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Ladies and gentlemen, good day, and welcome to Vardhman Special Steels Limited Q4 FY '23 Earnings Conference Call hosted by IIFL Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. [indiscernible] from IIFL Securities. Thank you, and over to you, sir.
Thank you, Deepan. Good afternoon, everybody. On behalf of IIFS Securities, I welcome you all to Earning Conference Call for Quarter 4, Financial Year for '23 for Vardhman Special Steels Limited. We are pleased to have with us Mr. Sachit Jain, Vice Chairman and Managing Director; Mr. Sanjeev Singla, Chief Financial Officer. We will have opening remarks from management, followed by a question-and-answer session. So now I'll hand over to Mr. Sachit Jain. Over to you, sir.
We've lost the line of Mr. Sachit Jain, please stay connected. We will reconnect the line.
Mr. Sanjeev, your line is unmuted. You can go ahead.
Okay. Thank you. Good afternoon, ladies and gentlemen, and we welcome to this earnings call for the quarter as well as for the year ended 31st March 2023. This quarter...
Yes, I have joined the call. Please carry on. No, no you carry on.
So I have just started so you can start. I just welcome.
Ladies and gentlemen, a very good afternoon. Thank you for joining our call. And my apologies there are delay -- while the connectivity issue and living in a remote area, they could not connect with me. If it disconnects, still I will continue and I'll just connect back again.
The key highlights for last year -- last year has been a very, very interesting year for us. Several records have been crossed. We've had the highest sales, highest production, overall cost in that terms of sales each department had record production. And most importantly, we have started mass manufacturing for the Toyota Motor Corporation. Of course, in a small way and it would gradually build up over the next 3 years. And we've also just finished 50 years of our steel business. We had a big celebration. And as a result of that celebration, we had just prepared a bonus issued also, but I will ask Singla to go through the number. And then I'm here to take if any questions. Singla, go ahead.
Yes. This quarter, we have just -- this quarter our total [ steel ] volume is 50,500 tonnes as against 41,500 tonnes in the corresponding quarter of last year, it's a 21% increase. And on the revenue side, it's INR 422 crores as against INR 343 crores a 23% growth over the corresponding quarter of last year.
In EBITDA, there is a fall from INR 59 crores to INR 29 crores primarily because of some of the reasons like in the corresponding quarter of last year, we had accounted about INR 19 crores of other income on account of electrical duty, junction which was pertaining to 2019 to 31st March 2022. So that was -- some amount was pertaining to the previous year itself. But most of the amount was pertaining to the earlier years.
Secondly, last year -- from last year some of the prices like raw material price, fuel cost and some consumable prices have also increased, which has also impacted the profitability of current quarter. And in this quarter, we have been able to achieve reported [indiscernible] of INR 5,800. In this quarter, there is one more abnormal expenditure, I will say, which is not pertaining to the quarter 4. It is INR 6.6 crores of price reduction, which we have agreed with our OEMs, it is INR 1,750 price decrease from 1st October 2022, which was finalized in the month of February.
So we could not account for in the month of -- in the quarter, Q3, but for the price decrease for Quarter 3, but amounting to INR 6.6 crores has been accounted in Quarter 4. So that is an additional price decrease, which has been accounted in this quarter.
Ignoring that price decrease our reported [indiscernible] becomes INR 7,200 a tonne. On the annual side, we have achieved 200,000 tonnes those are double painted, 200,000 tonnes of sales for the first time. And our EBITDA stands at INR 180 crores as against INR 202 crores of last year, a decrease of 11%. Our total [ PVD IT] is INR 9,000 a tonne and this INR 9,000 a tonne, most of the income is pertaining to the current year results apart from INR 11 crores, which is pertaining to the previous years.
So INR 8,400 a tonne is the [ PVD IT ] pertaining to the current year results. The Board has recommended a dividend of INR 2 per share, post issuance of bonus shares. And one more thing I would like to share that in this quarter, we have signed MoU with [ Ministry of Steel ] under the PLI scheme, production-linked incentive scheme, because we -- our case was approved. And accordingly, in this quarter, the MoU has been signed.
So that's all from my side and I request for the questions.
[Operator Instructions] Our first question is from the line of the Radha from B&K Securities.
Firstly, many congratulations on starting supplies to fortune companies of Aichi Steel. And sir, my first question is, you guided for 10k tonnes of supplies to Aichi for this year, so in that context and also starting supplies to Aichi. I wanted to understand what is the total requirement of Aichi from the Southeast Asian rating?
We don't have the exact figures, but our total plan would be [indiscernible] I would guess either 200,000 to 400,000 tonnes. [indiscernible] but that's my rough idea. That's a large number.
From Southeast Asia, particular?
[indiscernible] So there will be -- the target is, [indiscernible] 30,000 tonnes.
30k tonne, by '25.
'25...
Sir. So in this context, currently are exposed to 5% that you've mentioned in the presentation and we are targeting 25% by FY '25. So I think that comes around 50k tonnes. Out of that, 30k tonnes like you mentioned is to Aichi. So any other customers for the remaining part?
There are other customers like Somboon and then we are working for Yamaha. We are talking with the developing steels for [indiscernible]. There are several customers that we are developing -- under development stages. But -- and we already have a market of customers in Thailand -- in for the year and we are also exporting to Turkey. So we will have small volumes. And again, through Rajasthan we don't have a huge capacity [indiscernible].
Understood, sir. Sir, these customers, you have mentioned, have you already gotten approval from them? Or are they are included in the 5% sales currently?
Some of them are, Yamaha was actually [indiscernible].
Okay, sir. Sir, next question is -- sir, our next phase of expansion post this 2.3 lakh tonnes, which is 2 lakh tonnes to 3 lakh tonnes. So by when can we start producing from this additional capacity from 2.3 lakh tonnes to 3 lakh tonnes?
No. Just now our announced plans are only up to about 2.3 lakh tonnes. 2.3, 2.35, the exact figure, we will find out as soon as we reach those numbers. So that is where our current target is. So we don't have any plans beyond that in this current year. We have a license. So, let me finish, we have a license of 300,000 tonnes. But we -- our melting capacity will be constrained at about 2.6 lakh tonnes. And beyond that, it will take some effort and time through size range and improvement, let's see where [indiscernible] roughly 2.6 lakhs of melting, which means roughly 230,000 tonnes of steels.
On a Q-o-Q basis, we have seen the commodity prices rising, that has impacted our gross margins. So can we expect this to be faster in the next 2 quarters or so?
We are hoping to -- we are looking to increase prices from first vehicle. We have already asked our customers to -- so our price increase letters have gone out. And we have to see the price increase from one of the -- I mean, only one [indiscernible] given the price increase this month and we hope to discuss with the other [indiscernible] customers.
Sir, what is the quantum that we are looking out for?
No. We have asked -- network that have gone up by INR 7,500 related [indiscernible] for that much steel. And other companies have sent out letters of 8,000, 8,200, 8,500 [indiscernible] has gone out in the market to 1 of the suppliers. So from the increased past, we had been the lowest at 7,500 -- but we had a letter that have gone out, the discussion negotiation will start soon.
Okay. And just one last question. From the longer term perspective, we have gotten clearance -- in the monthly clearance for 2.8 lakh tonnes the rolling mill capacity. But our next phase that we are planning is from 2.3 lakh tonnes to 3 lakh tonnes which is, of course, beyond FY '25, '26. So will we need in future the additional 20,000 tonnes clearance from the environmental services?
I will answer that question. We have taken an environment clearance up to 3 lakh tonne, but in this plan to produce beyond 2.6 lakh tonnes of melting and 2.3 lakh tonnes of rolling therefore, is very, very difficult. Rolling mill capacity will be a little higher, and we can then probably [indiscernible] capacity outside to roll internally. But that all will cross the next 3 years' time. So 3 lakh tonnes license that we put, is only for getting a license -- so it is not that what we will be able to produce that. We have never said we're going to produce 3 lakh tonnes.
Our next question is from the line of Mr. Mohammed Patel from Care Portfolio Managers Private Limited.
So what's the CapEx amounts trend for FY'23?
FY '23, again, Singla, you have to answer that question. Should be about INR 35 crores, INR 40 crores.
Expecting about INR 30 crores -- about INR 30 crores.
INR 30 crores yes. And FY '24 also will be in the range of INR 30 crores to INR 40 crores only.
Yes.
The bigger chance of challenges are happening in the next year.
Yes, '24, '25.
In '23, '24, we will be buying some piece of land and that will be additional...
Addition, yes, that will be additional. Yes.
What will be the combined CapEx for '24, '25?
The total CapEx is about INR 300 crores. Up to '26.
Up to '26. Yes. Sir, in the last call, you were mentioning that the lead time of machines were longer than expected. So how...
Which is why this whole thing has got pushed a few months down the line partly by 6 months, it's gone over to next year. So which is why it's getting [indiscernible] ended to '24, '25 and '25, '26.
Okay. You just to [indiscernible] you said at 2.6 lakh of capacity, the salable will be 2.3 lakhs, just wanted to confirm this.
Yes. Yes. So 1 capacity, 2.6 lakh tonnes is the capacity of melting and then rolling because there are wastages in rolling, lastly, the materials end cards losses of [indiscernible] loss and other things. So altogether, roughly quality loss, where there were short pieces get discarded. So ultimately, the yield [indiscernible] scalable to the product is about only 9% less. And then there is also steel production. The period losses are again between 7% and 12%. So eventually, the sales actualy come down to below 2.3 lakh tonnes. But there will be some bot [indiscernible] during the spectrum. So we expect 2.3 lakh tonnes kind of sales in '25, '26.
Okay. Okay. FY '23 was a year of trials for Aichi. So the trials has completed, more or less?
Lot has completed. A lot more are going on, a lot more will go on. See because in the continuous stream of products coming in. And then there is trials for process stabilization, then there are trials for cost reductions, then there are trials for optimization. So all these trials are happening simultaneously. And unfortunately, since our accounting does not allow us to capitalize such costs, all that goes under the -- goes into the P&L.
Okay. So can you say '24 -- should majority of the trials will get completed?
It never get competed. The whole part of a growth company is the newer products will keep coming. Just now Aichi is selling out the base product to us. Once we have mastered these base products, then the next level of products will come in. And eventually, the plan is even sent out patented products to us, where they are the only manufacturer will move onto such partners. But that's the whole point of a partnership with a world leader that all such products will step-by-step coming to the company as orders capabilities rising.
In Aichi's opinion, it takes 9 years to learn how to make special steels. And we have just spent 3.5 years. Out of which 1.5 years was no efficiency because of COVID and we were working through Zoom calls and not permanently here. So in there today, it takes 9 years to learn to make good quality special steel. The approach of the world is very different and Aichi's approach is very, very different.
Okay. Okay. Understood. And so, how is your mass manufacturing going on as far our expectation?
Yes. As expected, there are troubles. There are problems, there are quality issues, there are rejections, rework. We are doing all that, but we are able to meet the requirements of Toyota and the product, which are reaching the customers. I'll be visiting Thailand in May, which we first time to meet the customer first time to get a first time, first time feedback. But so far, we have been able to meet the target deadlines and delivery and the quality lines we have been able to meet the quality levels at higher cost internally. And those costs are also started to coming down as we are optimizing our processes. It's going as per plan. Let me put it that way.
Okay. Last question. So what is the reason for lower income you mentioned? What can be the sustainable other income number? Lower other income?
The sustainable lower income is about INR 20 crores a year. Other income is about INR 20 crores a year of incentives and putting up a 3 crore, INR 4 crores loss about INR 20 crores to INR 24 crores, we think other income.
So a total of INR 25 crores will be the sustainable income.
And really speaking, only INR 4 crore, INR 5 crore of it should be other income, INR 20 crores of that is really part of -- it is because of accounting reason it comes in as other income, it should really be part of P&L. So -- and since we -- our approvals came late, we had elements of the past year in '21/'22, we had elements of [ electricity ] in the past year which came in. And in '22, '23, we got the GST approval. So now the incentives of the past has come in. Mostly accounted for, I think, is only 5.5 -- about INR 5.5 crores so small one amount let's apply previous years, which when we get approval, we'll account for it. Rest now we are now on to current. Electricity is current, roughly INR 10 crores a year and GST refunds should also be roughly INR 10 crores a year.
Okay. With OEM pricing expected to be better from next quarter. So should we be going back to the higher end of the guidance of INR 7,000 to INR 10,000.
We are not exaggerating that guidance. I've said very clearly, if we're in this range, all depend on the price negotiations with the OE or [indiscernible] -- once the price negotiation happens well, then [indiscernible] numbers should get higher. If it's on the buffer side, you'll get lower, but we believe it should be within this range. And that is why we don't come under pressure to say, that you see the profit will keep increasing every year or margins keep increasing every year, our reference will be to keep improving it. There are some positive factors coming ahead. I get some negative factors coming ahead, so you have the [indiscernible] prices has gone up. That's a negative factor.
Gas prices are coming down. So that's a positive factor. So those factors will keep changing. So I would say that even for next year, we expect to be within the range of 7 to 10. Once the price negotiation finalized, we'll be able to make a better guidance. And as I told you, one -- one OE already price [indiscernible] has happened, which is better. [indiscernible] interval level, at a good level. But still one of the [indiscernible], which is either Tata or Maruti finalizes, others will necessarily follow through. But one finalization is an indication to the figure on that sort of [indiscernible]. So beyond that, I can't...
Our next question is on the line of Nikhil Chandak from JM Family Office.
My question was now you've started the trial production for Aichi. And I'm just thinking what will be the loss in revenue, so to say, by not being able to supply to Aichi because we don't have the capacity?
Just now we have the capacity -- next 2 years, we have no capacity for them.
Right. So currently, you may be even, for example, But in the next 2 years, I'm presuming we'll have a scenario where Aichi will say, want to source from Vardhman. But there will be no capacity to supply. So I'm just trying to...
No, no, no. We have sufficient capacity as per plant in '25, '26. '25, '26 [ 2 ] years, where we'll start running at the problems. So from '26, '27, we will start facing problems, maybe in '25, '26. We have already added capacity. So we don't have a shortage of capacity next 2 years.
Okay. Understood. Understood. So what should be the capacities in '26, for example, then?
We'll be [indiscernible] 30,000 tonnes of sellable material. And this way, we get 207,000 tonnes. So about 15% growth. Over the next 2 years -- next 2 to 3 years.
Our next question is from the line of [indiscernible] from [indiscernible] financial.
Yes. I have 2 questions. Firstly, a clarification in the CapEx figure for FY '24, you mentioned that there is some land parcel. What is this related to?
See, we are planning to buy 2 land parcels. We need covered material -- covered warehouses for storage of material as we need [indiscernible] lines. And we need space to add more storage of raw material scraps. So we need space for all that. Because of that, we are buying 1 plot of about 6.5 acres, which impacts the building. And another plot of 5 acres joining us has become a relative and we are buying that. We don't have any immediate need for that land passing, but at joining hand, land becoming available we have taken a decision to go ahead and buy that. So that 5 acres, plus [indiscernible]. And the 6.5 acres will be used as [indiscernible] able to fluctuate the margins.
And what will be the total CapEx in these cumulative both these parcels?
Cumulative of these 2 parcels is going to be about is -- it's about INR 50 crores. This is in addition to the other CapEx plan.
Right. Okay. And sir, next question is on the EV volumes. Last year, we mentioned that we are about 7% of EV volume.
No, we said 5% to 6%. Last year 6% and we are at the region of 5% to 6%.
Okay, okay. On an increased volume days as well?
I'm sorry?
Yes. Okay. 5% to 6% this year as well.
Yes.
Okay. Okay. And sir, any -- sorry, my question on the greenfield project, any movement there, anything...
No, no, no. We will announce moments we had for decisions we will announce.
But let me say for everybody else. What are the JCBs for. We just started this CapEx as we start production for Toyota. Doing some few cycles, we are completed quality is stabilized for [indiscernible] system stabilized. Service is stabilized -- so still there is the confidence of what is a massive new package will take time. So I just -- as Indians, we are anxious arrival, I could say that we would have the capacity fall in '25, '26 and therefore, I was just in field to take action early that our partners are very clear. The same quality stabilizing, system stabilizing, cost stabilizing, they reach, where we are happy with the production and everything. And that's why [indiscernible] make small quantity. The quantities are going to grow about 5x in the coming budget for Aichi production. So depending on how they see, as a smooth [indiscernible] lot of decision will be taken at the [indiscernible]. In the interim, we will be looking for ultimate strategy to make up for the product capacity bottleneck [indiscernible] why should be looking for outsourcing the material. Thought process is on. And I think we should have some standout of solution. [indiscernible] volume, we have been doing some outsourcing on and off starting with the bright dark, starting with our rolling [indiscernible] outside. So we are doing partial outsourcing. We will be doing that in a more planned manner in the next 2 years because 3 years again, we doesn't have an issue. Or there will be set of business possible acquisition, is it applicable like that contract. So those are other strategy to [indiscernible] strategy because we -- as the answer, when the first [indiscernible] store asked that will be [indiscernible] in loss of steel, if we the capacity bottleneck. So I'm a marketing person, my [indiscernible]. And marketing person doesn't let sales go by the way. So we will do our [indiscernible] open to make sure that capacity is not a bottleneck with the marketing of [indiscernible].
[Operator Instructions] Our next question is from the line of Pradymna Choudhary from JM Financial.
Yes. So I just wanted to understand this 30,000 capacity expansion that we are looking at. What's the meters on that like by when would the new capacity come up?
See, earlier our capacity had done 80,000 tonnes -- so we already [indiscernible] 80,000 tonnes to, we only sold 3 lakh tonnes. So we can sell 2 lakh tonnes [indiscernible]. So about 10% of [indiscernible] happened and another 15% will happen in the next 2 years. There are 2 elements of capacity expansion. One is the key elements. One is the environmental approval, which we've got. And -- but environmental approval is subject to completing of those environmental formalities. So that has almost completed. So that part is over. The second part is melting capacity. The melting capacity is in place, some speeds are getting optimized. So once that gets optimized and we have our capacity in steel making. And the third is rolling capacity. Rolling capacity will go up in 3 stages as we add 3 [indiscernible] resistant. One equipment getting added this year, which is why the CapEx that we mentioned early -- that will increase capacity a bit. Then second, equipment is getting added next year and the third in the later part of next year or early '25. So these 3 equipments will increase the capacity of rolling to beyond 250,000 tonnes.
Understood. And secondly...
This means that we can have the ability to also outsource [indiscernible] perhaps look at outsource units for our rolling, if we needed to meet capacity and requirement, what we can't [indiscernible].
Understood. And also, you spoke about like outsourcing to fill up for any capacity constraints. So can you give us some idea on what would be the EBITDA per tonne.
EBITDA per tonne on [indiscernible] isomeric comes down it will vary something like 3,000, sometimes 3,000 between [indiscernible]. So basically, the manufacturing will be around margin, right?
Yes.
So the margins would be -- additional margins, it will be 3,000 [indiscernible].
Understood. And so...
It will be taken only to maintain market share. And then as a market, when we have capacity of our own then you can easily softly outsource it, maintain shift that's business will replan. I mean those are our strategy how to build up capacity for new platforms we have to enter the market because of plants and platform.
Understood. And sir, another thing -- another basic question I wanted to ask was -- we are waiting for Aichi's approval regarding the new plant and greenfield expansion. But in the meanwhile, like there's a big market outside of Aichi also. So why can't we look at adding some interim capacity -- not interim, but another greenfield capacity hoping to serve other customers?
The cash required to put up a new plant is huge and really putting up only 1 new plant. It is not that we put that 1 plant for 1 market, another plant for Aichi. So what we -- yeah, there is a partner we do things together. So there is no plans on doing anything outside of Aichi model. So we do things together.
[Operator Instructions] Our next question is from the line of Dewang Sanghavi from ICICI Securities.
My first question is regarding the volume guidance for FY '24, we have kind of hit a good volume number for FY '23. So what kind of growth we can expect for '24?
Marginal. As to all our team that this year, is a year of consolidation grown rapidly last year. So we must digest that growth and make sure that look at systems, everything is in even places, nothing is creaking, all those things. So this year is a year of consolidation. So we will probably grow at 2 lakh tonnes to maybe 2 lakh 5,000 tonnes [indiscernible] year of consolidation.
And we did 5% of export volumes last year. So any guidance for current year should be more than 10%, 12%?
Unfortunately, the way our sales are working our sales to Aichi. Actually we have to [indiscernible] domestic tools, with our [indiscernible] get sold to a our Toyoto group company to [indiscernible] India. So actually, it is a domestic sales [indiscernible]. Yes. Let me say [indiscernible] 3,000 tonne those are the destinations. The destination is filing -- the accounting stage will be...
Accounting [indiscernible] domestic sales, because we sell to Toyota. And 1 small clarification, maybe [indiscernible . So what's the quantum and exact number that...
Your voices have be we muscled. Actually didn't understand what?
Is it any better number?
Yes.
Yes, I was asking, I have a little 1 clarification. One of our [indiscernible] had kind of finalized the price hike for Q1 and will the number, what's the quantum for the sale?
I'm sorry, -- so we can't share what -- we're not sharing anything.
We are not sharing. Okay. I thought [indiscernible] Sorry?
But let me say, we are satisfied with our numbers. We are satisfied with that number. It is satisfactory matter.
Our next question is from the line of Anil Kumar Sharma, Individual Investor.
Sir, good afternoon. First of all, congrats for overall good numbers in this tough environment. We are associated with the Vardhman Group for a very long time. So -- and we also know that you are leaving no stone or return for the approvement for the [indiscernible] one apprehension is there, sir, that ideally, 1 off should be given when things are -- we are able to enhance the -- serve the enhanced capital in the same manner? Is this quarter our numbers are down? And can -- had it would not be better that we could have postponed the bonus -- that is my only question.
Otherwise, kudos to you. I know that you are working very hard, but ideally it should because the numbers are less than the previous quarter.
Absolutely, right. No, I mean, you -- it's a very valid observation that we are looking. So let me answer it in 2 parts. One part we have asked whether we will be able to service the enhanced strategy. On that, you can be rest assured the Board of this company deliberated very well. And we took a decision on the bonus only to be confident that we can service the enhanced strategy. So we are confident we can service the enhance strategy. That is one. For second, ideally, you're right. The bonus should be given, when the results are dealing and make sure it [indiscernible]. That is one way of looking at it and second way, this year is a marquee year, we have completed 50 years of existing of the steel business. How many businesses have been 50 years? So last year was a record year, and it get stayed last year, '21-'22 but this is not a record year, this is unrepeatable performance. Ideally, [indiscernible] that didn't make sense because this year '22, '23 was our golden jubilee. Now this is -- more recognition of our golden jubilee than looking for a good quarter or a good year. And otherwise, if you forget this quarter, there is a good news INR 100 crores net profit is a number 5 years ago, I don't think that we have ever predicted we'll reach INR 100 crores [indiscernible] if you leave aside '21, '22. In comparison to '21, '22. '22, '23 looks nothing much. And whereas since January, we were expecting INR 110 crores net debt profit] for this year. And it's just that finally the settlement which happened with -- within Tata Motors and Tata Steel [indiscernible] reduction, where we neither complete the product speed, not we meet the parameters, but at some outside company settings, and because the market was getting frustrated [indiscernible] number.
So suddenly, we were a bit surprised that we had to take [indiscernible] reduction from October. So this is why the profits are -- [indiscernible] . We would have had profits of [ INR 24 crores ] during this quarter.
Overall, Okay, sir, that you are doing [foreign language] last 40 years. But definitely things are much, much better, but my -- our apprehension at...
Yes. Your point is taken. Your point is taken, your point is valid. But you will see in the next coming years that we will be able to beat your expectations in performance.
As there are no further questions from the participants, I now hand the conference over to Mr. Sachit Jain for closing comments.
Ladies and gentlemen, thank you so much for your interest in the company, again. Yes, this quarter has been challenging. But as we always say, in a our company in all my calls, if you want to look at a quarter-to-quarter performance for our company, or short-term performance in our company will not the company to be in. So you have to see the full year performance, and you will see directionally where we're going with the company.
Directionally, I feel very confident of the future authentic path we've taken and the strategy adopted to follow that overall strategy. So we have these messages or relationships and good cost rate events lined up for the future. So I'm pretty positive about the company. And once the global environment improves a bit, I'm sure it's also [indiscernible] a bit improvement in the environment of the company. Thank you so much.
Thank you. On behalf of IIFL Securities Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.