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Performs well…

About the stock: Vardhman Special Steel (VSSL) is among India’s leading steel bar producers for automotive applications. It has specialised product offerings, which include steel bars, rods & bright bars of various categories of special & alloy steel.

VSSL, incorporated in May 2010, is headquartered in Ludhiana, Punjab

In August 2019, VSSL 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

Q4FY22 Results: VSSL reported a steady performance in Q4FY22

For Q4FY22, VSSL reported topline of | 343 crore, up 3% YoY but down 4% QoQ. During the quarter, VSSL reported sales volume of 41596 tonnes, down 13% YoY and 7% QoQ

During Q4FY22, on sequential basis VSSL reported increase in its EBITDA/tonne. During the quarter, VSSL reported EBITDA/tonne of | 9148/tonne as compared to | 8668/tonne in Q3FY22. EBITDA for the quarter was at |38 crore, down 2% QoQ and 27% YoY. VSSL also had inventory gain in Q4FY22 which aided the operational performance.

PAT for Q4FY22 was at | 29 crore, up 11% YoY & 50% QoQ. The growth in PAT was supported by sharp increase in other income. Other income for the quarter was at | 22 crore compared to | 2 crore each in Q4FY21 as well as Q3FY22. Other income included one-time gain on account of electricity duty exemption granted to company for September 2019 to March 2022

What should investors do? VSSL’s share price has given a return of ~23% over the past 12 month (from ~| 202 in May 2021 to ~| 249 levels in May 2022).

We maintain our BUY rating on the stock

Target Price and Valuation: We value VSSL at | 300 i.e. 6.5x FY24E EV/EBITDA

Key triggers for future performance:

VSSL plans to increase share of exports to ~20-25% in FY25 from 1% in FY21

Going forward, we model EBITDA/tonne of | 9500/tonne for FY23E and | 10000/tonne for FY24E

Alternate Stock Idea: Apart from VSSL, we also like Jindal Stainless (JSL).

JSL has a 1.1 million tonnes per annum (MTPA) integrated facility with backward integration (ferro chrome and captive power plant).

BUY with a target price of | 250

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