Vardhman Special steel

Vardhman Special Steels is engaged in manufacturing of Billets, Steel bars & Rods and Bright Bars of various categories of special and alloy steels.

Market Position
The Co is amongst India’s Leading Steel Bar Producers for Automotive Applications.

In August 2019, the Co. entered into a strategic alliance with Aichi Steel Corporation (ASC) Japan, the main material producer for Toyota Group wherein ASC had participated in equity and had entered into a Technical Assistance Agreement.

1. Following are some observations

Strong alliance

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

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|

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