Detailed Narrative
Record Performance in FY26 and Strategic Growth Initiatives
Vardhman Special Steels Limited concluded FY26 with a record performance, achieving its highest-ever volume of 225,000 tons and record profits of INR122 crores. The company commissioned a new reheating furnace in March, boosting rolling capacity to 270,000 tons, and a solar plant that will generate 9 crore units of power annually. Additionally, a new 210X210 section was introduced, enhancing productivity and reducing rework, contributing to overall operational efficiency.
Ambitious Capacity Expansion and Diversification Plans
The company is embarking on significant expansion, targeting a new steel plant with 500,000-600,000 tons capacity to be commissioned by July 2029, which will bring the total capacity to approximately 900,000 tons. A new forging plant is also planned, with equipment ordered and commissioning expected in Q4 FY28 (Jan-March 2028), focusing on high-value products like ring gears. Strategically, Vardhman aims to diversify its product portfolio, targeting 30% non-automotive steels (e.g., railways, oil & gas, defence) within the next 10 years, and exploring advanced alloys and materials in the next 3-5 years.
Enhanced Profitability Guidance and Cost Efficiencies
Management has revised its EBITDA guidance upwards, from the previous INR7,000-10,000 per ton to INR8,000-11,000 per ton for FY27, and further to INR9,000-12,000 per ton for two years from now. This improved outlook is primarily driven by expected volume growth, ongoing cost-cutting measures, and process improvements, rather than immediate significant shifts in product mix. The company's focus remains on maintaining healthy spreads, despite facing challenges from rising raw material and gas costs.
Significant Capital Expenditure and Funding Strategy
Vardhman Special Steels has committed approximately INR2,600 crores towards its expansion projects, including INR2,000 crores for the new steel plant and INR475 crores for the forging project, alongside internal and replacement capex. The funding strategy involves roughly INR1,200 crores in equity infusion, with INR385 crores already secured, and approximately INR1,200 crores in debt. The company aims to maintain a peak net debt-to-EBITDA ratio below 0.75, with a comfortable target of 0.5, ensuring financial prudence during this growth phase.
Strategic Shift Towards Indirect Exports and European Market
The company is strategically shifting its export focus from direct steel exports to indirect exports via components manufactured in India. This pivot is driven by higher operating costs in Europe and the impending CBAM regulations, positioning Vardhman to leverage its green steel capabilities and India's cost advantages. Management is engaging with global forging majors and OEs to supply components, anticipating that indirect exports will form a larger proportion of its future international business.
Customer Validation and Aichi Partnership for Forging Business
Entering the new forging business, customer validation is a critical step for Vardhman. The company is leveraging its partnership with Aichi, a world leader in forging, to accelerate customer approvals. By potentially supplying from Japan initially and having Aichi personnel lead the forging division, Vardhman aims to reduce the approval process and time. This collaboration is crucial for successful market entry and ramp-up for products like ring gears, where Aichi's expertise provides a competitive edge.