 2-wheelers for pricing?

I have no idea. But the stand was to 190,000, they go to 195,000, one doesn't know, but 190,000 is something which clearly we see as a possibility.

195,000. 195,000.

190,000. 190,000 to 195,000 could be a possibility. But at this point in time, it's too early to start guiding on those numbers. We -- because our customers are pretty fixed, and the -- ours is a derived demand. So if our customer segments do well, we will do well. And we are gaining share constantly in these segments also, in a slowly bit-by-bit manner.

Right. My second question on the pricing side. So if you'd just throw some light on the negotiation part. I just wanted to know, we will continue with quarterly negotiation or half-year regulation going forward? Because we switched it to half yearly 6 months back.

So we did not shift. You see that we have to understand the situation. As steel suppliers, we prefer quarterly negotiation. As auto companies, they prefer 6 monthly contracts, right? And so -- and they are the more powerful people. So the trend will be towards 6 monthly, which is always 6 monthly. It's only a very crazy situation that has been happening in the last 1.5 years that we shifted to quarterly. The way it seems now, because of the massive volatility in prices, nobody will want 6 monthly contracts. So everybody will want a 3 monthly contract because we have no way of figuring out that, today, there's a massive rise in raw material prices. Will this correct immediately with the war end in 10 days' time? Will there be truce? One doesn't know. So nobody wants to take a long-term bet. And in all probabilities, this settlement will be a quarterly settlement. Whether they gave INR 20,000 or INR 22,000, we will definitely go for a 6-month reset. If they give, let's say, INR 10,000 to INR 12,000, we would say, no way, only a 3-monthly settlement. If they give in between somewhere, then we'll see at that point in time.

Right. Because a big price hike gets a budget of 2 quarters pricing...

This is absolutely crazy. As in I have not seen this kind of times. I've been working for 30 years. As for steel industry, in 12 years. But this kind of rise in raw material prices, a relentless rise, this massive rise is something I haven't seen in my career. So these are very uncertain times. In fact, ideally, I should say, a forecast this year are out -- are off. Because it can be a stupendous year, if we ever get INR 20,000, INR 22,000 price increase, it will be it will be a fantastic year, way beyond what we've seen in the past. So very difficult to make a prediction this year because these are beyond normal price changes.

Yes, sir. I agree on that. My question is regarding the new capacity coming up, the rolling capacity. By what quarter that will be coming up? Or what -- which month it will be...

It will be coming in the fourth quarter, in the fourth quarter. So please expect the impact of it happening only next year.

Right, right. And can I squeeze in a last question, if I may?

But again, again, rolling capacity doesn't matter too much because we have -- main thing is having melting. And we will get -- be able to get some job well done from outside, et cetera, if the demand is high and there is need for more production. That will not be a constrain in terms of increased sales when the market suddenly picks up.

Right. If the demand is there, we can kind of do a job where can cater to the demand.

Absolutely, absolutely. Not for all products, but certain products, we can. So we will do all those plannings in advance, stock some products, get some works, then our [ job ] led them and so on. Or that is something we'll -- so this year also, you will see inventory of finished goods at a little higher level, preparing for our January shutdown of the rolling mill. So there will be -- inventory levels will -- one, will be higher because of higher value. And second, inventory levels will remain higher also because of higher stock, preparing for the January shutdown.

All right, sir. And then my last question is regarding the movement in the raw material pricing as compared to Q4 versus April. So how do the move in April as compared to Q4, at which this climb of graphite electrodes and the rest of your raw material?

I don't have those figures with me. Graphite electrodes would have gone up by about INR 40, Singla?

Yes. About INR 30 a kg.

INR 30 a kg, graphite electrodes. And the scrap prices are changing on a daily basis, very difficult to say as an [ ongoing ] thing. Yes, it's every day it's different.

Our next question is from line of Vivek Ramakrishnan with DSP Mutual.

What is the quantum of CapEx which is left in the current year in terms of CapEx spend? And with this, at the end of this year, would you have completed your full phase of CapEx? It's question #1. Question #2 is, in terms of inventory, you had said that it would be elevated looking into January shutdown next year. So would it be through the year? Or would you be decreasing it? Because your last conference call, you had mentioned that it would come down and then go up again. And the last question that I have is in terms of power cost and the power situation in your plant. Is there any situation of lack of power? Or would that not be an issue at all for industrial users? That's all.

Okay. So let me start with the last question first. So power clearly is a problem. However, so far, we haven't faced any shutdowns for the industry. And the government has assured us if the monsoon is normal, there will be miniscule shutdowns. And if you recall, last year itself, we had about 12 days loss of production because monsoon were delayed. So I don't think we'll have power outages more than last year. Unlikely. Okay? But very difficult to predict this now. So -- but -- the estimation is it will be unlikely worse than last year and may actually be better than last year. As regards CapEx, so we have overall about INR 260 crores of CapEx lift. Two -- big chunk of CapEx is regarding our Cox mill, which will happen in the subsequent years. But a large chunk of this INR 260 crores will happen between this year and next year. So there will be some rollover and some spillover, et cetera. But the larger chunk of the INR 260 crores will happen between the 2 years, this year and next year.

And then on the inventory as well, please.

Yes. The inventory, as you will see, inventory levels, did come down and will start rising now in term of finished goods. So on raw materials front, inventory levels will not rise because we are not taking a position on raw material at these levels. Graphite electrodes, also in physical terms, the inventory levels will come down because I don't think we want to take a position much longer. And we will -- therefore, we have 1-year stock of graphite electrodes. And we will bring out -- bring down this inventory. The finished goods inventory, because we have a rolling mill shutdown, will increase every month till January. And then -- so after January, when the shutdown happens, we expect to run through those inventory levels. And because we're a service industry, we will need to have a higher inventory than our sales because there's always fluctuation in demand and a particular customer needs a particular product more than forecast and so on. So inventory levels will need to be higher. But between February and March, then we hope to bring all those inventory down.

Our next question is from Falguni Dutta with Jet Age Securities Private Limited.

Congratulations on very good numbers. Sir, I just have a question as an aside on this -- the shifting from furnace oil to gas, like you mentioned. Just to know, at current prices, is gas still cheaper than furnace oil?

Yes, it is cheaper.

And where do -- where are we sourcing gas from? Meaning who would be the supplier?

THINK Gas.

Yes, for gas.

THINK Gas.

I missed you.

The company name is THINK. It's a startup. I mean, it's a new company founded by a [ BE ].

Okay. Sir, can you spell it? I just missed it.

THINK, T-H-I-N-K, when you think something. They want you to think of gas. They want you to think of gas, think of it, THINK Gas.

Our next question is from [ Ritwik ] with One Up Financial Consultants Private Limited.

Congratulations on a great 2022. Sir, firstly, is it possible to quantify the inventory gain in Q4, as you have mentioned in the press release?

No. It is possible, but we don't share those numbers. It is exactly quantified.

Okay. Okay. Sure. And sir, on the CapEx, you mentioned that CapEx has increased from INR 250 crores to INR 300 crores. So what would be the primary reason for this? Is it because of cost override...

The Cox mill, the Cox mill.

Cox mill, okay.

Yes. It is a sizing block, which is used -- so we would replace a couple of stands in our rolling mill and replace this with a precision block. The whole idea of this precision block is then you will be able to reduce the change over time and gives very, very fine quality as far as the surface is concerned and diameter is concerned. So currently, let us say, we have size of 34 and then 36 and then 38 and then -- and 45 and then and so on. With this, you can do 36.1, 36.2, 36.3, so very, very precise. As well, change over time is 3 minutes, whereas otherwise change over time is with 1 hour within 1 family of change. So we will save change over times, which -- so one, we'll improve quality. We will save change over time, which means we can get better service to customers. As well as we should be able to reduce our finished goods inventory by the time it goes through the place.

Okay. Okay. So ,okay. Sure. And sir, you mentioned...

This is pretty standard equipment. It's not as if there is some R&D about it. This is -- the sizing block is a well-known thing. Our partner, Aichi, also has it.

The tester technology. Later technology, okay. Sir, you mentioned on the demand for 2-wheelers, on a couple of fronts, that its peak. So if you look at 2-wheeler demand in the financial year gone, it was down 10%, 11%. And generally, you have mentioned that 2-wheelers is about 30% of our sales.

Correct.

So despite that, we have grown, and I believe EV must have been -- must have at least compensated for that, and rail. So is it possible to give some split between -- EV, you mentioned it's 5% to 6%. Rails -- our supply to rails, what would be...

It is still small. The percentage is small.

Okay. So it would be less than 5%?

I would think so, yes. We intend to increase this. So we're having more focus on it, so we will be increasing industrial [ sweeping ].

Right. And so what would be your aspiration in terms of over the next 3 years from the EV segment and the rail segment? Can we reach double-digit in the next 3 years, say, by FY '25 end?

See, for rail, no. Rail will be reached at level. EV, all depends on how fast the market grows. See we have positioned ourselves pretty well. And again, as I said earlier, we are a steel supplier. It doesn't matter towards which segment as well or not. As long as we are in the segments which are growing fast and we'll participate in the growth, so if EV grows, we will grow, because we are pretty well positioned in that segment.

Sure. And just a follow-up on this. Are EV supply would be for 4-wheelers or for 2-wheelers?

I think largely 4-wheelers. But we don't know where all our customers are supplying. Because some of our customers are ones who have the flexibility to source for various customers. So like, for example, when you say we are approved by Maruti or we are approved by Hero, so then we know where that material is going. But there are certain customers, large customers who establishes very well. They have the flexibility from the OE, that they have the flexibility to source the steel from. But largely, it will be for the 4-wheeler segment. Both domestic and exports. You see, domestic market is still very tiny. This is a component export.

So we would be supplying to Tier 1 who would...

Maybe supplying the steel to a Tier 1 who will supply -- or Tier 2 or a Tier 1 who will supply to the final OE, largely as -- bigger chunk is for exports. So it is largely 4-wheelers. The domestic market, I will not know. That is a much smaller part. So I'm not aware of the split between 4-wheelers. But on an overall basis, it's much, much larger in proportion from the 4-wheeler.

Our next question is from the line of Anil Kumar Sharma, an individual investor.

And congrats for the good number always and giving the increased dividend also. Sir, my question is only one, as earlier also I have asked you. Recently, there was a news that PLI scheme has been revised by a special scheme. Are we -- in the revised scheme, we are eligible for PLI scheme?

PLI scheme which came out, in fact, excluded most of the special steel producers. So -- which is what we have been protesting with the government, that the scheme is not meant for us.

Recently, there was a news, sir, they have revised it. Even then, after the...

They have revised it, but we haven't seen the revised scheme. So once the revised scheme comes, they have extended the time by 1 month more. So hopefully, the revised scheme will be out very soon. And we'll meet -- we are told that our concern had been address and will be met, so let's see when the scheme comes out.

Okay. We are not still aware of it? A little full funding, right, sir?

So some of the products that are covered in this scheme are part of our strategy to develop. So if the scheme comes out, which makes us eligible to apply, we will be definitely be applying strongly and we will be beneficial.

Our next question is from [ Aniket Vaikhar ] with -- an individual investor.

And congratulation on the good set of numbers. I have a couple of questions. Yes. Sir, my first question, is there any addition in your PPE?

I'm sorry? PPE?

Property, plant and equipment.

Yes. Every year, we are producing the same in that.

Okay. Okay. Okay. And sir, the next question is related to the CapEx, the expansion plan which we are planning. So is there any equity dilution?

So let me answer that question in 2 ways. Is there a need for equity dilution? No. There's no need for equity dilution. So because our debt equity is a very healthy -- we -- our debt equity is below 0.25. And the cash accruals and incremental debt gearing capacity, we will be able to fund this CapEx. So there is no need for any dilution. Now second, but the question is it, will there be an equity dilution? It will depend on when our partners would like to increase their stake. Because there is an understanding between them and us that at some stage, they will raise their stake. And the -- so depending on when they decide to raise their stake, there will be some dilution. But that could happen this year. It could happen next year. It could happen 2 years down the line. Difficult to say. But it is a clear understanding between them and us, that at some stage, they will increase their stake. And the probability is that we will not sell our stake, and any stake increase will happen with some dilution. But let me share that with the -- all our investor on the call. In case there is a dilution, and they invest, this will be seen as a very big positive by our customers. Because currently, their stake is at 11.5%, which is a foothold in our company. I have been sharing on the con call that our relationship is very, very strong. It is very, very strategic. But to give more confidence in the customers, we are talking about the global customers, Toyota Group and Toyota's various suppliers like JTEKT, AISIN, et cetera and other Japanese OE, a stake increase from this level will show that Aichi has -- is showing more confidence in the company than when they started with us. So if this offer to increase the stake comes, as management, we will be recommending -- of course, it's a Board decision. But as a management, very clearly, we will welcome it, and we will strongly recommend to our Board. And then, of course, all these things come to the shareholder for approval. So I'll be urging -- whenever such a proposal comes, I'll be urging the Board as well as the shareholders to approve this kind of a [ proposal ].

Okay. Got it. Sir, there is a decrease in the interest cost. So is this due to the part payment of long-term borrowing? So kindly help us to understand which loan we have been -- I mean, which has been repaid?

So Singla, if you can answer that question. I mean with the cash accruals, clearly, we have a lot of money available with us. So loans have been prepaid. So Singla, if you can answer that question, please?

Yes, it's mainly because of the accruals. Due to which, our overall utilization, bank borrowings came down. And secondly, last year, the interest rates were also lower than comparatively previous -- corresponding previous year. So these are the 2 major reasons. And due to which, our financial cost is lower by INR 2 crores, INR 2 crores, INR 2.5 crores.

Okay. Sir, one more question, sir. How do you see the industry look like at this moment? And how do we anticipate the demand, keeping in mind as the slowdown in the auto industry?

I'm sorry. Please repeat the question. I couldn't hear that. Apologies.

My question is, how do you see the industry at this moment look like? And how we can anticipate the demand, keeping in mind that slowdown in the auto industry had been new, sir?

So let me share with you that when -- last year was this when something like Rajiv Bajaj or Bajaj Auto said, I have no way of predicting where this industry volumes are going to be and so on. We made some similar statement. Now we are derived producers, okay? So there is no way we can predict that. But having said that, we have said very clearly in the past, we have 1.5 year of demand uncertainty where we are dependent on the domestic market. After that, when the export demand kicks off from '23, '24, we do not see this uncertainty. And from '24, '25, we have the other problem, people to have a problem of not having enough capacity. So if there's a demand showdown in India, we'll welcome it with folded hands, that there is a demand slowdown in India.

So sir, one more question, sir. That the gas which you are saying, the THINK Gas. So right now, the prices of gas has also started increasing. So what would be our major -- I mean the gas which you are sourcing from THINK, is it in control or the price which they are giving us is the very reasonable?

See, the price is reasonable. But the price is in their control and they will -- as their cost is going up, it is very difficult to continue to sell gas with all the substantially lower prices than the market. So those prices also keep going up, very difficult. We are price takers out here. We are not negotiator. We are a small, tiny user compared to their volumes. But as of now, since the gas has been put in, we have saved substantial money every month.

Our next question is from the line of [ Ritwik ] with One Up Financial Consultants Private Limited.

Two questions, sir. What is the maximum output possible at current capacity for us? You mentioned...

See, current capacity just now, till we get the environmental approval, which we expect we'll get by September or so. Till that time, our maximum capacity, licensed capacity is 200,000 tonnes of billets, which translates to about 180,000 tonnes of rolled [ price ]. And that with the CapEx which had already gone on in the furnace, our capacity will rise to about 250,000 to 260,000 tonnes, that's 250,000 tonne. So from capacity point of view, we are ready to do about 240,000, 250,000 tonnes. So the moment we get the environmental approval, which should happen with some CapEx that we are doing which will get commissioned by July, then we'll apply to the environment ministry as well as pollution control board that we have already done all these things. And they should give us the approval. And from September or October, we should be ready, too. From capacity point of view, then we can say that our rated capacity has gone on. But till that time, our rated capacity will remain 200,000 tonnes. So even if you can produce more, we cannot produce more because our licensed capacity is 200,000 tonne.

Right. So just to reiterate and -- whether I have understood it right, right now, the billet capacity is 200,000 tonne. After we receive the environmental approval or whether we are doing some environmental-related CapEx, this billet capacity will increase to 258,000 to 260,000 tonnes per [indiscernible].

Correct, correct.

And at that rate, we can -- and then the rolling mill will come subsequently, which will increase the capacity output to about 240,000 to...

230,000, 230,000.

230,000 tonnes per annum.

Yes, yes, yes.

Right, right. Okay. And even then, we can outsource and take our volumes if the demand is there.

No, no, no. This will match our requirements. And then beyond that, we have to outsource billets for some products and roll products for some product.

Okay. Okay, sir. Okay. And one bookkeeping question. What is the net debt as of March '22?

Again, Singla will answer. I think about INR 130 crore, Singla?

It is INR 122 crores, exactly.

My apologies. INR 122 crore.

So this has gone down despite the higher working capital on absolute terms. Yes.

My CFO is [ at the desert ], so he -- I don't know how we cooks up these books and as we think. But fortunately, we have KPMG as auditors. So I have the sort of exchange in the numbers.

Yes, absolutely. And sir, what would be the FY '23 CapEx?

Roughly INR 100 crores, Singla?

This year, it will be -- yes, close to INR 100 crores.

Okay. So INR 100 crores, and possibly around INR 80 crores to INR 90 crores for next year as well?

Correct. Yes.

Our next question is from Radha with B&K Securities.

Hello, am I audible?

Yes. Please, go ahead.

Just 2 questions from my side. Could you give us the breakup of your customer mix in 4Q FY '22?

That thing, we don't give. We don't give that, that thing.

Okay. The next question would be, you mentioned that you were expecting some price hikes in April. So -- and you were saying that various steel companies have sent out letters for these price increases. Now which segment would you think that it would be easy to pass on the price hikes to? Would it be 2-wheelers or 4-wheelers?

No segment -- this kind of price increases is not easy with any OE.

Our next question is from the line of Namish Gupta with Namish Gupta and Company.

Congratulations for the good set of number. So sir, I have like 2 question. I mean, first, I mean, I think I missed that. You said that Aichi will welcome for more equity stake packages. So will that dilution -- like, going forward, it will be from the existing promoter's stake? Or it will be from the market?

See, as of now, very difficult to say exactly. First of all, when will they come with a proposal? My expectation, in the next 2 to 3 years, they will come with such a proposal. Whether it will happen this year, next year or the year after that, I don't know at this point. Because -- but very clearly, there is an understanding between us and at some stage, they will increase their stake. So that is one. Two, increased stake can happen by sale from promoters or it can happen by dilution when the company issues new equity. In all probabilities, the issuance will be from new equity by the company. But again, at that point in time, it depends on the market situation and government expense CapEx plan. I can say about myself. My stake of 14 -- roughly 14% that I have, which is my personal stake, I will not be selling any stake.

Great, sir. Sir, my second question is, like, in previous, like, conference calls, you told that, like -- in like year '24, '25, there will be -- in fact, you will be sitting on the much lesser capacity and the demand would be much more. So sir, any -- like, any significant thinking or like, planning at that level when you are deciding to expand out of the current facility also?

So less to me, we -- it is high time we start this process of putting up a new plant. However, it is not my decision alone. It is a decision that has to be taken in conjunction with our partners. And then they are sitting far away in Japan. We are just -- we are still less than 3 years in our relationship. It is not very easy to take a decision on a new CapEx. And the new plant will be much bigger than the existing plant. So CapEx requirements are also going to be much larger. So discussions will start when they come and they're going to be here in 2 weeks' time. We will be discussing very seriously about the need to put up a new plant. Then, which state, timing, et cetera. It's just -- with the Japanese, it's a process. It doesn't happen at, okay, you say, okay, we decide to put up a plant, and we agree, and we start. It doesn't happen there. But the point I said very clearly is the need to put up a new plant is very clear and evident. Second, as part of a long-term strategy, putting up a new plant is part of the long-term strategy. So before the year 2030, the new plant will be up and running. But when -- before 2030, will it be 2026, will it be 2027 or '28? Very difficult to say at this point in time. But the point is -- the fact is we have now started discussing the need immediately to start thinking of a new plant.

Okay. And sir, your -- you have given a guidance that till 2025, you will be able to, like, achieve this ROC of...

So it's not a guidance, this is a target. Very difficult for me to say, I will achieve that particular financial number. But as a target for myself and for my management team, that by '24, '25 when our CapEx is fully utilized, we should hit a figure of about 25% -- even with this year. This year was -- I'm not saying this is a repeatable performance, but a figure of 25% EBITDA to capital employed is something that we would like to target. This is something which will make us feel that we have done a decent job.

Okay. So sir, just -- I mean, if you can just throw one thing on this. Like, currently, like, the steel prices are like -- I mean going forward, and normally, we have, like, heard, like, the commodity cycle runs for, like, 4 to 5 years normally. So either considering that kind of run up in these prices, if we -- like as you -- these, like, sustain for next 3 to 4 years, then even you would be able to achieve -- like on account of, like, cost efficiency, like you mentioned, you have switched to the natural gas. Like, I just want to ask.

Please understand that we are not a commodity steel producer. So in fact, when steel sector does very well, that is not a very good sign for us. For us, the idea that the steel sector is doing okay and auto sector is booming. Because please understand, it is a negotiated price. Steel producers sell us commodities, so long products which go into construction steel. So on steel, the prices change on a daily basis in the market. HRC's, also, the prices change. So they go up way higher. And auto companies also give the swings in prices that give to the HRC is way higher than they give to long products like ours. So which means when the boom time is coming, it's like -- currently, steel boom time, our results are not as good as steel companies. And when the bad times come, our results are not as bad as the steel companies. So there, you will see a much higher volatility in numbers. In our case, you will not see that high a volatility.

So I think in -- I mean, in that sense, we can say, like, for the next 1.5 years, like these prices are so much rising or sustainable. So your results will be much more volatile on that account since the production, the raw material prices will be much higher.

One doesn't know. Today, it is high. But will they remain at these levels? Very difficult to say. If the war comes to an end, moment supply sales setting down a bit, there will be some massive availability of scrap because so much of scraps would have been generated, in the war, that scrap has come to the market and certain other segments. Very difficult to make those kind of prediction at this point.

Our next question is from Dewang Sanghavi with ICICI Securities.

Just a bookkeeping question. We had INR 18 crores of onetime gain due to past government incentives, and part of it is recurring in nature. I just want to know what costs are recurring in nature.

Singla, if you can answer that. Should...

On -- because this is pertaining to the electric utility exemption, and on this account, on recurring, we will be getting about INR 9 crores per annum on current consumption of power.

We have the next question from the line of [ Lauren Mehta ], an investor.

Congratulations on a good set of numbers. Sir, most of my questions are already answered, but just had a couple of more questions. So our revenue realizations seem to have improved in Q4. So -- and assuming that, of course, the price increase for our products will -- is here to stay. And if the volatility in raw material prices stabilizes, then it will be safe to assume that these realizations would continue down the coming quarters?

So from April, as I said, at the minimum, we are expecting INR 10,000 to INR 12,000 further increase from the current levels. So current average for the year was around INR 80,000, Singla?

Yes. Sorry. INR 80,000 a tonne.

Yes. So the current average for the last year is INR 80,000. All the INR 80,000, we are expecting minimum INR 10,000 to INR 12,000, and could be INR 15,000 to INR 20,000. So one doesn't know. But assuming at the lower end, if we get INR 10,000, so we're getting a 12.5% increase in realization from first here. And if we get INR 15,000, I mean, that's much more. So that's -- these numbers are like query. This kind of increase has -- earlier, we used to get INR 1,000 or INR 2,000 up or down. Last year, it's for the big numbers of INR 4,700, and those look like massive numbers. And suddenly, you're saying INR 10,000 to INR 12,000 at a minimum. I mean these are in same figures, but this is the reality.

All right, sir. Fine. And sir, our other expenses have reduced. So is it the switch to natural gas or other areas also we've saved expenses?

There is always constant cost savings going on. But at some areas, costs have gone up. Some areas, costs have gone down. But the big area of cost savings has been clearly gas. But that is -- a very small amount has gone last year because just gas came in, in February. So we've got 1.5 months of saving of last year. So it's not that big a chunk. But basically, what happened is when volumes go up, the cost per tonne...

Economies of scale.

Comes down, yes. Correct.

Right. Right, sir. Got it. Got it. Fair enough, sir. But the effect of this switch to natural gas, its benefit on the margins is likely to be felt in the coming quarters. Right, sir?

If the current pricing differential remains. You see, we are a price taker far as furnace oil is concerned. We are a price taker as far as gas is concerned. So we have no way in determining what the prices will be. So what prices we get, we buy, we use. And if the prices are attractive, we save money compared to furnace oil. But very difficult to predict all those things.

Okay. Okay. Just one last question. I was curious about the -- you mentioned that IT may increase its stake in the company, and that it would be a good step for us as well. So do you see any sort of a time line where that might happen and sort of a rough ballpark figure of what kind of stake would be transferred to them?

I have no way of giving on a time line, but I said, this in the next 2 to 3 years if this should happen. And 2, very clearly, there is a trigger, I think, a 25% as a trigger for open offer. Well, 24% or 25%, that's the number for the open offer. So very clearly, any increase will be below that number. So at best, it'll be up to 25%. But I would say somewhere between 20% to 24%. So currently, they own about 11.4%, so the stake would -- whatever the increased stake after a proposed dilution would be in the range of 20% to 25%. I would like it to be lower because you really don't need that much money. I mean we need 0 money, as I said. In terms of need of money, there is 0 need of money. So since there is 0 need of money, I would like to keep it as low as possible. But it has to be reasonable. You can't say, we have diluted -- we will dilute by 4%. It doesn't make sense. So that is one. The other thing, sorry, go ahead.

No, no. Go ahead, sir.

The other thing I want to bring the attention and notice of all investors on this call. We will be shifting to a lower tax regime from -- let's see. So from the earlier 33%, we'll be shifting to the 25% tax regime. All our past, et cetera, have been dealt with. Our max credit, a minor amount was still there, which has been adjusted, written off or whatever you call it. The accountants know what you call it, but that is being done away with. So we are shifting to the new tax regime conversation.

Okay. Okay. Great, sir. Just one last strategic question I had. With the involvement with IG increasing and the relationship building stronger, are we going to, sometime down the line, see substantially more revenue coming in from our exports? I mean overseas markets.

For sure. Our target is 20% to 25% from the current 5%. But hang in there. This all depends on our reaching -- this is the target. And it has to be on reaching those quality levels and so on. Right? So it's not a done deal that you just decide and it will happen. This quality stringency in the export markets and especially Toyota requirements are way higher than the Indian market.

Right. So of course, that depends on all those factors.

Yes. And since it is Aichi themselves who will be buying our material. And they are working with us. So the target is to achieve those numbers. And they feel confident that we'll achieve those.

Is that their consumption of our production likely to increase?

Just now, it is 0, no?

Right, sir. But our agreement with them would be that they'll buy back some...

There is no such agreement or buyback. That is the plan. You see, the beauty of dealing with Japanese and the beauty of having a long-term relationship, a friendship, an understanding is these still don't need to be there in any agreement and so on. What's the point of a buyback agreement if you say market conditions have changed and so on. There are enough ways of getting away -- getting out of a buyback agreement. So we don't have any written agreement in terms of how much quantity there is. But we know the development is coming in. So we are keeping track of all the developments coming in this part -- this particular weight of steel is going to be used in this part, in this vehicle, in -- from the year '24, from the year '23, from the year '25. So '25 -- 2025 is a year of a major platform change in the Toyota system, so 2025. And all this preparation is for the 2025 platform chain. And once our steel gets into that '25 platform chain, then we are home secure. Yes, for the good 10 years, 8 to 10 year, till the next platform change happens. So this is very important for us we achieve those numbers, I mean, the time line.

Ladies and gentlemen, that was the last question for the day. I now hand the conference over to the management for closing comments.

Ladies and gentlemen, thank you so much for your interest. I haven't seen so many questions. This is the longest call, I think, in the last few years that we were handed. That just shows that though we are a small company, but we seem to be attracting. And I see several regulars out here. So it's nice to have a family because we are an old fashioned company. We need the long-term relationships. We also believe in long-term relationship with analysts trying to cover us and shareholders who remain with us. That hopefully gain in the dividend that we share out as well as wealth acquisition in terms of the value of their holdings going up over time. We have repeated again and again that we are a long-term oriented company. So we would -- we should be looked at as an investment on the long-term perspective. In the short term, very difficult to be partners with us. But once again, thank you all for your support. All the best.

Thank you.

Thank you. On behalf of IIFL Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.