Vardhman Special Steels Ltd — Call Transcript 2019

May 14, 2019

LUDHIANA-l4l0l0. PUNJAB T: +9l-l6l-2228943-48 F: +9l-l6l-260I048, 22226l6, 260|040 E: secretarial.lud@vardhman.com

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SUB: COMPLIANCE UNDER REGULATION 30 OF THE SEBI (LISTING OBLIGATIONS AND'DISCLOSURE REQUIREMENTS) REGQLATIONS, Azms.

Sir,

We refer to our letter dated 2nd May, 2019 regarding the intimation of Analyst/ Investor Conference Call on the audited financial results of the Company' for the financial year ended 3,1St March, 2019 scheduled on 6th May, 2019 at 02:30 p.m.

In this regard, we herewith enclose the transcript of the conference call as required under Regulation 30 read with Part A of Schedule III of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

Kindly note and display the notice on your notice board for the information of the members of your exchange and general public.

Thanking you,

Yours faithfully,

FOR VARDHMAN SPECIAL STEELS LIMITED

/

(S nam Taneja) Company Secretary

YARNS I FABRICS I THREADS I GARMENTS I FIBRES I STEELS

"Vardhaman Special Steels Limited Q4 FY2019 Earnings Conference Call"

May 06, 2019

ANALYST: MR. ANUPAM GUPTA — IIFL CAPITAL LIMITED

MANAGEMENT: MR. SACHIT JAIN — VICE CHAIRMAN AND MANAGING DIRECTOR— VARDHAMAN SPECIAL STEELS LIMITED MR. SANJEEV SINGLA — CHIEF FINANCIAL OFFICER - VARDHAMAN SPECIAL STEELS LIMITED Ms. SONAM TANEJA — COMPANY SECRETARY - VARDHAMAN SPECIAL STEELS LIMITED MR. AKSHAY - CORPORATE FINANCE DEPARTMENT - VARDHAMAN SPECIAL STEELS LIMITED

• Moderator: Ladies and gentlemen good day and welcome to the Vardhman Special Steels Limited Q4 and FY2019 earnings conference call hosted by IIFL Capital Limited. As a reminder, all participant lines will be in the listenronly mode and there W111 be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing * then "0" on yoiu touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Anupam Gupta. Thank you and over to you sirl
• Anupam Gupta: Thanks Steven. Good afternoon everyone. Welcome to the call w1th Vardhman Special Steels management today. We have with us Mr. Sachit Jain, Vice Chairman and Managing Director and Mr. Sanjeev singla, CFO on this call. Without further delay, I hand over to the management for the opening comments post which we can have the Q&A. Over to you Sir!
• Sachit Jain: Anupam thanks. Ladies and gentlemen good afternoon and thank you for joining our call. With me are Sanjeev singla, our CFO, Sonam, our Company Secretary, Akshay from our Corporate Finance Department and also we have a new visitor here, my daughter Saganka Jain who is working in Vardhman Textile, she is also joining in the call today as her exposure to investor interaction.

Of course, let me start with some key recent developments. We have last year been upgraded to CRISIL AA stable and shortrterm reaffirmed to CRISIL Al+ rating. We have also changed our statutory auditors to BSR KL Company, I believe, they are part of the KPMG group. We have added additional Woman lndependent Director, Mrs. Shubhra Ehattacharya. She is a graduate of XLRI, 1993 batch. We have also added Mr. Raghav Chandra as an Independent Director who is a Retired Chairman of National Highway Authority of India, an IAS officer from the Madhya Pradesh cadre who retired from the center.

We also wanted to share that we have already declared that we are in talks and have entered into an LOI nonrdefinitive with a global steel company to enter into strategic alliance. So, talks are going on with this company as you all know that this has been on my agenda for the last few years and finally we have narrowed down to a company and we have started talking to them.

Moving on to the financial results. First of all I must apologize, our results have not been too good. Results can be good and bad that is part of life, but I think what I am feeling particularly bad about is, we did not anticipate the extent of the performance and we certainly did not anticipate a loss even in February when we had the investor meet at that t1me we were not ant1c1pat1ng the loss. AndI w111exp1a1n to you the reasons why th1s th1ng happened.

Overall volume for the quarter was 34,360 tons and yearronryear dec11ne of 10.65% and of course as you all know the ma1n reason 1s a s1gn1ficant slowdown 1n the auto 1ndustry and I bel1eve the other automot1ve steel compan1es all have shown a decl1ne 1n the fourth quarter 1n terms of volumes.

The revenue from operatmns IS 243 Crores. For Q4 versus 231.3 Crores 1ast year, growth of 5.14% and Q4 of course Includes 13.5 Crores of raw matenal KL outsourced sa1es, wh1ch was not part of last year.

EEITDA was 11.17 Crores versus 19.49 Crores In Q4 2018 and as we sa1d that IS because of major s1owdown and resu1ttng pnclng pressure a1so. Thts s1owdown conttnues In the current quarter a1so and overa11, we have a 1oss of 15 lakhs 1ast year agalnst a profit of 7.21 Crores In Q4 2013. So, the questton that everyone IS asklng IS how 1ong IS the s1owdown l1kely to cont1nue7 Very d1fficult to pred1ct, I bel1eve even Raj1v Bajaj sa1d 1n h1s call that 1t 1s very d1fficult to pred1ct when th1ngs w111 turnaround, but we are heanng about th1ngs, 1t seems that the worst 1s beh1nd us that 1s what we are heanng from some of the auto people and the excess 1nventones 1n the auto sector are com1ng down, wh1ch means maybe second quarter we should see an 1ncrease 1n product1on levels back to normal to the current sales volumes. And of course then the but1dup starts happentng for the hol1day day sa1es of second quarter I bel1eve should be better than the first quarter.

For the year as a who1e, vo1ume for the year was 161000 tons, yearronryear growth of 6.25%, lower than what we were ant1c1pat1ng, so clearly growth but not as much as we were expectlng. Yearronryear growth of 30% In revenue to 1120.76 Crores hrst ttme we have crossed 1000 Crores of sales. Of course, thIS also Includes 70.75 Crores of raw matenal 1n outsourced sa1es wh1ch was not there In FY2018.

The EBITDA for the year was 69.71 Crores, yearronryear Increase of 2.47% and net profit was 22.21 Crores.

Commg to the balance sheet, one clear th1ng we have seen 1s that the total debt 1ncreased from 228 Crores to 333.58 Crores. So,th1s1s pnmanly because one there IS ongotng capex so there 1s debt on account of that. In add1t1on to that we have surplus 1nventory of b1llets, wh1ch has been bu11t1n for the shutdown, wh1ch IS comlng 1n.

Thls shutdown has been postponed by a coup1e of months because there was an accldent of a truck carry1ng some cnt1cal equ1pments and that equ1pment had to go back to the factory

and repaired. Fortunately, there were not too much damage, but since it is critical equipment it had to be reexamined thoroughly to make sure that nothing is wrong. So, if all goes well we will start the shutdown sometime in June and will continueinto July.

From Vardhaman's point of View, I would believe that this slowdown in the market has come as the best possible time for us, ifit had to come. Nobody likes a slowdown but really from our point of view it enables the shutdown to happen peacefully without the worry that we will have problems in serving the customers.

As you know serving the auto industry, we have to maintain inventories, we have to have inventories of all the products and to be able to service the customers on immediate basis. So therefore, reduced sales actually gives us some benefit, it enabled us to build up the Inventory and also we are quite confident of meeting all our customers' needs dmlng the shutdown.

I think these are enough for my Opening remarks and I would be open to taking any questions and any financial questions will be answered by Mr. Singla, our CFO and any management related questions, I will be happy to answer. Over to you!

Moderator: Thank you very much. We will now begin the question and answer session. The first question is from the line of Kunal Sukwani from Crescita Investments. Please go ahead.

Vijay Sarda: This is Vijay Sarda here. Sir my question pertains to two competent two parts. One is related to the slowdown that has affected the sales and second is related to the margins. So I can understand some bit of margin mm a function of slowdown in sales as well, but eventually what I can gather from last two, three discussions thatI had during the previous concall, in first two quarter also our margin got impacted on account of raw material pressure. So, the raw material prices were moving up and we were suffering on account of the same. But I think it has been told that what all raw material prices moves up that gets corrected subsequently and you get that rise during the next two quarters. So eventually the raw material price is totally passed on and it will not affect the bottomline. So I did not understand the benefit of that has not occurring despite that the result is getting much more worse? So just wanted to get the understanding on the same.

Sachit Jain: You are absolutely right that that has been the pattern in this industry that has been the understanding with all our OEMs. Unfortunately, we were actually expecting a much, much better second half. As I told in the beginning remarks that we were hit by surprise more than one is a result is so bad, but the surprise, because in the negotiation with the OEMs in fact this time they have not given full regards to the raw material increase and because as their profits were under squeeze the price increases that we have got are far lower than what was

justIfied. So that Is the reason for the declIne In the margIn whereas we were expectIng an Increase In margIn In the second half. As you can see In the thIrd quarter our EBITDA per ton Is hIgher, because we had put In some provIsIons for the expected prIce Increases, but the final Increase happened much lower than the antIprated and therefore I would say that we need to look at Q3 and Q4 together. Those are the margIn that should have happenedIn Q4 also, a ltttle btt lower because the volumes were lower, but the lower volume would have been made up by reduced power cost at the end. So Q4 margtn should have been very stmtlar or margInally lower than Q3. So the reduced margtn In Q4 IS prtmartly because the auto sector was In a bIg soup and therefore they have forced all theIr supplIers to take bIgger cuts than what was warranted.

Vijay Sarda: Just I wanted to understand one thIng because as I understand In your agreement all other costs Increases are pass through. So then It does not stand to at thIs kInd ofproblem because eventually than we are always at a recerIng end then how thIs cost escalatIon thIng works?

• Sachit Jain: One there Is no ertten agreement of thIs. So It Is all based on understandIng and In my nIne years In the Industry thIs Is the first tIme thIs has happened. So up tIll now we have never had any problem, so nIne years of my exIstence In thIs Industry and even before that thIs has been the way bustness has been goIng on. I thtnk the sales drop has been unprecedented and the cost pressure on the OEMs are also unprecedented and as I can see all auto companIes have shown very poor results and that pressure came on. So In fact some of the OEMs actually saId please support us. So that Is the kInd of thIng that there was pressure on us from some of the OEMs, and Much Is why I saId even In February when I came for the Investor meet, I dId not antIprate the results that bad, dIscussIons were stIll goIng on and our numbers were clear, some of the OEMs they could not fault our calculatIon, but they saId we w111 not gIve thIs Increase.
• Vijay Sarda: SIr just last thIng In terms of the technIcal collaboratIon or tIeeup that we are talkIng about, has somethIng concrete happened there or stIll we are awaItIng sIgnals, or some due dIlIgence IS goIng on?
• Sachit Jain: Yes, first step Is that you sIgn a letter ofIntent. So that has been sIgned and due dIlIgence Is goIng on as we speak. So once the due dIlIgence Is over that Is when the negotIatIons and dIscussIons on the exact form of the agreement would take place.
• Vijay Sarda: SIr In a broader understanding IS thts more on the techntcal collaboratIon stde whereby they wIll brlng up theIr expertIse and It can help us In terms ofImprovIsIng our product me7
• Sachit Jain: As I saId thIs Is all In talk stage at thIs stage and thIs deal may happen, may not happen all those caveats we need to keep In mInd. Now the way we vIsualIze It, there could be a

possIbIlIty of theIr becomIng an Investor In the company, there Is clearly possIbIlIty of a techntcal allIance and when we are taktng about global steel major then they also have the abIlIty to Influence customers and have better product me and better customer relatIonshIps all those benefits are there.

• Vijay Sarda: SIrjust last thIng you saId In your remark that power cost has been lower In thIs quarter, but power cost seems to be hIgher the way round. So In fact power cost despIte the sales drop Is on a hIgher sIde compared to the lastquarter sales?
• Sachit Jain: Power cost IS hIgher because we kept on productng. The sales have dropped. The production has not dropped as much because we were butldtng Inventory for our shutdown. The power cost IS the bIlls patd but sales are lower and therefore It appears as a hIgher proportIon to sales. The profits have also gone Into the Inventory.
• Vijay Sarda: Yes, so because the Inventory almost has Increased by so Crores']
• Sachit Jain: Yes and thIs Inventory, thch has gone up Is goIng to come down by, so when you see the September 30 results the excess Inventory would have dIsappeared.
• Vijay Sarda: Sure. Now that has been the Increase In antIpratIon of the product cut, we Increase the Inventory, rlght?
• Sachit Jain: Not productIon cut, zero productIon, because we wIll be shuttIng down the meltIng shop and upgradIng It. So, puttIng new eqqument there and therefore there w111 be complete shutdown of productIon and sInce thIs Is an auto Industry where we have cntIcal parts and In some cases, we are the only supplter we have to have Inventory In place. So we wIll con tIn ue productIon.
• Vijay Sarda: SIr thIs drawdown on the longrterm debt has happened on account of the Capex only because there has been an Increase In longrterm debt as well'.7
• Saehit Jain: Yes, It Is mostly on account of the capex.
• Vijay Sarda: Thank you very much.
• Moderator: Thank you. The next questton IS from the ltne of Dhaval Shah from Glnk Capttal. Please go ahead.
• Dhaval Shall: SIr couple of questIons. FIrst SIr have you seen any new capacIty gettIng added In the Industry because of the resolutIons of some NCLT cases or any stressed asset gettIng some

help from the investor or getting funding from the bank, any sort of new supply, which has added to th e total ov erall industry capacity?

• Sachit Jain: The only one, which we expect W111 increase, W111 be eventually Bhushan Steel and Power once it gets resolved that is the only one which is likely to increase. Adhunik is another company, which was acquired by Liberty, but Liberty we believe is not going ahead with that is what we are hearing in the newspapers only. So in fact NCLT is taking them to court again there are some charges against them being framed and so on. So but these were the only two companies from the NCLT basis which were there. The third company we have changed that is Usha Martin. This has been sold to Tata Group and of course they need to invest some money to increase the capacity it may take some time.
• Dhaval Shall: IfI am not wrong 5 million tonne is the current size of the capacity right. The supply I assume is little less than that. So by how much W111 the demand supply dynamics look after this Bhushan and Usha get on their capacity started?
• Sachit Jain: Bhushan's capacity already part ofthis, the uncut capacity that we are talking about and Usha Martin W111 be an increase In Capacity. So Bhushan IS actually supplying below us capacity, the capacity is already part of the capacity taken earlier.
• Dhaval Shall: Okay, so already part of 5 million ton.
• Sachit Jain: The 5 million is the market size roughly and not the capacity.
• Dhaval Shall: Capacity would be how much total?
• Sachit Jain: I would not know the figure exactly but should be 6.5 or 7,6 million roughly 6 million, but the exact figure, I do not have the exact figure.
• Dhaval Shall: No, that is fine, like 6 million. So this includes the Ehushan and Usha also.
• Sachit Jain: Usha Martin we have the possibility of increasing capacity in Usha Martin, so that will increase beyond 6 million.
• Dhaval Shall: Sir now if we see the realization per ton you mentioned there has been, so have you taken a cut or you did not get a price increase?
• Sachit Jain: No, we got price increases, but we did not get the required price increases. So in the first half you saw that the raw material cost had gone up and there was a margin squeeze and commensurate with that raw material price increase we were supposed to get a price increase from October 1, and from one of the OEMs we got a pnce increase of 4300,

another OEMs we got a pnce Increase of3200 and some people have gIven much lower and then some Tter 1's entered the procure that okay we wtll not gtve any pnce Increase later because It happened later, our books are closed and when you are In negotIatIon stage In a slowdown then all kInd of thIngs happen.

Dhaval Shall: LIke If wejust seeIng realIzatIon per ton across four quarters so In Q] It was 648007

Sachit Jain: Fourth quarter would be the hIghest. The average pnce Increase In the fourth quarter Is about 2300 should be around Rs.2300 a ton.

Dhaval Shall: Yes so thIs lIke 64, 69, 50, 72, then 70 so thIs shows change In product mix also a lot of]

Sachit Jain: Yes, It Is also be partly product me change but the prIce Increases there are only two pnce poInts Apnl l, prIce poInts and that Is the pnce poInt there are one or two customers where the pnce changes from July I, and January 1 there are only one customer of thch that change happens that way. So theoretIcally pnces In the first half and pnces In the second half that Is the only change should be there but the rest Is all product me changes.

• Dhaval Shall: Okay, got It and SIr have we got the entIre pass through of our electrode Increase In cost?
• Sachit Jain: No. As I saId when the Increases ofpnces happened we dId not get the full pnce Increase. So whether you say you got for electrode fully and raw materlal fully or raw materlal got fully electrode wIll get fully It IS difficult to say. So llke I saId from one of the OEMs we got a Rs.4300 pnce Increase, but some customers despIte havIng shown on paper that the pnce Increase IsjustIfied thch they saId we wIll not gIve you that Increase.
• Dhaval Shall: Got It and SIr durlng such tImes, do customers change theIr procurement cycle, do they shorten theIr Inventory what they hold for your products at theIr end let us say they are tryIng more towardsjust In tIme Inventory kInd of?
• Sachit Jain: No they anyway work atjust In tIme Inventory. So no change happened thch Is why, now I am makIng a hypothetIcal statement, but I know that when the demand pull w111 come the pull wIll come llke the way we had a sudden drop theprohahthty at our end there wIll be a sudden jump that probabIlIty cannot be ruled out and agaIn I am talkIng about possIbIlIty and probabIlIty these are the thIngs when they happen then we w111 see. Because you see what Is happenIng Is as the InventorIes run down then they go to the other extreme of goIng to bare mInImum InventorIes and then a lIttle bIt of pull comes and they had even find that they are short on InventorIes In the entIre cycle and then the pull w111 come at a redoubled pace.

• Dhaval Shall: Str just last questton that ts longrterm tn nature. Str when you are figurlng out your engagement wtth a foretgn partner and you are maktng your fiveryear, tenryear bustness plan. How much nsks do you see and taken tnto account because the electrlc vehtcle and reduce tn the demand of steel. Does anythtng appear on your agenda as of now? Are you seetng any change because we see a lot of bus ordertng comtng from the government agenctes for the transport tn the local w1thtn the ctty transport. So what ts your sense on that?
• Sachit Jain: Ftrst of all one, my beltefts that the electrlc vehtcle there are two ktnds of electrtc vehtcle one ts 100% EV and one ts a more hybnd ktnd of EV. So my heltefts the way forward ts more hybrld ktnd of EV. lt W111 reduce the fuel consumptton. 100% EV tn my vtew ts sttll some ttme off, but that rtsk ts there, there ts no doubt about tt and one of the advantages of tytng up w1th the global major ts that the access, they have to knowledge from the OEM levels at the top most level that knowledge ts passed through to us and our abtltty to plan for these cycles ts far, far better.
• Dhaval Shall: Thank you very much.
• Moderator: Thank you. The next questton ts from the ltne of Abhljeet Vara from Sundaram Mutual Fund. Please go ahead.
• Abhijeet Vat-a: Thanks for take to my questtons. The first questton ts on the realtzatton drop agatn. Just wanted to understand that you made the comment on profitabtltty was tt EBITDA per tonne or tn terms ofpercentage Str.

Sachit Jain: No, no, EBITDA per tonne we never talk percentages. We always talk EBITDA per tonne.

Abhijeet Vat-a: So my questton ts str the pnce htke was affected tn Q4 right?

• Sachit Jain: No, no Q3.
• Abhijeet Vat-a: You are sttll negottattng?

Sachit Jain: Yes, sttll negottattng tn to Q4 and the negottattons completed by end of March.

• Abhijeet Vat-a: Rtght, by whtch ttme Q3 results already came out, so how was the adjustment done?
• Sachit Jain: So all the excess provtstons taken tn Q3 were all taken tn Q4, rolled back.
• Abhijeet Vat-a: So the sales would you thtnk tt would bepmfit?

• Sachit Jain: Abhijeei Vara: Sachit Jain: Abhijeei Vara: Q3 profitability is much higher than Q4. You need to see the profitability of both together, average out. Ideally negotiations should be over before the quarter end and you should not have these provisions, but unfortunately when the price increase is happening then the OEMs tend to drag the discussions on. And If you 1eave zero price hike you give a wrong picture and you take the full price hike again you take a wrong picture what you estimate so you take an average somewhere inrbetween so on a conservative basis. But this time despite take a conservative basis the price hike was lower than the estimate we have taken in Q3. Some had already been negotiated so as 1 said one OEM have already taken 4300 so that was already done and the other OEM had already done 3200 so these two were in the bag and our ca1cu1ations were showing higher than Rs.3500 price increase required and we had got 4300 from one and 3200 from one. So we were sti11 feeling pretty positive on the price increase part that we were to get even in February but the final increases are happened were lower and which is why the surprise in the resu1ts, which in my 30 years ofcareer this is the first ever seen this kind of thing. Nine years in steel and even earlier the textile industry I have never seen this kind of a price negotiation as we saw this time. Sure Sir. Second question is on the vo1umes. Usually the OEMs wou1d be sharing some production plans with you so and as recently as February also you were reiterated the guidance which means they went back on the production plan which they shared with you is it or the offtake plan which they shared w1th you was that the case? Yes I think the auto industry themselves were taken by surprise. Nobody anticipated this kind of a drop. Is there no compensation for the supp1iers, supp1ier 1ike you?
• Sachit Jain: What happened is you have a little extra inventory or you cut down your production. So we have cut down our production, if we did not have shutdown coming the production cuts wou1d have been bigger 1ike Maruti has dropped production by 20%. We have already heard the news. So everybody is dropping production now. They should have seen the signs coming earlier and cut production earlier but they did not.
• Abhijeei Vara: So there is no compensation for supp1iers1ike even such extraordinary cases?
• Sachit Jain: No.
• Abhijeei Vara: My last question before I get back to queue is how much of Capex in rupees Crores is left and what can be the peak debt now'.7
• Sachit Jain: Currently we are at 333 Crores. The peak debt will be below 285 Crores.

Abhijeet Vara:	No, you are saying 333 w111 be thepeak, which youseem the nearrterm, comparedon year:onryear basis?
Sachit Jain:	See we are going to exceed that it is onlygoing to come down with the inventoryrun down.So we are very clear that we are conscious of havinga strong balance sheet to handle toughfrom that.time and so on. So we are not budging
Abhijeet Vara:	Sure. How much of capexis left Sir'.7
Sanjeev Singla:	Capex left is about 20 to 25 Crores of outflows which w111 happenin the first half of thecurrent fiscal.
Abhijeet Vara:	I will getback in the queue.Thank you.
Moderator:	is from the line of AnupamGupta from IIFL CapitalThank you.The next questionLimited.Please go ahead.
Anupam Gupta:	Sirjust on the negotiations which youdid last time. So yousaid the last negotiations, whichwere due on, October gotfinished byMarch?
Sachit Jain:	For OEMs.
Anupam Gupta:	Yes, so for the current cycleso let us sayMarch end have the negotiationstarted what areyou seeing there in terms of pricing?
Sachit Jain:	Clearly the prices will either maintain or fall down dependingon OEMrtoDEM and someus the full priceOEMs we said that the priceincrease, you did not giveincrease last timeon it is verydifficult to predictyou hold that priceincrease. So those discussions are goingin time how w111 thingsat this pointshape up.
Anupam Gupta:	or the first half we will see volume pressurethe first quarterBut so basicallyas well assome, may or maynot see some pricingpressure, is what youare saying effectively?
Sachit Jain:	There will be some pnctngpressure, but as of now we will take definitelysome provisions,we said on the first quarter,ofbut that is whyresults are goingto be similar to last quarterQ4, similar order.
Anupam Gupta:	That is it. Thank you.
Sachit Jain:	The reason for that is as there is a cost reduction alreadyhappening on account of electrodepnces falling as well as raw material pricesfalling there is a cost reduction. Now depends

on final price settlements at the OEMs so even if there is a price reduction we should match the Q4.

Anupam Gupta:	Okay. Thank you.
Moderator:	is from the line of DevangSanghavi from ICICI Securities.Thank you.The next questionPlease go ahead.
Devang Sanghavi:	Good afternoon Sir. Thank youfor takingmy question. Sir justwanted to know theproportion of brightbar for Q4 FY2019 and the full yearFY 2019in terms of total volume?
Sachit Jain:	Just a minute, Sanjeev W111 take this question.
Sanjeev Singla:	Right now it is not available but for the whole yearit is available but for the whole yearit isavailable it is around 33000 tons of brightbars.
Devang Sanghavi:	33000 tons of brightbars. And secondlyhave we increased our exposureto engineering andOffrhlghway division in Q4 is that the case because the auto was going?
Sachit Jain:	change. Our share of business the customers are all similar. So nowYes, there is a marginalvolume W111 changedepending on how the customer changes.
Devang Sanghavi:	And in terms of electrode pricingof decline we have witnessed for the currentwhat typeexpect for the next year?quarter and what do you
Sachit Jain:	also, but in terms of pricingThe cost dependson what is the inventorythe electrode hasallen by more than 50% from the peak.
Devang Sanghavi:	I think we had a goodlikeJanuary and February, but we had a subdued March. So do youto give guidance for the next yearin terms of volume what we are targeting?
Sachit Jain:	difficult to giveSee one at this pointin time when we are at the bottom is verya veryoptimistic picture. Maybe when we give our when we have the conference call after the firstto predict, but as of now we would bequarter results we would be in a better positiongrowth as of now,looking at a marginal growth from this yearor flat, flat or marginalbut Iwith thedo believe justnow we are all conditioned bythe bad conditions around. Hopefullyin the results are favorable there were stable governmentelection comingthere, moodchanges and suddenly public starts buying because I am sure there is a pentrupdemandbecause the sales had been lower in the last few months and the whole scenario can change.report about the buyback offer from Hero for the scooters soToday there is a newspaperthese kind of schemes ifthey come in from the OEMs so suddenlyyou may see a demand

ptckup very soon. I know you would expect a clearer answer from me. But at thls point In tlme very dlfficult to give a definmve answer, but I belleve within three months we should be able to give you a better answer. Now our shutdown w111 not effect our production and our performance, our sales because we have bulltrup tnventory. So our sales If the market picks up we have the abtltty to produce more and sell more.

Devang Sanghavi: Rtght. Any kind of money recetved from the Punjab Government for the power we were kind ofrecelved 3 Crores every year In thts regards somethtng ltke that?

Sachit Jain: Some money has started comlng In. We have not accounted for that In the results because the full calculatlon has not come In as yet, so that small amount of money that has come IS shown as advance recoverable from the Government of Punjab. So bastcally hopefully In the first quarter we should be able to take It lnto account the pendlng lncentlve of the last three years hopefully, yes, but money has started comlng In. So the good part IS the government has recognlzed the money started comlng In we are not recognlze the Income.

• Devang Sanghavi: That Is all from my side and all the best Sir.
• Moderator: Thank you. The next questton IS from the ltne of Rttesh Poladla from Gmk Capttal. Please go ah ead.
• Ritesll Paladia: Thanks for the opportunlty Slr. On thls Incremental capaclty when thls will come lnto commerclal operatl on?
• Sachit Jain: It depends on when exactly the shutdown starts, but we expect the production to be operatlonal from the month of August.

Ritesll Paladia: str for thts 2000 Crores capex what kind of returns you expect?

Sachit Jain: No, not 2000, Crores that IS a blt too much for us.

Ritesll Paladia: I am sorry 200 Crores']

Sachit Jain: The 200 Crorests sum total IS over five years. Some of]! IS sttll under planntng stage, sol would say at least 70 Crores IS under planmng still, so we have not got definltely plans to put In that as of now and now that when we have a partner comlng In potentlally comlng In, we would llke to wall for thelr Inputs also, If thls happens agaln I am puttlng In all those caveats because It IS not certaln, but If thls partnership happens and then when It happens then we w111 llke to take that In puts on all uncommltted capex.

Ritesll Paladia: Okay. So for thls 40000 tonnes Incremental capaclty what IS the Capex amount?

Sachit Jain: The Capex amount for that Incremental capacIty was about 45 to 50 Crores.

• Ritesll Poladia: Now my other questIon Is for thIs potentIal partner. ThIs partner may come w1th the hnanctal Infusion or Ills purely techntcal or technology collaboratIon']
• Sachit Jain: ll depends on how dtscusstons happen w1th them. They have already tndtcated that they may examIne InvestIng In the company as a mInonty stake and we have also saId In pnnctple we are okay to such an Idea, such a proposal comes all that depends on the dIscussIons. The Ideal thIng for us Is that they w111 take a mInonty stake and there Is a technIcal assIstance and there Is a marketIng assIstance, all three that Is the Ideal stake for us, and a buyback Ifthat happens.

Ritesll Poladia: If you can gtve us some Idea what IS the ttme hame you are looktng for thts discussion?

• Sachit Jain: AgaIn very dIfficult to say how the dIscussIons happen, negotIatIons happen and so on butIf the due dIlIgence are goIng on, we belIeve In the next two to three months we could have an understandtng but agatn thts IS all hypothettcal, all depends on how the due dtltgence proceeds and then the dtscusston when they happen.
• Ritesll Poladia: Great. That IS all from my stde. Thank you str.
• Sachit Jain: From our stde there wIll be no delay because we clearly recognize the benefits from such an assocIatIon and my understandIng Is they also see the benefits from thIs assocIatIon because the IndIan market Is very Important to them. So from both sIdes I belIeve there Is a value, we see In thIs potentIal deal. I belIeve from both sIdes there would be reasonable commItment to complete thIs as fast as possIble. But agaIn as I saId thIs Is I amjust readIng what they would be thInkIng but tIme w111 tell. Hopefully, the next quarter wIll actually be a much better ttme for us wIll have far more clarIty on pnctng, we wIll have far more clarIty on volume, we w111 have far more clarIty on the shutdown, how the shutdown has happened and we w111 have clarIty on what Is the mood ofthe potentIal strategIc Investor. So really the next quarterly August meettng, we wIll have wIll be on July or August conca11, we wtll be able to have a much more clearer vIew. I am sorry I am probably a lIttle vague at thIs poInt but that Is the realIty. But I am also sayIng thatI belIeve that the worstIs behInd us. So we are goIng to look at sImIlar posItIon and then ImprovIng posItIon after that.

Moderator: RItesh do you have any more questIons?

Ritesll Poladia: I am done.

Moderator: Thank you. The next questton IS from the ltne of Athjeet Vara from Sundaram Mutual Fund. Please go ahead.

• Abhijeet Vat-a: Thanks for the followiup. Sir in terms of profitability again what I wanted to understand is earlier we were expecting the capacity utilizations to run flat out because of which we can choose the product mix and thereby have a very good profitability, but now it does not look such a good scenario. With this current scenario in mind do you think you can go back to the profitability, which was envisaged six months back at the current level?
• Sachit Jain: See we had believed that our profitability would be in the range of 4500 to 6000 and this year because of the exceptional circumstances we have come to 4300. I will not say that this was the normal negotiation that we saw in the second half. So we are still I mean we had outset the range, but I would say we are in the kissing range of the lower end of the range. So I believe with the coming year, we are one year behind now because of this. So once this the volumes pickup again because we are expecting from the auto companies really 2021 is going to be a much better year because BSVVI wi11 be behind them, the pentiup demand wi11 be all over and w111 be coming in the government would have been settled in. So these are all speculations at this point in time but till the volumes pickup and the demand comes in it IS difficult to expect a significant improvement in margins, But I expect Within a year's time, I expect a year, year and a half's time, we should be definitely better than now because hopefully by then our partners wou1d have come in and the p1an that we have with them if they all work out we should be definitely at a better footing.
• Followiup on the same question, now you will have an additional capacity coming in and you will have to service the additional capacity at a volume run rate which is lower than earlier envisaged, that might also start eating into profitability plus we are looking at this quarter volume decline was, 1 do not know If you had but 1 have coup1e of years of data there was never a volume decline for Vardhman special steel and our volume declined on a yearronryear basis. This was the first time you are having a volume decline and the situation as of now it does not look like turning around so with these factors in mind that we have new capacity coming in plus the volume decline or muted volume growth sort of scenario. Can the profitability stay at depressed level, which is Q4 level itself not even, go to the Rs.4000 per tonne sort oflevels'.7
• Sachit Jain: No, it wi11 dehnite1y go beyond Q4 because Q4 has one e1ement of lower prohtabihty and one element of extra provisions taken in quarter three. So Q4 levels are more depressed than normal than what actual is, the reported Q4 numbers are worse than the actual Q4 numbers.
• Would it be possib1e to share how much was the provisions?
• Sachit Jain: We have not declared that.
• Abhijeet Vat-a: Sir what is the trade payables increase on account of?

Saohil Jain:	of two quartersyou wlll getI am saylng the best ls averagethe ldea.
Abhijeel Vara:	What ls the reason for trade payableslncrease? Was that worklngup to management?
Sanjeev Singla:	Thls trade payablelncrease ls malnlybecause on one hand we are lncreaslng thelnventoryand we have purchased some of the matenals on credlt basls lnstead of cash basls tomanage by hlgher level oflnventory.
Sachit Jain:	Some ofltltwlll goaway agaln by September. So ln that sense lt ls worklngls temporarycapltal management yes.
Abhijeel Vara:	Thank you.
Moderator:	ls from the llne of Nltln Dharmawat from Aurum Capltal.Thank you.The next questlonPlease go ahead.
In Dharmawat:	Thank youfor the opportunlty.I had just one questlon. Regardlng thls potentlalpartner asyou mentloned that lt can have an lmpacton the customer acqulsltlonsas well and youhaveeven lfltfornot revealed the name so far. So justwanted to know the geographyls posslblewlth the potentlalfrom that would beyou to let us know whlch geographypartner ls comlnggood enough for us to understand?
Sachit Jain:	ltNumber of playersare so few ln anyone country, the moment we have name the countrywlll be veryeasy to spot the name lmmedlately. So we are not at llbertyto release thecountry at thlspolnt ln tlme.
In Dharmawat:	Thank you.
Moderator:	Thank you.As there are no further questlonsI would now llke to hand the conference overto Mr. AnupamGupta for closlngcomments.
Anupam Gupta:	Thanks a lot Sir. Do youhave any closlng comments?

Sachit Jain: Thank you all. As I sald we have a commuted management team and Ills also cognlzant of the fact that the performance IS below par. We have a new system of worklng where the semor, entlre semor management around 15 people, they lel be gettlng zero lncrements because they are all llnked to performance of the company. If the profits are lower thelr lncrements are zero. So all of us are sufferlng and the entlre semor management have also suffered tf the performance goes downs. So we are all very keen and redoubllng our efforts to see that we qutckly come back to where we should be. I am reasonably hopeful that tf thls partner comes In, In a tlme, whlch IS what we are worklng towards thhln a few months, we should start seelng slgnals oflmprovement comlng In because clearly they are a super-tor company. I am looktng forward to thts. I haye been worktng on thts company for the last elght years and thls IS somethlng whlch has been the last unflnlshed ltem on my agenda to complete phase 1 of 0m company's work but we will be haytng better answers when we speak In August. Thank you all. Thank you for your Interest In Vardhaman Spectal Steels.

Moderator: Thank you. On behalf of IIFL Capttal Ltmtted that concludes thts conference. Thank you for jmmng us. You may now dtsconnect your hnes.