Vardhman Special Steels Q1 FY27: Profitability Jumps as Volume Growth Meets Cost Savings

Vardhman Special Steels began FY27 with a strong quarter. Revenue from operations rose to INR 486.01 crore in Q1 FY27 from INR 433.70 crore in Q1 FY26, a year-on-year increase of 12.06%. The bigger highlight was profitability. EBITDA increased to INR 68.29 crore from INR 39.33 crore, while PAT more than doubled to INR 41.19 crore from INR 19.90 crore.

Management attributed the performance to sustained demand across key customer segments, operating efficiencies, and better realizations after price hikes from OEMs. Economies of scale also helped margins expand. Volumes for the quarter were 59,103 tonnes compared with 55,574 tonnes a year ago.

The quarter in numbers

The company reported a sharp improvement in earnings across the income statement. Depreciation and finance costs stayed modest relative to the EBITDA jump, which supported the increase in PBT and PAT.

Management also shared an operating metric that it wants investors to track closely. EBITDA per tonne for the quarter was stated at INR 10,764, excluding non-operational income items such as income on unutilized funds invested by Aichi Steel and interest on advance deposits.

Operating momentum, but near-term bottlenecks remain

The earnings call pointed to a strong demand environment. Management said the company is currently struggling to meet customer requirements and is refusing some orders. However, the immediate constraint is not demand but operational throughput and regulatory capacity limits.

A key theme was bottlenecks in testing and finishing. Management noted there is a pile-up of material ready as per customer requirements, but constraints in testing capacity slow dispatches. Some peeling work is also being executed through outside job work. To address this, the company expects to commission a new NDT line and a new peeling line by September to October 2026. Management expects that these additions will remove bottlenecks and improve product mix and quality of sales in the second half of FY27.

Energy cost reduction is another operational lever. Management said the solar plant delivered a full quarter of savings in Q1 FY27, with roughly 43% of total power consumption coming from solar. The company expects to expand solar capacity by almost 50% in about one to one and a half years, although management cautioned that policy changes have increased the cost of solar panels and therefore savings per unit may be lower than the first phase.

Growth strategy: capacity, diversification, and forging integration

The company’s long-term plan is structured around moving beyond a near-total automotive revenue base. The presentation frames this as building a supermarket of special steels, with a target mix by FY35 of about 70% automotive and 25 to 30% non-automotive.

In the near-to-medium term, Vardhman is targeting non-automotive sectors such as railways, oil and gas, bearings, windmill and ship shafts, and tool and die steel. Management linked this opportunity to import substitution, citing specialty steel imports versus domestic demand and highlighting that tool and die steel imports are about INR 1,000 crore per year.

A key enabling step is an ingot casting pilot. Management said ingot casting should be established by the third quarter of FY27 and stabilized by the fourth quarter, enabling entry into higher-alloy grades and larger diameters. The company expects to have regular die steel production in FY28, although initial volumes will be limited within the existing licensed capacity.

The other strategic engine is forging. The company is setting up a steel forging and machining facility in Ludhiana in collaboration with Aichi Steel Corporation, with the presentation highlighting a budgeted capex of INR 475 crore for forging line 1. The deck states potential revenue of about INR 300 crore per line at steady state and an EBITDA margin guidance of 15 to 20% for forging. Management also clarified that ramp-up will be gradual post commissioning because customer qualification and approvals take time, even though the Aichi partnership should help shorten parts of the approval cycle.

Finally, the biggest multi-year project is the greenfield special steel facility. The company remains on track to commission the new plant in FY29 to FY30, but management stated that the project is being partly reconfigured to further reduce carbon footprint and improve energy efficiency, including additional equipment such as scrap preheating and more testing lines. Management said a refined project estimate, including changes in cost and capacity, is expected to be shared after further internal work.

Takeaways for investors

Vardhman Special Steels delivered a strong Q1 FY27 with clear operating leverage, helped by volume growth, price revisions, and cost efficiencies including solar savings. The near-term execution focus is on removing bottlenecks through the commissioning of new testing and peeling lines and securing environmental approval to raise melting capacity from 300,000 to 360,000 tonnes.

Over the medium term, the strategy is defined by three layers: expanding capability for non-automotive grades through ingot casting, building a forging value-add business with Aichi Steel, and preparing for a larger greenfield capacity addition targeted for FY29 to FY30. The direction is clear, but delivery will depend on approvals, commissioning timelines, and successful ramp-up in new product categories.