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

Ladies and gentlemen, good day, and welcome to Vardhman Special Steel Limited Q1 FY '25 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Deepika Murarka. Thank you, and over to you, ma'am.

Thank you. Good afternoon, everyone. On behalf of Choice Equity Broking, welcome to the Q1 FY '25 Post-Earnings Conference Call of Vardhman Special Steels Limited. I also take this opportunity to welcome the senior management team. On today's call, we have with us Mr. R.K. Rewari, Executive Director; Mr. Sanjeev Singla, CFO; and Ms. Soumya Jain, Executive Director. This conference call may contain certain forward-looking statements based on the belief, opinions and expectations as on the date of this call. These statements are not guarantees of future performance and involve certain risks and uncertainties that are difficult to predict. I now invite Mr. R.K. Rewari for the opening remarks to be followed by a question-and-answer session. Over to you, sir.

Thank you. Good afternoon, everyone, and thank you for joining us on our earnings call for the first quarter ended 30th June 2024. On the call with me is Ms. Soumya Jain, who is our Executive Director; Mr. Sanjeev Singla, our CFO; Ms. Sonam Dhingra who is our Company Secretary and Compliance Officer; and Adfactors PR of Investor Relations team. I once again welcome all of you. As you are aware that our Board meeting, which concluded yesterday, we are pleased to inform you that overall numbers are looking good. So in quarter 1 FY '25 , the volume sold stand at 50,000 plus that is 60,298 metric tonnes. Quarter 1 revenue is INR 410.78 crores, which is a nominal increase Y-o-Y at 1.80%. EBITDA is a good number. It is INR 48 crores, and it has increased by 31.71%. And PAT is -- accordingly PAT is also higher at INR 26.08 crores. Both these are double-digit increase during vis-a-vis our corresponding quarter. So first of all, let me start sharing that overall, our operations were stable. As I said, the sales volume has crossed 50,000 tonnes this quarter, and we are in the vicinity of achieving our annual -- not in the vicinity, which is likelihood that we will achieve our annual target of 2,10,000 tonnes of steel. So I have said the revenue has also increased. On the marketing front, the quarter was, I must say calm. It was little, I will say, subdued because some of the shutdowns were there or after shutdowns, the OEM started picking up the production and some of the sales, which we will book in this quarter also because of the not booked in the quarter 1. On the marketing front, things are looking good. We had a conference, our team attended with Maruti, which has -- they have shared that maybe in the things to come, the EV penetration, which was anyway say that 30% or 25%, will be about 15%. So that looks good for IC engine. That means the demand will remain the same. So that is, I mean, say, a little good news for all of us. Overall, there is not a major impact of the budget on our business. However, it looks that one of the raw material item on which the import duty has been slashed, will give a little bit of benefit. And the benefit -- tax benefits for society -- middle-class segment may spur the consumption and increase the sales of 4 wheels or bikes. On the operational front, first of all, I feel sorry that Mr. Jain could not attend this meeting because he is traveling to Bangkok. He has been saying that we will be increasing our billet capacity. So in quarter 4 and in quarter 1, we tested our capability to achieve the target of 2,60,000 metric tonnes per month that has been tested, and we have been able to achieve these targets. We are -- as you all are aware, we are undergoing some revamping and expansion programs in our company. So those are like capacity expansion by putting a KOCKS block and new heating furnace is going on as per plan. And things at this moment look quite under control. To undertake this, we have planned 2 major shutdowns for 7 days in the month of July and later for 2 weeks to 2.5 weeks in the last quarter or first quarter of -- last quarter or third quarter of this year. So in order to cater to our customers during this shutdown, we have built up the adequate inventory, which will not -- which will help us in meeting the requirements of our company. At this moment, our WIP and the closing stocks might look a little higher, but these will be taken care of in the due course of time. Raw material prices -- in quarter 1, raw material prices was up by 8% to 10%. Its impact on profitability was neutralized by the compensate increase in inventory valuations. However, in July '24, again, the prices have come down and came closer to what these were in the beginning of quarter 1. So if the prices remain at this level, the inventory valuation loss is a possibility in quarter 2. Price decrease from OEMs in this quarter, still discussions are going on by our marketing teams with the OEM teams. And still, there is no final decision on this. Our green steel initiative, which we have discussed with you a number of times are in line with our plans. So now I will request Mr. Singla to share few exact numbers with you if he has...

Thank you, sir. I think Rewari sir has comprehensively covered everything. The only thing is that, in the financials, you will see, as Rewari sir has said, that the inventory levels are going up. Inventory has really increased in this quarter by INR 62 crores. But yes, after the shutdowns, which is a 7-day shutdown in the month of July and another shutdown for 3 weeks, which we are planning maybe in quarter 3 or in quarter 4, this increased finished good inventory will be eaten up. And by the end of the financial year, we will be close to our normal levels. And as of now, our debt-equity ratios are well within the range. It is close to 0.12%. And going forward also with the expansions, we are expecting to be in the same range because of savings or reduction in the working capital. So that's all on financials. Now I request for the question-and-answers...

[Operator Instructions] The first question is from the line of Anil Kumar, an individual investor.

Thanks for the great numbers. Sir, I Just want to know greenfield project, you have mentioned something like that. Can you share that? And what is their realization level in this quarter?

Realization level for the current quarter is INR 2,000 per tonne.

Coming quarter, I'm asking.

Yes, for this quarter.

Yes, sir.

Yes. So on greenfield, as it has been discussed in the previous con-calls, so we are continuously working on decreasing our CO2 emissions. And in that direction, we have already signed a power purchase agreement for setting up a 55-megawatt power plant. Hopefully, it will be in place by March, right? So currently, as of today, we are having 0.73 CO2 emissions per tonne of steel. Against this, after setting up of the solar plant, our CO2 emissions will come below 0.45.

All right. Sir, okay. You're talking about green energy. Actually, I was thinking a greenfield project [indiscernible]

Greenfield plant.

Greenfield plant.

Greenfield plant is still under discussion. No final decision has been taken.

[indiscernible].

[Operator Instructions] The next question is from the line of Ritwik Sheth from One Up Financial.

Sir, just one question. Sir, can you quantify what is the benefit of using pipe gas versus earlier fuel? And what would be it going forward?

Yes, it is quantifiable because earlier we were buying gas from [indiscernible] and now we are buying only gas. There is a substantial difference between the price of that. Mr. Singla, how much is this in terms of...

It is currently lower by about by about 40%, 45%.

40%, 45%.

Yes, in terms of pricing.

Okay, in terms of pricing. So where does this sit because if we look at our power and fuel cost, it is flat quarter-on-quarter. So like where do we expect this number to flow in?

Our end fuel, if you will be comparing from quarter 1 of the corresponding year to this year, it is slightly lower also and primarily it is because of fuel cost, which has come down in spite of the increase in tariff in power from 15th of June in the current quarter. And also the highest ever billet production, which we have achieved in this quarter, whereas in the corresponding quarter of last year, the billet production was lesser this quarter.

Sure. Got it. Got it. Okay. So this power and fuel cost of INR 44 crores, which is there in the quarter, that is a sustainable run rate?

Yes. At this level of production, this is sustainable. But the only difference will be the increase in tariff by 3% of power, which has -- which is effective from 15th of June...

And it will keep on happening every year because this is a kind of advance from the power suppliers that we will keep -- we will increasing the price by 3% every year power cost.

Got it. Got it. Okay. And sir, in the opening remarks, you mentioned about the pricing discussion is currently going on with the OEM. So what kind of decrease are we looking at whenever it happens, like can you throw some light on that, please?

Yes, sure. It is a very difficult question to answer because as -- if you look at the cost of 1 quarter, the costs were up but if we start looking at the current quarter cost and it is down by 8% to 10%. So OEM being on the other side, they will always choose to benchmark with over the lower costs are available in the market. So to give you or share an expectation number will not be appropriate for us to say, but we are trying. We are trying together with all the OEMs to reach an amicable mutually acceptable level.

[Operator Instructions] The next question is from the line of Harshal Patel, an individual investor.

I just have a few questions. The first question is, can you share the update on the IC steel-related work going on?

IC steel? Okay. So I think the activities with the IC steel are going on well. So there are 2, 3 parts of their cooperation with us. What is on the -- one is on the technical front. As everyone is aware that 3 of their representatives are stationed in our -- at our works. So that is going on. And accordingly, our teams are working with them very closely and taking their guidance on existing activities and future activities. So this is going on very well. And I think if I have to say in one sentence, the relations and the activities are very positive and are happening in a very progressive environment.

Okay. Okay. Please provide some color on ESG initiatives and towards the greenfield.

Can you say it again?

Can you please provide some color on our ESG initiatives and towards the greenfield?

ESG initiatives.

Okay. ESG initiative, as our Vice Chairman has also explained a number of times that we have kept our initial benchmarking with the existing steelmaking mills where we stand out because at this moment, our carbon footprint comes in the vicinity of 0.70 tonnes of carbon emission per tonne of steel manufactured. Now most of these carbon footprints are because of the power we use, which is the coal-based power. So one of the -- you can say, one of the idea, which was a good idea, was to move to move to the solar. So we have already, as said earlier, initiated and coordinated with the third party to provide us 55 tonnes of -- 55-megawatt of green power or solar power to us. So that work is already in progress. And I think by the end of February, March '25, we shall be able to get the benefit of that. So this is the major thing which we are currently undertaking. Besides this, we are also evaluating and seeking some external help to see that what else can be done as a manufacturer to further use it.

Okay. The other question is -- so how does the export market look like? Have you got inroads in Southern Asia markets...

Yes, first of all, I must reclarify that in automobile industry, the approval process is quite long. It takes more than a couple of years to get into the new product and to the new customers. Still, we are undertaking this for last 2 years. So the new approvals will start happening. As far as export is concerned, the one destination we have earlier chosen and still is in our mind is the Thailand market. Thailand market at this moment is subdued because there is low demand in that area. We hope that this demand will also pick up. However, our volumes with -- which go to Thailand, Indonesia and Philippines for Aichi, forging is continuing at the same pace. While we were looking at this area as a potential growth area, our senior team and along with the IT team has also visited Europe and met many major European OEs where we find that there can be a big potential for us because the entire Europe is looking for carbon footprint, green...

Hello? Just a second, sir. Okay.

Hello?

Yes, you are audible.

Yes. So that's all about the export market. If you want to know the numbers, our exports are in the vicinity of around 10% of the total sales -- yes sir including...

Including the indirect export of Aichi, yes.

Can you share some light on the overall industry growth as per like what you see the industry growth in FY '25 as well as growth of our company and the data value for the FY '25 whole year? What do you see in the future coming?

We see the industry growth with a lot of optimism because all of you are aware that Maruti, which is the largest manufacturer of automobile, has already announced the expansion. So Maruti will be growing very big and maybe they will be doubling if I go by this thing by 2030 or so. So they will double their capacity. So similarly, the Hyundai, et cetera, many new car manufacturers from China are also coming. So overall, the situation at this moment is looking quite good. However, in steel as far as we have said, the prices, we think prices will almost remain in the vicinity of the current prices. However, they are quite -- they are influenced by the raw material price. We hope that the availability of raw materials can come under some pressure in the times to come. But to mitigate that pressure, Government of India has already end of life kind of things are already replaced. So we feel that a lot of -- those kind of will also be available. As far as EBITDA margin is concerned, our Vice Chairman has already informed that EBITDA margin maybe next year onwards will be in the range of INR 8,000 to INR 11,000 per tonne. Hope I have been able to answer your question.

So overall outlook for the FY '25, what percentage of the growth as per the revenue what we can expect? And -- as well as other EBITDA margin, just an overall percentage.

You're asking for the growth of gross revenue or...

As per the revenue and the EBITDA growth for the whole year FY '25, what we can expect?

As of now, we have targeted a volume of 210,000 tonnes as against 195,000 tonnes achieved in the last year. So EBITDA exactly, it will be difficult. But every time we are saying that we will try to be in the range of INR 7,000 to INR 10,000 a tonne because it is, again, a result of various factors depending upon the raw material prices as Rewari sir has explained. It is always moving up. And last quarter, it has increased by 8% to 10%. And this quarter, again, it has come down by 8% to 10%. And prices with the OEMs are still under negotiation. So -- but in all, we can confirm still that for the full year, we will be well within the range of our -- this stated range of INR 7,000 to INR 10,000 per tonne.

The next question is from the line of Radha from B&K Securities.

Sir, you mentioned that you wanted to achieve 2.1 lakh tonnes in volume. This is despite the 1 month total shutdown that you have announced. So is there any capacities that you're planning for job work or how is it as compared to last year?

Yes, we have a two-pronged strategy for this. One is that we have jacked up our production now. So we are preparing for some stock, which will be used at time. Second part of the strategy is that we are also getting outsourced. We are getting it rolled from outside. We're doing about 2,000, but now we have started getting done in the range of around 4,000 tonnes per month. So we will try that the stock full length to 1 month shutdown should be available with us during the shutdown period and customer needs are fulfilled, but still if there is any unplanned requirement or not so regular kind of product, there could be a little bit of loss of sales, but we'll try to make up by the end of the year.

Understood. and secondly, out of the 2.1 lakh tonnes, could we assume that around 25,000 to 30,000 tonnes would be job work and that the margins would be slightly lower compared to what it would have been?

Yes, it will be even more than this figure, yes.

The next question is from the line of Miraj from Arihant Capital.

My question is more regarding understanding some business aspects. So from the presentation, I can see that we have a billet capacity of 2,60,000 tonnes, rolling bars of roughly 2 lakh tonnes and bright bars of 48,000 tonnes. So what I have heard over the call, you've mentioned guidance for only the billet part. So are these rolling bars and bright bars are forward integrated products that you use the billets in that? Or how is this? If you can just explain that first part.

Yes. The billet capacity will be -- if billet capacity is 2,60,000 tonnes, then about 2,30,000 tonnes of rolled product can be rolled from this quantity. So out of this, currently, we are rolling around 1,90,000 or so. So part of the billet will be used for outside rolling. And at that time, we also would have completed our KOCKS and RHF new reheating furnace project. If we take -- we calculate, mathematically, the increase in the capacity that will be about 18,000 tonnes per annum with KOCKS block. So that will also give us the scope for expanding our production.

Just to add this, I think, first, we are manufacturing our billet and that billet is then used in the rolling mill for roll -- making a roll product. And then out of the total rolled product, about 25% goes for the peeling. So our finished product is rolled 70% as it is after the rolling mill and about 25% after rolling, it is peeled in the peeled shop, then it is -- so as Rewari sir has said that from billet to saleable product, it is about 10% wastage. So whatever billet we are producing so 90% saleable production comes after the wastages.

Okay. So from billet 90% is used -- 90% is out in rolling mills and 25% is the remainder you said. Okay. And if I heard it correct...

No, yield is 90%. From billet to rolled product, yield is 90%. So you can say if we will be using 100 tonnes, rolled products coming out will be 90 tonnes. And what Mr. Singla has said that in this total black bar, some portion of this used for peeling, that is known as bright bar production.

Okay. Understood, understood. Secondly, so your current guidance would stand the same only, right, 2,10,000 tonnes and the billets part and that is how we will calculate for the rolled part if you want to assume what will happen in the old volumes?

2,10,000 tonne is our sales target.

Right. Understood. Okay. And sir, billets that you make only grating from molten steel only? Or do you -- is there anything else that you source in raw material?

No, no, it is only coming from our operations, steel-melting shop. We have an electric arc furnace. And we use scrap as a raw material, and this billet will come out of that.

Okay. And the end use is 100% in auto industry only? Or is there any other industry also that you are supplying to?

Majority is in the automobile industry, 95%.

Auto only. Okay. And in this, sir, you only manufacture round billets or any other shape of billets also because some -- correct me in understanding better.

Our typical product is rolled bars and these are round rolled bars.

Understood. Okay. And just last question. So any EBITDA guidance that you give right now? Is it INR 7,000 to INR 10,000 per tonne or INR 8,000 to INR 11,000 per tonne because I heard that figure also earlier?

This year, INR 7,000 to INR 10,000. Next year, maybe INR 8,000 to INR 11,000.

Okay. Perfect.

After this CapEx in place, our EBITDA range will increase to INR 8,000 to INR 11,000 tonnes.

The next question is from the line of Hitesh from ULJK Securities.

I have a few questions. What kind of prices do you expect in coming quarters regarding sales volume?

Price will be the end result of the negotiations, which are going on with the OEMs. But our past experience is that it should be almost in the current range, a couple of thousand maybe down or a little bit up. So it will remain on that. And there are many grades which we make. So the price you see is sum total of our product mix. And sometimes depending on the product mix, it will vary and change also.

Okay. Sir -- and one more question. What was the production for bars in this quarter?

In this quarter, it was -- in-house and outside, both put together, we have been able to roll more than 55,000 tonnes -- 55,000 to 57,000 tonnes. And our sales in this quarter is 50,000 tonnes. So rest of the quantity is going for building up of inventory.

Okay. Can you please give me for last few quarters number?

So we can connect separately for those figures because as of now, we are not having those readily available.

The next question is from the line of Akshat Mehta from Ladderup Wealth Management.

Am I audible? Am I audible, sir? Sir, a couple -- one clarification that I had is that in this quarter, the prices have gone up or the prices have come down for the first [indiscernible] because I heard Mr. Rewari say that prices has gone up by 8% to 10%, whereas you've gotten a benefit of lower raw material prices in this quarter. Just a clarification on that, first.

Yes, raw material prices had gone up in that quarter. But those raw material prices in the same quarter does not impact the price because price is quarter-to-quarter same...

So next quarter, maybe you'll realize the effects of higher prices along with some inventory losses because the price has gone down after July now?

Yes, yes.

Secondly...

We are asking for the price increase, but OEMs are again asking for the -- so let us see after negotiation what will happen.

Okay. Secondly, sir, any light on how graphite electrode size is also moving up because that is your second most large raw material for you.

I think they are stable, they're stable. There's no increase in the price...

From last 1 year, almost the same...

Yes. At least I remember correctly, the last 2 quarters, the price has been the same rate, yes.

Mr. Akshat, does that answer your question?

Yes, yes.

The next question is from the line of [ Bhuvan ] from Tiger Assets.

Hello?

Yes, sir.

I would like to know how do you source your material? Is it imported or domestically sourced? And I would like to know your insights on discretion of antidumping duty in steel?

What is your second part of question?

[indiscernible] Finance Ministry [indiscernible] duty in steel. So any insights on that is imposed, how does your raw material expense spike up...

As far as we are concerned, the 80% of our scrap is recycled. So that means our raw material is recyclable scrap, which -- out of which large part is from domestic market. And sometimes based on prices, we import shredded, but that is based on availability as well as the price factor. So to answer your question, most of this is sourced domestically. And maybe 5%, 10% sometimes we import. As far as antidumping is concerned, I don't think this has any impact on our absolute linkage with our kind of stuff...

Directly, there is no linkage of any of these antidumping duties. Directly, maybe it will be impacting the demand or supply gap -- demand or supply of the steel. But as of now, directly, we are not impacted by these antidumping duty.

[Operator Instructions] The next question is from the line of Angad from Sameeksha Capital.

I have a general question on the supply side of the specialty steel investment. As you're aware, one of the large steel player is coming up with a large capacity green steel plant in Ludhiana, a large capacity. How do you see the raw material sourcing that will impact...

I'm sorry, Mr. Angad, could you please pick up your handset and speak?

Yes, sure. So am I audible now?

Yes, sir.

Yes. So I'll repeat the question. So I was saying that one of the large steel player is coming up with a large greenfield plant in Ludhiana. How do you see the raw material sourcing getting impacted due to the same. And a follow-up for that over long term, over the next, let's say, 3, 5, 7 years, how do you see the supply side developing for the green steel in India in terms of capacity build up? If you could answer those questions, that would be helpful, sir.

Thank you for your question. First of all, you said that green steel plant in Ludhiana. As per as my information goes, it is Tata Steel. And it is not actually totally the green steel. It is a normal TMT bar manufacturing operations, which is not going to impact the special steel. However, the availability of scrap and raw material, yes, it will be impacted because it is always a demand and supply. And if consumption is more, then definitely, it will impact. Having said so, we also feel that the -- normally, the gap between the industry scrap requirement and domestic supply is around 8 -- 10 million tonnes per annum. And this much amount of scrap is imported. In the good times earlier, it used to be 5 million tonnes, and we learnt that last year, it was 7 million to 8 million tonnes and the same speed is going on for last couple of quarters. So that scrap is coming from Europe, U.S. and other areas. However, as I mentioned earlier, the end-of-life phenomena and this Act is already in place and many operations are being set up, who will be crushing this or bundling the scrap of this scrapped vehicle. So this will also give some additional supply in the domestic area. So that will help integrate into some extent or otherwise, if still the gap is there, then the only way is importing the scrap. Because at the same time, Maruti also putting up a plant in Kharkoda in Haryana. So they also will generate a lot of scrap. The scrap is -- mostly scrap whatever we use is a 2 type. One is domestically household generated scrap and the other class of scrap is, which is the outcome of forging auto component makers. And if Maruti plant will come, that will also generate some quantity of scrap, which will also help. But yes, your point is right. From the business point of view, it is an important area where I think our company will be strategizing very in the near future to see that how do we secure some kind arrangement by which we get our required scrap consistently.

Okay, sir. And on the second question, how do you see the industry capacity -- current capacity? And how do you see that build up over the next 5 years? If you could throw some light on that, that would be helpful, sir.

Yes, sure. I can only talk in general because we do not have the exact data. But if you look at the scenario, most of the big steel plants are planning expansion. And those expansions are largely based on the lot of government expenditure on the infrastructure. So that will start the demand. This is what I can know. We don't have any specific knowledge about what the big brands are coming in the near vicinity.

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

I have a few questions. Just wanted to ask like what are the key trends and demand outlook in the special steel market? And how is the company positioned to capitalize on this trend?

Key trends of all special alloy steel is linked with the manufacturing of automobiles, whether it is 2 wheelers, 3 wheelers, 4 wheelers, commercial vehicles, so -- passenger vehicles. So we see a lot of, I mean, demand going up in this area. This gives us a good feeling that overall, it looks that once these numbers are achieved, definitely steel requirement will also go up, specifically in our automobile kind of area.

Sir, we are only planning to cater the automobile sector, is it?

Yes. Our focus is just automobile. Unless, when we go for a larger pricing plan, then accordingly, it will be reviewed that whether current product mix or current customer mix will fulfill the gap, we need to look at some other areas.

Okay. And sir, our distribution model, do we directly supply to the OEMs? Or do we have a distribution model between like -- something like that?

So we -- normally, every OEM has arrangements with the Tier 1 and Tier 2 manufacturers, forging units, auto part makers. So most of the time, it is finalized at the OEM level, but our steel will be going to Tier 1 forging units.

Okay. And sir, are you...

We are supplying our steel to the Tier 1.

Okay. Okay. And sir, as most of the steel is used in automobile sector and as EV is coming in so the engine part, right, where the steel is used is being replaced. So do you see any concerns over there?

So we earlier had some concern as EV penetration was happening. But recently, Maruti has stated that EV penetration, which in the long term was envisaged at 25%. Now they have scaled it down to the 15% because mostly the -- most preference is going to hybrid engines rather than only electrical engines. So that shows that IC engine will still be there, and it will not affect. Even if 15% goes to the electric vehicle, still the IC segment will also grow at this kind of percentage. But what it looks like there may not be a major impact on us.

Okay. And sir, do we have any geographical concentration risk like most of our products are catered to only East, West, South or North side geographical concentration.

No, geographical concentration, I think we have typical zones. North zone, which includes our Punjab, Haryana as well as the NCR India and a few other areas. And MZ2 is our Maharashtra site...

MZ2 is our NCR.

MZ2 is our NCR. MZ1 is our Punjab area. So total, I think 65% to 70% of the sales should be in both these areas, yes.

Even more than close to 75%.

So to answer your question, the concentration is North as well as West. We do have our presence in South also, but that is -- I mean, it's not a big number, maybe 15% -- 10, 15%.

The next question is from the line of [ Sapan Parekh ], an individual investor.

Just a couple of questions. So I wanted to ask how are we different from our competitors, if you look at the long run so like how are we different from them?

How are we different from our competitors? I think we belong to a well-established growth number one. Number two, we have association with Aichi, with our stakeholders now in our company, plus they are providing us technical know-how. And we have a very forward-looking Vice Chairman, Mr. Sachit Jain, who have intellectual ability to connect with various stakeholders with their time. And we have a good quality with us. Our quality is good. And our relationship with our customers are based on our good product. We have good customer service, I think we have associated with all major OEMs in the country. So I will say that firmly that we have a competitive advantage on this front. Just to add one more that we are into the electric arc furnace [indiscernible] as against our competitors who are mostly into the blast furnace. So going forward, because of the lower carbon emissions, we are having edge over our competitors. But currently, we are almost 1/4 in terms of CO2 emissions as against our competitors.

Okay. So can you name any major OEMs that we are serving?

Our major competition is Sunflag and -- no, no, sorry. I think you name any OEM, we shall be working with them. Maruti is one where we are also associated, and we are part of their growth plan. We are -- I would say we are there with most of the [indiscernible] Honda Motors also...

Hero Motors.

Here Motors, sorry. Honda also in some way or the other. So...

Okay. Okay, sir. And so last, I'd also to ask, are we doing any major R&D investment? Are you expanding your R&D or what -- anything on that side?

Yes, we are taking many steps. First is the testing capabilities of VSSL. So we are adding a lot of sophisticated equipments in our lab. We have already constructed a new block, which will house our metallurgists as well as the new equipments. The new equipments like very sophisticated microscope to understand the quality of the steel we are adding. And similarly, we are also planning to invest in nondestructive testing lines, which will assure our quality, which is an objective where to test the quality of the steel so number one. Number two -- number three, as I said, we are closely associated with Aichi. So wherever required, we are taking the help from them as far as the testing facility is concerned. The new development is always there because each of the OEMs and has -- and each of the product has a different requirement. So I think -- most of the time, we are busy in developing new products for new parts with the new customers. Of course, as I said earlier, it takes 2 to 3 years to get approval then there's resubmission, sometimes there's a multilevel testing, long-term testing. So a lot of effort is done on this front, be assured.

Okay. The last question I wanted to ask is what is the cost of green steel manufacturing unit? And where are we sourcing it from?

We have not said that we are having a green steel. We will convert our existing steelmaking to try to produce green steel by using solar power and our own as well as from the grid, if we can say.

Okay. Okay. And is there any margin improvement expected from green steel?

As of now, no. But going forward, as -- because of the sensitivity in the OEMs. So going forward, we are expecting that we will getting some advantage over. We are hopeful that as you know that this is -- which will be a little costly affair. So we hope that -- I think, better margin. If not better margin, at least better volumes are assured and you can become a preferred supplier if you're having a green steel. That is for sure. So that benefit will accrue to VSSL and then VSSL will develop relationship, which will help us to be moving better also.

The next question is from the line of Radha from B&K Securities.

Sir, I wanted to ask what is the realization difference between us versus producers who are using blast furnace route?

Realization level, as far as OEM is concerned, there will not be much of a difference because any increase or decrease in prices, which is given by the OEMs, it is for the industry as a whole.

The cost difference is there. Blast furnace will have a lesser cost than us.

Yes, sir, what is that percentage?

It is always INR 6,000 to INR 8,000 a tonne lower cost in blast furnace. But on the capital employed side, it is much, much capital intensive than...

Okay. So cost-wise -- sorry, sir.

On ROCE front, we are comparable or even better.

Okay. So if I understand correctly, cost-wise and the cost of production via electric arc is INR 6 to INR 8 per KG higher as compared to the other routes, whereas the realizations are similar for the industry. And -- but the capital employed for which one would be lower, sir?

Capital employed in case of furnace, arc furnace will be lower. Blast furnace...

And hence the ROCE is similar.

Yes. They are.

Okay, sir. Understood. And sir, secondly, I missed one point in the opening remarks. You mentioned if I remember correctly that some of the import items on which tax rate has been slashed? Sir, could you highlight what was spoken with this context?

This is -- yes, I will highlight. This is not a very major thing on [indiscernible] some of the minor additions which we make in our steelmaking, on that, some relief on custom duty has been given. So this is a very minor this thing. It is not going -- it's not a game changing type of thing so -- but we are hopeful that might be a little bit of price of -- nickel prices will come down, but that's not too relevant even -- too significant I would say, sorry.

Yes, too significant.

Okay, sir. Just one last question. You mentioned that from this quarter onwards, we see the impact of higher power tariffs. So that was 3% you mentioned, sir?

Yes.

Yes.

3% increase in tariffs every year?

Yes. 3% means, INR 7 per unit, then INR 0.21 per unit will go up.

Okay. So now the power cost is, sir, INR 8.8 per tonne. Okay, you're saying in unit terms. Okay, sir.

Yes.

Ladies and gentlemen, that was the last question for today's conference call. I would now like to hand the conference over to the management for their closing comments.

I think once again, I thank all of you whoever participated in this con-call. And I hope that we have been able to answer your queries and your questions. However, I will sum up that VSSL is doing well. Everything appears to be under control from the cost front as well as on the market front, things look good. But as I mentioned that most of the things will depend on the raw material prices, price finalization with the OEM, but we are optimistic that things will be in good shape. As we said that our Sachit Jain's endeavor is to move fast on the ESG front. Carbon footprint, I have already discussed. We are also -- he is spearheading another initiative, which is the circular economy with major OEMs. Circular economy means that we will be getting scrap from them, which will be coming to us and we'll be using that scrap to make this deal for them and steel so made will go back to them. So this way, we shall be part of the circular economy efforts of one of the big OEMs. We are -- on the trust basis, we are trying to work on that. So we also -- we are still very keenly following Sachit's initiative of making Japanese forest by the name of Miyawaki. He has a big target. But in the last year, he has already -- I think our CSR team under his guidance have been able to develop about 15 acres of forest. So I think so far, so good. All is well at this time. Thank you.

On behalf of Choice Equity Broking, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.