This stock has zoomed over 900% in 3 years, company to mull bonus issue

So far in the calendar year 2023, VSSL surged nearly 40 per cent after the company reported strong operational performance in Q3FY23, due to higher sales of value added products and cost optimisation

Shares of Vardhman Special Steels (VSSL) gained 3 per cent to hit a new high of Rs 428.1 per share in Tuesday’s intra-day trade, ahead of board meeting on Wednesday, April 12, 2023, to consider bonus issue plan.

The stock of iron & steel products manufacturer surpassed its previous high of Rs 423.45, which it had touched on April 5, 2023. In the past three years, it zoomed 947 per cent from Rs 40.9.

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 entered into a Technical Assistance Agreement.
 

So far in calendar year 2023, VSSL surged nearly 40 per cent after the company reported strong operational performance in the December quarter (Q3FY23), due to higher sales of value added products and cost optimisation.

The company reported revenue growth of 11.5 per cent year-on-year (YoY), driven by higher sales volumes, coupled with better realizations. In comparison, the S&P BSE Sensex was down 1.8 per cent, during the period. In the past one year, the stock soared 60 per cent, as against 2 per cent rise in the benchmark index.

VSSL is one of India’s leading producers of special steels, catering to diverse requirements of automotive, engineering, tractors, bearings and allied industries. The company also takes care of steel requirements of select customers for forging applications in international markets of Thailand, Taiwan, Turkey, Italy, Russia, Germany, Vietnam and Japan.

The company has developed long term relationships with reputed and renowned customers globally, which include corporations such as Toyota, Maruti, Hyundai, Hero Moto Corp, Caterpillar, Hino Motors and Bajaj, among others.

On March 7, the company said it started mass production of steel for forging companies of Aichi Steel Corporation (ASC) based in South East Asia for some grades that the company had received approvals.

VSSL said the sales of these products for FY23- 24 will be approximately 10,000 metric tonne (MT). It will further increase with the receipt of more approvals in next 2-3 years. The management said this will establish VSSL and India as a supplier of high-quality automotive steel.

Moreover, the volume is expected to increase with more approvals being received in the next two to three years. This development has established VSSL as a supplier of high quality automotive steel. In general, going forward, VSSL has aimed to increase export volume share from ~5 per cent in FY22 to ~20-25 per cent by FY25.

Over FY22-25E, analyst at ICICI Direct expect the topline to grow at 15 per cent CAGR while EBITDA, PAT are expected to register CAGR of 14 per cent, 22 per cent, respectively.

Going forward, the brokerage firm assumes EBITDA/tonne of Rs 8000/tonne for FY23E, Rs 10,000/tonne for FY24E and Rs 11,500/tonne for FY25E.

Meanwhile, CRISIL Ratings believes that the operating performance of VSSL will recover in-line with recovery in end user industry. The tie-up with ASC is also expected to support business and financial risk profile.

"VSSL’s market position is supported by a strong customer base, including automotive original equipment manufacturers and other established players in the engineering segment. The contribution from the top 5 clients remains at about 30 per cent. Presence across segments is diversified, with 70-75 per cent of the contribution coming from passenger vehicles and two-wheelers," the ratings agency added.