FROM VICE IS CHAIRMAN'S DESK 2024
Dear fellow shareholders,
It gives me great pleasure to be here once again writing my annual letter to all of
you. As shared earlier, this was a year of consolidation. After a couple of tumultuous
years with a lot of uncertainty, with Covid, Covid Delta variant, the Russia-Ukraine war
and the excitement of starting mass manufacture of steel for Toyota Motors, this was a
relatively quiet year though the Israel-Hamas war did add some tensions on the global
front. This was a year where we focused on operations, as smooth running of Toyota orders
was critical to us. The reduction of our internal rejections was a huge task and it was
imperative to have very strong quality assurance to make sure that we got no quality
complaints from them. There was also a slowdown in the domestic market in the tractor and
commercial vehicle segments and we had 2 shutdowns in our rolling mill for routine
maintenance and installation of 2 stands for expanding the capacity, respectively. As a
result, we lost some sales and our sales were 195,000 tons and EBITDA was C172 Cr right in
the middle of our guidance of EBlTDA/ton of 7000-10000. Let me take you through some of
the major events of last year, our year of consolidation.
THE YEAR OF CONSOLIDATION
It is always difficult for a Management team to announce to the capital markets a year
of no growth. Ours is a growth oriented company which has grown rapidly from C250 Cr in
sales in 2010 till last year and in addition India is growing and here at VSSL, we had
decided to stay in the same place. Let me share with you what all we have achieved in this
period. As stated earlier, we managed to allay the concerns of the Aichi team that we
could manage the production lines for Toyota in South East Asia without any disruptions
and without any major headache. Our internal rejection levels for Toyota material came
down which has been a very satisfying achievement of last year. We also found ways to
improve our operations in other areas which have improved our consistency and our
productivity. This led to our hitting a record production of 22,000 tons of billets in
January which corresponds to hitting our announced annual capacity of 260,000 tons.
Further, our team has now taken a stretch target to increase our billet production level
to 285,000 tons which will enable saleable production capacity of 250,000 tons in the next
two years so in the year 2026-27. This means we can see a growth pathway to 250,000 tons
of sales in 2027-28. In addition, I am happy to share that we are upping our guidance to
C8000- 11000 as EBITDA/Ton from the year 2025-26 and we can see the possibility of this
figure going up to C9000-12000 from the year 2027-28 onwards. We have also finalized and
negotiated our Kocks Block and new Reheating furnace which will increase the capacity of
the Rolling Mill to 285,000 tons of input by September of 2025. Altogether, not too bad
for a year of consolidation!
THE BIG TREND GATHERING MOMENTUM
In my annual letter of last year, I had for the first time written about sustainability
and carbon footprint. In this year, these topics have taken on a far bigger momentum and a
lot of customers especially, European OEs, have started talking about this. One more
important topic has got added to this list and that is the concept of Circular Economy.
This is an initiative in which scrap from an OE goes back to a steel company to be made
into steel for components for that OE. This is a topic that even Government of India is
pushing as policy. At this point it is only in discussion stage but this is likely to come
through as policy. Green Steel is becoming the buzzword and there is going to be massive
shortage of this in the country. The exact definition of Green Steel has still not been
finalized but it means low carbon footprint which necessitates the usage of scrap in steel
making and renewable power as the source of power.
As you are aware, we already are making steel from the scrap route and we are in the
process of implementing a solar project of 55 MW after which about 40% of our power will
be renewable power. Some global Tier 1 companies have already announced their intention of
shifting to Green Steel. Our carbon footprint now stands at 0.73 and is likely to fall to
around 0.45 after the implementation of our solar project. I am very excited about this
megatrend and your company is well poised to take full advantage of this.
RELATIONSHIP WITH AICH
We are now half way through our 2nd Technical agreement with Aichi and I had made a
trip to Japan in April to meet with Fujioka san, Chairman and Goto san, the President.
This was my 3rd meeting with Goto san and the 2nd after he took over as President. He
seems very excited about the opportunity in India and our relationship together. We also
discussed that it is time to start studying and planning to set up a new steel plant in
India. Together, we are also working on making deeper inroads into Maruti's requirements
in India as they plan to double their capacity in the next 7 years. Last year in
September, I had an opportunity to play in a golf tournament organized by Aichi in Nagoya
Japan and I will be going this year too in September. It is through participation in these
kinds of activities that one becomes closer to each other. Hopefully, Goto san will be
visiting India in the later part of this financial year. Thanks to Aichi's efforts, today
VSSL is a well known name amongst Japanese OEs and so I can safely report that our
relationship is becoming stronger by the year.
FUTURE OUTLOOK
This year again, we have a couple of shutdowns slated for the setting up of our Kocks
block but we are prepared in advance for those and we hope to sell around 210,000 tons. We
hope to have worked on our costs too so that we can achieve our desired profitability. We
also hope to have started business with a couple of European OEs and tier 1s. The sales
could be domestic sales to their Indian operations for export of components to them or it
could also take the shape of direct steel exports. And lastly, to further the cause of
Green steel, our solar plant should be up and running. Another big initiative that will be
undertaken this year would be finalizing plans for a greenfield special steel plant and
the last initiative will be the start of study to examine, whether we should enter the
forging sector or not in partnership with Aichi Steel Corporation's forging division. All
in all, I would say exciting times lie ahead.
PERSONAL FRONT
This has been a fabulous year on the personal front. Our elder daughter Soumya who is
an ED in the Company gave birth to a boy, Suveer. This means I have been promoted to
becoming a grandpa. I am looking forward to see him grow up and watch him speak his first
words, watch him learn to crawl and then take baby steps as he learns to walk. This is a
glorious feeling and I am enjoying the brief times spent with him. My trekking and other
fitness routine continues on a regular basis. We went to Nepal on the Mardi Himal trek in
March. The next one is Kashmir Great Lakes Trek in August which is considered to be one of
the most beautiful treks in the country. The adventure of life continues, the process of
dreams is stronger than ever and I look forward to the future with a lot of positivity.
Come join us in our journey together.
READY FOR TAKEOFF
This was the title of my book on leadership which I wrote in 2009 and which got
published in 2010. By chance though the book was complete fiction, it was about turning
around a sick special steel company. In real life I have done what I wrote in the book to
turn around VSSL and then we have done much more including partnering with Aichi Steel. I
think now with the approval of Toyota and with the consolidation of operations and with
the completion of the current and enhanced capex plan the stage has been set. Further,
with the planning started for the greenfield plant and added to that the global trend
towards Green Steel the platform is ready within the organization. On the outside front,
with the NDA having secured a majority for a third time and with a strong government in
place, we are poised to see a remarkable surge in confidence leading to optimism and a
sustained growth. We now are indeed truly Ready For Takeoff.
Cheers
Sachit Jain
Vice Chairman and a fellow shareholder