Vardhman Special Steels Ltd Q1 FY26 Earnings Analysis

- Targeting 225,000 tons sales volume in FY '26, a marginal increase limited by current rolling mill capacity. - Bigger jump to 250,000 tons volume planned for FY '26-'27 as capacity expansions stabilize. - New plant expected to start contributing from FY '28-'29 with potential to increase capacity and product size range. - No new product launch but minor variations and chemistry changes expected to meet customer requirements. - Export mix currently low (~5%), with no significant increase forecasted in near term. - Expectation of good traction from Maruti Suzuki and Toyota post Aichi tie-up, with import substitution opportunities. - Long-term domestic alloy steel market expected to grow from ~4 million tons to 10 million tons over 10 years, presenting growth opportunities. - Cost-saving initiatives (e.g., solar power plant) to improve EBITDA, supporting revenue growth.

- FY '25 sales volume was 215,000 tons with EBITDA per ton around INR 8,200 within a target range of INR 7,000 to 10,000. - For FY '26, production target is about 225,000 tons, with marginal capacity increase due to rolling mill limits. - Significant capacity expansion planned for FY '26-'27 targeting 250,000 tons. - New greenfield plant expected to start production in FY '28-'29, with capacity expansion up to 130 mm diameter steel (currently max 90 mm). - EBITDA per ton for existing plant targeted to improve to INR 8,000 to 11,000 in FY '26-'27. - New plant profitability expected to be comparable to existing plant at full capacity. - Cost savings from solar power plant (commissioned in FY '25) will enhance EBITDA. - Outsourcing to reduce significantly by '26-'27, improving EBITDA per kg. - Export growth forecasts revised down; focus remains on domestic automotive OEMs. - Overall, moderate volume growth and improved efficiency expected to drive better earnings over the next 2-3 years.

- Completing reheating furnace capex (~INR 55-60 crores) by December FY'26 to reach 250,000 tons rolling mill capacity; no major further capex on existing plant after this. - Left-out capex for FY'26 and FY'27 including rolling mill equipment, non-destructive testing line, R&D equipment, environmental expenses totaling INR 175 crores. - Planned greenfield plant investment of about INR 2,000 crores in Punjab targeted to start production by FY'29-30, featuring green steel and solar power for a lower carbon footprint. - Greenfield plant funded through a mix of equity and debt, with partners expected to increase stake; land purchase completion expected in next 2-3 months. - Implementation of Kocks block at existing plant to improve quality, reduce inventory, and increase rolling mill capacity. - Solar power plant commissioning planned for current year to cover 40-45% of power demand, aiding cost savings.

- Vardhman Special Steels plans to finance the new greenfield plant (INR 2,000 crores capex) through a mix of equity and debt. - The company has already engaged with at least 3 banks that have expressed support for loans related to this project. - Equity issuance is expected in due course as part of the funding strategy. - The company's partners at some stage will increase their stake, which will serve as one source of funding. - The promoter may also contribute equity if required. - If additional funds are needed, the company may consider a Qualified Institutional Placement (QIP) as another funding option. - No specific timeline given for the equity issuance or debt drawdown, but land purchase and project approvals are expected in the next 2-3 months.

- Vardhman Special Steels is currently in the development queue for new products, especially with foreign companies like Maruti Suzuki and Toyota, following their partnership with Aichi Steel. - Orders from these customers are expected to start coming in from the next fiscal year. - The company aims to capitalize on import substitution opportunities with these OEMs. - No specific current order book size is disclosed in the call. - The new greenfield plant's production is expected to start by FY'29-'30, suggesting the orderbook growth tied to that project will materialize later. - The company is optimistic about expanding business and increasing orders over time, though precise pending orders data is not provided.