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

Ladies and gentlemen, good day, and welcome to the Q1 FY '27 Earnings Conference Call of Vardhman Special Steels Limited. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantee of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this call is being recorded. I now hand the conference over to Mr. Sachit Jain, Chairman and Managing Director, Vardhman Special Steels Limited. Thank you, and over to you, sir.

Thank you so much. Good morning, ladies and gentlemen. Thank you very much for showing an interest in a company and being with us that are here today. We closed the good quarter. And overall, so the highlights of the quarter have been: first, of course, we signed the technical intent agreement for the forging units with IT steel Japan. So the forging project is going on as scheduled. And it looks like this project cost is going to be a bit lower than what we had estimated. And we'll update once we have a fix on the numbers. But clearly, the project cost will be less than what we had estimated. As far as this quarter is concerned, volumes have been good and price revisions have taken place because costs have gone up. Some prices have been agreed, some are in the process of agreeing, meaning the OE have agreed to a particular amount, but it's likely to increase in price because other companies have not expected that kind of increase. Anyway, that will happen when it happens. Demand scenario is good. We are, in fact, finding it difficult to meet the requirements of the customers. So we are scrambling how we can make sure that we're able to increase capacity further. We have applied to the Environment Ministry for approval to capacity to 316,000 tonnes. But that would happen when it will happen. Meanwhile, some of the other things that we have been doing is the new reinforcing stabilized. New SDN will be commissioned by September, October of this year. And new commissioned by September, October of this year. After this, the bottlenecks in our small flow of production will get removed. Currently, we continue to have pile up of material that is very, at the customer want, but because of lack of testing capacity you're not able to go through. Even dealing, we need to get some dealing but you have done a job work from outside. All those things would come in-house and we've been able to improve the product mix and quality of sales April 2nd half of this year. Solar plant, we've got a full quarter of savings we've had INR 2.3 crore units this quarter and roughly 43% of our total power consumption is coming from solar. There have been further changes in the government policy, which means we can enhance the solar project. We expect it about a year or 1.5 years' time, may be going ahead and we'll be increasing the capacity by almost 50% of our solar plant. So that will add to the bottom line and to reduce the carbon footprint. Already, our carbon footprint is 0.5. So it answers as the best most the companies in terms of carbon footprint and approvals. So there is -- there isn't any other company which has needed us in carbon footprint, it has the comes. This enables us to the very strong position for this year. Overall, EBITDA numbers are within our range of 8% to 11% level. We would like to remove part of the EBITDA for your calculation purposes because some of the EBITDA and other income is from the earnings we have got from the surplus front of change have we got in many markets. That is really not business in constantly have removed at that and calculation. And if we remove that, our EBITDA per tonne for this quarter comes to INR 1,700. So I'm getting this confidence that for next year, we can improve our range. Today our range -- but next year, we should be able to increase the rate for 1. So we can see profitability improving and give a result of cost reductions and bigger production fixed cost being spread over a bigger volume. That's all for me in the opening remarks. One last thing. As far as the new steel plant discussion, we are partly reconcerning the plant to reduce carbon footprint further and improve energy efficiency. So things were scrapping, which was not a site and some other equipment that we had not anticipated earlier, including testing needs, there we had planed only 1 continuous testing line for the new brand. But seeing the way market is changing and demand for continuous testing in automatic testing lines, we will have to need more -- need to add more lines, which means the project cost is to increase as well as the capacity and protect at this plant. So again, details are still being worked out. I think by next Board meeting, they will be able to have a tier picture and will present a refined project with increased capacity and try to keep cost per tonne similar to where we have indicated, maybe a little higher because of Iran war, metals have gone up by way as well as rupee depreciated. So the cost of pressure is going to be also based on. So those are the work out, and we will have a better estimate in the next quarter. As of now, we are still on track to commission the project financial year '25-'26. That's all from me for now opening remarks. Thing to add some numbers and then we can have a -- thank you.

Good morning, ladies and gentlemen. The -- on the numbers for the quarter, this quarter we have achieved 59,000 tonnes of sales higher than funding part of last year by 6.5%. And revenue from divisions is at INR 486 crores, higher by 12%. So a combination of growth. One is because of higher volumes and secondly, increase in sale prices. Our EBITDA this quarter is for the quarter ever, INR 68 crores per quarter. And INR 41 crores in the PAT. Overall, EBITDA, INR 7,650 per tonne. So air -- and over that in this quarter as against wastewater and INR 20 crores in the corresponding quarter of last year. And now we can open for the question answer session.

[Operator Instructions] The first question is from the line of Sharan Singh from Capital Arc.

Congratulations on the good side of numbers. and I wouldn't ask that we had projected that our revenue would grow in exports -- could you please quantify how much the exports were in this quarter.

We don't hear that part at your question, please? So.

We had projected that our core sales on areas you put a count of our sales was in export?

Sales and exports, how much is exports? So export is still accounting for about -- and another 5% is going as indirect exports to -- which is going to 5G through the trading arm in India.

So the finding is that our estimates of direct exports of steel of. But more and more customers are wanting to buy from India, but they are wanting to buy components and post products from India. So a larger part of our business is a lot of our customers are exporting products to Europe and the U.S. So what we will start doing, I think, is that to the valid point the question you raised, from next quarter, we try to calculate an estimate that how much of our product is actually getting indirectly exported out of India is competence.

That's very helpful. And sir, I had another question. So with the partnership with IT, could you quantify how much of the business is like -- what is the business concentration per client? Because Toyota is a partner. Is this cost growth in our...

Business we are very well diversified across customers. But our increased focus as we go forward, the concentration with Maruti and the customer will be our target. If we're able to achieve that, that's a separate issue. But we will try to continuously increase business with Maruti more than as a bigger share of our customers. As of now, it's a small percentage. That's about 10%. So we don't have any concentration risk.

Okay, sir. And sir, if I can ask another question.

Please come back because there's others on the line.

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

Two questions. One is -- and I joined late, so it is at cost of repetition, I'm sorry, then the status of the expansion of the existing plant from 3% to 3.6%, if you can share any update on that? And second is on the land acquisition for the 5 million plan that we are planning.

So the new plant is 5 lakh tonnes, not file we will get into big dry territory, we have no plans to be overall is a big, big, big for the a small area. So land is in the last stage is getting finalized, and machinery goes through the last year are getting finalized. So hopefully, by August end or latest by mid-September, we should be able to finalize leveraging.

Got it. And on the EC application from 3% to 3.6%.

We made the application. And so on probability next 3, 4 months, we should get the approval. I think the -- but again, you haven't got until you have got it. So interest gross till that time will be close to our final productive capacity because we never imagine even in a richness level. So I must have publicly thanked my team who have done great work is figuring out how to keep improving productivity to reach this level. Now all this is helping us in plant -- the planning of this plan. As I said, what was to be a 5 lakh ton plant is going to be significantly bigger than that. Of course, we have a base of more investments in that. But -- and cost per ton is going to be lower than what we estimated in the new pro once we have better estimates next quarter than happiness.

[Operator Instructions] The next question is from the line of Anand Kumar Sharma, Investor.

Congrats for the great set of numbers. Sir, my question is regarding this net project 5 projects while you have said that by first quarter, we will be able to start with the production of this forging unit. And what will be the diminution of the cost, you can you explain -- give some light on that? And what are the other projects apart from this sporting project, what are the other products -- what are the other products?

For project is likely to get commissioned by last quarter of '27, '28. And then to fill up the project, the plant will take 6 months to 1 year because it's a totally new product. Customers need to come at CD plant and then approve it and then business will start coming. So revenue for that will start coming from the year -- maybe in the end of '29. Project cost, as I said, lower than estimated, and we have been able to negotiate better terms and some equipment that we have seen equipment, we are able to find India substitutes for that. And so overall, those costs are being estimated. And in the next 3 months, we next quarter will have a far better grip of the total savings. But as of now, we can say there is -- from this INR 475 crores that we had estimated, there is a substantial savings from that. Saving is more than 10%.

Sir, question is regarding the expansion in the grid for that. When you expect that to start command lines?

New steel plant, we expect to start in the -- by end of '29-'30. So 6 to 8 months to stabilize in and '30, '31, we'll start getting revenues from them.

Is it is a new senior steel plant?

This is a new -- just in capacity expansion in the gifting capacity, the 3 lakh to 6. Once we get the approval, only then we will have to invest some money. So that will take some time. But until we get the approval, we can do nothing.

Just to add that for the current year, we don't have any capacity constraint because whatever mutants are there for the current year. So we have enough license capacity. And once this approval comes, so it will be helpful in the next year.

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

I just wanted to understand now you mentioned you don't have any capacity constraint this year. So what's the volume growth you are targeting for 2027?

This year we are targeting about 255,000 tonnes for this year. Still the 270.

270. Okay. Okay. So I mean, in terms of growth, we are still quite nominal, right? I mean the target in terms of growth for FY '27 itself, it's not 7%, 8% bol. So what will drive our revenue growth. Will it be more value addition? So how should 1 look at revenue growth?

So I think, see, what we are looking at is we do not automotive. So the whole category of nonautomotive there were not interesting earlier. We didn't have the capacity to, we do not have a tic capability, internal equipment. So linked casting is move or any of these products. And in the casting something that we plan to establish the plant by third quarter of this year. And by fourth quarter, we hope to stabilize. So this year, we would have established that stabilize the casting. Now we intend to get into die steel. India today imports INR 1,000 crores worth of die steels. So that's a big area for us to grow into. So that is tight. Railways the big for axis, there's a big demand for steel for that. Windmill shafts there's a big demand out of it gets imported. So we have been going in or not able to import substitution, earlier we didn't have that capability. So by end of this year, we will have big capability. So we will start a second engine of growth. Today, we have only automotive steel at a engine Indian of growth. Tomorrow, we will have a second engine, which is not automotive steel. And once the 4 plant counter, then we have third engine of crores. And the fourth engine growth will come up -- that will come up maybe 1.5 years down the line, and we start working towards aerospace and steel for nuclear plant and so on. So that is a fourth lever of growth, which will take a few years for the gear is the thinking of going ahead. So just so we are constrained but our capacity 3 lakh tonnes, which is the license capacity. We can't go more than that. So we can keep saying that you are very conservative on only 78%, and that is our capacity, we can't promote that. We are also examining can we get imports from outside and roll it outside, across job work and develop that market. So we've been able to find a credible source and because we have to have complete supply chain for that. So if we are able to do that, and then we have expansive growth again. So meanwhile, what we will do is if we don't have growth possibility that we work on internal, how to keep improving margins and better product mix. Meanwhile, the new plant will come up. So once the new plant comes up, then again, then there is mine growth possibility.

That's very helpful, sir. And my second question is on your Japanese tie up. I mean we have done this. So what sort of potential is there? Can you throw some more light how we are looking at the tie-ups that we have done?

So for example, approval for Toyota, which has global approval. We got because of that. The approval for the localizing more customer like Maruti they're getting because of our partners. Then there are internal improvement in terms of overall quality, safety, assuming the other improvements that are happening. On India is expanding. DKM is expanding with a new plant in Aurangabad. So that from the public side. So anyway, the earlier -- so with the new plant coming up, we are looking at us for more steel because they are the only gene -- some sorry where very clearly, they need more green steel. We are the only company which can provide green steel to all the approvals. So as green steel becomes more and more important, we become the only player base provide that. And with our expansion coming up, we will be very well placed. And most companies have targets by 2030 to have a large part of Grantee coming in. Yes. And separate is a -- so still -- and I'm really confident we'll get this approval. But again, as in have not got this approval, we don't have it.

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

Sir, a couple of clarifications. Sir, in the opening remarks, you mentioned that the greenfield plant looking to increase the capacity from 5 lakh tonnes. And because of infection metals and depreciation or cost willing, -- is this the right understanding?

That's right.

Okay. Okay. Sure. And sir, you mentioned that FY '20, you'll be increasing the EBITDA per tonne guidance to 110 this year to 8,000 to 12,000. So can you quantify that or can you give me a color what will be the key drivers for this increase INR 5,000 per tonne.

The key drivers are 3. First, that we will have bigger production and therefore, the fixed cost will be spread over a bigger volume Two, there are operating costs that have come down and that is further coming down as we go ahead. We can see all those things happening as we go on. Third will be -- we still have job work and outside processing going on, which will start coming down from second quarter partly no, not a quarter -- third quarter do you see this coming down. Okay. Okay. So these are. And the fourth lever will be -- in a year's time, roughly, we have to see -- we have not given an exact forecast of where the new solar plant will come up. So when the new solar plant concerns, again, there'll be cost savings based on the.

Okay. So this is just a downfield expansion on the solar plant which we have right now with similar cost savings?

No, because now the government has changed the rules, then not solar panel, the sales the expert panels are locally made the sales have to be also locally made. So the most of balance is now higher than. So the savings on account of the solar will be lower than in the first 3 years in.

And sir, just 1 last question from my end. We are working with the European OEM to supply materials. Any update on that?

I don't have an exact update, but that should happen by later part of this financial year.

Okay. So we expect to start the commercial supply to them in H2?