This article first appeared on GuruFocus .
Release Date: October 28, 2026
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
Positive Points
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Vardhman Special Steels Ltd ( BOM:534392 ) reported record sales for Q2 FY27, with revenue from operations up 39% year-over-year and EBITDA up about 50%, driven by strong demand and operational efficiencies.
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The company has successfully commissioned a new reheating furnace and cox blocks, which have increased capacity to 300,000 tons, improved quality, reduced rework and rejection, and lowered job work expenses, boosting margins.
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Vardhman Special Steels Ltd ( BOM:534392 ) received approval from a European OEM and a major domestic customer for import substitution, with mass manufacturing started and sales expected from January, enhancing future revenue visibility.
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The company is expanding its solar plant by 22.5 MW, which will reduce power costs and support sustainability, with 20 MW for the current plant and 2.5 MW for the forging line.
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Vardhman Special Steels Ltd ( BOM:534392 ) is making progress on its greenfield and forging plant projects, with land finalized for the SMS, equipment ordered, and environmental approval targeted by December, keeping the project on track for completion by September 2029.
Negative Points
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The company's EBITDA per ton is currently at the higher end of its guided range of Rs 9,000-12,000 per ton, but management cautioned that this includes inventory gains and may not be sustainable.
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Vardhman Special Steels Ltd ( BOM:534392 ) faces capacity constraints due to environmental approval limits at 300,000 tons; expansion to 360,000 tons is pending final approval, which may take time and require a shutdown, limiting near-term volume growth.
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Project costs for the new steel plant are expected to be higher than the initially envisaged Rs 2,000 crore due to increased land prices, rupee depreciation, higher sea freight, and commodity inflation, with final figures still under review.
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The company may suspend dividends for three to four years to fund growth, as management believes paying dividends and then raising a rights issue is inefficient, which could disappoint income-focused investors.
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Vardhman Special Steels Ltd ( BOM:534392 ) is increasing its debt-equity ratio to 1:1 from the earlier 0.5:1, which will raise debt levels and financial risk, although equity raising through a rights issue will be lower.
Q & A Highlights
Q: With EBITDA per ton at the higher end of the range, how much of the improvement was driven by inventory gains, and is this sustainable? A: CMD Sachin Jain acknowledged there is an element of inventory gain but stressed these are not sustainable numbers and reiterated the guidance of INR 9,00012,000 EBITDA per ton. CFO Sanjeev Sindha added that the company shifted to batch-wise costing from July 2025, so inventory is valued at cost per batch rather than a three-month average.
Q: Given the strong demand and volume growth this quarter, could volumes surpass the annual guidance? A: CMD Sachin Jain noted Q2 is always the best quarter due to festive-season inventory build-up and such volumes are unlikely to repeat, but the company now expects full-year sales of about 260,000 tons, higher than its initial forecast.
Q: What is the status of the brownfield capacity expansion from 300,000 to 360,000 tons, and what CapEx and timeline are involved? A: CMD Sachin Jain said a committee has recommended the environmental approval but final approval (and any conditions) is still awaited. If approved, the expansion would take about a year, likely requiring a 15-day shutdown in the December lean period, with CapEx of roughly INR 100150 crores.
Q: How is the greenfield steel plant progressing, and how has the project cost and funding structure changed? A: CMD Sachin Jain said land for the melting shop is finalized (rolling land by January 2027), environmental approval will be filed within this year, and the project remains on track for completion by September 2029 with stabilization by March 2030. Project cost will exceed the earlier INR 2,000 crore estimate due to higher land, equipment, freight and commodity costs, with scope to eventually expand beyond 500,000 tons to at least 700,000 tons. The company may move to a 1:1 debt-equity structure, with a rights issue planned in the second half of the next calendar year.
Q: What drove the sharp increase in borrowings to INR 162.93 crores and receivables to INR 410 crores? A: CFO Sanjeev Sindha explained the borrowing increase is largely a reclassification under IND-AS of creditors against LC discounting previously clubbed under trade payables; combined borrowings and creditors actually declined. The receivables rise is in proportion to sales, which jumped to over 70,000 tons from 59,000 tons in Q1, with receivable days up only four to five days due to some customers having longer credit periods.
Q: What is the outlook on realizations and price increases for the coming quarters? A: CFO Sanjeev Sindha expects average realizations to continue at the current pace or slightly higher, with price increases expected in Q3 as well. CMD Sachin Jain added that peer companies have issued price increase letters of INR 3,5004,000 per ton, though final Q3 settlements are still pending.
Q: What is the nature of the new European OEM contract spot or long-term and what volumes are committed? A: CMD Sachin Jain clarified the industry does not operate on spot contracts; prices are fixed quarterly through negotiations. The European OEM is new to the Indian market and may follow either Indian or European alloy pricing, and the company does not disclose customer-specific volumes, though higher volumes would mean reducing supplies to lower-paying customers.
Q: What is the CapEx plan for the forging plant, and how much steel will it absorb? A: CMD Sachin Jain said the forging plant cost will be lower than the INR 475 crores budgeted, and at full capacity it will initially absorb about 15,000 tons of steel annually, with ramp-up taking time. The plant is expected by March 2028, with IG (the Japanese partner) driving the business given its expertise across nine similar lines.
Q: What is the strategy for entering the non-automotive segment, and which sectors are being prioritized? A: CMD Sachin Jain said the company is starting with ingot casting for specialized steels by end-November 2026, targeting cold and dice, oil and gas, railways and bearings initially, with aerospace and defense later. Near-term volumes will be limited due to capacity constraints; meaningful volumes will come with the new plant, which will enable higher-diameter blooms for railways and windmill sectors.
Q: How are government incentives recognized, and what is the timeline for receipt? A: CFO Sanjeev Sindha said electricity duty benefits are received monthly, while GST refunds are recognized on an accrual basis but typically take about three years to be received in cash from the state government. The seven-year GST benefit period ended in August 2026, leaving only the electricity duty benefit valid up to August 2029.
Q: What benefits have been realized from the coke oven battery and reheating furnace CapEx, and what remains? A: CMD Sachin Jain said the combination has raised capacity to 300,000 tons (potentially 330,000 tons), improved quality with lower rework and rejections, brought outsourced job work in-house, and improved yields by moving from 4.2-meter to 5.2-meter billets. Stabilizing production at a single billet size over the next six months will add further flexibility in serving customers.
Q: How does the company view competition from a peer expanding capacity by 4050%, and could that pressure realizations? A: CMD Sachin Jain said he does not forecast price increases and focuses on operations and the INR 9,00012,000 EBITDA per ton guidance. He noted any newly announced plant takes three to four years to commence, and in his understanding no new capacity is coming up in the next two years.
Q: What are the key risks to the growth outlook? A: CMD Sachin Jain identified implementation risk as the biggest risk, calling everything else secondary.
Q: What is the export contribution this quarter? A: CFO Sanjeev Sindha said exports are at a similar ratio to last
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
