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

Ladies and gentlemen, good day, and welcome to the Vardhman Special Steels Limited Q2 FY '26 Earnings Conference Call hosted by Adfactors PR. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Samruddhi Bane from Adfactors PR Investor Relations team. Thank you, and over to you, ma'am.

Thank you, Sagar. Good afternoon, everyone. On behalf of the entire management, I thank all the participants present on the call and wish you a very warm welcome to our Q2 and H1 FY '26 earnings conference call. To guide us through the results today, we have with us the senior management team of Vardhman Special Steels Limited represented by Mr. Sachit Jain, Chairman and Managing Director; Mr. Sanjeev Singla, Chief Financial Officer; Mr. R. K. Rewari, Executive Director; Soumya Jain -- Ms. Soumya Jain, Executive Director; and Mrs. Sonam Dhingra, Company Secretary. Before we begin, please note that this conference may contain forward-looking statements about the company, which are based on beliefs, opinions and expectations of the company as on the date of this call. These statements are not a guarantee of future performance and involve risks and uncertainties that are difficult to predict. We will commence the call with the opening brief by Mr. Sachit Jain, Chairman and Managing Director; followed by the financial highlights from Mr. Sanjeev Singla, Chief Financial Officer of the company. After this, we will open the forum for the Q&A. With that, I will now hand over the call to Mr. Sachit sir to share his opening comments. Over to you, sir.

Thank you. A very good afternoon, ladies and gentlemen. Thank you very much for being with us on our call today. And apologies for postponing the call from last week to today as our entire -- all 3 Board members were traveling. Mr. Rewari and Soumya were in Thailand, meeting customers, and I was in Chennai, again, meeting customers. So yes, last quarter has been a very eventful quarter. One, raw material prices have been trending downwards, and therefore, the price reduction also has happened. October also will be a further price reduction because costs have already come down. We'll be discussing with the OEs, how much is the quantum of production. Our raw material position is quite benign, full availability of raw material. So we are not facing any problems anywhere whatsoever. Board, there have been changes in the Board. Our Chairman, Mr. Rajeev Gupta stepped down from the Board after 3 terms, 2 terms as Independent Director and 1 term of 3 years as Non-Independent Director and Chairman of the company. Also Mr. Sanjoy Bhattacharyya, long Board member stepped down after his 2 terms as Independent Director ended. In their place, we've had 2 new Board members, Mr. Dinkar Gupta, retired NIA Chief of India as well as retired DGP of Punjab; and Mr. Nishant Arya, a young industrialist in the auto component space dealing with the major auto components -- auto OEs in India as well as globally. And I have taken over as Chairman after Mr. Rajeev Gupta's wonderful term as Chairman. The other highlights have been the preferred renewal of the technical assistance agreement for 3 years from 1 October '25 to 30 September '28. Now, as you are aware that with Aichi, our technical agreement is always for a stance of 3 years, for a period of 3 years, to be renewed. And some changes are always done based on the requirements of the business at that point in time. Now, for example, the technical parts of the technical assistance have come down, more of marketing support is required as well as quality support is required to improve quality further for the newer requirements and the most sophisticated requirements of the OEs, as well as the planning for the new project have begun and Aichi's full support is there. So that has also been added to the technical assistance agreement. Now, we will have 5 people from Aichi posted in India. Earlier, we were 3. One new person, senior person for quality as well as technical transfer from old unit to a new unit and one person for marketing will be joining from 1st of January. So also Aichi's increase of stake by -- to 25% signifies much stronger commitment more than the capital infused. It's the commitment to India and commitment to VSS, that is the important part. I was in Japan for the signing of the ceremony. We had very fruitful discussions with our partners as well as we had a press conference in Japan. For me, first time attending a press conference in Japan regarding our JV. As regards CapEx, the Kocks Block was successfully commissioned earlier this year and several production now for almost 7 months production has been running -- 6 months production has been running. So successfully, this has been a very strong implementation by the KOCKS team as well as Danieli and the other machinery manufacturers as well as our maintenance, erection team and the production teams. As regards the new reheating furnace, which will increase our production, this is getting commissioned by first quarter of -- last quarter of this year. So from 1st of April, we will have full impact of the new reheating furnace, which will enable increased production of our rolling mill, which means our job work quantum will start coming down. And therefore, the loss of profit on the material that was sent outside for job work will come down substantially from first quarter of next year. The new NDT line is in progress. By June, it should be commissioned. With this, we will have eliminated any limitation as regards making quality for 4-wheelers. As our first NDT line is getting nearer full capacity utilization, it was imperative to make the second NDT line, and that should be commissioned by June as per plan. The other big change that happened last quarter is, this new trend towards circular economy and Maruti Suzuki has been the first company, in our knowledge, that has taken concrete steps in this area, where we'll be buying CRC scrap from Maruti plants, and we will make steel and send it back to the vendors of Maruti in a closed loop, which will be a traceability of material. So this process started in the month of September. This will strengthen our relationships further with Maruti. And as they go towards their green initiatives and circular economy initiatives, we are there step-by-step walking along with them. As for the greenfield steel plant is concerned, we are in the last stages of finalizing our land, and planning for the plant is going on in full swing in terms of machinery selection, layouts -- machinery configuration, sorry, and layouts and specifications of all the machines. All that's going on and going on track. Solar power plant, this was supposed to have been commissioned by June of this year. As we had shared that the transmission line was still incomplete because some farmers have gone to court and stay had been granted. In the last 4 months, all the stays have been vacated. And now all hurdles for completing the transmission line are over. And hopefully, within this month, latest December, the transmission line will be complete, and we should be able to take advantage of the solar power plant, which will also lead to our carbon footprint coming down from 0.72 to about 0.48 and 2, since the solar power is cheaper than the grid power. Our power cost will also be lower, which will lead to enhanced margins moving ahead. And we've already shared with you that we have been discussing with our partner, Aichi regarding new forging line. And we hope to finalize our plans by January. So hopefully, in the January con call, we should be able to share details time lines, what are we planning to do, investments and all that, as we had shared in the previous con call, that will take us about 6 months. So we are on track. And hopefully, by January, we should be able to share the details of that. The other thing that we have done is, we've done a carbon footprint study by DNV. Earlier, we have done by CII, but we realized that CII is good as far as Indian customers are concerned. But for global customers, DNV is more recognized so that has been done. The figures are almost identical with the figures that CII calculated, so 0.72 and 0.73 was the difference from one to the other. So we are on track with that. And Aichi funds have been utilized to repay our WCDL of INR 150 crores and the balance funds have been invested in money market funds and liquid funds, which has led to a reduction of finance costs and therefore, PAT improvement in the second quarter. I'll pass over the line to Mr. Singla, our CFO, to take you through the numbers, and then we are available for Q&A.

Thank you, sir. Good afternoon, ladies and gentlemen. First of all, I want to share that this quarterly results have been taken from our SAP system, which we have gone live with the latest version of SAP S/4HANA from 1st of July 2025. So all the modules have been taken in this S/4HANA integrated solution. Earlier, we were working on 2 different solutions. One was SAP ECC and [ Node ], so it is one integrated solution, resulting in more strong controls and effective management system. So coming to the numbers. For this quarter, our total sales in terms of quantity is 55,500 tonnes, as against 59,000 tonnes, resulting in revenue of INR 432 crores. Year-on-year, 12.64% decline. So it's a combination of both. One is quantity, which is down by 4,000 tonnes, and then price reductions, which is continuously happening from last year. Every quarter, the prices are declining because of decrease in the input cost also. So as a result, our EBITDA , including other income is INR 56 crores as against INR 48 crores in the corresponding quarter of last year, a 16% increase. EBITDA per tonne is INR 10,000 per tonne. And our PAT is INR 34.5 crores, as against INR 26 crores in the last year. It is proportionately higher than the increase in EBITDA because our financial cost has come down because of the funds infusion by Aichi Steel. And on a half-yearly basis, our total revenue for the half year is INR 865 crores, and EBITDA -- total EBITDA is INR 96 crores, almost the same as in the last year. EBITDA per tonne is INR 8,600 per tonne, and PAT is INR 54 crores against INR 52 crores last year. So that's all on the numbers. And now I request to open for the question-answer session.

[Operator Instructions] Our first question comes from the line of Deepak Pandey from Sagun Capital.

Congrats on a good set of numbers. Sir, a few questions. Firstly, on the forging plant that we are putting up, can you throw some color on what sort of business segmental demand are we looking to cater? Is it going to be focused on autos only?

Yes. As of now, as far as this plant is concerned, we are only in auto. And therefore, our forging line that we're looking at will also be focused on auto. And we will be trying to see that if we can make a part that is going into EVs as well. So -- but all those are under discussion just now. So beyond this, at this point, we don't have more details to be shared.

Got it. Secondly, sir, some light on where do we stand in terms of market share for bright bars in terms of capacity and then the sales volume? And are we seeing any tailwinds currently with the auto sector growing? Any green shoots from the customers?

Yes. So market share-wise, we will be amongst the smaller players. So there is enough scope for us to grow as we go ahead. But we would be very strong in market share with the high-end customers. So there are customers at the top end where we will be 60% to 70% share of business of some of the key customers. And some of these customers deal with the entire gamut of automakers. So that way, wherever high-quality sophisticated products and reliability is concerned, we would be the customer of -- the vendor of choice. As regards -- I'm sorry, the other question you had was -- so there is enough scope for us to grow. And the second part of the question, can you repeat that, please?

Sir, any green shoots from the clients in terms of auto sector tailwinds that currently we are having?

Yes. So those signals we are getting that 2-wheelers sales, of course, have increased and therefore, demand for 2-wheelers will remain good as well as demand for smaller cars will remain good. This year, the benefit is not too much because the sales were lower initially waiting for this GST reduction. So the full impact of these changes we hope to get next year. But yes, these are all very positive changes. And I think the government has done its bit in giving the industry a fillip. And overall, there is optimism in everybody that the next financial year volumes should be pretty good.

Got it. And sir, in the last earnings call, we mentioned that there is some competition that we are seeing undercutting of prices. Is that a similar thing? Or has it eased up a bit in this quarter?

That continues. That continues. And the only way for us to counter that is to continuously improve our quality, get in better products as well as look internally to reduce costs further. As I said, with this new reheating furnace coming in, we will ourself see a major cost reduction, one, because of the outside material, which is currently going on job work. The profits that we are passing on to our vendors, we will be able to take those inside as well as cost of loading, unloading, transportation and so on. And secondly, with this new reheating furnace coming in, our yields will become better because of 2 reasons. Our losses on heating and scale loss will come down as well as losses on end cuts because we're going to have bigger billets. So all told, we're going to have -- we're going to see a decent cost reduction as well as enhanced capacity because after this reheating furnace, our rolling capacities will hit 270,000 tonnes of output, which is what our target is.

That's very helpful. Sir, last question would be on the split between bright bars and the black bars for Q2? And any color on the split for FY '26 in total?

So a lot of the bright bars were actually going in for exports to the U.S. not directly from us, but from our customers. And as the U.S. exports have got affected because of the tariff issue. So clearly, that has affected our volume in bright bars. And therefore, our bright bar volumes are down. If things were normal on the bright bar front, we would have had higher sales this quarter than what we were able to achieve.

[Operator Instructions] Our next question comes from the line of [ Parth Patel from Patel Investment ].

I just wanted to check that the EBITDA per tonne has been improving sequentially. So for the next coming quarters, can you give me a stable EBITDA per tonne that we can take into the modeling?

Our declared range was INR 7,000 to INR 10,000 a tonne. And we have said that from next financial year, we should be up in the range to INR 8,000 to INR 11,000. So we stand by that as of now.

Okay. Got it. And just for the sake of repetition, can you let me know how the Aichi collaboration is going on? And is there going to be any sort of internal technology transfers? And what's the status of land that we were looking?

So the collaboration with Aichi is going very well. That's why we have signed the third agreement. And we have increased the number of people who are posted here. They have invested INR 385 crores to increase their stake to 25%. So all these are signals that they feel the partnership is going very well. And in terms of specifics, let me share with you what has changed. Our product quality has improved because of know-how transferred by them. Problem-solving approach has improved. Our understanding of certain specific aspects of quality have improved. The overall culture has improved and customer acceptability and access has improved significantly. So, for example, the Toyota approval for global operations happened, I would say, only because of their availability, plus it's all the other OEs, they are fully helpful and they are helping us get those approvals. Even some of the other Toyota Group companies, which are Tier 1s, which we are supplying to other Indian OEs like Tata and Mahindra, those all are coming basically thanks to Aichi. So a lot of support in marketing is coming in. Maruti also, the localization project of Maruti, where we'll be replacing imported steel with steel made at VSS. That project also, I don't think without Aichi support that project we wouldn't have made much headway. So all in all, we are having significant benefits, thanks to them.

Got it, sir. And about the land parcel?

Land parcel, we are in the last stages of finalizing. So hopefully, by the time we have the next con call, we should have the land with us. But this is -- please understand this is land that we are purchasing through from farmers. So with the best of intention, best of land, sometimes this could get further off because there are a large number of farmers and a large number of land owners. So within each land parcel also -- within each family, there could be 2 or 3 family members, somebody may be overseas and so on. This is a slow and serious process, cumbersome process. And then you have to go through 30-year records of each land parcel and you need land contiguity and you need land of a particular length to put a new rolling mill, we need 0.5 kilometer in length and 300 meters in width. So you need that kind of land parcel also. So all those things have already been seen and we are in the process of finalizing this land. So hopefully, by next quarter much of this should be done.

So we can expect 2 quarters maximum?

Yes. In all probability, this quarter it should be done.

Our next question comes from the line of Ritwik Sheth from One Up Financial.

And sorry, before -- Ritwik before you raise your question, the time line of our project completion as of now remains July '29. So that doesn't change with the longer time and stickiness to get the land. As of now, we are quite committed to July '29 for commissioning the this plant. Yes, Ritwik go ahead, please.

Sir, a few questions. Sir, firstly, just continuing from the previous question.

Ritwik, can you be a little louder?

Yes. Is this better?

Yes, much better.

Yes. So, sir, have we spent anything on the new plant in the current half? Because of CapEx.

Not for the plant, but we have bought a parcel of land for 50 acres, which -- then we could not complete further. So yes, we have bought some land, which will be disposed of at the right stage or we are talking to a couple of forging companies who want to come into India because a lot of other global companies are also getting very excited with the idea of this kind of steel plant and are examining putting up forging plants near us. So for now, we'll keep this land for some more time that this land parcel can be sold to a prospective forging company. Otherwise, there are other buyers approaching us for this land. So this land that we bought will be disposed of suitably.

Okay. And what is...

But apart from that no other...

Okay. And what is the amount that we spent on this?

So we've invested about INR 70 crores.

Okay. INR 70 crores. Okay. Sure. And sir, my second question is on the deemed exports for Aichi. So if you can give us the brief color on what was that in H1? And any signs of higher volume going forward?

We haven't shared -- no, we haven't shared those figures what business we're doing with Aichi. But overall, suffice it to say that the exports to Aichi are a bit lower than what we had estimated because of Toyota -- Thailand market being subdued. And within Thailand, Toyota sales were also subdued compared to their original plans. And the third factor which came in is the Japanese yen weakened significantly compared to when we started this deal. So yen has moved to JPY 1.45, JPY 1.50. So then steel from India is almost as expensive as Japanese steel in Thailand. And on Indian steel, there is a 5% custom duty. So yes, it's taken a little more time. So therefore, seeing that the lifting of product was not up to the mark, we have -- we are bringing forward the forging plan to see that the amount of steel that Aichi had said that they'll be able to use from VSS, we will partly make up through the forging business.

Okay. Got it. And sir, a few quarters ago, you had mentioned that we had given material for approval to a European OEM. So any update on that further? How was the first response from their end? And -- any signs of any orders coming in?

The initial feedback is very good. The initial feedback is very good. So they had a further visit again. I had visited Europe this year. They visited us again this year, ordered it again. They are very happy with the way things are going. They have suggested some technical changes for us to make, which should be made by March of this year, and then we'll be ready. So hopefully, next financial year, the business should start.

Okay. Great. And so, this would be on a long-term contract basis or it would be on a rolling basis, the new orders that come in?

Normally on a rolling basis, I don't think we have any contract with any OE as of now. Businesses are all regular because they are all repeatable businesses.

Sure. And sir, just one last question. The recycling that we'll start from procuring scrap from Maruti's scrap plant. Would there be any cost savings for us apart from the synergy and getting new business from Maruti?

No, no cost savings.

Okay. So scrap would be at market.

Sorry, this is not scrap from their scrapping plant. This is scrap from their manufacturing plant. Scrap that it generates through the manufacturing process.

Okay.

From their scrap plant of Maruti, they are anyway consuming 100% of their scrap that they generate.

Sure. And sir, any guidance on volume figures for FY '27 and CapEx figure?

FY '27 as of now, we hope to do about 245,000 tonnes.

Okay. And CapEx?