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

Ladies and gentlemen, good day, and welcome to Vardhman Special Steels Limited Q1 FY '23 Earnings Conference Call, hosted by IIFL Securities Limited. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Ms. Shreya M from IIFL Securities. Thank you, and over to you, ma'am.

Thank you, Inder. Good afternoon, everyone. On behalf of IIFL Securities, I welcome you all to the earnings conference call for the Q1 FY '23 for Vardhman Special Steels Limited. We're pleased to have with us Mr. Sachit Jain, Vice Chairman and Managing Director; and Mr. Sanjeev Singla, CFO. We will have the opening remarks from the management, followed by a question-and-answer session. Thank you, and over to you sir.

Shreya, thank you. Ladies and gentlemen, welcome to our earnings call. With me are new ED of the company, Mr. R. K. Rewari; our CFO, Sanjeev Singla; our company's Secretary, Sonam. We also have with us our -- one of our new Board members, Suman Chatterjee, who's joining the call. He is based in Gurgaon. And my daughter, Soumya is also on the call. So a lot of us from the company's side. And as before, we will start with a few comments in the beginning. But as you know, most of the large part of our con call is mostly questions raised by you that we will answer. But let me share with you that we had a very special quarter that just went by. Why is it special in many ways? The most important way in which I would say it is special is we have really strengthened our company's board. So we have 4 new board members. Mr. Rewari, I already talked about, who is new [ EDD ], joined as Chief Executive in February, and now made ED in the company. He has about 40-year experience and 30 years of that is with our group. And I've worked with him very closely when I began my career in setting up the operations in Vardhman Textiles. We have 3 other directors that I'd like you to -- to introduce you to. One is Ito-san from Aichi [Audio Gap] of the Steel Division. Ishigami-san, the earlier President of the Steel Division is retired. And Ito-san has come in place. And Ito-san is a steel man, but he also has deep forging experience, and he was Head of -- MD and president of Shanghai Forging. So he has got forging experience as well as [indiscernible] experience, and he will be a very good addition to the Board. And 2 new independent directors, Mr. Suman Chatterjee, who's on this call. He is an IIM Ahmedabad graduate of '89. He started with [ Levi's ], became the MD of Levi's India and was the MD of SC Johnson India and Chief Revenue Officer of Lenskart. Now he is an independent consultant. And he happens to be a batch mate of mine of [indiscernible]. But his core expertise is marketing. Of course, general management after that. The other Board members who joined us is Mrs. Vidya Shah. She is from the Edelweiss Group. She -- her career is finance. She is also an MBA from Ahmedabad, same batch as ours, '89 batch, ICICI, investment banking, [indiscernible] banks and then, of course, Edelweiss since it was founded. She was the CFO of Edelweiss, and now she is the Head of Edelweiss Foundation. So she -- her expertise is finance as well as CSR, NGOs and so on. So that's -- she is going to be sharing our CSR Committee in addition to being a Broad member. So with the addition of these Board members introduction, let me also share why else this quarter was special. We have had record production, record sales. For the first time, we crossed 50,000 tonnes, actually 52,000 tonnes of sales. We had record profits after tax, of course, aided by [indiscernible]. We moved to the newer tax regimen of 25%. So that is the main reason why we got record profits. But within the quarter, we have had hit -- within the quarter, in 1 particular month, we have hit 19,000 tonnes of sales. So it shows that the company's ability to sell and, of course, production has kept matched to that record production in our SMS, in our rolling as well as bright bars. So all around the company has functioned well. So I wanted to thanks my colleagues, who are -- very few of them are here, but Mr. Rewari, as the Head of all our Operational Team, is here, so on your behalf -- I mean he is here on behalf of the team. These are the main reasons why it was special. If you recall, some of you were there in the earlier call. In the previous call, I said there is -- this year is totally unpredictable. We have no way of giving any forecast. So I said for this year, all forecasts are out. Volatility was crazy, in that prices range from INR 38,000 at the low to INR 63,000 in the middle, came down to INR 42,000, went back to INR 52,000. So there was no way of predicting when to buy, when not to buy, when to stop, when to hold. So it is an absolutely crazy quarter. I have never seen something like this in a 30-year career. And when the price was [indiscernible], the OEs happens. We have got price increases on most of the OEs. Some of the OEs are still not settled, so -- but most of them are settled. So INR 9,000 is the common increase, most of the OEs have given for this quarter, the expectation was higher. We were expecting between INR 12,000 to INR 15,000, and we deserve that. We deserve INR 15,000, but we're expecting INR 12,000 to INR 15,000. The OEs haven't given that because the sentiment on the steel industry changed on the 21st of May when the government changed the rules of doing business of steel in the country by imposing a 15% export on steel. Now this tax that we understand is temporary. How temporary it is, till when it is? We don't know. But for the moment, it disrupted the steel pricing, changed the sentiment drastically as steel prices crashed. And therefore, the OEs could manage by giving us a lesser increase and what perhaps due to us. In addition to Q1, we've also settled Q2 for most of the OE. So there has been a price reduction of INR 4,000 per tonne for Q2. Of course, the raw material prices have also come down in Q2, so a reduction was warranted, perhaps not to the extent that the OEs have managed to get away with. So this is the overall scenario. Our EBITDA per tonne is within the INR 7,000 to INR 10,000 range that we set at normal range. It is lower than Q1 of last year, which was over INR 12,000. And this year, it's about INR 9,800 or something, around that figure. So it is within that range. And we do believe that despite the uncertainties going on, continuing because the fluctuation of raw materials continue and the lesser than what we deserve increase, we will still be able to maintain our EBITDA per tonne for the full year between the range of INR 7,000 to INR 10,000. Demand continues to be robust. Cars are strong, motorcycles are medium, so are tractors and commercial vehicles. But really cars are strong. So overall, on that front also, we believe that we would like to up our target of earlier we had announced that last year 173,000 tonnes, this year 180,000 tonnes, but we believe now we would like to target 190,000 tonnes, maybe 195,000 tonnes. But let's say 190,000 tonnes with hopefully an upward [ buyers ] from that, but that is what we'll be targeting for this year. So these are the overall update, a specific positive event I want to share that, as you are aware that we are looking at the environmental approval for our expansion of the existing plants. We've gotten central environment approval. We needed the consent to operate from Punjab Pollution Control Board. I'm happy to share with you that, that has also been received by the company, and which means, of course, subject to our fulfilling all the conditions, which in our opinion will be done by the end of December this year, maybe even earlier than that. But by December surely all the conditions will be met. So the point is, it is now in our hand, it is not in governmental body's hands to get the approval. These are the general opening remarks at this stage, and we'll wait for your questions.

[Operator Instructions]. The first question is from the line of [ Nimesh ] Gupta, individual investor.

It's a very good set of numbers. Congratulations for that. My first question is, sir, EBITDA...

[ Nimesh ], your voice is muffled a bit. So can you speak a little slowly that I can hear it clearly?

Okay. Now is it [indiscernible].

It is better, yes.

So our EBITDA guidance is INR 7,000 to INR 10,000 per tonne. Sir, my question is, sir, why is there such a wide range in guidance, like from the bottom end to the top end, there difference of 40%. Why I'm asking this is -- I mean there is a [indiscernible] and there also EBITDA guidance [indiscernible], but that is a difference only of 10% and their raw material is also [indiscernible]. So, this is my first question, sir.

Okay. So maybe they have a better grip on their company operations and they can predict exactly what numbers will come. We maybe don't have that strong in operation that we can't predict exactly. There are so many variables out here, so many fluctuations happen with the price negotiation, which happens. There is not a mathematical formula that the cost goes up and automatically the price will increase by that much. So there's a demand scenario, the government's uncertainty, which comes in, for example, the sudden government policy, which came in, has suddenly shifted the price increase that we were going to get dramatically, which has changed the EBITDA that we would have got for Q1 and then for Q2 also because the reduction would have would have happened on a higher base. So there are so many unpredictables out there that it is difficult to predict. Another company may be in a pure [ convergent ] business, where it is possible for them to predict exactly and they have set formula, with which prices change. So I cannot comment on another company, but in our company, we have too many variables, so which is why the range will be there.

Okay. And sir, my second question is on -- I mean in this quarter, we have got a 42% increase in our revenue. In that 42% increase, 2% is on account of the value-added products. So I mean, what kind of [indiscernible]. Is this like 2% going to increase in next quarters or in next year, I mean in the long term?

Yes. So in the next 3 years, this 2% is going to become -- and 2% is not a total value, it's a shift. So the increase in margins because we already have a lot of value-added products. But 2% is a shift, is the increase in the turnover because of the value-added products. So please don't think it just 2% of the entire company sale. But to share with you that we have already said in public and said it several times, Aichi's business, our partners -- for some of you joining the call for this first time, Aichi Steel Corporation of Japan, which is part of Toyota Group, is our JV partners. And they expect to source between 30,000 to 50,000 tonnes per year in 3 years' time, so maybe '24, '25 or '25 maybe a spillover. But by '25, '26, we expect -- I think '24, '25, we should get between 30,000 to 50,000 tonnes will be sourced by Aichi itself. In addition to Aichi, there are other Japanese OEs that are approaching us and other Tier 1 suppliers of Japanese OEs that are approaching us independency because they know with Aichi coming in, our processes are going to become much stronger. So those kind of inquiries coming in, we see this figure of 30,000 to 50,000 tonnes, in my opinion, will actually cross 50,000 tonnes as a total. So we are -- and today, as of now, the sales are miniscule. So a big chunk is going to happen in the next 3 years, starting this year itself. So starting -- already approvals from Toyota have started coming. So already March manufacturing for some parts have begun. Every quarter we'll have more products coming online. So the mass manufacturing of Toyota products is going to be increasing every quarter.

[Operator Instructions]. The next question is from the line of [indiscernible] Financial.

Sir, congratulations on a great set of numbers. Sir, I had a few questions. Firstly, what would be the production for Q1 FY '23?

Singla, can you share the numbers?

It's 54,000 tonnes of billet production, and about 47,000 tonnes of rolled production.

Okay. Okay. So then I would assume that you would have sold 5-odd thousand from our inventory, and that means our inventory, which had increased in at the end of March that...

Yes. You're right. Partly it is from the inventory and partly, it is from outside rolling.

Okay. From outside rolling also. Okay. Okay. And sir, do...

Hello. We seem to be cut off. Are we cut off? Or is this...

I can hear you.

No, sir, you are audible.

Sir, we can hear you.

The question got cut off. Okay. So yes, to answer his question, yes, inventory levels have come down partly. So sales are partly from inventory. And we also do outside rolling for certain products. So partly [indiscernible] comes from that.

Right. Got it. Sir, connected question to this is what will be the net debt after June at the end of June 2022?

It's INR 180 crores.

INR 180 crores, okay. Sure.

And to share with you, the current net debt is higher than what it should be. The reason for that is because we had higher price inventory, which is getting eaten up because raw material was higher in Q1. Second, the price increases for the OEs happened in July. So the INR 9,000 is a big chunk and the invoicing of that has begun to happen now. And therefore, those amounts are lying at outstanding. So roughly over INR 30 crores is extra outstanding just because of the price increase. And therefore, the debt is higher because of that to that extent. So you will see these numbers normalizing by Q2. So Q1, actually, we have a net negative cash flow despite having high -- I mean record profits. The cash flow is negative for Q1, but Q2 -- by end of Q2, we would be back to normal levels. End of the year, our net debt level will be below INR 100 crores.

Right, right. As inventory, okay, sure. Got it. Okay. Sir, and you mentioned that we have received the final regulatory clearance from the Punjab Pollution Control Board. So should we assume that our brownfield expansion is on track and should be completed by Q4 FY '23?

No, no, no. See, there are several parts to this brownfield expansion. One part is the furnace part, increasing the production of the [ melting ]. That part is completed. Second part is the environmental parts, which we said will get completed by December. Third part is rolling mill. That will be -- that will take some more time. And then fourth part is some addition to the rolling mill, which will increase our production further to improve quality and so on. That will take still further time. And then there is the quality, the entity that will be nondestructive testing line, which itself is a big chunk of investment, which will also take something like 2 years -- 1.5 to 2 years from now. So there are several parts to it. The point is, capacity now is no longer a constraint for sales for the next two years. So as the market demand picks up, we have the ability to do service the market through our internal sources and through a bit of outsourcing.

Okay. Okay. So if there is demand, earlier our capacity expansion was to be completed by Q4 FY '23, which would have increased...

Yes. I never said that. We've always said the melting will be done first, the rolling will take a little longer, and the rolling has got delayed because as we are aware that because of this global supply chain issues, with supply from all equipment manufacturers has got delayed. So for that reason, otherwise, you are right, that by end of this year, we were expecting a rolling mill expansion to also have got completed. I will say one year more, but we have been able to improve our productivity of our rolling mills. So the rolling -- I mean, what I'm seeing very clearly is capacity is no longer a constraint for sale.

Okay. Okay. So if there is a demand of, say, about 30,000 to 40,000 tonnes in the market, then we will be able to...

For next year, we'll be able to match to 20,000 to 30,000 tonnes -- to 30,000 tonnes to 40,000 tonnes. If the demand happens as well, we'll be able to meet that demand. I'm not expecting that kind of demand. So let's not just let someone get a wrong impression.

Right, right, right So that will be from debottlenecking and then some rolling outside as well, right?

And sometimes we buy billets from outside. So we'll able to do all those things sometimes to meet servicing requirements and so on.

Okay. Okay. And sir, in last couple of calls, you've mentioned that there could be some update on the greenfield CapEx. You're expecting Aichi representatives to come to India. And so would you like to highlight anything on this or...

No. Things are still being discussed. So I'm afraid nothing is going to be announced very soon. The good part of Japanese is, they are very thorough in the work that they do. Whatever once it is decided, everything is decided together will come up as a absolutely world-class plant.

Okay. And sir, just one last one...

[indiscernible] update as of now. But the fact is everyone in Aichi understands that we will have a capacity problem in '24, '25.

Sure. Sure. Point taken. And sir, just last one, you mentioned that scarp prices were very volatile in Q1 FY '23. So have they stabilized now? And with this increase and then subsequent decrease in prices, do you think that any fluctuation has been taken care of?

You see, I am not a soothsayer. I cannot forecast where commodity will move. The best of world's experts fail in predicting commodity movements, so I have not even tried to venture in that area. But just for the information of everybody out here, since we do not have very high stocks of raw material, normally, we don't. So we take raw material based on the market prices of that particular point. Once in a while, when we see a massive arbitrage as saw last year, then we stocked up heavily on local raw material. But those kind of opportunities will come once in a while when it's a clear arbitrage from trends that you see. And we did that, we took advantage of that. Similarly, for graphite electrodes, we saw at the level of graphite electrode prices that were available, we stocked up for 1 year on graphite electrodes. So that was a big call I took, a big increase in our inventory, but also gave us benefit as a company in terms of lower graphite electrodes prices than the market prices. So once in a while, you will take that kind of call, but that is not the way we do business. And if clear arbitrage is visible, only then we do it because we do not want to speculate on prices of raw material.

[Operator Instructions]. The next question is from the line of [ Devang Shah ], retail investor.

It's a first time I'm also tracking the company, so that would be -- is it possible to speak in Hindi? That would be okay for you?

[Foreign Language].

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Second query [Foreign Language].

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[Foreign Language] then do you take 3 months or 6 months, they take the call for the price hike. So recent correction [Foreign Language] cannot benefit a lot from that, either on inventory [Foreign Language], you got the sales and on the figures. So I just want to know like how much inventory company [Foreign Language].

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But Sir, that too would also take 3 to 6 months?

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Okay. So that was...

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Okay, but that is going to come after 2025?

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[Foreign Language] So that's what you are selling to [indiscernible].

[Foreign Language]

So from next year. So that would be how much the proportionate ratio of the sales?

[Foreign Language] We will not be sharing yearly [Foreign Language]

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No, no, sir, I am just keen to...

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

Congrats for the great numbers again. Sir, my question is as you said, the OEMs give increase on industry-wide level. So there are 3 -- as you said, there are 3 competitors, mainly. But for example, Sunflag [indiscernible] their process is different. They are not using electrographite, so are they in a better position or we are in a better position in this scenario?

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[Foreign Language] So as this environment consciousness improves you will see that Vardhman Special Steel will be the biggest beneficiary of environment consciousness. Because we use a recycle process, electric arc furnace, our impact on the environment is the lowest.

The next question is from the line of [ Roshan ] from Ares Capital Service.

I'm just trying to understand your vision as I was going through your presentation like the standard car is transitioning from gasoline to hybrid to EV, and we are transitioning towards more speciality products for EV. So from a [ 3 to 5 perspective ], how does the pricing power with the OEMs change? And also in the terms of volumes, as you said, [ modular ] export will come into the picture. So we'll have more of steady business going forward. So if you can explain here, sir?

So first of all, this is your assumption that it's a logical change to EVs. That is your assumption.

It's there in the presentation that the industry will shift, on one of the slides here [indiscernible].

People are saying you put in a presumption but this is an assumption and this assumption could actually may not play out in the next 10 years. May not. We don't know. Okay. So we are preparing ourself for both the worlds. We are preparing ourself for the world in which EV is going to be the dominant player. We don't feel that -- we don't believe that, that is the scenario. But if that is a earlier, we have to be ready for that. So we are preparing for EV and currently above 6% of our business last year was sales to EV. And going ahead, we will be increasing our percentage towards EV because we are ready with those products. Second, the negotiation power -- please understand we're talking to global OEs. As a small steel company, there is no negotiating power that we have with these companies. So even to think that you can have a negotiating power with the global OEs is a misconception. So we don't venture into that area. If we had a negotiating power, would we say it'll be $7000 to $10,000 EBITDA per tonne, you will say it'll be INR 20,000 EBITDA per tonne. Okay? And our belief is that gasoline engine will stay for a longer time than most people think. We also believe that hybrid cars is the way forward for the environment. And actually, more and more studies are coming out that EVs -- actually, the carbon footprint of an EV over the lifetime of the car is higher than that of even a diesel engine. Yes. So shocking thing, but I just came across a study. And I'm not -- this is not my view. This is a study which has come up in a reputed journal. So I'm just sharing that, that there are enough counterviews coming in now, more and more counterviews coming in that EVs is not the way for the future from the environment point of view. It's a better car to drive if somebody wants to use it. If somebody gives it a test drive, it's an excellent car and so on. But when the subsidies get withdrawn from this industry [indiscernible] highly subsidized. And where is the electricity grid? Where is the power? So all those are questions that are coming. Anyway, this is not my area of expertise, but I'm just saying that EVs may or may not be the future for the next 10 years. Gone 10 years, who knows. And I'm not saying they will not [indiscernible]. But questions have started coming up that it may not be as attractive as people are thinking it to be. That's all I'm saying.

In terms of sourcing, initially we'll be targeting all the Japanese OEs. So most of the capacity would be towards fulfilling their demand only, right, going forward? We'll not become an export hub going forward?

So let me say that we are not particularly oriented towards Japanese. But if you look at the Indian market, it is dominated by Japanese companies. So it is Maruti, Toyota, Honda, Nissan, four Japanese OEs. If you look at motorcycles also, Hero is originally from the Japanese -- from the Hero-Honda technology. It is a Honda technology-based material. So is Honda, so is Yamaha, so is TVS. So it is just that India is a market dominate by Japanese. There are of course, Hyundai, there is Tata. And in Southeast Asia also largely, it is Japanese oriented. So keeping these two scenarios mind, I think that is why we search for a Japanese partner. We were lucky we got Aichi as our partners. And so we have catered to the Japanese but that is what the market is. If the market was, let's say, if Indian market was dominated by Volkswagen and Peugeot and Renault. And if that was the domination, we would have probably looked for a German partner.

And sir, you just mentioned that Mukand is a competitor now. Now they have some tie-up with Sumitomo.

So they were always a competitor. It's not now they're a competitor. Mukand #1 in this industry, okay? So basically, they set the industry benchmark. So they haven't become a competitor now. There were always the competitor and they are the market leaders.

So post this tie-up with Sumitomo, they've become even more better now? Because they have tie-up with Sumitomo.

Not necessarily. Not necessarily because Sumitomo is not a steel company. Sumitomo is a gearing company. If my view you want out here, amongst all the specific companies, our alliance with Aichi is the strongest alliance because Aichi is acknowledged in Japan as the best automotive steelmaker. Their tie-up is as a steelmaker with the -- they're the automotive steelmaker, and which is acknowledged as the best automotive steel manufacturer in Japan and probably the world. So going forward, I don't think any other company will be able to stand up to us when the full advantage of Aichi technology comes to us.

[Operator Instructions] The next question is from the line of [ Uday Prakash from Value Research India Private Limited. ]

So in the last quarter, management have stated that in May, sample audits for Aichi were commenced. So have we received any response on the -- maybe on quality or something? And are we still proceeding towards plan of commencing production in FY'24?

Yes. So Uday, the process of trial orders continues and regular production has also started. So because there are so many parts for which the steel is growing at so many speeds that are getting approved. So every quarter, we are receiving approval of one or the other steel quality. And then prior orders for that is going on. And for the ones where the prior order have gone earlier, the manufacturing orders started coming in, production orders started. So the process is in full flow.

Okay. My second question is, you have stated that many other OEMs other than Toyota are also inquiring. Are we having any further discussions with any of them with the potential to convert them into sales or are they just in the inquiring?

No, these are in the serious discussions. So Yamaha, very clearly is coming in. There are a few others that are, I think -- because Yamaha is an existing customer, but thanks to Aichi support being there now we're looking at our [ co-global ] operations. There are a few other OEs which are being discussed. And thankfully, Aichi is using their offices for each of these OEs also, which is in addition to their business. We are getting the support of Aichi fully in all -- because all the Japanese OEs are contacting them straight.

[indiscernible] you had stated price increase from OEMs you have received at INR 9,000. And then you stated that there was a price reduction also for INR 4,410 in Q2. So what is the effect for -- can you please make it play out -- when will the INR 4,000 reduction will have an effect on our revenue, on our EBITDA?

Yes. So let's say, only one OE has not yet given the price increase of Q1, which is Tata Motors, okay? So there is one OE that has not given increase. Of course, in our portfolio, it's a very small amount, so it really doesn't matter too much. But yes -- so all other OEs have settled Q1. In Q2, the costs have gone down and the market sentiment of steel has gone down for both reasons, the steel -- the auto OEs have reduced prices. So from 1st of July, that is Q2, all invoicing will be at a lower price. So we only have agreed on a INR 4,000 reduction. So a INR 9,000 increase -- if you look at March prices, Q1 is a INR 9,000 increase for most of the OEs. And Q2 is a INR 4,000 reduction from that, which means still a INR 5,000 increase from March pricing. This is for most of the OEs. But one of the OEs has not yet agreed on Q2, though has agreed on Q1. And Tata has not even increased -- agreed on Q1, there's a question of agreeing on Q2. So there is some things still pending, but most of the OEs are settling for Q2 also. So we have a reasonable handle, not a complete handle, but a reasonable handle at least on the profitability of Q2. Now since Tata has not given any price increase in Q1 -- sorry it's not even settled so far. So we have not taken impact of any increase which was given by Tata. If they did an increase in Q1, those that will be added to Q2 numbers.

So how long will it take actually for us to reflect this reduction or increase? Will it take a month? Just wanted your reply.

No, no. The -- it is put into effect within a couple of days because once the OE increases, then the next process is, then they get internal approvals and then the paperwork gets done, then they send it to us, then they send it to their Tier 1. So the whole process takes about 15 days or so, roughly.

So roughly, 15 days. Right now the prices are fluctuating highly. So if the prices increase once again, next quarter, let's say in Q3, is it possible for us to have an increment? Once again will the OEMs accept it or because they've done with the Q1, would it be difficult?

No, their workup says if the cost increase in Q2 and raw material cost increases in Q2 and the market situation indicates towards that, we will justifiably ask for a price increase in Q3. As of now we said only Q2. So till 30th September are [indiscernible] for most of the OEs. Q3 is wide open.

[Operator Instructions] The next question is from the line of Rohan Mehta, individual investor.

Congratulations on a great quarter. Most of my questions are already answered and I just had a couple of more. So with the expansion plans that we have over the next few years, would the CapEx be funded mainly from the funds that we have received from Aichi and internal accruals? Or is there any chance of any equity dilutions as well or any other scheme?

So if I look at the capacity expansion has two parts. One is the capacity expansion in the existing location. So this is what is going to happen in the next 2 to 3 years. So that it can be funded totally by internal accruals and a little bit of incremental debt. So we don't need a dilution from the company's point of view. The moment we put up a new plant, the greenfield plant, which will cost anywhere between INR 1,500 crores to INR 2,000 crores, we will need a liquidity dilution. So this is as far as need is concerned from purely financing angle. There is another need which comes in, in terms of demonstrating to the Japanese OEs, the seriousness of Aichi and the importance of Vardhman Special Steels and Aichi and the Toyota System. So it would mean at some stage, though the company may not financially need any further money, there could be a possibility of Aichi increasing their stake from the current levels. So that possibility is clearly there. In fact, we have -- when we signed the agreement, there is an agreement with them that at some stage, they will increase our stake from the current -- 11% is too small a stake. As Aichi becomes extremely important in Toyota's global system, they will in all probability, they will want to increase their stake from the current levels.

You had mentioned this in one of the earlier calls as well.

Exactly. So I'm saying, yes, the company doesn't need any money. But for strategic reasons, there could be a possibility of dilution at some stage.

This would be looking closer to the latter half of the decade, right, sir?

There are two parts, again. One is need. The need will be in the second -- as you rightly said, the latter half of the decade when we put up the new greenfield. Then there will be need. But the strategic part can happen anytime. It could happen next year, it could happen 2 years from now, 3 years, I don't know. It is when Aichi feels the right time because when we -- see just now the business for Toyota has just started. When it picks up a little bit of momentum at some stage, they may want to increase their stake. And we'll facilitate that. So as a company and management, we have already agreed. As Vardhman Group we have agreed that at some stage they want to do their stake, we would welcome them to increase the stake in the company. But the probability that Vardhman will sell shares to them is very low. And therefore, any increase in stake that they put in will be through further dilution, fresh equity. So then the company becomes even stronger with more fund infusion rather than the probability that promoting companies will be filling their stake.

Fair enough. That is good to hear. And about the immediate expansion at the current facilities that you mentioned, so what kind of incremental capacity would be at our disposal over the next couple 2, 3 years?

Currently, our capacity is 2 lakh tonnes of billet making and 180,000 tonnes of rolled product. By the time we complete the current phase of expansion in the existing locations, our capacity on the existing product mix will go up to above 250,000 to 260,000 tonnes of billet making and about 225,000 to 230,000 tonnes of rolled production. But -- now some of the products from Aichi that will come in will perhaps lead us little lower productivity. So then the capacity will be dependent on the product mix that comes in and may fluctuate, may come down a bit. But in all probability, the capacity with the enhanced product mix will be 240,000 tonnes or above in billet making.

Got it, sir. Just one last question, sir. Speaking of Aichi, now that you've mentioned in the presentation that the trial orders have also -- supply of trial orders has begun. So if you could just shed some light on how that's going and test any feedback from Aichi?

See, trial orders have been approved, which is why the production orders have begun. So -- but there are several parts because we are to be the dominant supplier of one of the major auto platforms of Toyota in 2025. So one by one, various parts are being added to [ our city ]. So as each part the approval comes in and it's a tedious process to get approvals of each part. So parts by parts approval, it's not that Vardhman Steel is approved and we can produce anything. So Vardhman Steel has to be approved then the steel has to be approved and then for each part, the steel has to be approved. So all that process is going on and saying the final approvals have started coming in and so the manufacturing orders has begun. Now in the next few months, we will know how is the impact of the manufacturer products that are going in. But Aichi's all people are here, their all quality people are here. So they are making sure that the product is as per Toyota's specifications.

As there are no further questions, I will now hand the conference over to Mr. Sachit Jain for closing comments.

Ladies and gentlemen, thank you so much for showing your interest in our company. We remain committed to our vision of being the #1 company in India in specialized steel. And when I say #1, it means in quality, in safety and in customer appreciation. We will never be #1 in terms of size. There will be much companies than us in this area. The other area we want to be in is to be a world-class company that anywhere in the world when people talk about the leading special steel companies that are equivalent to the best in the world, we want to be up there in that name. So that is what drives our company. And thanks to our partners, Aichi, we are -- started off in a good footing. I wanted to share this also, the first 3 years' term with Aichi will be coming to an end by September. And we are in the process of negotiating the fees and other terms, et cetera, for the next few years. So those will be primarily in the next couple of months. From 1st of October, we'll be working the contract for the next 3 years. So overall, this year will remain a bit choppy and uncertain still. But on an overall basis, I remain optimistic about the business, primarily because of our partners and the support and the clear runway that we're getting, thanks to them. Our team has worked well and our bankers have supported us well. So our EBITDA to capital employed and all of those things, we remain our eye is on the ball on all growth parameters that you as investors are also looking at. So thank you so much once again for showing your support in our company.

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