Vardhman Special Steels Limited, under the NIFTY Metal Index, is trading 20% below its 52-week high. The metal stock, which is now trading at Rs 246 a share, has hit a 52-week high of Rs 309 on August 6, 2021, and a 52-week low of Rs 186.10 on May 5, 2021. The stock is currently trading -2.00 (0.80%) lower than its previous closing price of Rs 248.95, while the NIFTY Metal Index is down -81.45 (1.28%) today. Vardhman Special Steels has announced a 35.00 per cent cash dividend of Rs 3.5 per share for the fiscal year ending March 2022. At the current share price of Rs 246, this translates to a 1.42 per cent dividend yield. Post declaring its Q4 results, the brokerage firm ICICI Securities has placed a buy call on the stock for a target price of Rs 300 within a target frame of 12 months.
Q4FY22 results of Vardhman Special Steel (VSSL) as per ICICI Securities
- For Q4FY22, VSSL reported topline of Rs 343 crore, up 3% YoY but down 4% QoQ. During the quarter, VSSL reported sales volume of 41596 tonnes, down 13% YoY and 7% QoQ.
- During Q4FY22, on sequential basis VSSL reported increase in its EBITDA/tonne. During the quarter, VSSL reported EBITDA/tonne of Rs 9148/tonne as compared to Rs 8668/tonne in Q3FY22. EBITDA for the quarter was at Rs 38 crore, down 2% QoQ and 27% YoY. VSSL also had inventory gain in Q4FY22 which aided the operational performance.
- PAT for Q4FY22 was at Rs 29 crore, up 11% YoY & 50% QoQ. The growth in PAT was supported by sharp increase in other income. Other income for the quarter was at Rs 22 crore compared to Rs 2 crore each in Q4FY21 as well as Q3FY22. Other income included one-time gain on account of electricity duty exemption granted to company for September 2019 to March 2022.
Key investment rationale for VSSL according to the brokerage
- VSSL plans to increase share of exports to ~20-25% in FY25 from 1% in FY21.
- Going forward, we model EBITDA/tonne of Rs 9500/tonne for FY23E and Rs 10000/tonne for FY24E.
Buy for a target price of Rs 300
The brokerage firm ICICI Securities has claimed that "VSSL's share price has given a return of ~23% over the past 12 month (from ~Rs 202 in May 2021 to ~Rs 249 levels in May 2022). We maintain our BUY rating on the stock. We value VSSL at Rs 300 i.e. 6.5x FY24E EV/EBITDA."
Stagnancy or de-growth in auto sector demand and higher-than-expected increase in operating costs are the two key risks for the stock according to the brokerage which investors should be aware of.
The stock has been picked from the brokerage report of ICICI Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.