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Vardhman Special Steels Ltd.

BSE: 534392 Sector: Metals & Mining
NSE: VSSL ISIN Code: INE050M01012
BSE 00:00 | 18 Jan 263.60 -1.25
(-0.47%)
OPEN

272.90

HIGH

275.40

LOW

263.00

NSE 00:00 | 18 Jan 263.70 -9.35
(-3.42%)
OPEN

274.90

HIGH

274.90

LOW

262.65

OPEN 272.90
PREVIOUS CLOSE 264.85
VOLUME 10040
52-Week high 309.30
52-Week low 111.20
P/E 10.68
Mkt Cap.(Rs cr) 1,069
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00
OPEN 272.90
CLOSE 264.85
VOLUME 10040
52-Week high 309.30
52-Week low 111.20
P/E 10.68
Mkt Cap.(Rs cr) 1,069
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

Vardhman Special Steels Ltd. (VSSL) - Chairman Speech

Company chairman speech

Dear feflow shareholders

It is that time of the year again. I am here to share my thoughts with you as I lookback on the previous year and try to give you a perspective on the current year and thejourney ahead.

To start with I completed ten years as MD of the Company on the 15th ofMarch 2021. To say that the previous year which was the 10th year of my runningVSSL has been unprecedented would be a gigantic understatement. This was the year of thepandemic. This year was such a roller coaster ride that it began with an initial estimateof an annual loss of D 90 crores (PBT) and ended with a profit of D 66 crores (PBT). Thiswas a year where the first quarter was a total washout and the fourth quarter was thehighest ever performance by far. On one hand this was a year of fear anxiety anduncertainty and on the other hand this was a year of hope resilience flexibility andrenewal. This was a year of strengthening trust amongst all our stakeholders and I amcertain your Company emerged much stronger from this crucible of experiences. I mustacknowledge at the outset the strong support we got from our Board and our partnersAichi gave us the strength to face these times.

Winning Trust

This is the theme of this year’s annual report and this is an area where we madesubstantial progress. We won the trust of our employees by looking after them well inthese trying times.

We won the trust of Aichi by demonstrating the learning ability of our people. We wonthe trust of society by delivering oxygen cylinders our customers by running the supplychain efficiently and our shareholders by delivering the best ever financial results andby recommending a maiden dividend. As a result what was looking like a disastrous yearturned out to be a phenomenal year.

What led to the improved margins?

There were several factors that contributed to the superior margins. To start withthere were some sustainable factors. We had been working very hard on several cost savingprojects and we found that a few major ones fructi_ed. The biggest area was in rawmaterial where we shifted our scrap from imported shredded scrap towards more of localengineering scrap. There were several other areas like yield improvement by increasing thepercentage of sequence heats and in addition taking longer sequences in the castingleading to reduction in end cuts. We increased the size of our heats which too added toimproving our yield as well as reduce the cost of several consumables. We improved ourpower factor for electricity which reduced the cost per unit of power. In addition therewere hundreds of ideas of cost savings under the 3R scheme and cumulatively they have alladded to the bottom line. Further to these costs with increased volume fixed costs likemanpower & administration cost do not increase in proportion. So overall cost per toncame down as we ran at full capacity in the 2nd half of last year. On the basisof all of these factors we got emboldened to revise our normal EBITDA/ton range from D4500-6000 to now D 7000-9000. There was one more factor in addition to these sustainablefactors a favourable steel cycle. As you are aware that the steel sector is on an upsurgewhich leads to higher scrap and other raw material prices but it also led to reasonableprice increases from our OEMs. This has further added to our profitability for theprevious year beyond this range and is likely to contribute to a good first half of2021-22 also. To support my faith in our Company in these times I have personally hikedmy stake in the Company by continuously buying small quantities of shares regularly.

Environment Approval

The environment clearance finally came through for increasing our capacity. This is abig breakthrough as we are approaching full capacity utilization and we expect businessfrom Aichi to start coming through in the coming years. There was a big concern on thecapacity as this would have become a major bottleneck hence the expansion was imperative.The biggest stumbling block was the creation of Green areas within the plant which was aproblem because of the relatively small overall plant area. I am happy to share thatduring various brainstorming sessions our team came up with the idea of creating greenspaces by making our storage spaces more efficient and demolishing some buildings. Inaddition we are planning to create a forest green cover in some idle land of VardhmanGroup near the factory.

Expansion Plans

After getting the environment approval we have also kick started the expansion plan toincrease the capacity of the plant. The investment will take place over phases. We have ashutdown coming in November when most of the work to increase the capacity of the furnacewill be done. As regards the rolling mill the expansion work will be mostly done inNovember next year when we have a scheduled shutdown. The third major category ofinvestments will be the ones for meeting the environment norms which will be happening ona continuous basis. The fourth category is R&D equipment which also will be happeningon a continuous basis as they don’t require a shutdown. The fifth category is normaland replacement capital expenditure which too would be happening on a continuous basis.The last category will be the 2nd NDT line which will be a big-ticketexpenditure and it is under planning and discussion at this stage. There is also a plan toconsider shifting the bright bar plant to another location to create space and tostreamline material flow. The total expenditure involved is estimated to be about D 250crores and is expected to take place over the next 3-5 years with majority of theinvestment being completed in the next 3 years. The envisaged expansion plan will take ourcapacity to 280000 tons of billets and about 250000 of saleable material. We should beable to finance this investment from our internal accruals the cash infused by Aichi of D50 crores and small amounts of incremental debt and in all probability we will not need toraise any capital by equity dilution unless some newer plans come up or Aichi decides toincrease its stake in the Company.

Trust and Motivation

As I shared with you that we had covered a lot of ground with our employees in buildingtrust with them last year by assuring them by words and actions that we were with themthrough the worst times we had seen in our lifetimes. We were lucky as an organizationthat we did not lose a single member to Covid. Some of our team members however did loseclose relatives. In return I must say that the courage our employees showed in restartingthe plant and in facing a major liquid metal spill that shut our plant for 3 days wasexemplary. I saw with my own eyes how they threw aside any fear from Covid and plungedinto restart the plant. Their motto was the organization has our back and they in turnfelt they had to contribute to the Company. As explained earlier by 2ndquarter things were looking good and we were rocking by the 3rd quarter. Weresponded by going a step further and declared a special one-time incentive to all theemployees including the contractor workers to show our appreciation for what they hadcontributed to the organization. To top it all we sent several employees on treks lastyear on company time at company expense which greatly enhanced teamwork. I can see overallthat the morale and motivation has gone up substantially.

The Future outlook

Since Aichi became our partner lot of developments are coming to us from JapaneseOEMs. We have already started making steels for Electric Vehicles and will be developingsteels for

Hybrid cars in the near future. We believe that Hybrid cars have strong future in Indiaand we will have an advantage to develop steels for Hybrid cars thanks to our partner -Aichi. Last year was the year of learning to work with them and improving safety andquality. FY’22 is the year of preparing samples and sending to Aichi companies andother customers for approval. FY’23 is the year when trial orders will come in andFY’24 is the year when actual orders will come. Finally FY’25 is the year whenthe full potential of the current plans is likely to be realised with full utilisation ofthe expanded capacity of 250000 tons and at an enhanced profitability of around D10000/ton EBITDA. We will also be continuing our work on capital efficiency and will betargeting an EBITDA/capital employed of 25%. These are tough targets and I assure you ourteam is putting in its best to achieve these.

The time has also come when we will start brainstorming with Aichi about ideas on whatnext after the implementation of this expansion. Do we need to further expand the steelcapacity which would mean a green field plant or an acquisition or should we think ofgoing in for some product diversification to some other specialised steels or should wetake a look at forward integrating into forgings. All these ideas will be thrashed out inthe next couple of years.

Personal Front

Fortunately our family escaped lightly and were safe during these Covid times. Myelder daughter Soumya has settled down in Hyderabad and completed her first year ofmarriage. I am trying to get her involved in our Company. My younger daughter Sagrika hasfinished her 1st year of MBA at London Business School. My wife Suchita is busyhelping her dad run the Group Flagship Vardhman Textiles Limited. And as regards me I amliving life to the fullest and have developed two new hobbies cycling and yoga and Icompleted my 1st 100 km ride in May 2021. I was also able to go for a trek inNovember last year which was as usual a phenomenal experience. All in all life continuesto be exciting and adventurous. Tough times have opened the doors to newer opportunitiesfor us and we at Vardhman Special Steels intend to grab these and make the most of it topropel us towards our objective of becoming a world class company.

Thank you for being a part of my adventure.

Cheers

Sachit Jain

Vice-Chairman & fellow shareholder

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