Release Date: April 23, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Vardhman Special Steels Ltd (BOM:534392, Financial) achieved record production and sales, testing a targeted capacity of 300,000 tonnes per year.
- The implementation of the Kocks block was completed with minimal shutdown time, enhancing diameter control and increasing rolling capacity.
- The company declared a dividend increase from INR2 to INR3, maintaining a 26% payout ratio.
- Plans for a new green steel plant in Punjab have been approved, with an investment of INR2,000 crore, aiming to reduce carbon footprint and improve quality.
- The solar power plant is expected to cater to 40-45% of power demand, contributing to cost-saving initiatives.
Negative Points
- Price reductions during the year led to a lower increase in revenue value compared to volume, impacting overall financial performance.
- The EBITDA margin decreased year-on-year, attributed to plant shutdowns and job work outsourcing.
- The company faces challenges in the commercial vehicle segment and export components due to current tariff situations.
- The new plant's CapEx has increased from initial estimates, reflecting changes in machinery configurations.
- Export targets have not been met, with the current export mix remaining at 5%, contrary to previous expectations of reaching 27%.
Q & A Highlights
Q: What is the CapEx plan for the rolling mill capacity and the new INR20 billion investment? Will the capacity commissioning be phased or completed at once by FY30?
A: The CapEx for the rolling mill is largely complete, except for the reheating furnace, which will be commissioned by December. The remaining CapEx for the next two years is approximately INR175 crore. The new plant's major CapEx will primarily involve land acquisition, with machinery advances starting in FY26-FY27. The new plant will be commissioned in one go, not in phases.
Q: Can Vardhman Special Steels become net debt-free by FY26 with limited CapEx requirements?
A: If we exclude the CapEx for the new project, we aim to be net debt-free in the next three years. We plan to have a roughly INR1,000 crore net worth company with zero debt to finance the new INR2,000 crore project.
Q: How will the Kocks block help in reducing inventory and increasing quality? What is the expected payback return?
A: The Kocks block allows precise diameter control, essential for import substitution of high-quality steels. It reduces changeover times, increasing rolling mill capacity and reducing inventory needs. We don't disclose individual expenditure returns, but it's a significant investment.
Q: What is the expected EBITDA per tonne once the new capacity is online?
A: From FY26-FY27, we aim to increase our target to INR8,000 to INR11,000 per tonne. The new plant, starting production in FY28-FY29, should achieve similar figures when at full capacity.
Q: How will the solar power plant impact EBITDA?
A: We don't disclose specific cost changes, but cost-saving initiatives like the solar power plant, which will cater to 40%-45% of power demand, support our confidence in raising our EBITDA range.
Q: Why did the EBITDA margin decrease year-on-year?
A: The year-on-year EBITDA is within our INR7,000 to INR10,000 per tonne range. Quarterly fluctuations are due to factors like plant shutdowns and raw material price changes. We focus on annual figures for a clearer picture.
Q: What is the export mix target, and how does the Aichi partnership influence this?
A: The current export mix is 5%, and while we initially targeted 27%, this is unlikely now. The Aichi partnership helps with import substitution and potential overseas opportunities, but we aren't making specific export forecasts.
Q: What is the demand and supply scenario in the alloy steel market?
A: The market size is about 4 million tonnes, expected to grow to 10 million tonnes in 10 years. Imports are not significant, but high-quality imported steels present a substantial target for us, leveraging our partnership with Aichi.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
