Release Date: May 02, 2024
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) has significantly reduced its carbon footprint to 0.7 tonnes of carbon per tonne of steel and aims to further reduce it to 0.2 tonnes in two years.
- The company has announced a new CapEx of INR33 crores, which will increase its capacity to 285,000 tonnes in the next two years.
- Vardhman Special Steels Ltd (BOM:534392) has maintained a strong EBITDA per tonne, achieving INR11,000 in the last quarter, which is above their usual range.
- The company has a low debt-equity ratio of 0.12, indicating strong financial health.
- Vardhman Special Steels Ltd (BOM:534392) is positioning itself as a leading green steel producer in India, with significant investments in renewable energy and environmental improvements.
Negative Points
- Despite the strong performance, the company has not increased its dividend due to lower profits compared to the previous year.
- There is a current weakness in demand, particularly in the tractor and commercial vehicle segments, which has affected sales.
- The company will have a one-month shutdown of its rolling mill next year, which may impact production and sales.
- Vardhman Special Steels Ltd (BOM:534392) still relies on external rolling for some of its production, which affects margins.
- The company faces challenges in maintaining its EBITDA per tonne range due to fluctuations in raw material prices and market conditions.
Q & A Highlights
Q: Congratulations, sir, first of all, on the great news. Moving on to the business, sir. During the opening remarks, there was some disturbance with my line. So I heard that you're planning for a CapEx of INR33 crores. So could you just help me with what our installed capacity will reach to now?
A: So this is an incremental new announcement of INR33 crores. We already have ongoing projects of INR260 crores, which was announced in 2022, and another INR140 crore project for the KOCKS block and reheating furnace announced in '23. This INR33 crores is primarily for environmental improvements, R&D equipment, and building redundancies. Our capacity will increase to 285,000 tonnes in the next two years.
Q: And sir, the next question was also Kalyani has been adding some capacity as well. So are we seeing any great increase in demand?
A: Demand is expected to grow in the car segment and as global majors build plants in India. However, there is currently a weak environment due to a slowdown in tractors and exports for some customers. We expect this to be temporary, with improvements already seen in cars and commercial vehicles.
Q: Congratulations on your personal milestone as well. Sir, couple of questions from my end, just to get my understanding whether it's right or wrong. The billet capacity today is 260,000, which will go to 285,000, as you mentioned.
A: Correct. The rolling mill capacity, which was 2 lakh tonnes per annum, has increased to 210,000 tonnes with the addition of two stands. With the KOCKS block and reheating furnace, it will go up to 260,000 to 270,000 tonnes, eliminating rolling as a bottleneck.
Q: Sir, second question is on the exports volume. Would it be possible to share the exports volume for FY24 and how we expect to see over next two years, FY25 and -- in current year and then next year?
A: Last year, we had a total export volume of 12,000 tonnes, including exports to Aichi. This year, we expect about 16,000 to 17,000 tonnes. Sales to Aichi are slightly below expectations due to a weaker Japanese yen and lower Toyota sales in Thailand.
Q: Congratulations, sir, for becoming grandfather. So my first question is related to the other income, which includes the GST and electricity incentive. Can you share the outlook for FY25 for the same?
A: It will be similar to this year as there are no prior period adjustments. This is part of our regular operations and not considered other income.
Q: Sir, my second question is related to the greenfield plant. Any development on the same? Forging plant integration and the greenfield --
A: We have started serious discussions and planning for the greenfield plant. We are in the process of deciding the state and identifying land parcels. It will take time, and we will announce concrete steps when ready.
Q: Congratulations on a good set of numbers and congratulations to the entire family on welcoming their newest member. Just one question from my side. Sir, I believe you were in constant negotiations with OEM during quarter one and quarter two for price hikes. And I think we have seen a positive effect of that in the Q4 numbers. Now post that, commodity prices are again shooting up. And do we think at these prices, we will be able to maintain the kind of EBITDA per tonne or EBITDA margin that we did in quarter four moving forward in quarter one and there on?
A: The INR11,000 EBITDA per tonne achieved in Q4 is beyond our normal range. We expect to maintain our guidance of INR7,000 to INR10,000 EBITDA per tonne for this financial year. If raw material prices rise, we will negotiate with OEs for price increases. Inventory gains may protect Q1, but Q2 could face challenges without price increases.
Q: I was just trying to envisage power savings that we could get from the new solar plant. So if you could help me with some numbers.
A: We will get about 8 crore units from the solar plant, with a plant load factor of about 17.5%. The current cost per unit is INR7, and the new plant is expected to reduce this to INR3.5 to INR4 per unit, resulting in savings of INR5 crores to INR15 crores annually. The plant is expected to be operational by March 2025.
Q: Sir, I had a few questions regarding the gross profit per kg actually. We see that it has improved to INR35 per kg. So how long do we expect this to continue? And how much of this benefit is from lower RM benefit? And how much is from a better mix benefit?
A: It's difficult to attribute specific factors as costs and benefits are interrelated. We focus on maintaining a range, and our guidance for this financial year remains INR7,000 to INR10,000 EBITDA per tonne.
Q: Just a question. For the FY25 guidance, what are you guiding in terms of volume, overall volume and revenue?
A: We are targeting 210,000 to 215,000 tonnes for '24-'25, 220,000 to 230,000 tonnes for '25-'26, and 235,000 to 250,000 tonnes for '26-'27.
Q: Congrats for your good numbers. Sir, my question is regarding any plan for dilution of equity regarding to Aichi? And when we plan for our green plant project?
A: We have committed to Aichi that they can increase their stake whenever they want. The company does not need more equity currently. However, for the new plant, we will need equity capital, which will be dilutive. The decision on the new plant is expected by the end of this year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
