VARDHMAN SPECIAL STEELS Q2FY23 Earnings Call Highlights
In Q1, got a price increase much less than what was legitimate and what is expected by co and there was a trend for a price reduction after that. With great difficulty settled through that price.
Q2 prices were lower than Q1 whereas costs were not much lower, and therefore, operating margins came down in Q2. However, got reprotection from a past government incentive with came through of INR 9.4 crores which is GST refund. And that has been accounted. This is GST refund up to the year '21. For the year '21, '22, still haven't got the approval.
On track to meet revised target of 195,000 tons for the year. Might even try to see if can exceed this figure and touch 200,000 tons.
EBITDA to capital employed is about 20%.
First 3 years of this agreement with Aichi have been completed. Have signed the agreement again for the next 3 years. And with Toyota, the approvals have started coming in, and part production has already started for some parts and mass production has started for some part. So there is a series of parts which need to get approved.
This year, should do about 3,000 to 4,000 tons and in the next 3 years, this figure should rise to about 30,000 tons. Beyond that, the potential is huge because eventually, Southeast Asia business Toyota, which is coming from Aichi Steel, large part of that is likely to shift to India. So the potential is huge, it depends on co’s ability to submit the requirements. there's reasonable confidence of achieving those numbers. So in addition to these numbers, there are other Japanese customers who are coming because of Aichi, not through Aichi, but because know Aichi is here and therefore, quality levels reached the Toyota standards and therefore, other Japanese customers in Southeast Asia are also gravitating towards VSSL.
From a business point of view, expecting a shortfall in capacity in the next 2 to 3 years.
Benefit from government is going to last for about 7 years. Expecting about 7.5 crores for 1 year, for previous year, which will one only when there can be approval will get it. Going ahead, it will be roughly about INR 8 crores to INR 10 crores per year.
Electricity benefit also about INR 8 crores to INR 10 crores per year.
Prices are headed a little downwards, but domestic prices are higher than international prices, and were largely relying on domestic scrap. But as the international prices are staying at a lower level, have increased the purchase of imported scrap.
OEs are asking for a price reduction, whereas co is not prepared to give any price reduction at this point in time.
There are several products to be approved for. And the approvals are coming in every quarter, getting some more approvals. Because it's a slower process of sending material, making parts, testing those parts and getting those approvals.
The new products are unique products to Toyota. It may be the same grade, but the quality specs would be different in some cases. In some cases, they may be unique grades also. But mostly, it is existing grade but much tighter quality specifications. This product cannot be sold to anybody else.
Only supplier in from India in Hyundai.
Have up to 70% to 80% wallet share in some cases, and would be 15% to 20% in some cases. But very rarely below 20% for any customer.
Going to have a shortage of capacity in next few years. So holding on to any further aggressive push in marketing.
It will take 5-6 years for a greenfield plant.
Believe INR 7,000 to INR 10,000 EBITDA per ton is a sustainable number. And beyond '25, will be targeting the figure of INR 10,000 to INR 12,000 EBITDA per ton.
Aichi sales is negligible in the first half.
Vision is to be the #1 special steel company and be a world-class company, to reach an appropriate size of 800,000 to 1 million tons. Eventually, plan to be also perhaps in Europe and Africa over time.
Last year, sold 6% of steel to the EV sector, which is higher than the percentage of EV vehicles sales to total vehicle sales in India. Well poised for taking a disproportionate share of the increase in EVs. At the same time, Toyota, a partner, is the global leader in hybrid. So will be supplying eventually with the hybrid sector also. Developing steel for the EV sector and also for the combustion engine.
Once Toyota approval comes, then the ability to enter into any Japanese OE becomes very high.
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