Vardhman Special Steels Ltd. share price target

Company Update

On the back of elevated operating costs, EBITDA margins declined both QoQ as well as YoY. During the quarter, EBITDA margin was at 10.8% compared to 13.7% in Q3FY21 and 13.6% in Q2FY22. The subsequent EBITDA for Q3FY22 was at | 39 crore, down 2% YoY & 15% QoQ. During Q3FY22, EBITDA/tonne was at | 8668/tonne compared to | 8583/tonne in Q3FY21 and | 10583/tonne in Q2FY22...

PAT for Q2FY22 was at | 24 crore, up 172% YoY but down 13% QoQ 12 months (from ~| 67 in October 2020 to ~| 262 levels in October 2021). We continue to remain positive and retain our BUY rating on the stock Target Price and Valuation: We value VSSL at | 340 i.e. 7.5x FY23E EV/EBITDA In June 2021, VSSL was granted environmental clearance (EC) for expansion of capacity at its existing plant in Ludhiana, to up to 280000 tonnes per annum (TPA) of rolled production. With this approval, the path for enhancement of capacity has been cleared. To begin with, the current...

Benefiting from PLI and Scrappage Policies Aichi Alliance icing on the cake

Vardhman Special Steel (VSSL) has recently been granted the environmental clearance (EC) for expansion of capacity at its existing plant in Ludhiana, to up to 280000 tonnes per annum of rolled production. The company applied for the said approval in CY19. With this approval, the path for enhancement of capacity has been cleared. To begin with, the current rolling capacity of 200000 tonnes per annum would be increased to 250000...

Vardhman Special Steel (VSSL) reported a healthy set of Q4FY21 numbers on the back of strong demand from the automobile sector. Sales volume for the quarter was at 47828 tonnes, up 34% YoY, 4% QoQ. Topline came in at | 334.5 crore, up 63% YoY, 16% QoQ. Topline growth was on the back of higher sales volume and price increase, which came into effect from January 2021. Ensuing EBITDA came in at | 52.3 crore, up 231% YoY, 32% QoQ. EBITDA margin for the quarter was healthy at 15.6% (13.7% in Q3FY21, 7.7% in Q4FY20). The robust EBITDA performance was primarily on the back...

Improvement in demand from automobile sector augurs well Healthy demand from the automobile sector and from OEMs/component manufacturers aided VSSL to report a strong operational performance in Q3FY21. On the back of good demand from user industry, for Q3FY21 VSSL reported a robust EBITDA/tonne of | 8583/tonne (| 4794/tonne in Q2FY21 and | 1879/tonne in Q3FY20). This quarter's performance was beyond company's normal guided range. VSSL's EBITDA/tonne guidance is in | 5000-7000/tonne range. For 9MFY21, EBITDA/tonne came in at...

Earlier, during Q1FY21, VSSL reported a subdued performance. While the Q1FY21 performance was weak on the back of Covid-19 related concerns, in Q2FY21, the company witnessed a healthy turnaround in its operations on the back of a smart recovery in demand from the auto sector. On the back of strong demand from the domestic auto sector, in Q2FY21 VSSL registered its highest ever quarterly sales volume of 43986 tonnes (up 32% YoY). Going forward, for Q3FY21 also, the management expects the healthy trend in auto...

For FY20, topline was at | 846.2 crore (down 24.5% YoY). The decline in topline was on account of lower sales volume, decline in sales realisation and lower trading sales vs. FY19. The decline in sales volume was due to lower demand from the automotive industry. EBITDA for FY20 was at | 39.7 crore (down 41% YoY). In addition to muted demand from the automotive sector, higher cost of inventory built for the planned plant shutdown in Q2FY20, inventory loss due to decline in raw material and electrode prices and higher fixed cost per unit of steel due to low production levels also...

Presence in niche segments limits competition: VSSL has a presence in northern India where competition in alloy steel and special steel is comparatively less compared to other parts of India. Additionally, it is also closer to Maruti and Hero's plant, providing it an edge. Within the broader spectrum, VSSL chooses to be in niche spaces where it enjoys the status of...

Vardhman Special Steel (VSSL) is a part of the Vardhman Group engaged in manufacturing special auto grade steel. The company is a supplier of choice for leading auto OEMs given its focus on strong product quality. VSSL is equipped with capacity to manufacture 2 lakh tonne of steel billets and 1.8 lakh tonne of steel rolled products. The company also has a bright bar capacity of 36000 tonnes. Expanding steel melting, rolling capacity, volume growth to follow... VSSL is currently undertaking expansion wherein it is expanding its steel...