Vardhman Special Steels Ltd (VSSL)

Stock Opportunities
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  • 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

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Disclosure: Invested and my views could be biased

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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.

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

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• Snip from Aichi Steel corporation Integrated report

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Note: invested at lower levels

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Hi,

Unable to load the above link. Pl fix or share right link

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The newsletter has been removed. Its not available at the moment.

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VSSL REPORT - BY CHAITANYA RAO.pdf (1.7 MB)
:rocket: VSSL: A Small-Cap Gem Ready to Shine! :rocket:
:mag: Vardhaman Special Steels Ltd. (VSSL) is making waves with its robust performance and strategic moves. Here’s why I’m bullish:
:sparkles: Highlights :sparkles:
:one: Record Q2 FY25: Highest-ever sales of 59,000 tonnes (+20% YoY), revenue at ₹494 crores (+20% YoY), and EBITDA up 31%. :chart_with_upwards_trend:
:two: Capacity Boost: Expansion to 300,000 tonnes with cutting-edge tech like Kocks Block. :factory:
:three: Sustainability: Solar plant to cut 45% power costs and promote green steel. :earth_africa:
:four: Global Ambitions: Export targets rising to 20% of sales, Tier-1 supplier status for top OEMs. :earth_asia:
:five: Future Outlook: Plans for a new Greenfield plant and global expansion are underway. :red_car:

VSSL’s strategic moves, robust management, and partnership with Aichi Steel (Toyota) position it as a multi-bagger in the making. Yes, challenges like global pricing pressures and raw material costs remain, but with a long-term vision & patience, over the next 3-4 years this company is on track to dominate the special steel segment! :hammer_and_wrench: and give remarkable returns.

My views:-
:one: Market Cap Growth:
When I first started analyzing and investing in VSSL, it had a market capitalization of ₹1,000-1,500 crores. Today, it stands at ₹2,000 crores, reflecting its strong growth trajectory.
As highlighted in earlier reports, VSSL is steadily advancing towards its goal of becoming the #1 Special Steel Manufacturer in India.
:two: Strategic Partnership with Aichi Steel:
VSSL now benefits from the support of Aichi Steel (Toyota), a globally reputed partner.
With 50 years of expertise in the steel industry, VSSL’s proactive management has built a solid foundation for sustained growth—a rare feat in this sector.
:three: Innovative Product Development:
The company is mastering new product designs tailored for large OEMs, both in India and globally.
VSSL will exclusively manufacture patented products shared by Aichi Steel, making it the only producer worldwide outside of Aichi.
:four: Capacity Expansion:
Capacity challenges are being addressed for the next 2-3 years through solutions like outsourcing and Greenfield/Brownfield expansions.
These initiatives will ensure that VSSL is equipped to meet growing demands effectively.
:five: Short-Term Challenges:
Near-term financial performance may be impacted due to ongoing capex operations and fluctuating costs of raw materials and gas.
Management advises evaluating VSSL’s performance on an annual basis rather than quarterly, as long-term growth remains strong.
:six: Focus on Toyota and Beyond:
Currently producing 2.3 lakh tonnes annually, VSSL primarily serves Toyota.
Future plans include onboarding additional clients, which will significantly scale operations.
:seven: PLI Scheme Benefits:
Under the PLI Scheme, VSSL will receive approximately ₹30 crores over the next three years, boosting its financial capabilities.

Follow me on LinkedIn for more such case studies.
Chaitanya Rao
https://www.linkedin.com/in/chaitanya-rao-bb6267283/

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