Metrics raised 4
- FY28 sales volume target raised to ~290,000 tons pending EC clearance (from ~270,000 tons base)
- FY28 EBITDA per ton guidance raised to ₹8,000-12,000 (from ₹8,000-11,000)
- FY29 EBITDA per ton guidance raised to ₹9,000-12,000 (after solar commissioning)
- Greenfield steel plant capacity target raised beyond original 500,000 tons (from 500,000 tons)
Metrics cut 3
- Direct export growth target revised down; exports capped at ~10% (vs earlier direct export growth assumptions)
- Forging unit project cost target cut by >10% (from ₹475 crore estimate)
- Phase 2 solar savings expected lower than phase 1 (due to local panel mandate)
Event Participants
Executives
3
R.K. Rewari, Sachit Jain, Sanjeev Singla
Analysts
10
Anand Kumar Sharma, Anandh Dharshan, Arpit Tapadia, Damodar Das, Deepak Poddar, Divyansh Gupta, Gagam Shah, Ritwik Sheth, Shivam Singh, Yash Parkar
Financials & KPIs
| Metric | Reported | Commentary |
|---|---|---|
| Sales Volume | 59,000 tons | +6.5% YoY; demand strong with company unable to meet all customer requirements |
| Revenue from Operations | ₹486 crores | +12% YoY; driven by higher volumes and sales price increases from OEM revisions |
| EBITDA | ₹68 crores | Includes non-business income from Aichi surplus funds deployed in money markets |
| EBITDA per ton | ₹10,700-10,760 | Within guided ₹8,000-11,000 range; adjusted to exclude Aichi surplus fund earnings |
| PAT | ₹41 crores | vs ₹34 crores QoQ and ₹20 crores YoY; more than doubled YoY |
| Rolling Capacity Utilization | ~100% | Rolling mill at full 300,000-ton input capacity; team confident of reaching 330,000 tons |
| Solar Generation | 2.3 crore units | ~43% of total power consumption from solar in Q1; carbon footprint below 0.5, best among Indian approved companies |
Geographic & Segment Commentary
Automotive Steel: Core growth engine; Maruti accounts for ~10% of sales with import substitution approvals progressing via Aichi partnership; Toyota global approval secured, positioning VSSL as the only approved green steel supplier for Toyota's new Sambhaji Nagar plant; Maruti import substitution commercial production expected from Q4 FY27.
Non-Automotive Steel: Second growth engine being seeded in FY27; ingot casting to be established by Q3 FY27 and stabilized by Q4; targeting die steels (₹1,000 crore Indian import market; pricing ₹2.5-4 lakh/ton vs current average ₹85,000/ton), railway axles, and windmill shafts; volumes initially small but designed to accelerate new plant capacity filling.
Exports: Direct exports 6-7% of sales with another ~5% indirect via Aichi trading arm (total 9-10%); Aichi accounts for ~40% of direct exports; management revised earlier direct export growth assumptions as customers increasingly buy Indian-made components/forged products rather than raw steel; exports capped at ~10% given strong domestic demand.
Forging (Aichi Partnership): Third growth engine; Technical Assistance Agreement signed; commissioning expected last quarter of FY27-28 with 6-12 month ramp-up; revenue from late FY29/FY29-30; project cost savings >10% vs ₹475 crore estimate through better negotiations and Indian equipment substitutes.
Company-Specific & Strategic Commentary
Aichi Steel Partnership: Technical Assistance Agreement for forging unit signed; Aichi is Japan's largest forging company (~150,000-170,000 tons forging capacity, ~50% Japanese market share); tie-up enabled Toyota global approval and Maruti localization approvals; die steel know-how transfer planned; both Aichi and Vardhman Group committed to equity funding for new plant.
Brownfield Capacity Expansion: Environment Ministry application filed to raise melting capacity from 300,000 to 360,000 tons; approval expected in 3-4 months; would enable FY28 volume of ~290,000 tons without incremental capex, rising to 330,000-340,000 tons by FY28-29 with ~1-year capex program.
Greenfield Plant Reconfiguration: Capacity expanding beyond original 5 lakh tons with scrap preheating and additional continuous testing lines; cost per ton likely higher due to Iran war metal inflation and rupee depreciation; land and machinery finalization by August/mid-September 2026; commissioning on track for FY29-30; funding assured via promoter/Aichi commitments, institutional appetite, bank debt, and Punjab government support.
Debottlenecking Program: New reheating furnace stabilized; NDT line and peeling line commissioning by September-October 2026; will eliminate material pile-up awaiting testing, reduce outside job work for peeling, and improve product mix and sales quality from H2 FY27.
Solar Expansion: Government policy change enables ~50% capacity enhancement in 1-1.5 years; savings lower than phase 1 as locally manufactured cell requirement raises panel costs; carbon footprint below 0.5 supports European export positioning.
EBITDA Range Trajectory: FY27 range ₹8,000-11,000 per ton; FY28 ₹8,000-12,000; FY29 ₹9,000-12,000; drivers include fixed cost spread over higher volumes, operational cost reductions, job work reduction from Q3 FY27, solar savings from H2 FY28, and high-margin die steel/railway products from FY28-29.
Advanced Metals Division: Fourth growth engine targeting aerospace and nuclear steels; will be a separate JV company with a non-Aichi partner; partner search expected to take ~2 years; technology partners require equity participation.
Guidance & Outlook
| Metric | Guidance / Outlook | Commentary |
|---|---|---|
| Sales Volume - FY27 | ~255,000 tons | No capacity constraint in current year; licensed capacity sufficient |
| Sales Volume - FY28 | ~270,000 tons base; ~290,000 with EC clearance | Dependent on Environment Ministry approval for 360,000-ton melting capacity, expected in 3-4 months |
| Sales Volume - FY28-29 | 330,000-340,000 tons | Requires ~1-year capex program post-EC approval |
| EBITDA per ton | FY27: ₹8,000-11,000; FY28: ₹8,000-12,000; FY29: ₹9,000-12,000 | Fixed cost spread over higher volumes, operational improvements, job work reduction, solar savings |
| Forging Unit | Commissioning Q4 FY27-28; revenue from late FY29/FY29-30 | 6-12 month customer qualification ramp-up; savings >10% vs ₹475 crore estimate |
| New Steel Plant | Commissioning end FY29-30; revenues from FY30-31 | Land/machinery finalization by Aug-mid Sept 2026; capacity increased beyond 5 lakh tons; cost per ton higher due to metal inflation and rupee depreciation |
| Solar Capacity | +50% in 1-1.5 years | Government policy change enables expansion; savings lower than phase 1 due to local cell mandate |
| Q2 FY27 Realizations | Higher than Q1 | Price increase requested from July 1; Q1 settlements partially pending with spillover into Q2 |
| Maruti Import Substitution | Commercial production Q4 FY27 | Approval in progress via Aichi partnership |
| European OEM Supply | Commercial supply H2 FY27 | Samples dispatched; on track |
Risks & Constraints
| Risk | Context |
|---|---|
| Environmental Clearance Uncertainty | Application filed to raise melting capacity from 300,000 to 360,000 tons; management expects approval in 3-4 months but noted "you haven't got it until you have got it"; delay would cap FY28 volumes at ~270,000 tons |
| Project Cost Inflation | Iran war driving up metal prices and rupee depreciation raising greenfield plant costs; reconfiguration (scrap preheating, additional testing lines) increases absolute project cost; forging savings >10% partially offset |
| OEM Price Settlement Risk | Q1 price revisions partially settled with some OEMs pending; increases contingent on industry-wide acceptance; quarterly price negotiations keep EBITDA per ton within ₹8,000-11,000 band |
| Solar Policy Change | Government mandate for locally manufactured cells raises panel costs; phase 2 solar savings lower than phase 1, delaying bottom-line impact |
| Execution & Ramp-up Risk | Forging plant requires 6-12 months of customer approvals; greenfield needs 6-8 months stabilization; new products (die steels, railways) require process learning; revenues back-ended to FY29-30 |
Q&A Highlights
Volume Growth Strategy & Non-Automotive Diversification
- Question: With FY28 growth of only 7-8%, what will drive revenue growth? (Deepak Poddar, Sapphire Capital)
- Answer: Volume growth is capacity-constrained at 300,000 tons licensed melting. Four growth engines planned: automotive steel (current), non-automotive steel (die steels, railways, windmill shafts) via ingot casting in Q3 FY27, forging plant (third), and advanced metals (fourth, ~1.5 years out). Exploring import billets for outside rolling/job work to grow within license limits. (Sachit Jain)
EBITDA Range Upgrade & Margin Levers
- Question: What are the key drivers for increasing the EBITDA per ton range from ₹8,000-11,000 to ₹8,000-12,000? (Ritwik Sheth, One Up Financial Consulting)
- Answer: Three primary levers: fixed cost spread over larger production volumes, ongoing operational cost reductions, and job work reduction starting Q3 FY27; fourth lever is solar savings in ~1 year. Range moves to ₹9,000-12,000 after solar commissioning. Die steels and railway steels add high-margin kicker from FY28-29 with Aichi's die steel know-how. (Sachit Jain)
Brownfield EC Approval & Volume Impact
- Question: When does EC approval for 360,000 tons translate to revenue? (Gagam Shah, Investor)
- Answer: FY28 target would rise from 270,000 to ~290,000 tons without further capex; beyond that requires ~1-year capex program to reach 330,000-340,000 tons by FY28-29. Approval expected in next 3-4 months. (Sachit Jain, Sanjeev Singla)
Greenfield Plant Reconfiguration & Funding
- Question: Is capacity being increased from 5 lakh tons with higher costs due to inflation? (Ritwik Sheth, One Up Financial Consulting)
- Answer: Correct; capacity expanding beyond 5 lakh tons with scrap preheating and more testing lines. Project cost increasing due to Iran war metal prices and rupee depreciation. Land and machinery finalization by August/mid-September 2026. Funding assured: Vardhman Group and Aichi equity commitments, institutional appetite, bank debt, Punjab government support. (Sachit Jain)
Forging Project Timeline & Cost Savings
- Question: When will forging unit start production and what is the cost reduction? (Anand Kumar Sharma, Investor)
- Answer: Commissioning in last quarter of FY27-28; 6-12 months to fill capacity due to new product customer approvals; revenue from late FY29/FY29-30. Savings >10% from ₹475 crore estimate via better negotiations and Indian substitutes for Japanese equipment. (Sachit Jain)
Aichi Partnership & Green Steel Advantage
- Question: What is the potential of the Japanese tie-ups? (Deepak Poddar, Sapphire Capital)
- Answer: Toyota global approval secured; Maruti import substitution localization approvals progressing. Toyota's new Sambhaji Nagar plant expansion needs green steel and VSSL is the only company with approvals to supply. 2030 green steel targets across OEMs favor the company. Aichi brings die steel know-how, being Japan's largest forging company with ~50% market share. (Sanjeev Singla, Sachit Jain)
Exports & Customer Mix
- Question: Can you quantify exports and Aichi's share? Business concentration with Toyota partnership? (Shivam Singh, Capital Ark; Anandh Dharshan, 360 ONE Capital)
- Answer: Direct exports 6-7%, indirect ~5% via Aichi trading arm; Aichi ~40% of direct exports. Earlier direct export estimates were revised as customers increasingly buy Indian components/forged products. Exports not high priority given domestic demand; max ~10%. Maruti ~10% of business with no concentration risk. Indirect export calculation to be reported from next quarter. (Sanjeev Singla, Sachit Jain)
Pricing, Realizations & Demand Visibility
- Question: Are OEM price revisions complete? What is order book visibility and realization outlook? (Yash Parkar, Investor; Damodar Das, Investor)
- Answer: Q1 settlements partially complete; some OEMs still pending with increases subject to industry-wide acceptance. Q2 price increase asked from July 1; Q2 realizations will be higher. No formal order book system; company completely booked and refusing orders. Maruti import substitution commercial production starts Q4 FY27; European OEM supply expected H2 FY27. (Sachit Jain, Sanjeev Singla)
Advanced Metals JV Structure
- Question: Is the aerospace JV with Aichi or a separate partner, and what structure? (Divyansh Gupta, Latent PMS)
- Answer: Will be a non-Aichi JV in a separate company; partner search underway with multiple discussions. Technology partners require equity participation for know-how transfer. Process will take ~2 years; numbers too small for near-term valuation consideration. (Sachit Jain)
Key Takeaway
Vardhman Special Steels delivered a strong Q1 FY27: sales volume of 59,000 tons (+6.5% YoY), revenue of ₹486 crores (+12%), EBITDA of ₹68 crores, and PAT of ₹41 crores, more than doubling YoY from ₹20 crores, with adjusted EBITDA per ton of ₹10,700. The company is running at full 300,000-ton rolling capacity and has applied to raise melting capacity to 360,000 tons. Strategic milestones include the Aichi Steel Technical Assistance Agreement for forging (>10% savings vs ₹475 crore estimate), NDT and peeling line commissioning by September-October 2026 to clear bottlenecks, and solar covering 43% of power needs. Growth strategy spans four engines — automotive, non-automotive (die steels, railways, windmill shafts), forging, and an advanced metals JV. EBITDA per ton guidance moves from ₹8,000-11,000 in FY27 to ₹8,000-12,000 in FY28 and ₹9,000-12,000 in FY29, driven by fixed cost spread, operational improvements, and job work reduction. Key watch points include EC approval timing, greenfield cost inflation from Iran-war metal prices and rupee depreciation, and pending OEM price settlements.