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Vardhman Special Steel - Q2FY21 Company Update - ICICI Direct

Posted On: 2020-11-25 07:02:33 (Time Zone: Arizona, USA)

Vardhman Special Steel (VSSL) reported a healthy set of Q2FY21 numbers. Sales volume for the quarter were at 43986 tonnes, up 32% YoY, 248% QoQ. Topline was at Rs. 247.1 crore, up 17% YoY, 264% QoQ. EBITDA was at Rs. 21.1 crore vs. Rs. 2.6 crore in Q2FY20 and an EBITDA loss of Rs. 9.4 crore in Q1FY21. EBITDA margin was at 8.5% vs. 1.2% in Q2FY20 and negative EBITDA margin of 13.9%. The healthy EBITDA performance during Q2FY21 was driven by increase in sales volume and reduction in raw material cost. Ensuing PAT for Q2FY21 was at Rs. 8.9 crore compared to a net loss of Rs. 3.2 crore in Q2FY20 and net loss of Rs. 12.8 crore in Q1FY21.

Valuation & Outlook

VSSL reported a healthy Q2FY21 performance on the back of a smart recovery in demand from the auto sector. On the back of continued strong demand from the auto sector, we expect the healthy performance to continue. In regard to the strategic alliance with Aichi Steel Corporation (ASC), in the near to medium term horizon, the technology and technical know-how shared by ASC would aid VSSL in improving its product-mix. With the help of the JV, VSSL plans to start marketing activities in India, Thailand, Philippines and Indonesia thereby expanding its customer base. In the longer term horizon, VSSL plans to increase the share of exports to 20-25% by FY25 from 3% in FY20. We value the stock at 6.5x FY22E EV/EBITDA and arrive at a target price of Rs. 112. We upgrade the stock from HOLD to BUY.

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Shares of VARDHMAN SPECIAL STEELS LTD. was last trading in BSE at Rs.95.4 as compared to the previous close of Rs. 94.25. The total number of shares traded during the day was 9378 in over 223 trades.

The stock hit an intraday high of Rs. 98.95 and intraday low of 90.25. The net turnover during the day was Rs. 906666.

Source: Equity Bulls

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