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Performs well...

Vardhman Special Steel (VSSL) reported a healthy set of Q4FY21 numbers on the back of strong demand from the automobile sector. Sales volume for the quarter was at 47828 tonnes, up 34% YoY, 4% QoQ. Topline came in at | 334.5 crore, up 63% YoY, 16% QoQ. Topline growth was on the back of higher sales volume and price increase, which came into effect from January 2021. Ensuing EBITDA came in at | 52.3 crore, up 231% YoY, 32% QoQ.

EBITDA margin for the quarter was healthy at 15.6% (13.7% in Q3FY21, 7.7% in Q4FY20). The robust EBITDA performance was primarily on the back of increase in sales volumes, price increase, better realisations and higher operational efficiencies. Subsequent PAT for the quarter was at | 26.4 crore (| 21.7 crore in Q3FY21 and | 3.6 crore in Q4FY20).

Upward revise EBITDA/tonne guidance range to | 6000-8000/t

Healthy demand from the automobile sector and from OEMs/component manufacturers aided VSSL to report a strong operational performance in Q4FY21. On the back of good demand from user industry, for Q4FY21, VSSL reported a robust EBITDA/tonne of | 10928/tonne (| 8583/tonne in Q3FY21, | 4427/tonne in Q4FY20). For FY21, EBITDA/tonne was at | 6878/tonne (| 2895/tonne in FY20). VSSL has upward revised its EBITDA/tonne guidance range to | 6000-8000/tonne (from | 5000-7000/tonne range earlier). We model EBITDA/tonne of | 7000/tonne for FY22E and | 8000/tonne for FY23E.

Reports healthy FY21 performance…

VSSL reported a healthy performance in FY21. For FY21, the company reported sales volume of 150265 tonnes (up 9.5% YoY). Despite a muted Q1FY21 performance, impacted by Covid-19 related lockdown, VSSL was able to register higher sales volumes YoY due to increased demand from OEMs/component manufacturers in the remaining quarters of FY21. For FY21, topline came in at | 937 crore (up 11% YoY). Topline growth was mainly on account of a combination of higher sales volumes and price increase received twice effective from October 2020 and January 2021. EBITDA for FY21 was at | 103 crore (up 160% YoY). EBITDA margin for FY21 was at 11.0% compared to 4.7% in FY20. Ensuing PAT for FY21 was at | 44 crore (compared to PAT of | 3 crore in FY20).

Valuation & Outlook

VSSL reported a healthy performance in Q4FY21 on the back of strong demand from the automobile sector. Going forward, over the medium to longer term horizon, the company plans to focus on improving its RoCE. VSSL plans to achieve an RoCE of 25% by 2025. We value the stock at 6.5x FY23E EV/EBITDA and arrive at a target price of | 240 (earlier | 140). We maintain our BUY recommendation on the stock.

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