Vardhman Special Steels Limited

Vardhman Special Steels reported a total sales volume of 55,500 tons in Q1 FY26, marking a 10% increase over the corresponding quarter last year. Revenue from operations stood at ₹433 crores, growing by 5% YoY, despite a decline in prices. EBITDA per ton for the quarter was ₹7,000, which is at the lower end of the company's target range, primarily due to price cutting by larger players and an inventory valuation loss of approximately ₹6 crores. PAT for the quarter was ₹20 crores, down from ₹26 crores in Q1 FY25.

A significant development in the quarter was the equity infusion of ₹385 crores from Aichi, increasing their stake to 24.9%. This capital was primarily utilized to repay all existing debt, making Vardhman Special Steels a debt-free company. The remaining funds from this infusion are held in Fixed Deposits and are earmarked for future capital expenditure. This move provides a strong financial foundation for the company's aggressive growth plans.

In a strategic collaboration with Aichi, a global leader in automotive forging, Vardhman Special Steels announced its entry into a specialized forging business for the Indian automotive market. This new line aims to produce 12,000 to 15,000 tons per year initially, focusing on products with superior processes and no direct competition in India. Detailed project costs, timelines, and investment for this venture are expected to be finalized within the next six months, with a long-term vision of reaching 60,000 to 100,000 tons per year capacity within 10 years.

The company successfully commissioned its Kocks Block, which is stabilizing faster than anticipated and operating efficiently from day one. Several other capex projects are underway: a new heating furnace is expected to be commissioned in Q4 FY26, which will increase rolling mill output capacity to 270,000 tons. The second NDT line, crucial for high-quality products, is under construction and targeted for commissioning by June-July next year, aiming for a rolled products capacity of 265,000 tons from FY27. The Greenfield steel plant is on track for commissioning in July 2029, with full utilization expected within three years thereafter.

Vardhman Special Steels is actively pursuing green steel initiatives, boasting a carbon footprint of 0.73, significantly better than the government's 5-star rating norm of 1.6. This is projected to further improve to 0.45-0.48 after the solar plant becomes fully operational. The company anticipates benefits from government policies, including a contemplated carbon trading mechanism and procurement preference for green steel, especially from sectors like railways. The solar plant, though delayed from June to August due to a minor court case, is ready and expected to be operational soon.

The planned ₹2,000 crores Greenfield steel plant is targeted for a 1:1 debt/equity funding mix, implying ₹1,000 crores of new equity and ₹1,000 crores of debt, aiming for a 0.5:1 debt/equity ratio. The company intends to maintain promoter stake above 50%, while Aichi is committed to retaining its 24.9% stake, potentially increasing it in the long term (5-10 years) with Vardhman Group's support. The major need for funds for this expansion is envisaged for 2028, aligning with the project's aggressive schedule.

While Q1 FY26 saw EBITDA per ton at ₹7,000 due to market pressures^🌐, management expects it to remain in the ₹7,000-10,000 range for the current fiscal year. For FY27, the target is to raise this range to ₹8,000-11,000 per ton. This improvement is anticipated from five key factors: benefits from the solar plant, cost savings from in-house job work due to the new reheating furnace, improved yields from increased billet size, reduced hidden costs from higher volumes, and the full benefit realization from the Kocks Block.