Vardhman Special Steels Ltd (VSSL)

  • Vardhman Special Steels Ltd (VSSL), incorporated in 2010, is one of the leading producers of special steel in India. It has a production capacity of 220,000 tonnes of melting and about 200,000 tonnes of rolled (FY21 capacity utilization of 75%) in Ludhiana (Punjab) and supplies steel to engineering, automotive and allied industries
  • Toyota subsidiary, Aichi Steel Corp (a subsidiary of Toyota) has an 11.4% equity participation along with technical assistance in specialty steel production which will help in upgrading the quality of specialty steel to global standards
    • Further as per the agreement, VSSL will add an additional capacity of 80,000 MTPA (capex of INR 250 cr through internal accruals) for EV and hybrid cars thereby becoming a part of Aichi’s global supply chain.
    • VSSL has technology and technical know-how to make steel for global automotive and engineering companies
    • Aichi is Toyota’s subsidiary, and this alliance will pave the way for VSSL to seek registration as vendor for more plants of Toyota
    • This will bolster VSSL’s export revenue contribution to 25% over the next 4-5 years from the current 5%
  • Industry drivers
    • PLI scheme in specialty steel & automotive segment: There are very few producers of specialty steel in India, therefore, the order flow would be fairly distributed among them
      • PLI Scheme in Specialty Steel: The government has approved INR 6,322 cr for the specialized steel sector to enhance India’s manufacturing capabilities
    • PLI Scheme in Automotive Space: Government approved an INR 26,058 cr PLI scheme for auto, auto-components and Drone industries to enhance India’s manufacturing capabilities
    • Make in India and China+1: ‘Make in India’ & China+1 is likely to increase the manufacturing of critical components used in the capital goods and automotive sector in India. This is expected to improve demand for specialty steel
  • The company aims to be debt-free by FY25 and this is achievable
  • The company uses use graphite electrodes over copper electrodes used by its competitors
    • Special shapes cannot be manufactured with copper, but graphite is easier to form, and the copper electrode is heavier, which is not suitable for processing large electrodes
  • Cost advantage and comparatively environment friendly: VSSL uses scrap steel as a key raw material to produce specialized steel. Compared to sponge iron, specialized steel produced through the recycled route consumes less energy and emits lower carbon
  • Risks
    • Existing large players - Tata Steel & JSW Steel, could expand in special steel space to diversify
    • Demand and pricing in the steel industry (for both raw material and finished products) are volatile and are sensitive to the cyclical nature of the auto industry
    • Any change in terms or termination of the alliance could be expected business performance and impact future estimates for VSSL
      • Aichi also partnered with Usha Martin in 2014, this agreement was dropped in 2018
    • PLI in specialized steel could attract other large players to diversify in this high margin product segment
    • Less negotiating power with OEMs as size of OEMs is huge

Following are the financials

Disclosure: Invested and my views could be biased


Already invested but sold this month because of this “less pricing power”. Renegotiation of pricing by OEMs dent PAT this quarter and even it was compensated for last the last quarter too.

Yes, less pricing power against big OEMs is a risk factor

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• Snip from Aichi Steel corporation Integrated report