Buy Vardhman Special Steel; target of Rs 130: ICICI Direct

ICICI Direct's research report on Vardhman Special Steel

Vardhman Special Steel (VSSL), a Vardhman group company, is a mid-sized steel company engaged in production of special steel and alloy steel catering to a wide range of sectors like automotive, engineering, tractor, bearing and allied industries. In terms of capacity, VSSL has a steel melting shop capacity of 200000 tonnes, rolling mill capacity of 180000 tonnes and bright bar capacity of 36000 tonnes. As the company is currently operating at healthy utilisations level of ~90% currently, it has chalked out plans to augment its capacity to cater to incremental demand. Consequently going forward, we expect VSSL to report sales, EBITDA and PAT CAGR growth of 17%, 24% and 23%, respectively, in FY18-21E.

Outlook

We value the stock at 6x FY21E EV/EBITDA and arrive at a target price of Rs 130. We have a BUY recommendation on the stock.