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

Ladies and gentlemen, good day, and welcome to Vardhman Special Steels Limited Q2 FY '25 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 Mr. Mudit Bhandari from IIFL Securities Limited. Thank you, and over to you, sir.

Thank you, Bala. Good afternoon, everyone. On behalf of IIFL Securities, I welcome you all to second quarter and first half of FY '25 post-results earnings conference Call of Vardhman Special Steels Limited. On this call I introduce Mr. Sachit Jain, Vice Chairman and Managing Director; Mr. Sanjeev Singla, Chief Financial Officer; Mr. R.K. Rewari, Executive Director, over this call. Now I hand over to management for their opening remarks, which will then be followed by a question-and-answer session. Over to you, sir.

Thank you so much. Ladies and gentlemen, a very good afternoon to all of you, and thank you for joining our call today. In addition to the names mentioned, we also have Sonam, our Company Secretary on the call. We've just closed a very interesting quarter. We've had our highest sales ever in a quarter. So that has been very interesting. We have also just finished a physical Board Meeting because Ito-San the Board member and President, the Steel Division of Aichi was here, and we've had very interesting discussions. And as I said earlier, so serious discussions on our proposed new plant have begun. We are discussing costs, layouts, specialty selection, product mix, all those discussions are going on. I think we'll be ready to make a final announcement sometime in the middle of next year, but that's the thinking as of now. And we are on track with our plans for when we will need our greenfield plant to start operating. In the interim, we've had some very good developments in the plants. Earlier, we had announced that we had tested a capacity of 265,000 tonnes, which gave us a rolled product capacity in saleable material of about 225,000 tonnes. We have now tested 285,000 tonnes of melting capacity, which means that once the rolling mill expansion is completed, we should be able to produce 250,000 tonnes of saleable material. And now our team is working, can we extend this further? Our next target will be to touch, test and then consolidate if we are successful at the 300,000, which is the limit for our license from the Environment Ministry. If we're able to reach this level of 300,000 tonnes, then we will make an attempt to get a license to increase the environment approval for more than 300,000 tonnes. But that's some distance in the future. So the point was that, at least once the market orders and all start growing, the plant is keeping ahead and we'll be able to meet the requirements of the market, and so growth for the next 3 years is now visible to us. In addition, I wanted to also share a very important development. A new Board member, Mr. Kalsi, who has been a member of the Executive Board of Maruti Suzuki, 40 years with Maruti as well as his last assignment has been Head of Marketing of Maruti. Overall, he's had a stellar career across several functions, and the entire Board is very excited to have him join the Board and get a perspective from an OE's perspective. And of course, Mr. Hemant Bharat Ram from the DCM Group has also joined us as the Board Member in last Board Meeting. So 2 new Board Members have joined us this year as 1 Board Member retired and 2 more board members are expected to retire next year. So in succession planning at the Board, we are doing that in a planned manner. Our working capital utilization, of course, has increased because of increased sales, but our debt levels remain reasonable, which gives us the ability to fund the -- all the ongoing expansion plans. The new proposed plant when it comes up, will require reasonable capital. So in the next year or 2, there would be some capital infusion in the company. So -- but as the plans get finalized and we announce the project, then those plans for fundraising, et cetera, also would come in. We've also talked to bankers, so there is sufficient funds available in case of -- all that also seems to be on track. Two other things I wanted to share with you before I turn over to Mr. Singla, our CFO. The trend towards green steel's better economy, et cetera, continues to be strong. And indications coming in from various auto OEs about -- on their sustainability themes and the interest in this topic is high. And hopefully, next year or 2, we will start seeing big signs of this in terms of translating into business results. Talks are always the forerunner of actual action happening, and we are having serious discussions with some of the OEs. I'm also happy to report that we have been successful in getting approval for replacing Japanese imported steel with our steel in one of the large automobile OEs. And for this, we will become a direct supplier to the OE. As of now, we are normally suppliers to Tier 1s and sometimes Tier 2s. But in this case, we will become a Tier 1 supplier directly to the OE. So this is something I think our team has worked very hard and our partner, Aichi, have supported us very strongly in getting this approval. So we'll be replacing direct Japanese steel, which is coming from Sanyo and Daido, slowly replacing that. We are working with another Japanese OE in India to replace steel coming from India -- from Japan. So those are the kind of efforts going on. As our quality levels have stabilized with Toyota and with support from Aichi crossing 2 years -- crossing 5 years, actually, 2 years of the second 3-year term. I think the confidence that they have in our processes also have increased. So that's all as far as my opening remarks are concerned. Mr. Singla will take you through some numbers, and then we'll have the Q&A.

Thank you. Good afternoon, everybody. For this quarter 2, we have decent sales numbers. We have achieved ever highest sales in terms of quantity, 59,000 tonnes as against 49,000 tonnes in the previous corresponding quarter, registering 20% increase. And in terms of rupees also, it's a 20% increase. It is INR 494 crores over INR 415 crores last year. Our EBITDA has grown by 31%. It's a combination of various factors, raw material prices, valuations and of course, the increase in sales. So EBITDA per tonne in this quarter is INR 8,200. For the H1, first half, H1, the total sales in terms of quantity is 109,000 tonnes as against 96,000 tonnes in the corresponding H1 of last year, registering an increase of 13%. In terms of rupees -- revenue is INR 909 crores as against INR 824 crores, with the increase of 10.31%. EBITDA is 96% -- sorry, INR 96 crores, registering an increase of 31%. So EBITDA per tonne for the full H1, currently it is INR 8,800, well within the stated range of INR 7,000 to INR 10,000. As a resultant, our PAT for the H1 stands at INR 51.9 crores as against INR 37 crores corresponding H1 of last year. So that's all on the financial performance for the quarter. So I request now further question and answers.

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

First of all, congrats. I think we are -- every quarter, we are having good results. I mean the bonus and the plant expansion is all tracked. A couple of questions. Number one, on the micro, others will be on the macro thing. First is the recent trend of the record items, what top line we are talking, we are making new records. Can it be continued because the reason is, if I'm not wrong, please correct me, Q3 or Q4, we have a shutdown plant as always. So that's the question number one. Question 2 is on our EBITDA or EBITDA per tonne. As per the industry standards we know it's around INR 8,000. But again, the trend, is it possible we can continue or make it higher considering the latest developments on -- specifically the latest one is the Trump policy, tariffs from the Chinese and even India, I think as we have recently heard in the last couple of months, they are trying to put tariffs on steel imports from China. So is it safe to assume that our EBITDA per tonne will be moving up for -- even one steel or even for the overall Indian steel industry?

So one, it's not that every year we have a shutdown in third -- Q3 and Q4. The shutdowns that we are having is for the expansion we are having, we are adding a new equipment called Kocks Block. For which we will be having a shutdown, which was earlier planned in third quarter, which will go into the fourth quarter. Yes, so we're having about a month shutdown. And this is why sales in the second half are definitely going to be lesser than first half. In any case, second quarter is the highest sales because the auto OEs all prepared for Diwali sales, which is the pumper sale. So for -- as a steel supplier for us, it becomes Q2. So Q2 is normally the highest sales. So -- but once this shutdown is complete, the Kocks Block is ready, then we will have another 5 days shutdown probably in quarter 2 of next year. 4, 5 days shutdown when we attach a new reheating furnace. After that, our rolling mill capacity will be complete, which means it should be able to take 300,000 tonnes of input, giving us out 275,000 tonnes of rolled products, which translates -- which will translate to eventually 268,000 to 270,000 tonnes worth of saleable material. The next question you asked is about EBITDA per tonne. Our stated range is INR 7,000 to INR 10,000 EBITDA per tonne. And we are within that range. Currently, the markets are weak, as you rightly mentioned, because of the imports from China. And therefore, there's a huge influx of imports not in our product category as much, but more in HRCs, hot-rolled coils, which puts a downward pressure on steel sentiment. And which is why there is pressure from the OEs to reduce prices. Our costs have also come down, but prices did come down in Q2 beyond what we anticipated. So that's why the Q2 margin is a bit lower than Q1 margins. Moving ahead, once we have already indicated, next year, our guidance, we should be able to up our guidance from this INR 7,000 to INR 10,000 range to INR 8,000 to INR 11,000. So there are a few reasons for that. One, our solar plant will be commissioned most likely by March, which will lead to: one, reducing our carbon footprint as well as reducing some cost of power. So that is one. Second, today to meet our rolling -- our sales we have a lot of job work outside processing charges because of a lower rolling capacity than what we have been selling and the shutdowns for this project. So after August of next year, these -- it will come down in the second quarter -- in Q1 itself from next year. But second half of next year, it will come down drastically. So those margins will also get added from that -- the profit element of that will get added to the bottom line. And there are few other savings we have in mind. So overall, we should be able to very confidently move upwards with INR 8,000 to INR 11,000 EBITDA per tonne range. I hope that answers both your questions.

The next question is from the line of Angad from Sameeksha Capital.

Congratulation on the good set of results. My first question is on the sort of billets this quarter. You sold around 2,600 metric tonnes of billets. Should we expect similar trend going forward? And can you throw some light on the realization on EBITDA from billet sales, if you can give a number on that?

Billet sales is not part of our plan. So this is very opportunistic at times when we can't take more rolling and are -- as I told you, our melting capacity went up, we tested higher capacity levels. So it's just that since we tested hire capacity, we sold it, there is almost -- there is 0 margin on this business. So this is just to make sure that we -- to test our billet making capacity. So we are ready -- that once the rolling mill is ready by August or the expansion rolling capacity is ready, and as markets pick up, hopefully, next year, the markets will be better. Then our ability to keep producing and to meet the market requirements would be higher. So this is on and off kind of a thing and 0 margin business. So this is not ours. Please don't look at this business at all.

Sure. Clarity is helpful. My second question is on the -- we are seeing kind of a slowdown in the automobile OEMs. They are reading news on increase in inventory with dealers. Can you throw some light on what -- your end, what you're seeing since you interact with them regularly?

No. So there clearly is a slowdown both in terms of domestic market, commercial vehicles are not doing well. Cars are flattish. And tractors are also slow. 2 wheelers, motorcycles are doing well. Also, exports have got affected. So some of our sales to exporters have got a bit affected. So market conditions are not too bright. But -- that's why I said we hope market conditions will be better next year.

So are we still giving the guidance of 2.1 lakh volume sales for FY '25 or any change in that front?

Yes. As of now, we expect to do about 2.1 lakh, that's our thinking. But we'll see as things go along, it may go a little lower. But, see, we are not too worried about sales just now because our products are moving in the right way. And just now we are also capacity constrained in our rolling side. So once rolling mill capacity comes up after August, then of course, volumes become an important issue into the market. A big shutdown coming, as I said. Yes -- because the shutdown of 30 days, if the sales slow down a bit, we are not worried just now.

And one last question on -- any updates on the forging plant along with the greenfield?

No, no. See, with our Japanese partners, please understand that a lot of planning -- visitations happen and decision-making takes its own time. So nothing on the annual immediate view.

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

Congratulations on [ hitting ] the annual sales for this quarter, all time high. So my first question was this Kocks Block CapEx that you mentioned, so how much CapEx are you doing in this? And what will be the benefit that you receive out of it? So apart from reducing the time for shifting the sizes, can it also bring down the wastage?

So we have 2 major investments coming up. The Kocks Block and the reheating furnace together is going to cost us about INR 160 crores. The main benefits after this CapEx are going to be the following. One, our capacity will go up. And therefore, we will be able to save all the margins on the outside rolling. So that will immediately get added to the bottom line. Second, our billet size will go up. So our realizations will go up. Our yield will go up. Third, with the Kocks Block, our inventory levels will come down and our ability to serve the customer will become better and quality will become far more precise. So some of the approvals that we have got recently, they want very precise diameter control. That is not possible without the Kocks Block. So the kind of market segment we want to enter into and consolidate our position in, they require very precise diameter control. That is not possible without this kind of a block.

So how much margins can we expect improvement maybe in terms of broad ballpark percentage?

As I've said, that our range from INR 7,000 to INR 10,000 is likely to move up to INR 8,000 to INR 11,000. So once things consolidate, we will give further guidance. And I've already said in the past, aspirationally, I want to move to INR 10,000 to INR 12,000 range.

Okay. So what should be the payback period for this investment...

In the next 3 -- it's not 10 years later, but in the next 3, 4 years, we want to reach those levels.

If there is clear investment in the Kocks Block, so what could be -- sir, just considering the investment in the Kocks Block and the benefits that you catered, so what could be the payback period from this investment?

We don't look at these things in that manner. Overall, if we are able to increase our volumes and if we are able to -- so look at it this way, from 210,000 tonnes, we were able to go to 250,000 tonnes, that's 40,000 tonnes more. And a lot of costs already taken into account. So incremental EBITDA is way higher than the existing business. So you can please do your calculation yourself. So on INR 10,000 to INR 12,000, we are targeting -- I'm not saying we are ready to announce that we are confident of that, but our target will be between -- around INR 250 crores of EBITDA.

All right. So second question is that you spoke about...

Let me reemphasize, I'm not giving a guidance and we are ready at that level, but I'm saying that's the target we will aspire for.

All right, sir. Second question is that you spoke about becoming a Tier 1 supplier to the OE from a Tier 2 supplier. So -- and also you talk about winning -- you're in talk with some other OE also. So currently, as I understand is, our direct supply to OE is zero, because we are a Tier 2 supplier. So in future, next 3 years -- next 3 years, what percentage of your sales do you expect to go to the OE? And will this also have an improvement in your margin profile?

So very few OEs have their own gear-making operations. So mostly, OEs business is all buying components and assemblies from Tier 1s. So steel companies of our kind, which is alloy steel companies for forging industry are normally always Tier 2 or Tier 3 suppliers. This is 1 of the very few cases. So as a percentage terms, it will be a very small one. But from a prestige point of view, it is very high. And yes, margins will improve with this business.

Sir, third question is that in this quarter, and you see that our receivable days have increased. So in FY '24, it was around 58 days that has gone up to 64 days. Sir, just wanted to know why the increase in this quarter in the receivable days?

The increase in this quarter is because of the overall slowdown to maintain volumes, we have gone to certain other segments which are nonstrategic customers where outstandings are higher. And that is the reason. This is a temporary thing. Once we market -- our regular markets pick up, then we'll be back to our normal levels.

Sir, in this all-time high quarterly volumes that we have done, how much of it has been outsourced?

We'll get back to you. Can you send a mail? We'll get back with the answer. That exact fit is not available out here.

Okay, sir. Sir, because our volume growth is higher than -- significantly higher compared to the auto industry growth. So...

As I said, that we had tested higher capacity. And therefore we took in orders, which are not part of our regular order profile at lower margins and those with higher outstanding also. This is not our regular product mix. So this is a temporary thing to sell what we could produce. So this is not part of our regular product mix. So which is why we have grown beyond what auto industry has grown.

So user industry mix in this quarter would have changed compared to the previous quarter. And what -- it will go back to your previous level.

I think what would have happened was -- if we hadn't done what we did, our sales would have been lower and EBITDA per tonne would have been higher and our outstanding would have been lower than what we have today. But absolute EBITDA would also have been lower.

[Operator Instructions] The next question is from the line of Mudit Bhandari from IIFL securities.

Sorry, may I -- I have the answer now. The INR 9 crore of job work has been done in this quarter. So that was answer to how much money has been paid for outside job work. Go ahead. Next question, please.

Just one first basic question on what is the difference between Tier 1 and Tier 2, Tier 3 suppliers in general with the industry regarding the product they are supplying? And what incremental product will be supplying that will -- which will be clarified as Tier 1 supply for the OEM?

So normally, Tier 1 suppliers would be gear manufacturers, crankshaft manufacturers, connecting road manufacturers, piston pin manufacturers. So basically, our customer base are the ones who would be Tier 1s or steering systems. So customers -- people like -- Sona Comstar, they would be Tier 1 or Shriram Pistons would be Tier 1 or a highway industry would be Tier 1. These companies who are forging and machining company to be Tier 1s, and steel companies are normally Tier 2s or in some cases, Tier 3s. So in this particular case, this OE has their own gear shop. So they have their own gear-making rather than getting these gears made from outside. So therefore they buy steel. So this is a unique case of OE directly buying steel. So the difference is, in this case, we are supplying steel to the OE. In other cases, the OE buys gears or correcting rods or crankshafts or piston pins and so on, those kind of products.

Got it. And previously, you mentioned that there has been a little impact because of the global commodity prices, especially because of China effect -- one of us. The reason you mentioned was it has more impact on HRC prices. So I believe we are not completely immune to the HRC prices because our process...

No, no, we're not immune. No, I never said we are immune. I said we are not directly affected by imports, but sentiments got affected because of lowest prevailing steel prices. And therefore, the OEs pressed a higher reduction than what was, in our own opinion, due. And therefore, our Q2 margins are lower than Q1 margins. But sales within our normal range.

And yes, so any number which you would like to quote for realizations for Q1 and Q2, either percentage on numbers, the...

Realization -- there was a INR 1,500 -- there was a INR 1,500 per tonne reduction in price between Q1 and Q2. So as of 1st July, prices came down to INR 1,500.

And we have not taken any price hike or decrease after Q2 in Q3.

Yes, Q3 has not yet been finalized.

And how does it work for the auto components, like whether they fix the prices as far as I know, for the half yearly basis, is it like that, or...

No, this is quarterly changes of steel prices.

Got it. And lastly, upon your EBITDA per tonne guidance, the range you mentioned or the reason you mentioned for the increase was because of solar plant commissioning. So broadly just -- whether INR 1,000 EBITDA per tonne increase, is it wholly attributable to solar plant commissioning? The number seems quite a big.

No, no. I said there are several factors, including these factors.

Okay. So probably I missed it. Can you just quote the factors?

The solar plant is one. The outsourced material that we will be rolling within the plant, the job work charges that I mentioned, INR 9 crores per quarter -- of this quarter. So those would all largely become in-house. So there will be -- the margin part of that will get retained in the company. Then our yields will go up because of bigger billet size. So those are the main benefits and some benefits of Kocks, which have to be trialed. I mean we anticipate some benefits coming because of the Kocks Block also in terms of cost savings. There will be inventory reduction because of the Kocks Block, but we believe there could be some improvement in yields because of quality improvements, but those have to be tried. We cannot commit on those figures.

The next question is from the line of Pramod Kumar from [ Growealth ].

Sir, just a couple of booking questions. What is your cost of funds, sir, if you could help us with that or your cost of borrowing?

Can you repeat that? Sorry.

Sir, what is the rate of interest that you are paying for the amount that is borrowed?

So working capital is around [ 7.5% ] and term loans are negligible. Whatever there is term loans are there are around 8%.

Right. So if you look at FY '24, we were about 10% of interest and if you look at the first half, the rate of interest is coming to around 7%, 7.5%. So like how is it that you got a reduction in [indiscernible]?

We've never bought a 10% in my last several years, I don't remember been worrying at 10%. So please check with the CFO directly if you have [Technical Difficulty] -- need any clarification. We never borrowed 10%. Yes, I am saying, we've never borrowed at 10%. If you have a clarification, please have separately off-line check with our CFO. He will be happy to clarify whatever doubt you have.

Sure, sir. I'll do that. And in terms of the aspiration of your debt to equity, what range would you be more comfortable with?

Debt to equity, currently in the new plan in this plant is, unless the expansion comes up, we'll be down to 0 in the next 3 years -- 3 to 4 years. So with the new plant, once things get firmed up and the capital structure, the new brand come up, then they will be borrowing, there will be some equity. Overall, we hope to remain below 0.5:1. And in any case, below 1:1, but our target will be below 0.5:1.

The next question is from the line of Hardik Shah from Patel Family Office.

Congratulations on the numbers. So I just wanted to ask a basic question like what percentage of your revenue is generated by your top 10 clients?

Very [ difficult ]. We are very diversified. But go ahead.

Just top end customers, I think we are disclosing in our balance sheet for the top 5 customers. But as per your question, more -- top 10 customer would be contributing around 35% to 40% of our revenue.

Okay, sir. And any expectation for that to change?

You can specifically send us an e-mail to get an exact answer. We don't target these things -- we don't target these things this way. We take all markets. We don't target a specific number or a range for the top 10 customers. This is not a metric that we monitor at management level as long as it's diversified, it's not too concentrated.

Understood, sir. And sir, secondly, what is -- I mean, on the financial front, what is the benefit that we are getting from any step towards a sustainable initiative by reducing the carbon footprint?

As I said, as of now, there is 0 benefit, either in terms of financial or in terms of business, which already we have got. But in terms of indication we are getting from customers, and indications we're getting from government and in talks with governments, both will follow. So there will be financial benefit in terms of carbon trading, mechanism coming up in the country. Element is being fixed at a limit of around 2.2 carbon footprint -- tonnes worth of carbon per tonne of steel is going to be fixed at the norm. So the figures below 2.2 will be treated as green steel -- or there will be some definition, but we will be at by then 0.45 to significantly below 2.2. So we will be beneficiary of any scheme that the government comes up with. Secondly, as terms of -- as far as OEs are concerned, whether it is the large European OE that we talked about earlier, which is looking at buying from us. They have come to us purely because of our lower carbon footprint. So what I feel is that this will lead to better business, better quality business coming from car manufacturers, which is a better business than to be the manufacturers, which is a better business than commercial vehicles, which is a better business in practice. That is the hierarchy. The best, the most stringent and therefore, overall better business is the car manufacturing. So our target is to increase our car segment from currently 38% of sales to about 50% of sales in the next few years.

Understood. That's very encouraging. And sir, one last question is that, so basically, what would be our repayment plan for the short-term borrowings that has kind of increased in the last few quarters?

There is no repayment plan.

As cash flows come, we pay and as we need money, we borrow because we have a CapEx plan. We have a INR 300-odd crore CapEx plan ongoing for the existing plants. So cash is required for it. So that is money coming in and money -- so when LCs are open for equipment, then we will have a borrowing coming in at that point in time.

Understood. So sir, one last small question. So what is the interest rate on it on the short-term borrowings?

7.5% around that.

[Operator Instructions] The next question is from the line of Adit Shah from Meteor Wealth Management.

So I just wanted to know if you can update on any current or upcoming capacity expansions on the company?

So, we've said that our plant capacity was 285,000 tonnes, which we have tested. So we are now in a position to make 285,000 tonnes of billets. As far the rolled production is concerned, the rolling mill expansion is in place. And by August, we should be ready, let's add 1 more month of stabilization. The second half of next year, our capacity will be on track, which is 300,000 tonnes of billet input, which means 270,000 tonnes of rolled products. So this is -- all this will be in place by September of next year. Then we have said that we will target to reach towards 300,000 tonnes of steelmaking, which can then be fed entirely into our rolling mill. But 285,000 tonnes, which was our capacity has been tested. And now we don't sit still. So we try for the next level of 300,000 tonnes. I'm repeating -- sorry, I'm repeating that let it not be misunderstood. We will be trying to reach 300,000 tonnes.

Trying to. That's the obvious stages. And one last question, sir, what is the company's strategy for securing raw material supplies, especially given in this volatile prices for critical inputs that iron ore and scrap?

So we don't buy any iron ore. We buy scrap. And scrap is -- we have a long-term arrangement with one of the shredded scrap producer. And other areas as the circular economy becomes more and more prominent, and as we are learning from OEs, this is what they are moving towards. We should be able to secure scrap directly from the OEs, but this is something that is being talked about, nothing increased on the ground. Further, we are talking -- looking at the possibility of having some strategic investments in some scrapping companies because scrapping companies plants are coming up across the country. So we are examining any such opportunity of doing that taking a minority stake. So we don't intend to get into that business ourselves, but a minority stake, if it comes up is something that we will very happy -- will very positively look at. For scrap, variability is not a problem.

Okay. And just one last general question, sir. How do you see the industry going forward for the next 5 years?

I think the industry will move more and more towards companies like us because our carbon footprint and green steel. And pressure from the government to use more recycled material. So as of now, I think compared to all our competitors, we are by far the best placed in terms of lower carbon footprint and the necessary approvals in place -- so having both these factors and with the Japanese collaboration and the reputation for quality and reliability that we have. So those things give us edge. So I'm focusing constantly on seeing how we can continuously increase 4-wheeler business, so the car business. That's what we are targeting.

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

Sir, my first question was, in the next 2 years we are expecting a single-digit volume growth. And this is primarily because of the capacity constraints that we have. So I was wondering that why are we doing growth CapEx in a slow manner? So in future for growth CapEx or for fast tracking the current CapEx plan, do we need to take approvals from our Japanese partners? Or do we have the independent to make such decisions by ourselves?

So first of all, we don't need approvals from any -- from our partners. But look at it this way, when you have the world's -- arguably, in my opinion, the world's best company in a business, would you not want their full involvement and full participation and full input into the whole thing. So they are fully on board and they are -- the whole process of discussing what products to make and so on. So this is one part. So they are fully on board. The second part is that this is not a business that you can expand in a modular manner. The new plant will suddenly come up with a capacity of 350,000 tonnes. So you have to be very careful and we -- so when we're seeing the trend as this approval from this OE has happened, this gives a lot of confidence. As this trend towards green steel is [ gaining steam ], as this approval from the European OE comes through, it is at the final stages, but as it comes through, as this circular economy becomes a bigger and bigger concept and as the government comes out with clear regulations of carbon trading, all these things are very positive factors which are supporting our growth, and which will enable us to take this decision. So as I said, planning is going on. So -- and I've already said that next year we should be ready to announce. You can't go faster than that. In the existing plant, we are continuously increasing our capacity by debottlenecking, by taking trials and testing. So -- just a few months back, I said we have tested a capacity of 250,000, then we said 265,000. And today, I'm announcing that we have tested 285,000. So we are gradually increasing our capacity.

Just continuing with this. So for supply to IC Group, I understand that we need IT approval. However, for supplying to non-IT customers, do we also need their approval? So I just wanted to understand are the only investment partner and customers...

No, we don't need any approvals from them. We are selling to all customers, including Hyundai, which is a Korean company, and to all Indian OEs and to other Japanese OEs in India. And I've already said that we are at the advanced stages of the European OE for supply of steel to them for a very specialized project. So all these discussions are going on. So we are fine because everybody wants at this company to grow and become stronger.

The next question is from the line of Sana Mehta, an Individual Investor.

Sir, my first question is, despite a decrease in steel prices, the cost of raw materials per tonne has gone up in comparison to the few years quarters. So could you explain on that, please?

So those factors keep changing here and there. There are also inventory valuation losses because the prices have come down. So those are -- so any specific questions, please direct to our CFO as an e-mail separately. Normally, we don't answer such questions because there the mix which changes also, it's not -- it's sort of standard mix, it is constant. So -- and various components of raw material, the prices are different. So sometimes prices may go up of raw material and other prices -- other costs may come down. So it's a very complicated and complex factor. It's not just one raw material leading to 1 particular thing.

Sir, and the other question is what is the revenue split between [ right bars ] and rolling mills?

Right bar is roughly about 20% of our total sales. And it's rough because the features keep changing depending on which particular customer orders have come through and so on. So that's the rough idea.

The next question is from the line of Aniket, an Individual Investor.

I have a few questions. So sir, I just wanted to understand, can you throw some light on the activity that we are doing on the solar panel installation?

So we have a joint venture because under the government policy of a group captive power plant, we own 26% in this power company, which is -- and the implementer is a company called Amarenco from France. They own 74% of the company. And they are implementing project, which will be about 55 megawatts. They have assured us that by March of next year, hopefully, we will get -- the plant will be commissioned and we'll be able to get solar power, which will be roughly 45% of our total power consumption.

Okay. And sir, by when will it start having a positive impact on controlling our cost?

So if it gets commissioned by March, from April we'll start getting benefits. So there is no stabilizing period in this. So it's on, off. Either you're getting your benefit, the moment it's commissioned, from next day, we'll start getting the benefit.

And what is the contribution in terms of revenue from domestic and export?

Our exports are roughly 5% to 7%. It varies. But our target is to eventually move to 20%. Currently, because of Chinese dumping, the prices are low, so not many people wanted to buy more from India. And Japanese currency is also weaker. So the cost advantage in buying from India is not as much. But -- so gradually, slowly, we are progressing and increasing our exports into Southeast Asia primarily.

So sir, how do you plan to expand your reach in the coming years, especially with the plans of this new capacity?

So one, we will make deeper inroads in the 4-wheeler asset from 38%, we want to move to 50%. With the growth in the Indian economy, the expectation is that the automobile industry itself is going to become much larger. In fact, Maruti Suzuki plant will double its capacity to 4 million cars per year, 3 million for the domestic market and 1 million for exports. That is what I think I've heard from their people. So with the increase in Maruti Suzuki, with the increase in the 2-wheeler companies and 4-wheeler commercial vehicles will eventually come back, and then exports of auto components from India because of C-band coming in. There are massive opportunities. Then you look at Southeast Asia, with this new plant coming up, the limitations of our existing plants will go away, which means that the quality levels will improve further from the current level. We'll be able to make more stringent quality than what we're able to make today and which will mean that there should be bigger export opportunities in Southeast Asia. And eventually, as Africa opens up, for Toyota and other companies, those possibilities of making components in India people could make and export to Africa, those opportunities would open up. So because new plant by the time it comes up, it is 5 years from now. So we are talking about -- so the market scenario is going to be way bigger, Indian economy is going to be way bigger. So there will be many opportunities. We'll also look at other segments like railways. So there are other segments to start examining. Those are all -- sorry, again, let me repeat, those all are all things that we'll examine this study and so on. So no major commitments at this stage because this is 5, 10 years in the future.

Correct. Sir, one last question. Are there any government subsidiaries or inventories being leveraged for this solar panel installation?

Not to my knowledge.

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

So ladies and gentlemen, thank you again for the interest you've shown in the company. I am repeating that currently the market conditions are not that right, and we are hoping as best as we can. And the hope is, as all of you know, with Trump coming in, hopefully, the war stops and the mood starts changing next year sometime, we will see a much brighter situation. And we are ready for that in terms of the capacity expansion we're putting in place. We will be ready for any such requirement as it comes up. I remain optimistic about the medium and long-term future. The current situation looks as all of you know, the auto industry is currently not too great. So I remain optimistic as always. And we should come up in the next 6 months, we will come up with a more complete announcement about our new plant. But thank you so much for being here today.

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