Release Date: February 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) successfully completed planned shutdowns to enhance production capacity, adding two additional stands to the rolling mill, which will increase rolling production by 10,000 tons per annum.
- The company has made significant progress in its ESG initiatives, reducing its carbon footprint from 0.82 to 0.68 metric tons of CO2 per ton of steel, and has executed a power purchase agreement for a solar power plant.
- Collaboration with Aichi Steel is progressing well, with plans to increase exports to Aichi Forge in Southeast Asia to 13,000-15,000 tons next year.
- The company is on track to achieve its annual target of 200,000 tons of sales, with January sales aligning with the plan.
- Financial performance remains stable, with Q3 revenue and tonnage comparable to the previous year, and EBITDA per ton within the stated range of INR 8,900.
Negative Points
- Q3 sales were subdued due to shutdowns by automobile manufacturers and forging plants, resulting in a 6% decrease in sales tonnage.
- The company is lagging behind its nine-month sales target, having achieved only 142,000 tons out of the 200,000-ton annual target.
- EBITDA for Q3 appeared lower compared to the previous year due to the non-comparability of figures, including a GST refund and price reductions booked in different quarters.
- Export figures remain relatively low, with only 10% of sales attributed to exports in the last quarter, despite ongoing efforts to increase this percentage.
- The company faces challenges in obtaining approvals from new customers, such as Yamaha and Musashi, which are still in progress and may take additional time.
Q & A Highlights
Q: Over the past five, six years, we have seen the blended realization has improved from INR55,000 level to around INR85,000 level. Can you give us some trajectory on the blended realization? Is this current level sustainable?
A: The current level of INR85,000 is driven by market conditions and raw material prices. This figure has been stable for the past year, and we do not foresee significant changes in the near future. (Sanjeev Singla, CFO)
Q: What are your plans for incremental improvements on sales and volume front until the greenfield capacity comes online?
A: We are undertaking various process improvements and capacity expansions, including increasing our steelmaking capacity to 260,000 metric tons per annum and revamping our rolling mill. These initiatives will help meet market demand. (Sanjeev Singla, CFO)
Q: Can you explain the frequency of price negotiations with OEMs and how new prices are implemented?
A: Prices are typically negotiated quarterly, based on raw material prices and other factors. There can be a lag between finalization and realization of new prices. (Sanjeev Singla, CFO)
Q: Why are we not more proactive in managing plant shutdowns and capacity expansions?
A: Shutdowns are planned and necessary for maintenance and capacity improvements. We build up inventories to mitigate market impact. Our capacity expansions are well-planned and executed to avoid future breakdowns. (Rajendar Rewari, CEO)
Q: Despite discussions about Aichi and future prospects, export figures remain low. Can you provide detailed projections?
A: Exports are gradually increasing, with a target of reaching 25% to 30% of total sales in a couple of years. We have approvals from major automobile manufacturers, and our collaboration with Aichi is progressing well. (Rajendar Rewari, CEO)
Q: How do you view the current industry demand, particularly in the auto sector?
A: The last quarter was subdued due to shutdowns, but the current quarter looks normal. The auto sector is growing, which should boost demand for our steel products. (Rajendar Rewari, CEO)
Q: Can you provide an update on the progress of mass production for Aichi Steel?
A: We started mass production last year and are on track to meet our export targets for Aichi Forge in Southeast Asia. We expect to increase exports to 13,000 to 15,000 tons next year. (Sanjeev Singla, CFO)
Q: Are there any new expansion plans, and how will you fund the CapEx?
A: Current CapEx plans, including the KOCKS block and reheating furnace, will be completed by mid-next financial year, funded mostly through internal accruals. New projects are still in the planning phase. (Sanjeev Singla, CFO)
Q: How does the company ensure environmental sustainability and responsible manufacturing practices?
A: We focus on reducing our carbon footprint, increasing solar power usage, improving manufacturing processes, and promoting circular economy practices. We are also expanding green areas through initiatives like Miyawaki forests. (Rajendar Rewari, CEO)
Q: What is the guidance for top line and bottom line for FY24 and '25?
A: We expect to achieve our target of 200,000 tons for FY24 and aim for a 7% to 10% increase in volumes next year. EBITDA is expected to remain within the range of INR7,000 to INR10,000 per ton. (Rajendar Rewari, CEO; Sanjeev Singla, CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
